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

485BPOS 1 form.htm Federated U.S. Government Securities Fund: 1-3 Years




                                          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
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    Pre-Effective Amendment No.        .....................
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    Post-Effective Amendment No.   36   ....................        X
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                                        and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940     X
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    Amendment No.   27   ...................................        X
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                 FEDERATED U.S. Government Securities 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)
_X  on April 26, 2002 pursuant to paragraph (b)
    60 days after filing pursuant to paragraph (a)(i)
    on                   pursuant to paragraph (a)(i)
    75 days after filing pursuant to paragraph (a)(ii)
    on _________________ pursuant to paragraph (a)(ii) of Rule 485

If appropriate, check the following box:

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


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

                  Robert J. Zutz, Esquire
                  Kirkpatrick & Lockhart, LLP
                  1800 Massachusetts Avenue, N.W.
                  Second Floor
                  Washington, D.C.  20036

Federated Investors
World-Class Investment Manager

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

PROSPECTUS

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April 30, 2002

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INSTITUTIONAL SHARES

A mutual fund seeking to provide current income by investing in a portfolio of short-term U.S. government securities.

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

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 4

What are the Fund's Investment Strategies? 5

What are the Principal Securities in Which the Fund Invests? 7

What are the Specific Risks of Investing in the Fund? 7

What Do Shares Cost? 8

How is the Fund Sold? 8

How to Purchase Shares 9

How to Redeem and Exchange Shares 10

Account and Share Information 13

Who Manages the Fund? 14

Financial Information 15

Independent Auditors' Report 28

Board of Trustees and Fund Officers 29

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?

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The Fund invests in a diversified, short-term portfolio of direct obligations of the U.S. government, its agencies and instrumentalities. The Fund maintains a dollar-weighted average portfolio duration that is within 20% of the weighted average portfolio duration of the Merrill Lynch 1-3 Year Treasury Index. This index includes U.S. Treasury securities with maturities greater than or equal to one year and less than three years.

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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.

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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.

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Risk/Return Bar Chart

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The performance information shown below will help you analyze the Fund's investment risks in light of its historical returns. The bar chart shows the variability of the Fund's Institutional Shares total returns on a calendar year-by-year basis. The Average Annual Total Return table shows returns averaged over the stated periods, and includes comparative performance information. The Fund's Institutional Shares performance will fluctuate, and past performance (before and after taxes) is no guarantee of future results.

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The Fund's Institutional Shares are sold without a sales charge (load). The total returns shown in the bar chart above are based upon net asset value.

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The Fund's Institutional Shares total return for the three-month period from January 1, 2002 to March 31, 2002 was 0.09%.

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Within the period shown in the bar chart, the Fund's Institutional Shares highest quarterly return was 3.03% (quarter ended March 31, 1995). Its lowest quarterly return was (0.35)% (quarter ended March 31, 1994).

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Average Annual Total Return Table

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Return Before Taxes is shown for the Fund's Institutional Shares. In addition, Return After Taxes is shown for the Fund's Institutional Shares to illustrate the effect of federal taxes on Fund returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown. The table also shows returns for the Merrill Lynch 1-3 Year Treasury Index (ML1-3T), a broad-based market index and the Lipper Short U.S. Government Funds Average (LSUSGFA), an average of funds with similar investment objectives. Please see "What are the Fund's Investment Strategies?" for definition of the ML1-3T. Index returns do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index.

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(For the periods ended December 31, 2001)

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	1 Year	5 Years	10 Years
Fund:
Return Before Taxes	7.26%	5.87%	5.38%
Return After Taxes on Distributions¹	5.34%	3.78%	3.37%
Return After Taxes on Distributions and Sale of Fund Shares¹	4.39%	3.65%	3.32%
ML1-3T	8.30%	6.59%	6.09%
LSUSGFA	6.83%	5.73%	5.31%

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1 After-tax returns are calculated using a standard set of assumptions. The stated returns assume the highest historical federal income and capital gains tax rates. Return After Taxes on Distributions assumes a continued investment in the Fund and shows the effect of taxes on Fund distributions. Returns After Taxes on Distributions and Sale of Fund Shares assumes all shares were redeemed at the end of each measurement period, and shows the effect of any taxable gain (or offsetting loss) on redemption, as well as the effects of taxes on Fund distributions. These after-tax returns do not reflect the effect of any applicable state and local taxes. After-tax returns are not relevant to investors holding shares through tax-deferred programs, such as IRA or 401(K) plans. The Fund's performance can fluctuate and past performance (before and after taxes) is no guarantee of future results.

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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 the Fund's Institutional Shares.

Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)		None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable)		None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price).		None
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 Fee²		0.40%
Distribution (12b-1) Fee		None
Shareholder Services Fee³		0.25%
Other Expenses		0.16%
Total Annual Fund Operating Expenses		0.81%
1 Although not contractually obligated to do so, the Adviser 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, 2002.
Total Waivers of Fund Expenses		0.27%
Total Actual Annual Fund Operating Expenses (after waivers)		0.54%
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 0.20% for the fiscal year ended February 28, 2002.
3 A portion of the shareholder services fee has been voluntarily waived. This voluntary waiver can be terminated at any time. The shareholder services fee paid by the Fund's Institutional Shares (after the voluntary waiver) was 0.18% for the fiscal year ended February 28, 2002.

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 and returns may be higher or lower, based on these assumptions your costs would be:

1 Year		$ 83

3 Years		$ 259

5 Years		$ 450

10 Years		$1,002

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.

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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 (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.

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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, in constructing a portfolio with a targeted average duration, the Adviser tries to combine individual portfolio securities with different durations to take advantage of relative changes in interest rates. Relative changes in interest rates may occur whenever longer-term interest rates move more, less or in a different direction than shorter-term interest rates. As a general matter, the Adviser typically structures the portfolio in one of three ways:

A "bulleted" portfolio structure consists primarily of securities with durations close to the portfolio's average duration. The Adviser may use this structure, for example, when it expects the difference between longer-term and shorter-term interest rates to increase.
A "barbelled" portfolio structure consists primarily of securities with durations above and below the average duration. The Adviser may use this structure, for example, when it expects the difference between longer-term and shorter-term interest rates to decrease.
A "laddered" portfolio structure consists of securities with durations above, below, and at the average duration. The Adviser may use this structure, for example, when it expects longer-term and shorter-term interest rates to change by approximately the same amount.

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Third, the Adviser tries to obtain securities issued by agencies and instrumentalities of the United States that it expects to provide better returns than U.S. Treasury securities of comparable duration. The Adviser generally uses ongoing relative value analysis to compare current yield differences of securities to their historical and expected yield differences.

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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:

current and expected U.S. economic growth;
current and expected interest rates and inflation;
the Federal Reserve Board's monetary policy; and
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.

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Because the Fund refers to U.S. government securities in its name, it will notify shareholders in advance of any change in its investment policies that would enable the Fund to normally invest less than 80% of its assets in U.S. government securities.

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PORTFOLIO TURNOVER

The Fund actively trades its portfolio securities in an attempt to achieve its investment objective. Active trading will cause the Fund to have an increased portfolio turnover rate, which is likely to generate shorter-term gains (losses) for its shareholders, which are taxed at a higher rate than longer-term gains (losses). Actively trading portfolio securities increases the Fund's trading costs and may have an adverse impact on the Fund's performance.

What are the Principal Securities in Which the Fund Invests?

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

TREASURY SECURITIES

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

AGENCY SECURITIES

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Agency securities are issued or guaranteed by a federal agency or other government sponsored entity acting under federal authority (GSE).

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What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

Prices of fixed income securities rise and fall in response to changes in the interest rate paid by similar securities. Generally, when interest rates rise, prices of fixed income securities fall. However, market factors, such as the demand for particular fixed income securities, may cause the price of certain fixed income securities to fall while the prices of other securities rise or remain unchanged.

Interest rate changes have a greater effect on the price of fixed income securities with longer durations. Duration measures the price sensitivity of a fixed income security to changes in interest rates.

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, which has a longer average duration than the Fund. The Fund is expected, however, to have greater interest rate risk than a money market fund.

What Do Shares Cost?

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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 (as described in this prospectus) 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 Fund generally values fixed income securities according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost.

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The Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."

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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?

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The Fund offers three share classes: Institutional Shares, Institutional Service Shares and Class Y 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 classes.

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The Fund's Distributor, Federated Securities Corp., 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

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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.

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THROUGH AN INVESTMENT PROFESSIONAL

Establish an account with the investment professional; and
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

Establish your account with the Fund by submitting a completed New Account Form; and
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 incurred by the Fund or Federated Shareholder Services Company, the Fund's transfer agent.

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

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Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund reserves the right to reject any purchase request. For example, to protect against check fraud the Fund may reject any purchase request involving a check that is not made payable to The Federated Funds (including, but not limited to, requests to purchase Shares using third-party checks), or involving temporary checks or credit card checks.

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THROUGH AN EXCHANGE

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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.

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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 and Exchange Shares

You should redeem or exchange Shares:

through an investment professional if you purchased Shares through an investment professional; or
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 simply calling the Fund at 1-800-341-7400.

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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.

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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:

Fund Name and Share Class, account number and account registration;
amount to be redeemed or exchanged;
signatures of all shareholders exactly as registered; and
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:

your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within the last 30 days;
a redemption is payable to someone other than the shareholder(s) of record; or
if exchanging (transferring) into another fund with a different shareholder registration.

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:

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

to allow your purchase to clear;
during periods of market volatility; or
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 PRIVILEGE

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

ensure that the account registrations are identical;
meet any minimum initial investment requirements; and
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

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

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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.

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Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

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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.

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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 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 capital gain. Contact your investment professional or the Fund for information concerning when dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES

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Due to the high cost of maintaining accounts with low balances, 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.

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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.

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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.

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Who Manages the Fund?

The Board of Trustees governs the Fund. The Board selects and oversees the Adviser, Federated Investment Management Company. 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.

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The Adviser and other subsidiaries of Federated advise approximately 139 mutual funds and a variety of separate accounts, which totaled approximately $180 billion in assets as of December 31, 2001. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1,800 employees. More than 4,000 investment professionals make Federated Funds available to their customers.

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THE FUND'S PORTFOLIO MANAGERS ARE:

Susan M. Nason

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Susan M. Nason has been a Portfolio Manager of the Fund 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.

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Robert J. Ostrowski

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Robert J. Ostrowski has been a Portfolio Manager of the Fund since September 1997. Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He currently serves as a Senior Portfolio Manager and as Co-Head of the High Grade Corporate and Government Investment groups. He has been a Senior Vice President of the Fund's Adviser since 1997 and served as a Vice President of the Fund's Adviser from 1996 to 1997. Prior to that, Mr. Ostrowski served as a Vice President of a Federated advisory subsidiary from 1993 to 1996. Mr. Ostrowski is a Chartered Financial Analyst. He received his M.S. in Industrial Administration from Carnegie Mellon University.

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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.

Financial Information

FINANCIAL HIGHLIGHTS

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

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

Financial Highlights

(For a Share Outstanding Throughout Each Period)

Reference is made to the Independent Auditors' Report on page 28.

Year Ended February 28 or 29	2002		2001		2000		1999		1998
Net Asset Value, Beginning of Period	$10.53		$10.28		$10.44		$10.41		$10.32
Income From Investment Operations:
Net investment income	0.46		0.60		0.50		0.50		0.56
Net realized and unrealized gain (loss) on investments	0.17		0.25		(0.16	)	0.03		0.09

TOTAL FROM INVESTMENT OPERATIONS	0.63		0.85		0.34		0.53		0.65

Less Distributions:
Distributions from net investment income	(0.46	)	(0.60	)	(0.50	)	(0.50	)	(0.56	)

Net Asset Value, End of Period	$10.70		$10.53		$10.28		$10.44		$10.41

Total Return¹	6.07	%	8.51	%	3.29	%	5.19	%	6.41	%


Ratios to Average Net Assets:

Expenses	0.54	%	0.54	%	0.54	%	0.54	%	0.54	%

Net investment income	4.34	%	5.76	%	4.81	%	4.78	%	5.36	%

Expense waiver/reimbursement²	0.27	%	0.25	%	0.28	%	0.27	%	0.26	%

Supplemental Data:

Net assets, end of period (000 omitted)	$365,090		$399,582		$461,506		$591,317		$597,549

Portfolio turnover	99	%	129	%	171	%	207	%	118	%

1 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.

2 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.

See Notes which are an integral part of the Financial Statements

Portfolio of Investments

February 28, 2002

Principal Amount					Value
			U.S. TREASURY NOTES--62.9%
$	11,054,900	¹	3.625%, 7/15/2002	$	11,221,387
	20,000,000		5.750%, 10/31/2002		20,509,600
	18,000,000		5.750%, 11/30/2002		18,503,280
	22,000,000		5.500%, 1/31/2003		22,680,240
	24,000,000		5.500%, 2/28/2003		24,782,640
	26,000,000	¹	4.250%, 3/31/2003		26,514,800
	20,000,000	¹	4.000%, 4/30/2003		20,363,200
	26,000,000		4.250%, 5/31/2003		26,560,040
	15,000,000		3.875%, 6/30/2003		15,257,850
	15,000,000		3.875%, 7/31/2003		15,265,650
	15,000,000		5.750%, 8/15/2003		15,680,100
	10,000,000		2.750%, 9/30/2003		9,991,400
	24,000,000	¹	2.750%, 10/31/2003		23,970,000
	10,000,000	¹	4.250%, 11/15/2003		10,237,600
	15,000,000	¹	3.000%, 11/30/2003		15,019,500
	27,000,000		3.250%, 12/31/2003		27,166,590
	15,000,000		4.750%, 2/15/2004		15,498,900

			TOTAL U.S. TREASURY NOTES (IDENTIFIED COST $316,438,415)		319,222,777

Principal Amount or Shares					Value
			U.S. GOVERNMENT AGENCIES--34.5%
			Federal Home Loan Banks--34.5%
$	25,000,000		7.000%, 2/14/2003	$	26,094,000
	14,500,000		5.755%, 6/24/2003		15,083,335
	28,500,000		6.875%, 8/15/2003		30,141,030
	19,000,000		6.375%, 11/14/2003		20,037,210
	20,000,000		5.375%, 1/5/2004		20,835,000
	13,000,000		5.250%, 2/13/2004		13,509,990
	26,000,000		4.875%, 4/16/2004		26,837,980
	10,000,000	¹	4.750%, 6/28/2004		10,294,100
	12,000,000		3.875%, 12/15/2004		12,031,320

			TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $168,596,738)		174,863,965

			MUTUAL FUND--1.8%
	8,967,629		Government Obligations Fund (at net asset value)		8,967,629

			TOTAL INVESTMENTS (IDENTIFIED COST $494,002,782)²	$	503,054,371

1 Certain principal amounts are temporarily on loan to unaffiliated broker/dealers.

2 The cost of investments for federal tax purposes amounts to $494,002,782. The net unrealized appreciation of investments on a federal tax basis amounts to $9,051,589 which is comprised of $9,175,997 appreciation and $124,408 depreciation at February 28, 2002.

Note: The categories of investments are shown as a percentage of net assets ($506,971,984) at February 28, 2002.

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

February 28, 2002

Assets:
Total investments in securities, at value (identified cost $494,002,782)			$	503,054,371
Income receivable				4,263,105
Receivable for investments sold				54,265,941
Receivable for shares sold				936,547
Cash held as collateral for securities lending				92,352,109

TOTAL ASSETS				654,872,073

Liabilities:
Payable for investments purchased	$	54,166,614
Payable for shares redeemed		733,232
Payable to bank		122,923
Income distribution payable		402,869
Payable on collateral due to brokers		92,352,109
Accrued expenses		122,342

TOTAL LIABILITIES				147,900,089

Net assets for 47,396,356 shares outstanding			$	506,971,984

Net Assets Consist of:
Paid in capital			$	508,102,896
Net unrealized appreciation of investments				9,051,589
Accumulated net realized loss on investments				(10,185,935	)
Undistributed net investment income				3,434

TOTAL NET ASSETS			$	506,971,984

Net Asset Value, Offering Price and Redemption Proceeds Per Share
Institutional Shares:
$365,090,407 ÷ 34,131,963 shares outstanding				$10.70

Institutional Service Shares:
$66,641,520 ÷ 6,230,291 shares outstanding				$10.70

Class Y Shares:
$75,240,057 ÷ 7,034,102 shares outstanding				$10.70

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended February 28, 2002

Investment Income:
Interest							$	23,218,197

Expenses:
Investment adviser fee				$	1,922,325
Administrative personnel and services fee					361,715
Custodian fees					22,213
Transfer and dividend disbursing agent fees and expenses					131,882
Directors'/Trustees' fees					12,629
Auditing fees					12,252
Legal fees					4,210
Portfolio accounting fees					111,412
Distribution services fee--Institutional Service Shares					147,131
Shareholder services fee--Institutional Shares					952,391
Shareholder services fee--Institutional Service Shares					147,131
Share registration costs					59,761
Printing and postage					31,136
Insurance premiums					4,444
Miscellaneous					14,239

TOTAL EXPENSES					3,934,871

Waivers and Reimbursement:
Waiver of investment adviser fee	$	(970,301	)
Waiver of distribution services fee--Institutional Service Shares		(31,482	)
Waiver of shareholder services fee--Institutional Shares		(254,940	)
Waiver of shareholder services fee--Institutional Service Shares		(4,626	)
Waiver of transfer and dividend disbursing agent fees and expenses		(6,670)
Reimbursement of investment adviser fee		(1,291	)

TOTAL WAIVERS AND REIMBURSEMENT					(1,269,310	)

Net expenses								2,665,561

Net investment income								20,552,636

Realized and Unrealized Gain on Investments:
Net realized gain on investments								5,956,821
Net change in unrealized appreciation of investments								1,726,061

Net realized and unrealized gain on investments								7,682,882

Change in net assets resulting from operations							$	28,235,518

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

Year Ended February 28		2002			2001
Increase (Decrease) in Net Assets
Operations:
Net investment income	$	20,552,636		$	26,167,534
Net realized gain (loss) on investments		5,956,821			(863,685	)
Net change in unrealized appreciation/depreciation of investments		1,726,061			11,501,075

CHANGE IN NET ASSETS RESULTING FROM OPERATIONS		28,235,518			36,804,924

Distributions to Shareholders:
Distributions from net investment income
Institutional Shares		(16,533,876	)		(23,708,259	)
Institutional Service Shares		(2,378,917	)		(2,526,518	)
Class Y Shares		(1,641,755	)		--

CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS		(20,554,548	)		(26,234,777	)

Share Transactions:
Proceeds from sale of shares		293,240,869			236,477,657
Net asset value of shares issued to shareholders in payment of distributions declared		13,883,830			16,448,614
Cost of shares redeemed		(262,649,021	)		(299,442,908	)

CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS		44,475,678			(46,516,637	)

Change in net assets		52,156,648			(35,946,490	)

Net Assets:
Beginning of period		454,815,336			490,761,826

End of period (including undistributed net investment income of $3,434 and $5,346, respectively)	$	506,971,984		$	454,815,336

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

February 28, 2002

ORGANIZATION

Federated U.S. Government Securities Fund: 1-3 Years (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund offers three classes of shares: Institutional Shares, Institutional Service Shares and Class Y Shares. Effective August 1, 2001, the Fund commenced offering Class Y shares. The investment objective of the Fund is to provide current income.

SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles ("GAAP").

Investment Valuation

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. Investments in other open-end, regulated investment companies are valued at net asset value. Securities for which no quotations are readily available are valued at fair value as determined in good faith using methods approved by the Board of Trustees (the "Trustees").

Repurchase Agreements

It is the policy of the Fund 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 Fund 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.

The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to the guidelines and/or standards reviewed or established by the Trustees. Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities. The Fund, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into one or more repurchase agreements.

Investment Income, Expenses and Distributions

Interest income and expenses are accrued daily. All discounts/premiums are accreted/amortized for financial reporting purposes as required. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at fair value. The Fund offers multiple classes of shares, which differ in their respective distribution and service fees. All shareholders bear the common expenses of the Fund based on average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.

As of February 28, 2002, the tax composition of dividends was as follows:

Ordinary income		$20,554,548

Long-term capital gains		--

As of February 28, 2002, the components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income		$ 406,302

Undistributed long-term gains		--

Unrealized appreciation		$9,051,589

At year end, there were no significant differences between the GAAP basis and tax basis of components of net assets.

Federal Taxes

It is the Fund's policy to comply with the provisions of the Internal Revenue Code, as amended (the "Code"), applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal tax is necessary.

At February 28, 2002, the Fund, for federal tax purposes, had a capital loss carryforward of $10,185,935, which will reduce the Fund'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 Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire as follows:

Expiration Year		Expiration Amount
2003		$ 775,050

2008		$ 6,837,276

2009		$2,573,609

When-Issued and Delayed Delivery Transactions

The Fund may engage in when-issued or delayed delivery transactions. The Fund 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. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.

Securities Lending

The Fund participates in a securities lending program providing for the lending of corporate bonds, equity and government securities to qualified brokers. Collateral for securities loaned must be in cash or government securities. Collateral is maintained at a minimum level of 100% of the market value on investments loaned, plus interest, if applicable. In accordance with the Fund's securities lending agreement, the market value of securities on loan is delivered to the Fund on the next business day. Earnings on collateral are allocated between the custodian, as a fee for its services under the program, and the Fund, according to agreed-upon rates.

As of February 28, 2002, securities subject to this type of arrangement and related collateral were as follows:

Market Value of Securities Loaned		Market Value of Collateral
$89,469,651		$92,352,109

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 a trade date basis.

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 capital stock were as follows:

Year Ended February 28	2002					2001
Institutional Shares:	Shares		Amount			Shares		Amount
Shares sold	13,028,745		$	138,446,518		17,544,658		$	181,704,936
Shares issued to shareholders in payment of distributions declared	962,189			10,221,970		1,385,927			14,344,528
Shares redeemed	(17,823,738	)		(189,282,465	)	(25,869,215	)		(267,256,185	)

NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS	(3,832,804	)	$	(40,613,977	)	(6,938,630	)	$	(71,206,721	)


Year Ended February 28	2002					2001
Institutional Service Shares:	Shares		Amount			Shares		Amount
Shares sold	4,940,228		$	52,638,339		5,303,396		$	54,772,721
Shares issued to shareholders in payment of distributions declared	190,011			2,020,095		202,826			2,104,086
Shares redeemed	(4,147,773	)		(44,226,955	)	(3,104,893	)		(32,186,723	)

NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE SHARE TRANSACTIONS	982,466		$	10,431,479		2,401,329		$	24,690,084


	Period Ended 2/28/2002¹					Year Ended 2/28/2001
Class Y Shares:	Shares			Amount		Shares			Amount
Shares sold	9,604,097		$	102,156,012		--		$	--
Shares issued to shareholders in payment of distributions declared	153,377			1,641,765		--			--
Shares redeemed	(2,723,372	)		(29,139,601	)	--			--

NET CHANGE RESULTING FROM CLASS Y SHARE TRANSACTIONS	7,034,102		$	74,658,176		--		$	--

NET CHANGE RESULTING FROM SHARE TRANSACTIONS	4,183,764		$	44,475,678		(4,537,301	)	$	(46,516,637	)

1 For the period from August 1, 2001 (date of initial public investment) to February 28, 2002.

INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser fee equal to 0.40% of the Fund'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.

Pursuant to an Exemptive Order issued by the SEC, the Fund may invest in Government Obligations Fund, which is managed by the Adviser. The Adviser has agreed to reimburse certain investment adviser fees as a result of these transactions.

Administrative Fee

Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on a scale that ranges from 0.15% to 0.075% of the average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors, Inc., subject to a $125,000 minimum per portfolio and $30,000 per each additional class.

Distribution Services Fee

The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp., ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Institutional Service Shares. The Plan provides that the Fund 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 Fund will pay FSSC up to 0.25% of average daily net assets of the Fund 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 Fund. The fee paid to FSSC is based on the size, type and number of accounts and transactions made by shareholders. 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.

Portfolio Accounting Fees

FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund'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 long-term U.S. government securities for the year ended February 28, 2002, were as follows:

Purchases	$	508,057,273

Sales	$	459,728,485

FEDERAL INCOME TAX INFORMATION (UNAUDITED)

For the year ended February 28, 2002, the Fund did not designate any long-term capital gain dividends.

Report of Ernst & Young LLP, Independent Auditors

TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS:

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated U.S. Government Securities Fund: 1-3 Years (the "Fund") as of February 28, 2002, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of February 28, 2002 by correspondence with the custodian and brokers, or other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Federated U.S. Government Securities Fund: 1-3 Years at February 28, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States.

Ernst & Young LLP

Boston, Massachusetts
April 10, 2002

Board of Trustees and Fund Officers

The following table gives information about each Board member and the senior officers of the Fund. The tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA. The Federated Fund Complex consists of 139 investment company portfolios. Unless otherwise noted, each Board member: oversees all portfolios in the Federated Fund Complex; serves for an indefinite term; and also serves as a Board member of the following investment company complexes: Banknorth Funds--six portfolios; CCMI Funds--one portfolio; FirstMerit Funds--two portfolios; Regions Funds--eight portfolios; Riggs Funds--nine portfolios; and WesMark Funds--five portfolios. The Fund's Statement of Additional Information includes additional information about Fund Trustees and is available, without charge and upon request, by calling 1-800-341-7400.

INTERESTED TRUSTEES BACKGROUND



Name Birth Date Address Positions Held with Fund Date Service Began		Principal Occupation(s), Previous Positions and Other Directorships Held
John F. Donahue* Birth Date: July 28, 1924 CHAIRMAN AND TRUSTEE Began serving: January 1984		Principal Occupations: Chief Executive Officer and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.


J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: July 1999		Principal Occupations: President or Executive Vice President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.


Lawrence D. Ellis, M.D.* Birth Date: October 11, 1932 3471 Fifth Avenue Suite 1111 Pittsburgh, PA TRUSTEE Began serving: August 1987		Principal Occupations: Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center. Other Directorships Held: Member, National Board of Trustees, Leukemia Society of America. Previous Positions: Trustee, University of Pittsburgh; Director, University of Pittsburgh Medical Center.

* Family relationships and reasons for "interested" status: John F. Donahue is the father of J. Christopher Donahue; both are "interested" due to the positions they hold with Federated Investors, Inc. and its subsidiaries. Lawrence D. Ellis, M.D. is "interested" because his son-in-law is employed by the Fund's principal underwriter, Federated Securities Corp.

INDEPENDENT TRUSTEES BACKGROUND



Name Birth Date Address Positions Held with Fund Date Service Began		Principal Occupation(s), Previous Positions and Other Directorships Held
Thomas G. Bigley Birth Date: February 3, 1934 15 Old Timber Trail Pittsburgh, PA TRUSTEE Began serving: October 1995		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director, Member of Executive Committee, University of Pittsburgh. Previous Position: Senior Partner, Ernst & Young LLP.


John T. Conroy, Jr. Birth Date: June 23, 1937 Grubb & Ellis/Investment Properties Corporation 3201 Tamiami Trail North Naples, FL TRUSTEE Began serving: August 1991		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation.


Nicholas P. Constantakis Birth Date: September 3, 1939 175 Woodshire Drive Pittsburgh, PA TRUSTEE Began serving: February 1998		Principal Occupations: Director or Trustee of the Federated Fund Complex; Partner, Andersen Worldwide SC (prior to 9/1/97). Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide).


John F. Cunningham Birth Date: March 5, 1943 353 El Brillo Way Palm Beach, FL TRUSTEE Began serving: January 1999		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, Redgate Communications and EMC Corporation (computer storage systems); 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.


Peter E. Madden Birth Date: March 16, 1942 One Royal Palm Way 100 Royal Palm Way Palm Beach, FL TRUSTEE Began serving: August 1991		Principal Occupation: Director or Trustee of the Federated Fund Complex; Management Consultant. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.




Name Birth Date Address Positions Held with Fund Date Service Began		Principal Occupation(s), Previous Positions and Other Directorships Held
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 80 South Road Westhampton Beach, NY TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; Management Consultant; Executive Vice President, DVC Group, Inc. (marketing communications and technology) (prior to 9/1/00). Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University.


John E. Murray, Jr., J.D., S.J.D. Birth Date: December 20, 1932 Chancellor, Duquesne University Pittsburgh, PA TRUSTEE Began serving: February 1995		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chancellor and Law Professor, Duquesne University; Consulting Partner, Mollica & Murray. Other Directorships Held: Director, Michael Baker Corp. (engineering, construction, operations and technical services). Previous Positions: President, Duquesne University; Dean and Professor of Law, University of Pittsburgh School of Law; Dean and Professor of Law, Villanova University School of Law.


Marjorie P. Smuts Birth Date: June 21, 1935 4905 Bayard Street Pittsburgh, PA TRUSTEE Began serving: February 1984		Principal Occupations: Director or Trustee of the Federated Fund Complex; Public Relations/Marketing Consultant/Conference Coordinator. Previous Positions: National Spokesperson, Aluminum Company of America; television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord.


John S. Walsh Birth Date: November 28, 1957 2604 William Drive Valparaiso, IN TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Other Directorships Held: Director, Walsh & Kelly, Inc. (heavy highway contractor). Previous Position: Vice President, Walsh & Kelly, Inc.

OFFICERS



Name Birth Date Address Positions Held with Fund		Principal Occupation(s) and Previous Positions
Edward C. Gonzales Birth Date: October 22, 1930 EXECUTIVE VICE PRESIDENT		Principal Occupations: President, Executive Vice President and Treasurer of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Trustee, Federated Administrative Services. Previous Positions: Trustee or Director of some of the Funds in the Federated Fund Complex; CEO and Chairman, Federated Administrative Services.


John W. McGonigle Birth Date: October 26, 1938 EXECUTIVE VICE PRESIDENT AND SECRETARY		Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc.


Richard J. Thomas Birth Date: June 17, 1954 TREASURER		Principal Occupations: Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services.


Richard B. Fisher Birth Date: May 17, 1923 VICE PRESIDENT		Principal Occupations: President or Vice President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. Previous Positions: Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice President, Federated Investors, Inc. and Director and Chief Executive Officer, Federated Securities Corp.


William D. Dawson III Birth Date: March 3, 1949 CHIEF INVESTMENT OFFICER		Principal Occupations: Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Investment Management Company and Passport Research, Ltd.; Director, Federated Global Investment Management Corp. and Federated Investment Management Company; Portfolio Manager, Federated Administrative Services; Vice President, Federated Investors, Inc. Previous Positions: Executive Vice President and Senior Vice President, Federated Investment Counseling Institutional Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd.


Susan M. Nason Birth Date: August 29, 1961 VICE PRESIDENT		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.

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A Statement of Additional Information (SAI) dated April 30, 2002, is incorporated by reference into this prospectus. Additional information about the Fund and its investments is contained in the Fund's SAI and Annual and Semi-Annual Reports to shareholders as they become available. The Annual Report's Management's Discussion of Fund Performance discusses market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and to make inquiries, call your investment professional or the Fund at 1-800-341-7400.

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You can obtain information about the Fund (including the SAI) by writing to or visiting the SEC's Public Reference Room in Washington, DC. You may also access Fund information from the EDGAR Database on the SEC's Internet site at http://www.sec.gov. You can purchase copies of this information by contacting the SEC by email at publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for information on the Public Reference Room's operations and copying fees.

Federated
World-Class Investment Manager
Federated U.S. Government Securities Fund: 1-3 Years
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact
Federated Securities Corp., Distributor

Investment Company Act File No. 811-3947

Federated is a registered mark of Federated Investors, Inc. 2002 ©Federated Investors, Inc.

Cusip 31428M100

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8032806A-IS (4/02)

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Federated Investors
World-Class Investment Manager

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

PROSPECTUS

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April 30, 2002

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INSTITUTIONAL SERVICE SHARES

A mutual fund seeking to provide current income by investing in a portfolio of short-term U.S. government securities.

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 4

What are the Fund's Investment Strategies? 5

What are the Principal Securities in Which the Fund Invests? 7

What are the Specific Risks of Investing in the Fund? 7

What Do Shares Cost? 8

How is the Fund Sold? 8

How to Purchase Shares 9

How to Redeem and Exchange Shares 10

Account and Share Information 13

Who Manages the Fund? 14

Financial Information 15

Independent Auditors' Report 28

Board of Trustees and Fund Officers 29

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

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Risk/Return Bar Chart

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The performance information shown below will help you analyze the Fund's investment risks in light of its historical returns. The bar chart shows the variability of the Fund's Institutional Service Shares total returns on a calendar year-by-year basis. The Average Annual Total Return table shows returns averaged over the stated periods, and includes comparative performance information. The Fund's Institutional Service Shares performance will fluctuate, and past performance (before and after taxes) is no guarantee of future results.

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The Fund's Institutional Service Shares are sold without a sales charge (load). The total returns shown in the bar chart above are based upon net asset value.

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The Fund's Institutional Service Shares total return for the three-month period from January 1, 2002 to March 31, 2002 was 0.03%.

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Within the period shown in the bar 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).

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Average Annual Total Return Table

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Return Before Taxes is shown for the Fund's Institutional Service Shares. In addition, Return After Taxes is shown for the Fund's Institutional Service Shares to illustrate the effect of federal taxes on Fund returns. Actual after-tax returns depend on each investor's personal tax situation, and are likely to differ from those shown. The table also shows returns for the Merrill Lynch 1-3 Year Treasury Index (ML1-3T), a broad-based market index and the Lipper Short U.S. Government Funds Average (LSUSGFA), an average of funds with similar investment objectives. Please see "What are the Fund's Investment Strategies?" for definition of the ML1-3T. Index returns do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index.

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(For the periods ended December 31, 2001)

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		<R>1 Year</R>	<R>5 Years</R>	<R>Start of Performance¹</R>
<R>Fund:</R>
<R>Returns Before Taxes</R>		<R>7.00%</R>	<R>5.61%</R>	<R>5.16%</R>
<R>Returns After Taxes on Distributions²</R>		<R>5.18%</R>	<R>3.62%</R>	<R>3.25%</R>
<R>Returns After Taxes on Distributions and Sale of Fund Shares²</R>	<R> </R>	<R>4.23%</R>	<R>3.49%</R>	<R>3.18%</R>
<R>ML1-3T</R>	<R> </R>	<R>8.30%</R>	<R>6.59%</R>	<R>6.15%</R>
<R>LSUSGFA</R>	<R> </R>	<R>6.83%</R>	<R>5.73%</R>	<R>5.41%</R>

1 The Fund's Institutional Service Shares start of performance date was May 30, 1992.

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2 After-tax returns are calculated using a standard set of assumptions. The stated returns assume the highest historical federal income and capital gains tax rates. Returns After Taxes on distributions assumes a continued investment in the Fund and show the effect of taxes on Fund distributions. Returns After Taxes on Distributions and Sale of Fund Shares assumes all shares were redeemed at the end of each measurement period, and shows the effect of any taxable gain (or offsetting loss) on redemption, as well as the effects of taxes on Fund distributions. These after-tax returns do not reflect the effect of any applicable state and local taxes. After-tax returns are not relevant to investors holding shares through tax-deferred programs, such as IRA or 401(K) plans. The Fund's performance can fluctuate and past performance (before and after taxes) is no guarantee of future results.

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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 the Fund's Institutional Service Shares.

Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)		None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable)		None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price).		None
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 Fee²		0.40%
Distribution (12b-1) Fee³		0.25%
Shareholder Services Fee⁴		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, 2002.
Total Waivers of Fund Expenses		0.27%
Total Actual Annual Fund Operating Expenses (after waivers)		0.79%
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 0.20% for the fiscal year ended February 28, 2002.
3 A portion of the distribution (12b-1) fee has been voluntarily waived. This voluntary waiver can be terminated at any time. The distribution (12b-1) fee paid by the Fund's Institutional Service Shares (after the voluntary waiver) was 0.19% for the fiscal year ended February 28, 2002.
4 A portion of the shareholder services fee has been voluntarily waived. This voluntary waiver can be terminated at any time. The shareholder services fee paid by the Fund's Institutional Service Shares (after the voluntary waiver) was 0.24% for the fiscal year ended February 28, 2002.

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 and returns may be higher or lower, based on these assumptions your costs would be:

1 Year		<R>$ 108</R>
3 Years		<R>$ 337</R>
5 Years		<R>$ 585</R>
10 Years		<R>$1,294</R>

What are the Fund's Investment Strategies?

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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 (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.

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A "bulleted" portfolio structure consists primarily of securities with durations close to the portfolio's average duration. The Adviser may use this structure, for example, when it expects the difference between longer-term and shorter-term interest rates to increase.
A "barbelled" portfolio structure consists primarily of securities with durations above and below the average duration. The Adviser may use this structure, for example, when it expects the difference between longer-term and shorter-term interest rates to decrease.
A "laddered" portfolio structure consists of securities with durations above, below, and at the average duration. The Adviser may use this structure, for example, when it expects longer-term and shorter-term interest rates to change by approximately the same amount.

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current and expected U.S. economic growth;
current and expected interest rates and inflation;
the Federal Reserve Board's monetary policy; and
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.

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PORTFOLIO TURNOVER

What are the Principal Securities in Which the Fund Invests?

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

TREASURY SECURITIES

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

AGENCY SECURITIES

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Agency securities are issued or guaranteed by a federal agency or other government sponsored entity acting under federal authority (GSE).

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What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

What Do Shares Cost?

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The Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."

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

How is the Fund Sold?

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The Fund offers three share classes: Institutional Shares, Institutional Service Shares and Class Y 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 classes.

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The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to institutions acting in a fiduciary capacity or to 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).

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How to Purchase Shares

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THROUGH AN INVESTMENT PROFESSIONAL

Establish an account with the investment professional; and
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

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

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

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THROUGH AN EXCHANGE

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BY AUTOMATED CLEARING HOUSE (ACH)

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

through an investment professional if you purchased Shares through an investment professional; or
directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

By Telephone

You may redeem or exchange Shares by simply calling the Fund at 1-800-341-7400.

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:

Fund Name and Share Class, account number and account registration;
amount to be redeemed or exchanged;
signatures of all shareholders exactly as registered; and
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:

your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within the last 30 days;
a redemption is payable to someone other than the shareholder(s) of record; or
if exchanging (transferring) into another fund with a different shareholder registration.

PAYMENT METHODS FOR REDEMPTIONS

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

to allow your purchase to clear;
during periods of market volatility; or
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 PRIVILEGE

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

ensure that the account registrations are identical;
meet any minimum initial investment requirements; and
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.

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

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Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

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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.

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DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

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TAX INFORMATION

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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.

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Who Manages the Fund?

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THE FUND'S PORTFOLIO MANAGERS ARE:

Susan M. Nason

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Robert J. Ostrowski

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Robert J. Ostrowski has been a Portfolio Manager of the Fund since September 1997. Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He currently serves as a Senior Portfolio Manager and as Co-head of the High Grade Corporate and Government Investment groups. He has been a Senior Vice President of the Fund's Adviser since 1997 and served as a Vice President of the Fund's Adviser from 1996 to 1997. Prior to that, Mr. Ostrowski served as a Vice President of a Federated advisory subsidiary from 1993 to 1996. Mr. Ostrowski is a Chartered Financial Analyst. He received his M.S. in Industrial Administration from Carnegie Mellon University.

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ADVISORY FEES

Financial Information

FINANCIAL HIGHLIGHTS

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

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Financial Highlights

(For a Share Outstanding Throughout Each Period)

Reference is made to the Report of Independent Auditors/Public Accountants on page 28.

Year Ended February 28 or 29	2002		2001		2000		1999		1998
Net Asset Value, Beginning of Period	$10.53		$10.28		$10.44		$10.41		$10.32
Income From Investment Operations:
Net investment income	0.43		0.57		0.48		0.47		0.53
Net realized and unrealized gain (loss) on investments	0.17		0.25		(0.17	)	0.03		0.09

TOTAL FROM INVESTMENT OPERATIONS	0.60		0.82		0.31		0.50		0.62

Less Distributions:
Distributions from net investment income	(0.43	)	(0.57	)	(0.47	)	(0.47	)	(0.53	)

Net Asset Value, End of Period	$10.70		$10.53		$10.28		$10.44		$10.41

Total Return¹	5.81	%	8.25	%	3.03	%	4.93	%	6.15	%


Ratios to Average Net Assets:

Expenses	0.79	%	0.79	%	0.79	%	0.79	%	0.79	%

Net investment income	4.04	%	5.55	%	4.48	%	4.50	%	5.11	%

Expense waiver/reimbursement²	0.27	%	0.25	%	0.28	%	0.27	%	0.26	%

Supplemental Data:

Net assets, end of period (000 omitted)	$66,642		$55,233		$29,255		$50,527		$33,631

Portfolio turnover	99	%	129	%	171	%	207	%	118	%

1 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.

2 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.

See Notes which are an integral part of the Financial Statements

Portfolio of Investments

February 28, 2002

Principal Amount					Value
			U.S. TREASURY NOTES--62.9%
$	11,054,900	¹	3.625%, 7/15/2002	$	11,221,387
	20,000,000		5.750%, 10/31/2002		20,509,600
	18,000,000		5.750%, 11/30/2002		18,503,280
	22,000,000		5.500%, 1/31/2003		22,680,240
	24,000,000		5.500%, 2/28/2003		24,782,640
	26,000,000	¹	4.250%, 3/31/2003		26,514,800
	20,000,000	¹	4.000%, 4/30/2003		20,363,200
	26,000,000		4.250%, 5/31/2003		26,560,040
	15,000,000		3.875%, 6/30/2003		15,257,850
	15,000,000		3.875%, 7/31/2003		15,265,650
	15,000,000		5.750%, 8/15/2003		15,680,100
	10,000,000		2.750%, 9/30/2003		9,991,400
	24,000,000	¹	2.750%, 10/31/2003		23,970,000
	10,000,000	¹	4.250%, 11/15/2003		10,237,600
	15,000,000	¹	3.000%, 11/30/2003		15,019,500
	27,000,000		3.250%, 12/31/2003		27,166,590
	15,000,000		4.750%, 2/15/2004		15,498,900

			TOTAL U.S. TREASURY NOTES (IDENTIFIED COST $316,438,415)		319,222,777

Principal Amount or Shares					Value
			U.S. GOVERNMENT AGENCIES--34.5%
			Federal Home Loan Banks--34.5%
$	25,000,000		7.000%, 2/14/2003	$	26,094,000
	14,500,000		5.755%, 6/24/2003		15,083,335
	28,500,000		6.875%, 8/15/2003		30,141,030
	19,000,000		6.375%, 11/14/2003		20,037,210
	20,000,000		5.375%, 1/5/2004		20,835,000
	13,000,000		5.250%, 2/13/2004		13,509,990
	26,000,000		4.875%, 4/16/2004		26,837,980
	10,000,000	¹	4.750%, 6/28/2004		10,294,100
	12,000,000		3.875%, 12/15/2004		12,031,320

			TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $168,596,738)		174,863,965

			MUTUAL FUND--1.8%
	8,967,629		Government Obligations Fund (at net asset value)		8,967,629

			TOTAL INVESTMENTS (IDENTIFIED COST $494,002,782)²	$	503,054,371

1 Certain principal amounts are temporarily on loan to unaffiliated broker/dealers.

Note: The categories of investments are shown as a percentage of net assets ($506,971,984) at February 28, 2002.

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

February 28, 2002

Assets:
Total investments in securities, at value (identified cost $494,002,782)			$	503,054,371
Income receivable				4,263,105
Receivable for investments sold				54,265,941
Receivable for shares sold				936,547
Cash held as collateral for securities lending				92,352,109

TOTAL ASSETS				654,872,073

Liabilities:
Payable for investments purchased	$	54,166,614
Payable for shares redeemed		733,232
Payable to bank		122,923
Income distribution payable		402,869
Payable on collateral due to brokers		92,352,109
Accrued expenses		122,342

TOTAL LIABILITIES				147,900,089

Net assets for 47,396,356 shares outstanding			$	506,971,984

Net Assets Consist of:
Paid in capital			$	508,102,896
Net unrealized appreciation of investments				9,051,589
Accumulated net realized loss on investments				(10,185,935	)
Undistributed net investment income				3,434

TOTAL NET ASSETS			$	506,971,984

Net Asset Value, Offering Price and Redemption Proceeds Per Share
Institutional Shares:
$365,090,407 ÷ 34,131,963 shares outstanding				$10.70

Institutional Service Shares:
$66,641,520 ÷ 6,230,291 shares outstanding				$10.70

Class Y Shares:
$75,240,057 ÷ 7,034,102 shares outstanding				$10.70

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended February 28, 2002

Investment Income:
Interest							$	23,218,197

Expenses:
Investment adviser fee				$	1,922,325
Administrative personnel and services fee					361,715
Custodian fees					22,213
Transfer and dividend disbursing agent fees and expenses					131,882
Directors'/Trustees' fees					12,629
Auditing fees					12,252
Legal fees					4,210
Portfolio accounting fees					111,412
Distribution services fee--Institutional Service Shares					147,131
Shareholder services fee--Institutional Shares					952,391
Shareholder services fee--Institutional Service Shares					147,131
Share registration costs					59,761
Printing and postage					31,136
Insurance premiums					4,444
Miscellaneous					14,239

TOTAL EXPENSES					3,934,871

Waivers and Reimbursement:
Waiver of investment adviser fee	$	(970,301	)
Waiver of distribution services fee--Institutional Service Shares		(31,482	)
Waiver of shareholder services fee--Institutional Shares		(254,940	)
Waiver of shareholder services fee--Institutional Service Shares		(4,626	)
Waiver of transfer and dividend disbursing agent fees and expenses		(6,670)
Reimbursement of investment adviser fee		(1,291	)

TOTAL WAIVERS AND REIMBURSEMENT					(1,269,310	)

Net expenses								2,665,561

Net investment income								20,552,636

Realized and Unrealized Gain on Investments:
Net realized gain on investments								5,956,821
Net change in unrealized appreciation of investments								1,726,061

Net realized and unrealized gain on investments								7,682,882

Change in net assets resulting from operations							$	28,235,518

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

Year Ended February 28		2002			2001
Increase (Decrease) in Net Assets
Operations:
Net investment income	$	20,552,636		$	26,167,534
Net realized gain (loss) on investments		5,956,821			(863,685	)
Net change in unrealized appreciation/depreciation of investments		1,726,061			11,501,075

CHANGE IN NET ASSETS RESULTING FROM OPERATIONS		28,235,518			36,804,924

Distributions to Shareholders:
Distributions from net investment income
Institutional Shares		(16,533,876	)		(23,708,259	)
Institutional Service Shares		(2,378,917	)		(2,526,518	)
Class Y Shares		(1,641,755	)		--

CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS		(20,554,548	)		(26,234,777	)

Share Transactions:
Proceeds from sale of shares		293,240,869			236,477,657
Net asset value of shares issued to shareholders in payment of distributions declared		13,883,830			16,448,614
Cost of shares redeemed		(262,649,021	)		(299,442,908	)

CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS		44,475,678			(46,516,637	)

Change in net assets		52,156,648			(35,946,490	)

Net Assets:
Beginning of period		454,815,336			490,761,826

End of period (including undistributed net investment income of $3,434 and $5,346, respectively)	$	506,971,984		$	454,815,336

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

February 28, 2002

ORGANIZATION

SIGNIFICANT ACCOUNTING POLICIES

Investment Valuation

Repurchase Agreements

Investment Income, Expenses and Distributions

As of February 28, 2002, the tax composition of dividends was as follows:

Ordinary income		$20,554,548

Long-term capital gains		--

As of February 28, 2002, the components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income		$ 406,302

Undistributed long-term gains		--

Unrealized appreciation		$9,051,589

At year end, there were no significant differences between the GAAP basis and tax basis of components of net assets.

Federal Taxes

Expiration Year		Expiration Amount
2003		$ 775,050

2008		$ 6,837,276

2009		$2,573,609

When-Issued and Delayed Delivery Transactions

Securities Lending

As of February 28, 2002, securities subject to this type of arrangement and related collateral were as follows:

Market Value of Securities Loaned		Market Value of Collateral
$89,469,651		$92,352,109

Use of Estimates

Other

Investment transactions are accounted for on a trade date basis.

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 capital stock were as follows:

Year Ended February 28	2002					2001
Institutional Shares:	Shares		Amount			Shares		Amount
Shares sold	13,028,745		$	138,446,518		17,544,658		$	181,704,936
Shares issued to shareholders in payment of distributions declared	962,189			10,221,970		1,385,927			14,344,528
Shares redeemed	(17,823,738	)		(189,282,465	)	(25,869,215	)		(267,256,185	)

NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS	(3,832,804	)	$	(40,613,977	)	(6,938,630	)	$	(71,206,721	)


Year Ended February 28	2002					2001
Institutional Service Shares:	Shares		Amount			Shares		Amount
Shares sold	4,940,228		$	52,638,339		5,303,396		$	54,772,721
Shares issued to shareholders in payment of distributions declared	190,011			2,020,095		202,826			2,104,086
Shares redeemed	(4,147,773	)		(44,226,955	)	(3,104,893	)		(32,186,723	)

NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE SHARE TRANSACTIONS	982,466		$	10,431,479		2,401,329		$	24,690,084


	Period Ended 2/28/2002¹					Year Ended 2/28/2001
Class Y Shares:	Shares			Amount		Shares			Amount
Shares sold	9,604,097		$	102,156,012		--		$	--
Shares issued to shareholders in payment of distributions declared	153,377			1,641,765		--			--
Shares redeemed	(2,723,372	)		(29,139,601	)	--			--

NET CHANGE RESULTING FROM CLASS Y SHARE TRANSACTIONS	7,034,102		$	74,658,176		--		$	--

NET CHANGE RESULTING FROM SHARE TRANSACTIONS	4,183,764		$	44,475,678		(4,537,301	)	$	(46,516,637	)

1 For the period from August 1, 2001 (date of initial public investment) to February 28, 2002.

INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Administrative Fee

Distribution Services Fee

Shareholder Services Fee

Transfer and Dividend Disbursing Agent Fees and Expenses

Portfolio Accounting Fees

FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund'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 long-term U.S. government securities for the year ended February 28, 2002, were as follows:

Purchases	$	508,057,273

Sales	$	459,728,485

FEDERAL INCOME TAX INFORMATION (UNAUDITED)

For the year ended February 28, 2002, the Fund did not designate any long-term capital gain dividends.

Report of Ernst & Young LLP, Independent Auditors

TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS:

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of February 28, 2002, by correspondence with the custodian and brokers, or other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Ernst & Young LLP

Boston, Massachusetts
April 10, 2002

Board of Trustees and Fund Officers

INTERESTED TRUSTEES BACKGROUND



Name Birth Date Address Positions Held with Fund Date Service Began		Principal Occupation(s), Previous Positions and Other Directorships Held
John F. Donahue* Birth Date: July 28, 1924 CHAIRMAN AND TRUSTEE Began serving: January 1984		Principal Occupations: Chief Executive Officer and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.


J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: July 1999		Principal Occupations: President or Executive Vice President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.


Lawrence D. Ellis, M.D.* Birth Date: October 11, 1932 3471 Fifth Avenue Suite 1111 Pittsburgh, PA TRUSTEE Began serving: August 1987		Principal Occupations: Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center. Other Directorships Held: Member, National Board of Trustees, Leukemia Society of America. Previous Positions: Trustee, University of Pittsburgh; Director, University of Pittsburgh Medical Center.

INDEPENDENT TRUSTEES BACKGROUND



Name Birth Date Address Positions Held with Fund Date Service Began		Principal Occupation(s), Previous Positions and Other Directorships Held
Thomas G. Bigley Birth Date: February 3, 1934 15 Old Timber Trail Pittsburgh, PA TRUSTEE Began serving: October 1995		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director, Member of Executive Committee, University of Pittsburgh. Previous Position: Senior Partner, Ernst & Young LLP.


John T. Conroy, Jr. Birth Date: June 23, 1937 Grubb & Ellis/Investment Properties Corporation 3201 Tamiami Trail North Naples, FL TRUSTEE Began serving: August 1991		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation.


Nicholas P. Constantakis Birth Date: September 3, 1939 175 Woodshire Drive Pittsburgh, PA TRUSTEE Began serving: February 1998		Principal Occupations: Director or Trustee of the Federated Fund Complex; Partner, Andersen Worldwide SC (prior to 9/1/97). Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide).


John F. Cunningham Birth Date: March 5, 1943 353 El Brillo Way Palm Beach, FL TRUSTEE Began serving: January 1999		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, Redgate Communications and EMC Corporation (computer storage systems); 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.


Peter E. Madden Birth Date: March 16, 1942 One Royal Palm Way 100 Royal Palm Way Palm Beach, FL TRUSTEE Began serving: August 1991		Principal Occupation: Director or Trustee of the Federated Fund Complex; Management Consultant. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.




Name Birth Date Address Positions Held with Fund Date Service Began		Principal Occupation(s), Previous Positions and Other Directorships Held
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 80 South Road Westhampton Beach, NY TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; Management Consultant; Executive Vice President, DVC Group, Inc. (marketing communications and technology) (prior to 9/1/00). Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University.


John E. Murray, Jr., J.D., S.J.D. Birth Date: December 20, 1932 Chancellor, Duquesne University Pittsburgh, PA TRUSTEE Began serving: February 1995		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chancellor and Law Professor, Duquesne University; Consulting Partner, Mollica & Murray. Other Directorships Held: Director, Michael Baker Corp. (engineering, construction, operations and technical services). Previous Positions: President, Duquesne University; Dean and Professor of Law, University of Pittsburgh School of Law; Dean and Professor of Law, Villanova University School of Law.


Marjorie P. Smuts Birth Date: June 21, 1935 4905 Bayard Street Pittsburgh, PA TRUSTEE Began serving: February 1984		Principal Occupations: Director or Trustee of the Federated Fund Complex; Public Relations/Marketing Consultant/Conference Coordinator. Previous Positions: National Spokesperson, Aluminum Company of America; television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord.


John S. Walsh Birth Date: November 28, 1957 2604 William Drive Valparaiso, IN TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Other Directorships Held: Director, Walsh & Kelly, Inc. (heavy highway contractor). Previous Position: Vice President, Walsh & Kelly, Inc.

OFFICERS



Name Birth Date Address Positions Held with Fund		Principal Occupation(s) and Previous Positions
Edward C. Gonzales Birth Date: October 22, 1930 EXECUTIVE VICE PRESIDENT		Principal Occupations: President, Executive Vice President and Treasurer of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Trustee, Federated Administrative Services. Previous Positions: Trustee or Director of some of the Funds in the Federated Fund Complex; CEO and Chairman, Federated Administrative Services.


John W. McGonigle Birth Date: October 26, 1938 EXECUTIVE VICE PRESIDENT AND SECRETARY		Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc.


Richard J. Thomas Birth Date: June 17, 1954 TREASURER		Principal Occupations: Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services.


Richard B. Fisher Birth Date: May 17, 1923 VICE PRESIDENT		Principal Occupations: President or Vice President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. Previous Positions: Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice President, Federated Investors, Inc. and Director and Chief Executive Officer, Federated Securities Corp.


William D. Dawson III Birth Date: March 3, 1949 CHIEF INVESTMENT OFFICER		Principal Occupations: Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Investment Management Company and Passport Research, Ltd.; Director, Federated Global Investment Management Corp. and Federated Investment Management Company; Portfolio Manager, Federated Administrative Services; Vice President, Federated Investors, Inc. Previous Positions: Executive Vice President and Senior Vice President, Federated Investment Counseling Institutional Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd.


Susan M. Nason Birth Date: August 29, 1961 VICE PRESIDENT		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.

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Investment Company Act File No. 811-3947

Federated is a registered mark of Federated Investors, Inc. 2002 ©Federated Investors, Inc.

Cusip 31428M209

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8032806A-SS (4/02)

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

STATEMENT OF ADDITIONAL INFORMATION

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April 30, 2002

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INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES

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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 (Fund), dated April 30, 2002. Obtain the prospectuses and the Annual Report's Management's Discussion of Fund Performance without charge by calling 1-800-341-7400.

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8032806B (4/02)

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How is the Fund Organized? 1

Securities in Which the Fund Invests 1

What Do Shares Cost? 4

How is the Fund Sold? 4

Exchanging Securities for Shares 4

Subaccounting Services 4

Redemption in Kind 5

Massachusetts Partnership Law 5

Account and Share Information 5

Tax Information 5

Who Manages and Provides Services to the Fund? 6

How Does the Fund Measure Performance? 11

Who is Federated Investors, Inc.? 13

Addresses 14

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.

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The Board of Trustees (the Board) has established three classes of shares of the Fund, known as Institutional Shares, Institutional Service Shares and Class Y Shares (Shares). This SAI relates to Institutional Shares and Institutional Service Shares. The Fund's investment adviser is Federated Investment Management Company (Adviser).

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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.

SECURITIES DESCRIPTIONS AND TECHNIQUES

Fixed Income Securities

Fixed income securities pay interest, dividends or distributions at a specified rate. The rate may be a fixed percentage of the principal or adjusted periodically. In addition, the issuer of a fixed income security must repay the principal amount of the security, normally within a specified time. Fixed income securities provide more regular income than equity securities. However, the returns on fixed income securities are limited and normally do not increase with the issuer's earnings. This limits the potential appreciation of fixed income securities as compared to equity securities.

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 fixed income securities in which the Fund may invest:

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.

Agency Securities

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Agency securities are issued or guaranteed by a federal agency or other government sponsored entity acting under federal authority (a "GSE"). The United States 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.

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Zero Coupon Securities

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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 interest rate and credit risks of a zero coupon security.

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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, IOs and POs are the most common forms of stripped zero coupon securities. In addition, some securities give the issuer the option to deliver additional securities in place of cash interest payments, thereby increasing the amount payable at maturity. These are referred to as pay-in-kind or PIK securities.

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SPECIAL TRANSACTIONS

Repurchase Agreements

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Repurchase agreements are transactions in which the Fund buys a 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.

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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

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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 interest rate risks and leverage risks for the Fund. Delayed delivery transactions also involve credit risks in the event of a counterparty default.

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Securities Lending

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The Fund may lend portfolio securities to borrowers that the Fund's custodian deems creditworthy. In return, the Fund receives cash or liquid securities from the borrower as collateral. The borrower must furnish additional collateral if the market value of the loaned securities increases. Also, the borrower must pay the Fund the equivalent of any dividends or interest received on the loaned securities.

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The Fund will reinvest cash collateral in securities that qualify as an acceptable investment for the Fund. However, the Fund must pay interest to the borrower for the use of cash collateral.

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Loans are subject to termination at the option of the Fund or the borrower. The Fund will not have the right to vote on securities while they are on loan, but it will terminate a loan in anticipation of any important vote. The Fund may pay administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash collateral to a securities lending agent or broker.

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Securities lending activities are subject to interest rate risks, leverage risks and credit risks.

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Asset Coverage

In order to secure its obligations in connection with derivatives contracts or 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 without entering into an offsetting derivative contract or terminating a special transaction. This may cause the Fund to miss favorable trading opportunities or to realize losses on derivative contracts or special transactions.

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Inter-Fund Borrowing and Lending Arrangements

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The Securities and Exchange Commission (SEC) has granted an exemption that permits the Fund and all other funds advised by subsidiaries of Federated Investors, Inc. (Federated funds) to lend and borrow money for certain temporary purposes directly to and from other Federated funds. Participation in this inter-fund lending program is voluntary for both borrowing and lending funds, and an inter-fund loan is only made if it benefits each participating fund. Federated administers the program according to procedures approved by the Fund's Board, and the Board monitors the operation of the program. Any inter- fund loan must comply with certain conditions set out in the exemption, which are designed to assure fairness and protect all participating funds.

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For example, inter-fund lending is permitted only: (a) to meet shareholder redemption requests; and (b) to meet commitments arising from "failed" trades. All inter-fund loans must be repaid in seven days or less. The Fund's participation in this program must be consistent with its investment policies and limitations, and must meet certain percentage tests. Inter-fund loans may be made only when the rate of interest to be charged is more attractive to the lending fund than market-competitive rates on overnight repurchase agreements (the "Repo Rate") and more attractive to the borrowing fund than the rate of interest that would be charged by an unaffiliated bank for short-term borrowings (the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.

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Investing in Securities of Other Investment Companies

The Fund may invest its assets in securities of other investment companies, including the securities of affiliated money market funds, as an efficient means of carrying out its investment policies and managing its uninvested cash. It should be noted that investment companies incur certain expenses, such as management fees, and, therefore, any investment by the Fund in shares of other investment companies may be subject to such duplicate expenses.

INVESTMENT RISKS

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

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Credit Risks

Credit risk is the possibility that an issuer will default on a security by failing to pay interest or principal when due. If an issuer defaults, the Fund will lose money.

Call Risks

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.

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.

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Leverage Risks

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Leverage risk is created when an investment exposes the Fund to a level of risk that exceeds the amount invested. Changes in the value of such an investment magnify the Fund's risk of loss and potential for gain.

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FUNDAMENTAL INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide current income. The investment objective may not be changed by the Fund's Board of Trustees without shareholder approval.

INVESTMENT LIMITATIONS

Diversification

With respect to securities comprising 75% of the value of its total assets, the Fund will not purchase securities of any one issuer (other than cash; cash items; securities issued or guaranteed by the government of the United States or its agencies or instrumentalities and repurchase agreements collateralized by such U.S. government securities; and securities of other investment companies) if, as a result, more than 5% of the value of its total assets would be invested in the securities of that issuer, or the Fund would own more than 10% of the outstanding voting securities of that issuer.

Concentration

The Fund will not make investments that will result in the concentration of its investments in the securities of issuers primarily engaged in the same industry. Government securities, municipal securities and bank instruments will not be deemed to constitute an industry.

Underwriting

The Fund may not underwrite the securities of other issuers, except that the Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities, under circumstances where it may be considered to be an underwriter under the Securities Act of 1933.

Investing in Commodities

The Fund may not purchase or sell physical commodities, provided that the Fund may purchase securities of companies that deal in commodities.

Investing in Real Estate

The Fund may not purchase or sell real estate, provided that this restriction does not prevent the Fund from investing in issuers which invest, deal, or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein. The Fund may exercise its rights under agreements relating to such securities, including the right to enforce security interests and to hold real estate acquired by reason of such enforcement until that real estate can be liquidated in an orderly manner.

Borrowing Money and Issuing Senior Securities

The Fund may borrow money, directly or indirectly, and issue senior securities to the maximum extent permitted under the 1940 Act.

Lending

The Fund may not make loans, provided that this restriction does not prevent the Fund from purchasing debt obligations, entering into repurchase agreements, lending its assets to broker/dealers or institutional investors and investing in loans, including assignments and participation interests.

The above limitations cannot be changed unless authorized by the Board and by the "vote of a majority of its outstanding voting securities," as defined by the Investment Company Act of 1940 (1940 Act). The following limitations, however, may be changed by the Board without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective.

Purchases on Margin

The Fund will not purchase securities on margin, provided that the Fund may obtain short-term credits necessary for the clearance of purchases and sales of securities.

Pledging Assets

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The Fund will not mortgage, pledge or hypothecate any of its assets, provided that this shall not apply to the transfer of securities in connection with any permissible borrowing or to collateral arrangements in connection with permissible activities.

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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.

For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." Except with respect to borrowing money, if a percentage limitations 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 limitation.

PORTFOLIO TURNOVER

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The Fund will not attempt to set or meet a portfolio turnover rate since any turnover will be incidental to transactions undertaken in an attempt to achieve the Fund's investment objective. During the fiscal years ended February 28, 2002 and February 28, 2001, the portfolio turnover rates were 99% and 129%, respectively.

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DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

for fixed income securities, according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost; and
for all other securities at fair value as determined in good faith by the Board.

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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.

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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.) 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. In addition, 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.

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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.

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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

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Investment professionals (such as broker/dealers or banks) may be paid fees, in significant amounts, out of the assets of the Distributor and/or Federated Shareholder Services Company. (These fees do not come out of Fund assets.) The Distributor and/or Federated Shareholder Services Company may be reimbursed by the Adviser or its affiliates.

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Investment professionals receive such fees for providing distribution-related and/or shareholder services, such as advertising, providing incentives to their sales personnel, sponsoring other activities intended to promote sales, and maintaining shareholder accounts. These payments may be based upon such factors as the number or value of Shares the investment professional sells or may sell; the value of client assets invested; and/or the type and nature of sales or marketing support furnished by the investment professional.

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Exchanging Securities for Shares

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You may contact the Distributor to request a purchase of Shares in exchange for securities you own. The Fund reserves the right to determine whether to accept your securities and the minimum market value to accept. The Fund will value your securities in the same manner as it values its assets. This exchange is treated as a sale of your securities for federal tax purposes.

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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 1940 Act, 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.

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 Trust 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

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Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote.

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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.

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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.

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As of April 5, 2002, the following shareholders owned of record, beneficially, or both, 5% or more of outstanding Institutional Shares: Charles Schwab & Co., Inc., San Francisco, CA owned approximately 5, 705,487 shares (17.41%); and Sheldon & Co., Cleveland, OH owned approximately 2,987,565 shares (9.12%).

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As of April 5, 2002, the following shareholders owned of record, beneficially, or both, 5% or more of outstanding Institutional Service Shares: First Citizens Bank & Trust Co., Raleigh, NC owned approximately 1,306,486 shares (22.90%); and Suntrust C/F Chesapeake Hospital, Richmond, VA owned approximately 589,614 shares (10.33%).

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Tax Information

FEDERAL INCOME TAX

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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 be subject to federal corporate income tax.

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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. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA. The Federated Fund Complex consists of 44 investment companies (comprising 139 portfolios). Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex; serves for an indefinite term; and also serves as a Board member of the following investment company complexes: Banknorth Funds--six portfolios; CCMI Funds--one portfolio; FirstMerit Funds--two portfolios; Regions Funds--eight portfolios; Riggs Funds--nine portfolios; and WesMark Funds--five portfolios.

As of April 5, 2002 the Fund's Board and Officers as a group owned less than 1% of the Fund's outstanding Institutional Shares and Institutional Service Shares.

INTERESTED TRUSTEES BACKGROUND AND COMPENSATION



Name Birth Date Address Positions Held with Fund Date Service Began	Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Positions	Aggregate Compensation From Fund (past fiscal year)	Total Compensation From Fund and Federated Fund Complex (past calendar year)
John F. Donahue* Birth Date: July 28, 1924 CHAIRMAN AND TRUSTEE Began serving: January 1984	Principal Occupations: Chief Executive Officer and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. Previous Positions: Trustee, Federated Investment Management Company and Chairman and Director, Federated Investment Counseling.	$0	$0


J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: July 1999	Principal Occupations: President or Executive Vice President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; President, Chief Executive Officer and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; President, Chief Executive Officer and Director, Federated Global Investment Management Corp.; President and Chief Executive Officer, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Position: President, Federated Investment Counseling.	$0	$0


Lawrence D. Ellis, M.D.* Birth Date: October 11, 1932 3471 Fifth Avenue Suite 1111 Pittsburgh, PA TRUSTEE Began serving: August 1987	Principal Occupations: Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center. Other Directorships Held: Member, National Board of Trustees, Leukemia Society of America. Previous Positions: Trustee, University of Pittsburgh; Director, University of Pittsburgh Medical Center.	$1,268.27	$117,117.17

INDEPENDENT TRUSTEES BACKGROUND AND COMPENSATION



Name Birth Date Address Positions Held with Fund Date Service Began	Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Positions	Aggregate Compensation From Fund (past fiscal year)	Total Compensation From Fund and Federated Fund Complex (past calendar year)
Thomas G. Bigley Birth Date: February 3, 1934 15 Old Timber Trail Pittsburgh, PA TRUSTEE Began serving: October 1995	Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director, Member of Executive Committee, University of Pittsburgh. Previous Position: Senior Partner, Ernst & Young LLP.	$1,395.26	$128,847.72


John T. Conroy, Jr. Birth Date: June 23, 1937 Grubb & Ellis/Investment Properties Corporation 3838 Tamiami Trail North Naples, FL TRUSTEE Began serving: August 1991	Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation.	$1,395.26	$128,847.66


Nicholas P. Constantakis Birth Date: September 3, 1939 175 Woodshire Drive Pittsburgh, PA TRUSTEE Began serving: February 1998	Principal Occupations: Director or Trustee of the Federated Fund Complex; Partner, Andersen Worldwide SC (prior to 9/1/97). Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide).	$1,395.26	$126,923.53


John F. Cunningham Birth Date: March 5, 1943 353 El Brillo Way Palm Beach, FL TRUSTEE Began serving: January 1999	Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, Redgate Communications and EMC Corporation (computer storage systems); 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.	$1,268.27	$115,368.16


Peter E. Madden Birth Date: March 16, 1942 One Royal Palm Way 100 Royal Palm Way Palm Beach, FL TRUSTEE Began serving: August 1991	Principal Occupation: Director or Trustee of the Federated Fund Complex; Management Consultant. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.	$1,268.27	$117,117.14


Charles F. Mansfield, Jr. Birth Date: April 10, 1945 80 South Road Westhampton Beach, NY TRUSTEE Began serving: January 1999	Principal Occupations: Director or Trustee of the Federated Fund Complex; Management Consultant; Executive Vice President, DVC Group, Inc. (marketing, communications and technology) (prior to 9/1/00). Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University.	$1,395.26	$128,847.66


John E. Murray, Jr., J.D., S.J.D. Birth Date: December 20, 1932 Chancellor, Duquesne University Pittsburgh, PA TRUSTEE Began serving: February 1995	Principal Occupations: Director or Trustee of the Federated Fund Complex; Chancellor and Law Professor, Duquesne University; Consulting Partner, Mollica & Murray. Other Directorships Held: Director, Michael Baker Corp. (engineering, construction, operations and technical services). Previous Positions: President, Duquesne University; Dean and Professor of Law, University of Pittsburgh School of Law; Dean and Professor of Law, Villanova University School of Law.	$1,451.41	$117,117.14




Name Birth Date Address Positions Held with Fund Date Service Began	Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Positions	Aggregate Compensation From Fund (past fiscal year)	Total Compensation From Fund and Federated Fund Complex (past calendar year)
Marjorie P. Smuts Birth Date: June 21, 1935 4905 Bayard Street Pittsburgh, PA TRUSTEE Began serving: February 1984	Principal Occupations: Director or Trustee of the Federated Fund Complex; Public Relations/Marketing Consultant/Conference Coordinator. Previous Positions: National Spokesperson, Aluminum Company of America; television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord.	$1,268.27	$117,117.17


John S. Walsh Birth Date: November 28, 1957 2604 William Drive Valparaiso, IN TRUSTEE Began serving: January 1999	Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Other Directorships Held: Director, Walsh & Kelly, Inc. (heavy highway contractor). Previous Position: Vice President, Walsh & Kelly, Inc.	$1,268.27	$117,117.17

OFFICERS**



Name Birth Date Address Positions Held with Fund		Principal Occupation(s) and Previous Positions
Edward C. Gonzales Birth Date: October 22, 1930 EXECUTIVE VICE PRESIDENT		Principal Occupations: President, Executive Vice President and Treasurer of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Trustee, Federated Administrative Services. Previous Positions: Trustee or Director of some of the Funds in the Federated Fund Complex; CEO and Chairman, Federated Administrative Services; Vice President, Federated Investment Management Company, Federated Investment Counseling, Federated Global Investment Management Corp. and Passport Research, Ltd.; Director and Executive Vice President, Federated Securities Corp.; Director, Federated Services Company; Trustee, Federated Shareholder Services Company.


John W. McGonigle Birth Date: October 26, 1938 EXECUTIVE VICE PRESIDENT AND SECRETARY		Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp.


Richard J. Thomas Birth Date: June 17, 1954 Federated Investors Tower 1001 Liberty Avenue Pittsburgh, PA TREASURER		Principal Occupations: Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services. Previous Positions: Vice President, Federated Administrative Services; held various management positions within Funds Financial Services Division of Federated Investors, Inc.


Richard B. Fisher Birth Date: May 17, 1923 VICE PRESIDENT		Principal Occupations: President or Vice President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. Previous Positions: Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice President, Federated Investors, Inc. and Director and Chief Executive Officer, Federated Securities Corp.


William D. Dawson III Birth Date: March 3, 1949 CHIEF INVESTMENT OFFICER		Principal Occupations: Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Investment Management Company and Passport Research, Ltd.; Director, Federated Global Investment Management Corp. and Federated Investment Management Company; Portfolio Manager, Federated Administrative Services; Vice President, Federated Investors, Inc. Previous Positions: Executive Vice President and Senior Vice President, Federated Investment Counseling Institutional Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd.


Susan M. Nason Birth Date: August 29, 1961 VICE PRESIDENT		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.

** Officers do not receive any compensation from the Fund.

Thomas R. Donahue, Chief Financial Officer, Vice President, Treasurer and Assistant Secretary of Federated Investors, Inc. and an officer of its various advisory and underwriting subsidiaries, has served as a Term Member on the Board of Directors of Duquesne University, Pittsburgh, Pennsylvania, since May 12, 2000. Mr. John E. Murray, Jr., an Independent Trustee of the Fund, served as President of Duquesne from 1988 until his retirement from that position in 2001, and became Chancellor of Duquesne on August 15, 2001. It should be noted that Mr. Donahue abstains on any matter that comes before Duquesne's Board that affects Mr. Murray personally.

COMMITTEES OF THE BOARD

Board Committee	Committee Members	Committee Functions	Meetings Held During Last Fiscal Year
Executive	John F. Donahue John E. Murray, Jr., J.D., S.J.D.	In between meetings of the full Board, the Executive Committee generally may exercise all the powers of the full Board in the management and direction of the business and conduct of the affairs of the Fund in such manner as the Executive Committee shall deem to be in the best interests of the Fund. However, the Executive Committee cannot elect or remove Board members, increase or decrease the number of Trustees, elect or remove any Officer, declare dividends, issue shares or recommend to shareholders any action requiring shareholder approval.	None


Audit	Thomas G. Bigley John T. Conroy, Jr. Nicholas P. Constantakis Charles F. Mansfield, Jr.	The Audit Committee reviews and recommends to the full Board the independent auditors to be selected to audit the Fund's financial statements; meets with the independent auditors periodically to review the results of the audits and report the results to the full Board; evaluates the independence of the auditors, reviews legal and regulatory matters that may have a material effect on the financial statements, related compliance policies and programs, and the related reports received from regulators; reviews the Fund's internal audit function; reviews compliance with the Fund's code of conduct/ethics; reviews valuation issues; monitors inter-fund lending transactions; reviews custody services and issues and investigates any matters brought to the Committee's attention that are within the scope of its duties.	4

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BOARD OWNERSHIP OF SHARES IN THE FUND AND IN THE FEDERATED FAMILY OF INVESTMENT COMPANIES AS OF DECEMBER 31, 2001

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<R>Interested Board Member Name</R>	<R>Dollar Range of Shares Owned in Fund</R>	<R>Aggregate Dollar Range of Shares Owned in Federated Family of Investment Companies</R>
<R>John F. Donahue</R>	<R>None</R>	<R>Over $100,000 </R>

<R>J. Christopher Donahue</R>	<R>None</R>	<R>Over $100,000 </R>

<R>Lawrence D. Ellis, M.D.</R>	<R>None</R>	<R>Over $100,000 </R>


<R>Independent Board Member Name</R>
<R>Thomas G. Bigley</R>	<R>None</R>	<R>Over $100,000 </R>

<R>John T. Conroy, Jr.</R>	<R>None</R>	<R>Over $100,000 </R>

<R>Nicholas P. Constantakis</R>	<R>None</R>	<R>Over $100,000 </R>

<R>John F. Cunningham</R>	<R>None</R>	<R>Over $100,000 </R>

<R>Peter E. Madden</R>	<R>None</R>	<R>Over $100,000 </R>

<R>Charles F. Mansfield, Jr.</R>	<R>None</R>	<R>$50,001 - $100,000 </R>

<R>John E. Murray, Jr., J.D., S.J.D.</R>	<R>None</R>	<R>Over $100,000 </R>

<R>Marjorie P. Smuts</R>	<R>None</R>	<R>Over $100,000 </R>

<R>John S. Walsh</R>	<R>None</R>	<R>Over $100,000 </R>

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.

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As required by the Investment Company Act of 1940 ("1940 Act"), the Fund's Board has reviewed the Fund's investment advisory contract. The Board's decision to approve the contract reflects the exercise of its business judgment on whether to continue the existing arrangements. During its review of the contract, the Board considers many factors, among the most material of which are: the Fund's investment objectives and long term performance; the adviser's management philosophy, personnel, and processes; the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry; comparable fees in the mutual fund industry; the range and quality of services provided to the Fund and its shareholders by the Federated organization in addition to investment advisory services; and the Fund's relationship to other funds in the Federated fund family.

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In assessing the adviser's performance of its obligations, the Board also considers whether there has occurred a circumstance or event that would constitute a reason for it to not renew an advisory contract. In this regard, the Board is mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an advisory contract. In particular, the Board recognizes that most shareholders have invested in the Fund on the strength of the adviser's industry standing and reputation and in the expectation that the adviser will have a continuing role in providing advisory services to the Fund.

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The Board also considers the compensation and benefits received by the adviser. This includes fees received for services provided to the Fund by other entities in the Federated organization and research services received by the adviser from brokers that execute Fund trades, as well as advisory fees. In this regard, the Board is aware that various courts have interpreted provisions of the 1940 Act and have indicated in their decisions that the following factors may be relevant to an adviser's compensation: the nature and quality of the services provided by the adviser, including the performance of the fund; the adviser's cost of providing the services; the extent to which the adviser may realize "economies of scale" as the fund grows larger; any indirect benefits that may accrue to the adviser and its affiliates as a result of the adviser's relationship with the fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts bearing on the adviser's service and fee. The Fund's Board is aware of these factors and takes them into account in its review of the Fund's advisory contract.

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The Board considers and weighs these circumstances in light of its substantial accumulated experience in governing the Fund and working with Federated on matters relating to its funds, and is assisted in its deliberations by the advice of independent legal counsel. In this regard, the Board requests and receives a significant amount of information about the Funds and the Federated organization. Federated provides much of this information at each regular meeting of the Board, and furnishes additional reports in connection with the particular meeting at which the Board's formal review of the advisory contracts occurs. In between regularly scheduled meetings, the Board may receive information on particular matters as the need arises. Thus, the Board's evaluation of an advisory contract is informed by reports covering such matters as: the Adviser's investment philosophy, personnel, and processes; the Fund's short- and long-term performance (in absolute terms as well as in relationship to its particular investment program and certain competitor or "peer group" funds), and comments on the reasons for performance; the Fund's expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities; the nature and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates; compliance and audit reports concerning the funds and the Federated companies that service them; and relevant developments in the mutual fund industry and how the funds and/or Federated are responding to them.

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The Board also receives financial information about Federated, including reports on the compensation and benefits Federated derives from its relationships with the Funds. These reports cover not only the fees under the advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Funds under separate contracts (e.g., for serving as the Funds' administrator and transfer agent). The reports also discuss any indirect benefit Federated may derive from its receipt of research services from brokers who execute fund trades.

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The Board bases its decision to approve an advisory contract on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations identified above are relevant to every fund, nor does the Board consider any one of them to be determinative. Because the totality of circumstances includes considering the relationship of each fund to the Federated family of funds, the Board does not approach consideration of every fund's advisory contract as if that were the only fund offered by Federated.

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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.

CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING

As required by SEC rules, the Fund, its Adviser, and its Distributor have adopted codes of ethics. These codes govern securities trading activities of investment personnel, Fund Trustees, and certain other employees. Although they do permit these people to trade in securities, including those that the Fund could buy, they also contain significant safeguards designed to protect the Fund and its shareholders from abuses in this area, such as requirements to obtain prior approval for, and to report, particular transactions.

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. 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.

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Investment decisions for the Fund are made independently from those of other accounts managed by the Adviser. Except as noted below, 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. Investments for Federated Kaufmann Fund and other accounts managed by that fund's portfolio managers in initial public offerings ("IPO") are made independently from any other accounts, and much of that fund's non-IPO trading may also be conducted independently from other accounts.

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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.

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 AUDITORS

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The independent auditor for the Fund, Ernst & Young LLP, conducts its audits in accordance with auditing standards generally accepted in the United States of America, which require it to plan and perform its audits to provide reasonable assurance about whether the Fund's financial statements and financial highlights are free of material misstatement.

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FEES PAID BY THE FUND FOR SERVICES

For the Year Ended February 28 or 29	2002	2001	2000
Advisory Fee Earned	$1,922,325	$1,823,189	$2,121,938

Advisory Fee Reduction	970,301	7,766	157,068

Advisory Fee Reimbursement	1,291	--	--

Brokerage Commissions	--	--	--

Administrative Fee	361,715	343,215	399,867

12b-1 Fee:

Institutional Service Shares	115,649	--	--

Shareholder Services Fee:

Institutional Shares	697,451	--	--

Institutional Service Shares	142,505	--	--

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?

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

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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.

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

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AVERAGE ANNUAL TOTAL RETURNS AND YIELD

<R>

Total returns are given for the one-year, five-year and ten-year or Start of Performance periods ended February 28, 2002.

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Yield is given for the 30-day period ended February 28, 2002.

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	30-Day Period	1 Year	5 Years	10 Years
Institutional Shares:
Total Return:
Before Taxes	NA	6.07%	5.89%	5.43%
After Taxes on Distributions	NA	4.31%	3.82%	3.42%
After Taxes on Distributions and Sale of Shares	NA	3.67%	3.68%	3.36%
Yield	1.92%	NA	NA	NA

	30-Day Period	1 Year	5 Years	Start of Performance on 5/30/1992
Institutional Service Shares:
Total Return:
Before Taxes	NA	5.81%	5.63%	5.14%
After Taxes on Distributions	NA	4.15%	3.67%	3.23%
After Taxes on Distributions and Sale of Shares	NA	3.51%	3.52%	3.17%
Yield	1.67%	NA	NA	NA

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.

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The average annual total return for Shares is the average compounded rate of return for a given period that would equate a $10,000 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 $10,000, less any applicable sales charge, adjusted over the period by any additional Shares, assuming the annual reinvestment of all dividends and distributions. Total returns after taxes are calculated in a similar manner, but reflect additional standard assumptions required by the SEC.

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YIELD

The yield of Shares is calculated by dividing: (i) the net investment income per Share earned by the Shares over a 30-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 30-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:

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

Merrill Lynch 1-3 Year Treasury Index

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.

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Lipper, Inc.

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Lipper figures represent the average of the total returns reported by all of the mutual funds designated by Lipper, Inc. as falling into the respective categories indicated. These figures do not reflect sales charges.

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Merrill Lynch 2-Year Treasury Index

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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.

Morningstar, Inc.

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

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In the municipal sector, as of December 31, 2001, Federated managed 12 bond funds with approximately $2.3 billion in assets and 22 money market funds with approximately $44.8 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.

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Equity Funds

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In the equity sector, Federated has more than 31 years' experience. As of December 31, 2001, Federated managed 40 equity funds totaling approximately $20.7 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.

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Corporate Bond Funds

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In the corporate bond sector, as of December 31, 2001, Federated managed 11 money market funds and 30 bond funds with assets approximating $62.3 billion and $5.4 billion, respectively. Federated's corporate bond decision making--based on intensive, diligent credit analysis--is backed by over 29 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.

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Government Funds

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In the government sector, as of December 31, 2001, Federated managed 6 mortgage backed, 5 multi-sector government funds, 3 government/agency and 19 government money market mutual funds, with assets approximating $3.6 billion, $2.0 billion, $1.2 billion and $55.2 billion, respectively. Federated trades approximately $90.4 billion in U.S. government and mortgage backed securities daily and places approximately $35 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 $50 billion in government funds within these maturity ranges.

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Money Market Funds

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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, 2001, Federated managed $136.4 billion in assets across 54 money market funds, including 19 government, 11 prime, 22 municipal and 1 euro-denominated with assets approximating $55.2 billion, $62.3 billion, $44.8 billion and $34.6 million, respectively.

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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

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Forty-nine percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $6.8 trillion to the more than 8,157 funds available, according to the Investment Company Institute.

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FEDERATED CLIENTS OVERVIEW

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

Institutional Clients

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Federated meets the needs of approximately 3,035 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.

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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 2,000 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.

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 Investment Management Company
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 Auditors

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

Federated Investors
World-Class Investment Manager

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

PROSPECTUS

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April 30, 2002

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CLASS Y SHARES

A mutual fund seeking to provide current income by investing in a portfolio of short-term U.S. government securities.

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 4

What are the Fund's Investment Strategies? 5

What are the Principal Securities in Which the Fund Invests? 7

What are the Specific Risks of Investing in the Fund? 7

What Do Shares Cost? 8

How is the Fund Sold? 8

How to Purchase Shares 9

How to Redeem Shares 10

Account and Share Information 13

Who Manages the Fund? 14

Financial Information 15

Independent Auditors' Report 28

Board of Trustees and Fund Officers 29

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

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Risk/Return Bar Chart

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The total returns shown here are for the Institutional Shares which is another class of shares offered by the Federal U.S. Government Securities Fund: 1-3 Years. The Institutional Shares are not offered in this prospectus for the Fund's Class Y Shares. The total returns for the Institutional Shares are disclosed here because the Class Y Shares have only been offered since August 1, 2001. These total returns would be substantially similar to the annual returns for the Class Y Shares over the same period and would differ only to the extent that the two classes do not have the same expenses. It is anticipated that expenses of Institutional Shares will exceed those of the Class Y Shares.

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The Fund's Institutional Shares are sold without a sales charge (load). The total returns shown in the bar chart above are based upon net asset value.

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The Fund's Institutional Shares total return for the three-month period from January 1, 2002 to March 31, 2002 was 0.09%.

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Average Annual Total Return Table

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Return Before Taxes is shown for the Fund's Institutional Shares. In addition, Return After Taxes is shown for the Fund's Institutional Shares to illustrate the effect of federal taxes on Fund returns. Actual after-tax returns depend on each investor's personal tax situation and are likely to differ from those shown. The table also shows returns for the Merrill Lynch 1-3 Year Treasury Index (ML1-3T), a broad-based market index and the Lipper Short U.S. Government Funds Average (LSUSGFA), an average of funds with similar investment objectives. Please see "What are the Fund's Investment Strategies?" for definition of the ML1-3T. Index returns do not reflect taxes, sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index.

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(For the periods ended December 31, 2001)

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	<R>1 Year</R>	<R>5 Years</R>	<R>10 Years</R>
<R>Fund:</R>
<R>Return Before Taxes</R>	<R>7.26%</R>	<R>5.87%</R>	<R>5.38%</R>
<R>Return After Taxes on Distributions¹</R>	<R>5.34%</R>	<R>3.78%</R>	<R>3.37%</R>
<R>Return after Taxes on Distributions and Sale of Fund's Shares¹</R>	<R>4.39%</R>	<R>3.65%</R>	<R>3.32%</R>
<R>ML1-3T</R>	<R>8.30%</R>	<R>6.59%</R>	<R>6.09%</R>
<R>LSUSGFA</R>	<R>6.83%</R>	<R>5.73%</R>	<R>5.31%</R>

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1 After-tax returns are calculated using a standard set of assumptions. The stated returns assume the highest historical federal income and capital gains tax rates. Return After Taxes on Distributions assumes a continued investment in the Fund and show the effect of taxes on Fund distributions. Return After Taxes on Distributions and Sale of Fund Shares assumes all shares were redeemed at the end of each measurement period, and shows the effect of any taxable gain (or offsetting loss) on redemption, as well as the effects of taxes on Fund distributions. These after-tax returns do not reflect the effect of any applicable state and local taxes. After-tax returns are not relevant to investors holding shares through tax-deferred programs, such as IRA or 401(K) plans. The Fund's performance can fluctuate and past performance (before and after taxes) is no guarantee of future results.

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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 Class Y Shares.

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

Annual Fund Operating Expenses (Before Waiver)¹
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee²		0.40%
Distribution (12b-1) Fee		None
Shareholder Services Fee		None
Other Expenses		0.16%
Total Annual Fund Operating Expenses		0.56%
1 Although not contractually obligated to do so, the Adviser waived certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year ended February 28, 2002.
Total Waiver of Fund Expenses		0.26%
Total Actual Annual Fund Operating Expenses (after waiver)		0.30%
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 0.14% for the fiscal year ended February 28, 2002.

EXAMPLE

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

The Example assumes that you invest $10,000 in the Fund's Class Y 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 Class Y Shares operating expenses are before waiver as shown in the table and remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:

1 Year	$	<R>57</R>

3 Years	$	<R>179</R>

5 Years	$	<R>313</R>

10 Years	$	<R>701</R>

What are the Fund's Investment Strategies?

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.

A "bulleted" portfolio structure consists primarily of securities with durations close to the portfolio's average duration. The Adviser may use this structure, for example, when it expects the difference between longer-term and shorter- term interest rates to increase.
A "barbelled" portfolio structure consists primarily of securities with durations above and below the average duration. The Adviser may use this structure, for example, when it expects the difference between longer-term and shorter- term interest rates to decrease.
A "laddered" portfolio structure consists of securities with durations above, below, and at the average duration. The Adviser may use this structure, for example, when it expects longer-term and shorter-term interest rates to change by approximately the same amount.

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 generally uses ongoing relative value analysis to compare current yield differences of securities to their historical and expected yield differences.

current and expected U.S. economic growth;
current and expected interest rates and inflation;
the Federal Reserve Board's monetary policy; and
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.

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PORTFOLIO TURNOVER

What are the Principal Securities in Which the Fund Invests?

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

TREASURY SECURITIES

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

AGENCY SECURITIES

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Agency securities are issued or guaranteed by a federal agency or other government sponsored entity acting under federal authority (GSE).

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What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

What Do Shares Cost?

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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 (as described in this prospectus) 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 Fund generally values fixed income securities according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost.

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The Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."

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The required minimum initial investment for Fund Shares is $40 million. There is no required minimum subsequent investment amount.

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How is the Fund Sold?

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The Fund offers three share classes: Institutional Shares, Institutional Service Shares and Class Y Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Class Y 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 classes.

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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

Establish an account with the investment professional; and
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

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

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

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BY AUTOMATED CLEARING HOUSE (ACH)

How to Redeem Shares

You should redeem Shares:

through an investment professional if you purchased Shares through an investment professional; or
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 simply calling the Fund at 1-800-341-7400.

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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.

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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:

Fund Name and Share Class, account number and account registration;
amount to be redeemed; and
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:

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

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

to allow your purchase to clear;
during periods of market volatility; or
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.

SYSTEMATIC WITHDRAWAL PROGRAM

You may automatically redeem Shares in a minimum amount of $100 on a regular basis. Complete the appropriate section of the New Account Form or an Account Service Options Form or contact your investment professional or the Fund. Your account value must meet the minimum initial investment amount at the time the program is established. This program may reduce, and eventually deplete, your account. Payments should not be considered yield or income.

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 does not issue share certificates.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases and redemptions (except for systematic transactions). In addition, you will receive periodic statements reporting all account activity, including systematic transactions, dividends and capital gains paid.

DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, 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

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?

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THE FUND'S PORTFOLIO MANAGERS ARE:

Susan M. Nason

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Robert J. Ostrowski

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Robert J. Ostrowski has been a Portfolio Manager of the Fund since September 1997. Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He currently serves as a Senior Portfolio Manager and as Co-head of the High Grade Corporate and Government Investment groups. He has been a Senior Vice President of the Fund's Adviser since 1997 and served as a Vice President of the Fund's Adviser from 1996 to 1997. Prior to that, Mr. Ostrowski served as a Vice President of a Federated advisory subsidiary from 1993 to 1996. Mr. Ostrowski is a Chartered Financial Analyst. He received his M.S. in Industrial Administration from Carnegie Mellon University.

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ADVISORY FEES

Financial Information

FINANCIAL HIGHLIGHTS

<R>

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 received on an investment in the Fund, assuming reinvestment of any dividends and capital gains.

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

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Financial Highlights

(For a Share Outstanding Throughout Each Period)

Reference is Made to the Independent Auditors' Report on Page 28.

	Period Ended 2/28/2002	¹
Net Asset Value, Beginning of Period	$10.60
Income From Investment Operations:
Net investment income	0.25
Net realized and unrealized gain (loss) on investments	0.10

TOTAL FROM INVESTMENT OPERATIONS	0.35

Less Distributions:
Distributions from net investment income	(0.25	)

Net Asset Value, End of Period	$10.70

Total Return²	3.32	%


Ratios to Average Net Assets:

Expenses	0.30	%⁴

Net investment income	4.03	%⁴

Expense waiver/reimbursement³	0.26	%⁴

Supplemental Data:

Net assets, end of period (000 omitted)	$75,240

Portfolio turnover	99	%

1 Reflects operations for the period from August 1, 2001 (date of initial public investment) to February 28, 2002.

2 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.

3 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.

4 Computed on an annualized basis.

See Notes Which are an Integral Part of the Financial Statements

Portfolio of Investments

February 28, 2002

Principal Amount					Value
			U.S. TREASURY NOTES--62.9%
$	11,054,900	¹	3.625%, 7/15/2002	$	11,221,387
	20,000,000		5.750%, 10/31/2002		20,509,600
	18,000,000		5.750%, 11/30/2002		18,503,280
	22,000,000		5.500%, 1/31/2003		22,680,240
	24,000,000		5.500%, 2/28/2003		24,782,640
	26,000,000	¹	4.250%, 3/31/2003		26,514,800
	20,000,000	¹	4.000%, 4/30/2003		20,363,200
	26,000,000		4.250%, 5/31/2003		26,560,040
	15,000,000		3.875%, 6/30/2003		15,257,850
	15,000,000		3.875%, 7/31/2003		15,265,650
	15,000,000		5.750%, 8/15/2003		15,680,100
	10,000,000		2.750%, 9/30/2003		9,991,400
	24,000,000	¹	2.750%, 10/31/2003		23,970,000
	10,000,000	¹	4.250%, 11/15/2003		10,237,600
	15,000,000	¹	3.000%, 11/30/2003		15,019,500
	27,000,000		3.250%, 12/31/2003		27,166,590
	15,000,000		4.750%, 2/15/2004		15,498,900

			TOTAL U.S. TREASURY NOTES (IDENTIFIED COST $316,438,415)		319,222,777

Principal Amount or Shares					Value
			U.S. GOVERNMENT AGENCIES--34.5%
			Federal Home Loan Banks--34.5%
$	25,000,000		7.000%, 2/14/2003	$	26,094,000
	14,500,000		5.755%, 6/24/2003		15,083,335
	28,500,000		6.875%, 8/15/2003		30,141,030
	19,000,000		6.375%, 11/14/2003		20,037,210
	20,000,000		5.375%, 1/5/2004		20,835,000
	13,000,000		5.250%, 2/13/2004		13,509,990
	26,000,000		4.875%, 4/16/2004		26,837,980
	10,000,000	¹	4.750%, 6/28/2004		10,294,100
	12,000,000		3.875%, 12/15/2004		12,031,320

			TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $168,596,738)		174,863,965

			MUTUAL FUND--1.8%
	8,967,629		Government Obligations Fund (at net asset value)		8,967,629

			TOTAL INVESTMENTS (IDENTIFIED COST $494,002,782)²	$	503,054,371

1 Certain principal amounts are temporarily on loan to unaffiliated broker/dealers.

Note: The categories of investments are shown as a percentage of net assets ($506,971,984) at February 28, 2002.

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

February 28, 2002

Assets:
Total investments in securities, at value (identified cost $494,002,782)			$	503,054,371
Income receivable				4,263,105
Receivable for investments sold				54,265,941
Receivable for shares sold				936,547
Cash held as collateral for securities lending				92,352,109

TOTAL ASSETS				654,872,073

Liabilities:
Payable for investments purchased	$	54,166,614
Payable for shares redeemed		733,232
Payable to bank		122,923
Income distribution payable		402,869
Payable on collateral due to brokers		92,352,109
Accrued expenses		122,342

TOTAL LIABILITIES				147,900,089

Net assets for 47,396,356 shares outstanding			$	506,971,984

Net Assets Consist of:
Paid in capital			$	508,102,896
Net unrealized appreciation of investments				9,051,589
Accumulated net realized loss on investments				(10,185,935	)
Undistributed net investment income				3,434

TOTAL NET ASSETS			$	506,971,984

Net Asset Value, Offering Price and Redemption Proceeds Per Share
Institutional Shares:
$365,090,407 ÷ 34,131,963 shares outstanding				$10.70

Institutional Service Shares:
$66,641,520 ÷ 6,230,291 shares outstanding				$10.70

Class Y Shares:
$75,240,057 ÷ 7,034,102 shares outstanding				$10.70

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended February 28, 2002

Investment Income:
Interest							$	23,218,197

Expenses:
Investment adviser fee				$	1,922,325
Administrative personnel and services fee					361,715
Custodian fees					22,213
Transfer and dividend disbursing agent fees and expenses					131,882
Directors'/Trustees' fees					12,629
Auditing fees					12,252
Legal fees					4,210
Portfolio accounting fees					111,412
Distribution services fee--Institutional Service Shares					147,131
Shareholder services fee--Institutional Shares					952,391
Shareholder services fee--Institutional Service Shares					147,131
Share registration costs					59,761
Printing and postage					31,136
Insurance premiums					4,444
Miscellaneous					14,239

TOTAL EXPENSES					3,934,871

Waivers and Reimbursement:
Waiver of investment adviser fee	$	(970,301	)
Waiver of distribution services fee--Institutional Service Shares		(31,482	)
Waiver of shareholder services fee--Institutional Shares		(254,940	)
Waiver of shareholder services fee--Institutional Service Shares		(4,626	)
Waiver of transfer and dividend disbursing agent fees and expenses		(6,670)
Reimbursement of investment adviser fee		(1,291	)

TOTAL WAIVERS AND REIMBURSEMENT					(1,269,310	)

Net expenses								2,665,561

Net investment income								20,552,636

Realized and Unrealized Gain on Investments:
Net realized gain on investments								5,956,821
Net change in unrealized appreciation of investments								1,726,061

Net realized and unrealized gain on investments								7,682,882

Change in net assets resulting from operations							$	28,235,518

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

Year Ended February 28		2002			2001
Increase (Decrease) in Net Assets
Operations:
Net investment income	$	20,552,636		$	26,167,534
Net realized gain (loss) on investments		5,956,821			(863,685	)
Net change in unrealized appreciation/depreciation of investments		1,726,061			11,501,075

CHANGE IN NET ASSETS RESULTING FROM OPERATIONS		28,235,518			36,804,924

Distributions to Shareholders:
Distributions from net investment income
Institutional Shares		(16,533,876	)		(23,708,259	)
Institutional Service Shares		(2,378,917	)		(2,526,518	)
Class Y Shares		(1,641,755	)		--

CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS		(20,554,548	)		(26,234,777	)

Share Transactions:
Proceeds from sale of shares		293,240,869			236,477,657
Net asset value of shares issued to shareholders in payment of distributions declared		13,883,830			16,448,614
Cost of shares redeemed		(262,649,021	)		(299,442,908	)

CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS		44,475,678			(46,516,637	)

Change in net assets		52,156,648			(35,946,490	)

Net Assets:
Beginning of period		454,815,336			490,761,826

End of period (including undistributed net investment income of $3,434 and $5,346, respectively)	$	506,971,984		$	454,815,336

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

February 28, 2002

ORGANIZATION

SIGNIFICANT ACCOUNTING POLICIES

Investment Valuation

Repurchase Agreements

Investment Income, Expenses and Distributions

As of February 28, 2002, the tax composition of dividends was as follows:

Ordinary income		$20,554,548

Long-term capital gains		--

As of February 28, 2002, the components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income		$ 406,302

Undistributed long-term gains		--

Unrealized appreciation		$9,051,589

At year end, there were no significant differences between the GAAP basis and tax basis of components of net assets.

Federal Taxes

Expiration Year		Expiration Amount
2003		$ 775,050

2008		$ 6,837,276

2009		$2,573,609

When-Issued and Delayed Delivery Transactions

Securities Lending

As of February 28, 2002, securities subject to this type of arrangement and related collateral were as follows:

Market Value of Securities Loaned		Market Value of Collateral
$89,469,651		$92,352,109

Use of Estimates

Other

Investment transactions are accounted for on a trade date basis.

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 capital stock were as follows:

Year Ended February 28	2002					2001
Institutional Shares:	Shares		Amount			Shares		Amount
Shares sold	13,028,745		$	138,446,518		17,544,658		$	181,704,936
Shares issued to shareholders in payment of distributions declared	962,189			10,221,970		1,385,927			14,344,528
Shares redeemed	(17,823,738	)		(189,282,465	)	(25,869,215	)		(267,256,185	)

NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS	(3,832,804	)	$	(40,613,977	)	(6,938,630	)	$	(71,206,721	)


Year Ended February 28	2002					2001
Institutional Service Shares:	Shares		Amount			Shares		Amount
Shares sold	4,940,228		$	52,638,339		5,303,396		$	54,772,721
Shares issued to shareholders in payment of distributions declared	190,011			2,020,095		202,826			2,104,086
Shares redeemed	(4,147,773	)		(44,226,955	)	(3,104,893	)		(32,186,723	)

NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE SHARE TRANSACTIONS	982,466		$	10,431,479		2,401,329		$	24,690,084


	Period Ended February 28, 2002¹					Year Ended February 28, 2001
Class Y Shares:	Shares			Amount		Shares			Amount
Shares sold	9,604,097		$	102,156,012		--		$	--
Shares issued to shareholders in payment of distributions declared	153,377			1,641,765		--			--
Shares redeemed	(2,723,372	)		(29,139,601	)	--			--

NET CHANGE RESULTING FROM CLASS Y SHARE TRANSACTIONS	7,034,102		$	74,658,176		--		$	--

NET CHANGE RESULTING FROM SHARE TRANSACTIONS	4,183,764		$	44,475,678		(4,537,301	)	$	(46,516,637	)

1 For the period from August 1, 2001 (date of initial public investment) to February 28, 2002.

INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Administrative Fee

Distribution Services Fee

Shareholder Services Fee

Transfer and Dividend Disbursing Agent Fees and Expenses

Portfolio Accounting Fees

FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund'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 long-term U.S. government securities for the year ended February 28, 2002, were as follows:

Purchases	$	508,057,273

Sales	$	459,728,485

FEDERAL INCOME TAX INFORMATION (UNAUDITED)

For the year ended February 28, 2002, the Fund did not designate any long-term capital gain dividends.

Report of Ernst & Young LLP, Independent Auditors

TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS:

Ernst & Young LLP

Boston, Massachusetts
April 10, 2002

Board of Trustees and Fund Officers

INTERESTED TRUSTEES BACKGROUND



Name Birth Date Address Positions Held with Fund Date Service Began		Principal Occupation(s), Previous Positions and Other Directorships Held
John F. Donahue* Birth Date: July 28, 1924 CHAIRMAN AND TRUSTEE Began serving: January 1984		Principal Occupations: Chief Executive Officer and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.


J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: July 1999		Principal Occupations: President or Executive Vice President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.


Lawrence D. Ellis, M.D.* Birth Date: October 11, 1932 3471 Fifth Avenue Suite 1111 Pittsburgh, PA TRUSTEE Began serving: August 1987		Principal Occupations: Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center. Other Directorships Held: Member, National Board of Trustees, Leukemia Society of America. Previous Positions: Trustee, University of Pittsburgh; Director, University of Pittsburgh Medical Center.

INDEPENDENT TRUSTEES BACKGROUND



Name Birth Date Address Positions Held with Fund Date Service Began		Principal Occupation(s), Previous Positions and Other Directorships Held
Thomas G. Bigley Birth Date: February 3, 1934 15 Old Timber Trail Pittsburgh, PA TRUSTEE Began serving: October 1995		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director, Member of Executive Committee, University of Pittsburgh. Previous Position: Senior Partner, Ernst & Young LLP.


John T. Conroy, Jr. Birth Date: June 23, 1937 Grubb & Ellis/Investment Properties Corporation 3201 Tamiami Trail North Naples, FL TRUSTEE Began serving: August 1991		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation.


Nicholas P. Constantakis Birth Date: September 3, 1939 175 Woodshire Drive Pittsburgh, PA TRUSTEE Began serving: February 1998		Principal Occupations: Director or Trustee of the Federated Fund Complex; Partner, Andersen Worldwide SC (prior to 9/1/97). Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide).


John F. Cunningham Birth Date: March 5, 1943 353 El Brillo Way Palm Beach, FL TRUSTEE Began serving: January 1999		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, Redgate Communications and EMC Corporation (computer storage systems); 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.


Peter E. Madden Birth Date: March 16, 1942 One Royal Palm Way 100 Royal Palm Way Palm Beach, FL TRUSTEE Began serving: August 1991		Principal Occupation: Director or Trustee of the Federated Fund Complex; Management Consultant. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.




Name Birth Date Address Positions Held with Fund Date Service Began		Principal Occupation(s), Previous Positions and Other Directorships Held
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 80 South Road Westhampton Beach, NY TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; Management Consultant; Executive Vice President, DVC Group, Inc. (marketing communications and technology) (prior to 9/1/00). Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University.


John E. Murray, Jr., J.D., S.J.D. Birth Date: December 20, 1932 Chancellor, Duquesne University Pittsburgh, PA TRUSTEE Began serving: February 1995		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chancellor and Law Professor, Duquesne University; Consulting Partner, Mollica & Murray. Other Directorships Held: Director, Michael Baker Corp. (engineering, construction, operations and technical services). Previous Positions: President, Duquesne University; Dean and Professor of Law, University of Pittsburgh School of Law; Dean and Professor of Law, Villanova University School of Law.


Marjorie P. Smuts Birth Date: June 21, 1935 4905 Bayard Street Pittsburgh, PA TRUSTEE Began serving: February 1984		Principal Occupations: Director or Trustee of the Federated Fund Complex; Public Relations/Marketing Consultant/Conference Coordinator. Previous Positions: National Spokesperson, Aluminum Company of America; television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord.


John S. Walsh Birth Date: November 28, 1957 2604 William Drive Valparaiso, IN TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Other Directorships Held: Director, Walsh & Kelly, Inc. (heavy highway contractor). Previous Position: Vice President, Walsh & Kelly, Inc.

OFFICERS



Name Birth Date Address Positions Held with Fund		Principal Occupation(s) and Previous Positions
Edward C. Gonzales Birth Date: October 22, 1930 EXECUTIVE VICE PRESIDENT		Principal Occupations: President, Executive Vice President and Treasurer of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Trustee, Federated Administrative Services. Previous Positions: Trustee or Director of some of the Funds in the Federated Fund Complex; CEO and Chairman, Federated Administrative Services.


John W. McGonigle Birth Date: October 26, 1938 EXECUTIVE VICE PRESIDENT AND SECRETARY		Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc.


Richard J. Thomas Birth Date: June 17, 1954 TREASURER		Principal Occupations: Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services.


Richard B. Fisher Birth Date: May 17, 1923 VICE PRESIDENT		Principal Occupations: President or Vice President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. Previous Positions: Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice President, Federated Investors, Inc. and Director and Chief Executive Officer, Federated Securities Corp.


William D. Dawson III Birth Date: March 3, 1949 CHIEF INVESTMENT OFFICER		Principal Occupations: Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Investment Management Company and Passport Research, Ltd.; Director, Federated Global Investment Management Corp. and Federated Investment Management Company; Portfolio Manager, Federated Administrative Services; Vice President, Federated Investors, Inc. Previous Positions: Executive Vice President and Senior Vice President, Federated Investment Counseling Institutional Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd.


Susan M. Nason Birth Date: August 29, 1961 VICE PRESIDENT		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.

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Investment Company Act File No. 811-3947

Cusip 31428M308

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26466 (4/02)

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

STATEMENT OF ADDITIONAL INFORMATION

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April 30, 2002

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CLASS Y SHARES

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This Statement of Additional Information (SAI) is not a prospectus. Read this SAI in conjunction with the prospectus for Class Y Shares of Federated U.S. Government Securities Fund: 1-3 Years (Fund), dated April 30, 2002. Obtain the prospectus and the Annual Report's Management's Discussion of Fund Performance without charge by calling 1-800-341-7400.

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8032806B (4/02)

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How is the Fund Organized? 1

Securities in Which the Fund Invests 1

What Do Shares Cost? 4

How is the Fund Sold? 4

Subaccounting Services 4

Redemption in Kind 5

Massachusetts Partnership Law 5

Account and Share Information 5

Tax Information 5

Who Manages and Provides Services to the Fund? 6

How Does the Fund Measure Performance? 12

Who is Federated Investors, Inc.? 13

Addresses 15

How is the Fund Organized?

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The Board of Trustees (the "Board") has established three classes of shares of the Fund, known as Institutional Shares, Institutional Service Shares and Class Y Shares (Shares). This SAI relates to Class Y Shares. The Fund's investment adviser is Federated Investment Management Company (Adviser).

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Securities in Which the Fund Invests

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

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SECURITIES DESCRIPTIONS AND TECHNIQUES

Fixed Income Securities

The following describes the types of fixed income securities in which the Fund may invest:

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.

Agency Securities

Zero Coupon Securities

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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 interest rate and credit risks of a zero coupon security.

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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, IOs and POs are the most common forms of stripped zero coupon securities. In addition, some securities give the issuer the option to deliver additional securities in place of cash interest payments, thereby increasing the amount payable at maturity. These are referred to as pay-in-kind or PIK securities.

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SPECIAL TRANSACTIONS

Repurchase Agreements

Repurchase agreements are subject to credit risks.

Delayed Delivery Transactions

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Securities Lending

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The Fund will reinvest cash collateral in securities that qualify as an acceptable investment for the Fund. However, the Fund must pay interest to the borrower for the use of cash collateral.

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Securities lending activities are subject to interest rate risks, leverage risks and credit risks.

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Asset Coverage

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Inter-Fund Borrowing and Lending Arrangements

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For example, inter-fund lending is permitted only: (a) to meet shareholder redemption requests; and (b) to meet commitments arising from "failed" trades. All inter-fund loans must be repaid in seven days or less. The Fund's participation in this program must be consistent with its investment policies and limitations, and must meet certain percentage tests. Inter-fund loans may be made only when the rate of interest to be charged is more attractive to the lending fund than market-competitive rates on overnight repurchase agreements (the Repo Rate) and more attractive to the borrowing fund than the rate of interest that would be charged by an unaffiliated bank for short-term borrowings (the Bank Loan Rate), as determined by the Board. The interest rate imposed on inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.

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Investing in Securities of Other Investment Companies

INVESTMENT RISKS

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

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Credit Risks

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Credit risk is the possibility that an issuer will default on a security by failing to pay interest or principal when due. If an issuer defaults, the Fund will lose money.

Call Risks

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Leverage Risks

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FUNDAMENTAL INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide current income. The investment objective may not be changed by the Fund's Board of Trustees without shareholder approval.

INVESTMENT LIMITATIONS

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Diversification

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Concentration

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Underwriting

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Investing in Commodities

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The Fund may not purchase or sell physical commodities, provided that the Fund may purchase securities of companies that deal in commodities.

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Investing in Real Estate

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Borrowing Money and Issuing Senior Securities

The Fund may borrow money, directly or indirectly, and issue senior securities to the maximum extent permitted under the 1940 Act.

Lending

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Purchases on Margin

The Fund will not purchase securities on margin, provided that the Fund may obtain short-term credits necessary for the clearance of purchases and sales of securities.

Pledging Assets

The Fund will not mortgage, pledge, or hypothecate any of its assets, provided that this shall not apply to the transfer of securities in connection with any permissible borrowing or to collateral arrangements in connection with permissible activities.

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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.

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PORTFOLIO TURNOVER

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DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

for fixed income securities, according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost; and
for all other securities at fair value as determined in good faith by the Board.

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.

How is the Fund Sold?

Under the Distributor's Contract with the Fund, the Distributor (Federated Securities Corp.) offers Shares on a continuous, best-efforts basis.

SUPPLEMENTAL PAYMENTS

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Subaccounting Services

Redemption in Kind

Massachusetts Partnership Law

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.

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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.

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As of April 5, 2002, the following shareholder owned of record, beneficially, or both, 5% or more of outstanding Class Y Shares: Thrift Plan for Employees of the Federal Reserve System, Newark, NJ owned approximately 6,984,944 shares (99.97%).

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Shareholders owning 25% or more of outstanding Shares may be in control and be able to affect the outcome of certain matters presented for a vote of shareholders.

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Tax Information

FEDERAL INCOME TAX

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Who Manages and Provides Services to the Fund?

BOARD OF TRUSTEES

As of April 5, 2002 the Fund's Board and Officers as a group owned less than 1% of the Fund's outstanding Institutional Shares and Institutional Service Shares.

INTERESTED TRUSTEES BACKGROUND AND COMPENSATION



Name Birth Date Address Positions Held with Fund Date Service Began	Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Positions	Aggregate Compensation From Fund (past fiscal year)	Total Compensation From Fund and Federated Fund Complex (past calendar year)
John F. Donahue* Birth Date: July 28, 1924 CHAIRMAN AND TRUSTEE Began serving: January 1984	Principal Occupations: Chief Executive Officer and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. Previous Positions: Trustee, Federated Investment Management Company and Chairman and Director, Federated Investment Counseling.	$0	$0


J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: July 1999	Principal Occupations: President or Executive Vice President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; President, Chief Executive Officer and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; President, Chief Executive Officer and Director, Federated Global Investment Management Corp.; President and Chief Executive Officer, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Position: President, Federated Investment Counseling.	$0	$0


Lawrence D. Ellis, M.D.* Birth Date: October 11, 1932 3471 Fifth Avenue Suite 1111 Pittsburgh, PA TRUSTEE Began serving: August 1987	Principal Occupations: Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center. Other Directorships Held: Member, National Board of Trustees, Leukemia Society of America. Previous Positions: Trustee, University of Pittsburgh; Director, University of Pittsburgh Medical Center.	$1,268.27	$117,117.17

INDEPENDENT TRUSTEES BACKGROUND AND COMPENSATION



Name Birth Date Address Positions Held with Fund Date Service Began	Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Positions	Aggregate Compensation From Fund (past fiscal year)	Total Compensation From Fund and Federated Fund Complex (past calendar year)
Thomas G. Bigley Birth Date: February 3, 1934 15 Old Timber Trail Pittsburgh, PA TRUSTEE Began serving: October 1995	Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director, Member of Executive Committee, University of Pittsburgh. Previous Position: Senior Partner, Ernst & Young LLP.	$1,395.26	$128,847.72


John T. Conroy, Jr. Birth Date: June 23, 1937 Grubb & Ellis/Investment Properties Corporation 3838 Tamiami Trail North Naples, FL TRUSTEE Began serving: August 1991	Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation.	$1,395.26	$128,847.66


Nicholas P. Constantakis Birth Date: September 3, 1939 175 Woodshire Drive Pittsburgh, PA TRUSTEE Began serving: February 1998	Principal Occupations: Director or Trustee of the Federated Fund Complex; Partner, Andersen Worldwide SC (prior to 9/1/97). Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide).	$1,395.26	$126,923.53


John F. Cunningham Birth Date: March 5, 1943 353 El Brillo Way Palm Beach, FL TRUSTEE Began serving: January 1999	Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, Redgate Communications and EMC Corporation (computer storage systems); 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.	$1,268.27	$115,368.16


Peter E. Madden Birth Date: March 16, 1942 One Royal Palm Way 100 Royal Palm Way Palm Beach, FL TRUSTEE Began serving: August 1991	Principal Occupation: Director or Trustee of the Federated Fund Complex; Management Consultant. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.	$1,268.27	$117,117.14


Charles F. Mansfield, Jr. Birth Date: April 10, 1945 80 South Road Westhampton Beach, NY TRUSTEE Began serving: January 1999	Principal Occupations: Director or Trustee of the Federated Fund Complex; Management Consultant; Executive Vice President, DVC Group, Inc. (marketing, communications and technology) (prior to 9/1/00). Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University.	$1,395.26	$128,847.66


John E. Murray, Jr., J.D., S.J.D. Birth Date: December 20, 1932 Chancellor, Duquesne University Pittsburgh, PA TRUSTEE Began serving: February 1995	Principal Occupations: Director or Trustee of the Federated Fund Complex; Chancellor and Law Professor, Duquesne University; Consulting Partner, Mollica & Murray. Other Directorships Held: Director, Michael Baker Corp. (engineering, construction, operations and technical services). Previous Positions: President, Duquesne University; Dean and Professor of Law, University of Pittsburgh School of Law; Dean and Professor of Law, Villanova University School of Law.	$1,451.41	$117,117.14




Name Birth Date Address Positions Held with Fund Date Service Began	Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Positions	Aggregate Compensation From Fund (past fiscal year)	Total Compensation From Fund and Federated Fund Complex (past calendar year)
Marjorie P. Smuts Birth Date: June 21, 1935 4905 Bayard Street Pittsburgh, PA TRUSTEE Began serving: February 1984	Principal Occupations: Director or Trustee of the Federated Fund Complex; Public Relations/Marketing Consultant/Conference Coordinator. Previous Positions: National Spokesperson, Aluminum Company of America; television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord.	$1,268.27	$117,117.17


John S. Walsh Birth Date: November 28, 1957 2604 William Drive Valparaiso, IN TRUSTEE Began serving: January 1999	Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Other Directorships Held: Director, Walsh & Kelly, Inc. (heavy highway contractor). Previous Position: Vice President, Walsh & Kelly, Inc.	$1,268.27	$117,117.17

OFFICERS**



Name Birth Date Address Positions Held with Fund		Principal Occupation(s) and Previous Positions
Edward C. Gonzales Birth Date: October 22, 1930 EXECUTIVE VICE PRESIDENT		Principal Occupations: President, Executive Vice President and Treasurer of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Trustee, Federated Administrative Services. Previous Positions: Trustee or Director of some of the Funds in the Federated Fund Complex; CEO and Chairman, Federated Administrative Services; Vice President, Federated Investment Management Company, Federated Investment Counseling, Federated Global Investment Management Corp. and Passport Research, Ltd.; Director and Executive Vice President, Federated Securities Corp.; Director, Federated Services Company; Trustee, Federated Shareholder Services Company.


John W. McGonigle Birth Date: October 26, 1938 EXECUTIVE VICE PRESIDENT AND SECRETARY		Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp.


Richard J. Thomas Birth Date: June 17, 1954 Federated Investors Tower 1001 Liberty Avenue Pittsburgh, PA TREASURER		Principal Occupations: Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services. Previous Positions: Vice President, Federated Administrative Services; held various management positions within Funds Financial Services Division of Federated Investors, Inc.


Richard B. Fisher Birth Date: May 17, 1923 VICE PRESIDENT		Principal Occupations: President or Vice President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. Previous Positions: Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice President, Federated Investors, Inc. and Director and Chief Executive Officer, Federated Securities Corp.


Name Birth Date Address Positions Held with Fund		Principal Occupation(s) and Previous Positions
William D. Dawson III Birth Date: March 3, 1949 CHIEF INVESTMENT OFFICER		Principal Occupations: Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Investment Management Company and Passport Research, Ltd.; Director, Federated Global Investment Management Corp. and Federated Investment Management Company; Portfolio Manager, Federated Administrative Services; Vice President, Federated Investors, Inc. Previous Positions: Executive Vice President and Senior Vice President, Federated Investment Counseling Institutional Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd.


Susan M. Nason Birth Date: August 29, 1961 VICE PRESIDENT		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.

** Officers do not receive any compensation from the Fund.

COMMITTEES OF THE BOARD

Board Committee	Committee Members	Committee Functions	Meetings Held During Last Fiscal Year
Executive	John F. Donahue John E. Murray, Jr., J.D., S.J.D.	In between meetings of the full Board, the Executive Committee generally may exercise all the powers of the full Board in the management and direction of the business and conduct of the affairs of the Fund in such manner as the Executive Committee shall deem to be in the best interests of the Fund. However, the Executive Committee cannot elect or remove Board members, increase or decrease the number of Trustees, elect or remove any Officer, declare dividends, issue shares or recommend to shareholders any action requiring shareholder approval.	None


Audit	Thomas G. Bigley John T. Conroy, Jr. Nicholas P. Constantakis Charles F. Mansfield, Jr.	The Audit Committee reviews and recommends to the full Board the independent auditors to be selected to audit the Fund's financial statements; meets with the independent auditors periodically to review the results of the audits and report the results to the full Board; evaluates the independence of the auditors, reviews legal and regulatory matters that may have a material effect on the financial statements, related compliance policies and programs, and the related reports received from regulators; reviews the Fund's internal audit function; reviews compliance with the Fund's code of conduct/ethics; reviews valuation issues; monitors inter-fund lending transactions; reviews custody services and issues and investigates any matters brought to the Committee's attention that are within the scope of its duties.	4

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BOARD OWNERSHIP OF SHARES IN THE FUND AND IN THE
FEDERATED FAMILY OF INVESTMENT COMPANIES AS OF
DECEMBER 31, 2001

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<R>Interested Board Member Name</R>	<R>Dollar Range of Shares Owned in Fund</R>	<R>Aggregate Dollar Range of Shares Owned in Federated Family of Investment Companies</R>
<R>John F. Donahue</R>	<R>None</R>	<R>Over $100,000 </R>

<R>J. Christopher Donahue</R>	<R>None</R>	<R>Over $100,000 </R>

<R>Lawrence D. Ellis, M.D.</R>	<R>None</R>	<R>Over $100,000 </R>


<R>Independent Board Member Name</R>
<R>Thomas G. Bigley</R>	<R>None</R>	<R>Over $100,000 </R>

<R>John T. Conroy, Jr.</R>	<R>None</R>	<R>Over $100,000 </R>

<R>Nicholas P. Constantakis</R>	<R>None</R>	<R>Over $100,000 </R>

<R>John F. Cunningham</R>	<R>None</R>	<R>Over $100,000 </R>

<R>Peter E. Madden</R>	<R>None</R>	<R>Over $100,000 </R>

<R>Charles F. Mansfield, Jr.</R>	<R>None</R>	<R>$50,001 - $100,000 </R>

<R>John E. Murray, Jr., J.D., S.J.D.</R>	<R>None</R>	<R>Over $100,000 </R>

<R>Marjorie P. Smuts</R>	<R>None</R>	<R>Over $100,000 </R>

<R>John S. Walsh</R>	<R>None</R>	<R>Over $100,000 </R>

INVESTMENT ADVISER

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

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The Adviser is a wholly owned subsidiary of Federated.

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Other Related Services

CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING

BROKERAGE TRANSACTIONS

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ADMINISTRATOR

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

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.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

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INDEPENDENT AUDITORS

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FEES PAID BY THE FUND FOR SERVICES

For the Year Ended February 28 or 29	<R>2002</R>	<R>2001</R>	<R>2000</R>
<R>Advisory Fee Earned</R>	<R>$1,922,325</R>	<R>$1,823,189</R>	<R>$2,121,938</R>

<R>Advisory Fee Reduction</R>	<R> 970,301</R>	<R> 7,766</R>	<R>157,068</R>

<R>Advisory Fee Reimbursement</R>	<R> 1,291</R>	<R>--</R>	<R>--</R>

Brokerage Commissions	<R> --</R>	--	--

Administrative Fee	<R> 361,715</R>	<R> 343,215</R>	<R> 399,867</R>

12b-1 Fee:

<R>Class Y Shares</R>	<R>NA</R>	<R>--</R>	<R>--</R>

Shareholder Services Fee:

<R>Class Y Shares</R>	<R>NA</R>	<R>--</R>	<R>--</R>

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How Does the Fund Measure Performance?

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AVERAGE ANNUAL TOTAL RETURNS AND YIELD

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Total return is given for the Start of Performance period ended February 28, 2002.

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Yield is given for the 30-day period ended February 28, 2002.

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<R>Share Class </R>	<R>30-Day Period</R>	<R>Start of Performance on 8/1/2001</R>
<R>Class Y:</R>
<R>Total Return:</R>
<R>Before Taxes</R>	<R>NA</R>	<R>3.32%</R>
<R>After Taxes on Distributions</R>	<R>NA</R>	<R>2.38%</R>
<R>After Taxes on Distributions and Sale of Shares</R>	<R>NA</R>	<R>2.01%</R>
<R>Yield</R>	<R>2.16%</R>	<R>NA</R>

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.

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YIELD

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PERFORMANCE COMPARISONS

Advertising and sales literature may include:

references to ratings, rankings, and financial publications and/or performance comparisons of Shares to certain indices;
<R>
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;
</R>
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 Fund; and
information about the mutual fund industry from sources such as the Investment Company Institute.

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

Merrill Lynch 1-3 Year Treasury Index

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Lipper, Inc.

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Merrill Lynch 2-Year Treasury Index

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Morningstar, Inc.

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 FUNDS OVERVIEW

Municipal Funds

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Equity Funds

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Corporate Bond Funds

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Government Funds

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Money Market Funds

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MUTUAL FUND MARKET

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FEDERATED CLIENTS OVERVIEW

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

Institutional Clients

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Bank Marketing

Broker/Dealers and Bank Broker/Dealer Subsidiaries

Addresses

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

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Class Y Shares

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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 Investment Management Company
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 Auditors

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. 2 to
Declaration of Trust of the Registrant; (16)
(iii) Conformed copy of Amendment No. 3 to
Declaration of Trust of the Registrant; (11)
(iv) Conformed copy of Amendment No. 4 to
Declaration of Trust of the Registrant; (17)
(v) Conformed copy of Amendment No. 5 to
Declaration of Trust of the Registrant; (17)
(b) (i) Copy of the Amended By-Laws of the
Registrant; (11)
(ii) Copy of Amendment No. 3 to the By-Laws of the
Registrant; (14)
(iii) Copy of Amendment No. 4 to the By-Laws of the
Registrant; (15)
(iv) Copy of Amendment No. 5 to the By-Laws of the
Registrant; (15)
(v) Copy of Amendment No. 6 to the By-Laws of the
Registrant; (15)
(c) Copy of Specimen Certificate of Shares of
Beneficial Interest of the Registrant; (11)
(d) Conformed copy of the Investment Advisory
Contract of the Registrant; (10)
(i) Conformed copy of Limited Power of Attorney
of the Adviser; +
(ii) Conformed copy of Amendment to Investment
Advisory Contract of the Registrant, dated
June 1, 2001; +

+ 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).
15. Response is incorporated by reference to Registrant's Post-Effective Amendment No.
31 to its Registration Statement on Form N-1A filed February 26, 1999. (File Nos.
2-89028 and 811-3947).
16. Response is incorporated by reference to Registrant's Post-Effective Amendment
No. 33 to its Registration Statement on Form N-1A filed April 25, 2000. (File Nos.
2-89028 and 811-3947).
17. Response is incorporated by reference to Registrant's Post-Effective Amendment
No. 35 to its Registration Statement on Form N-1A filed April 27, 2001. (File Nos.
2-89028 and 811-3947).

(e) (i) Conformed copy of the Distributor's Contract
of the Registrant; (11)
(ii) Conformed copy of Exhibit A to Distributor's
Contract of the Registrant; (17)
(iii) Conformed copy of Exhibit B to Distributor's
Contract of the Registrant; (17)
(iv) Conformed copy of Exhibit C to Distributor's
Contract of the Registrant; +
(v) Conformed copy of Amendment to Distributor's
Contract of the Registrant; +
(vi) 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 Nos. 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)
(h) (i) The responses described in Item 23(e)(iv) are
hereby incorporated by reference.
(ii) The Registrant hereby incorporates the
conformed copy of the Second Amended and
Restated Services Agreement from Item
(h)(v) of the Investment Series Funds, Inc.
Registration Statement on Form N-1A, filed
with the Commission on January 23, 2002.
(File Nos. 33-48847 and 811-07021).
(iii) Conformed copy of Amended and Restated
Agreement for Fund Accounting Services,
Administrative Services, Transfer Agency Services, and
Custody Services
Procurement; (15)
(iv) Conformed copy of Amendment to Agreement for
Fund Accounting Services, Administrative
Services, Transfer Agency Services, and
Custody Services Procurement; +
(v) The Registrant hereby incorporates by
reference the conformed copy of the 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 shares being registered; (13)

+ 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).
15. Response is incorporated by reference to Registrant's Post-Effective Amendment No.
31 to its Registration Statement on Form N-1A filed February 26, 1999. (File Nos.
2-89028 and 811-3947).
17. Response is incorporated by reference to Registrant's Post-Effective Amendment
No. 35 to its Registration Statement on Form N-1A filed April 27, 2001. (File Nos.
2-89028 and 811-3947).

(j) Conformed copy of Consent of Independent
Auditors; +
(k) Not applicable;
(l) Copy of Initial Capital Understanding; (14)
(m) (i) Conformed copy of Distribution Plan of the
Registrant; (11)
(ii) The responses described in Item 23(e)(iv)
are hereby incorporated by reference; (n)
The Registrant hereby incorporates the conformed copy
of the Multiple Class
Plan from Item (n) of the Federated Total Return
Government Bond Fund Registration
Statement on Form N-1A, filed with the Commission on April
24, 2002.
(File Nos. 33-60411 and 811-07309).
(o) (i) Conformed copy of Power of Attorney of the
Registrant; (17)
(ii) Conformed copy of Power of Attorney of Chief
Investment Officer of the Registrant; (17)
(p) The registrant hereby incorporates the
conformed copy of the Code of Ethics for Access Persons
from item 23(p) of the Federated Managed Allocation
Portfolios, Registration Statement on Form N-1A
filed with the Commission January 25, 2001. (File
Nos. 33-51247 and 811-7129).

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

None

Item 25. Indemnification: (1)
---------------

+ All exhibits have been filed electronically.

1. Response is incorporated by reference to Registrant's Post-Effective Amendment No.
17 to its Registration Statement on Form N-1A filed March 31, 1992. (File 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).
17. Response is incorporated by reference to Registrant's Post-Effective Amendment
No. 35 to its Registration Statement on Form N-1A filed April 27, 2001. (File Nos.
2-89028 and 811-3947).

Item 26. Business and Other Connections of 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
Services to the Fund?" The remaining Trustees of the investment adviser and, in
parentheses, their principal occupations are: Thomas R. Donahue, (Chief Financial
Officer, Federated Investors, Inc.), 1001 Liberty Avenue, Pittsburgh, PA, 15222-3779
and Mark D. Olson (a principal of the firm Mark D. Olson & Company, L.L.C. and
Partner, Wilson, Halbrook & Bayard, P.A.), Suite 301 Little Falls Center Two,
2751 Centerville Road, Wilmington, DE 19808.

The remaining Officers of the investment adviser are:

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

Senior Vice Presidents: Stephen F. Auth
...... Joseph M. Balestrino
...... David A. Briggs
...... Jonathan C. Conley
...... Deborah A. Cunningham
...... Michael P. Donnelly
...... Linda A. Duessel
...... Mark E. Durbiano
...... James E. Grefenstette
...... Robert M. Kowit
...... Jeffrey A. Kozemchak
...... Richard J. Lazarchic
...... Susan M. Nason
...... Mary Jo Ochson
...... Robert J. Ostrowski
...... Bernard J. Picchi
...... Frank Semack
...... Richard Tito
...... Peter Vutz

Vice Presidents: Todd A. Abraham
...... J. Scott Albrecht
...... Randall S. Bauer
...... Nancy J.Belz
...... G. Andrew Bonnewell
...... Robert E. Cauley
...... Ross M. Cohen
...... Fred B. Crutchfield
...... Lee R. Cunningham, II
...... Alexandre de Bethmann
Anthony Delserone, Jr.
...... Donald T. Ellenberger
...... Eamonn G. Folan
...... Kathleen M. Foody-Malus
...... Thomas M. Franks
...... John T. Gentry
...... David P. Gilmore
...... Marc Halperin
...... John W. Harris
...... Patricia L. Heagy
...... Susan R. Hill
...... Nikola A. Ivanov
...... William R. Jamison
...... Constantine J. Kartsonas
...... Nathan H. Kehm
...... John C. Kerber
...... Steven J. Lehman
...... Marian R. Marinack
...... Natalie F. Metz
...... Thomas J. Mitchell
...... Joseph M. Natoli
...... John L. Nichol
...... Mary Kay Pavuk
...... Jeffrey A. Petro
...... John P. Quartarolo
...... Keith J. Sabol
...... Ihab L. Salib
...... Roberto Sanchez-Dahl, Sr.
...... Aash M. Shah
...... Michael W. Sirianni, Jr.
...... Christopher Smith
...... Timothy G. Trebilcock
...... Leonardo A. Vila
...... Paige M. Wilhelm
...... Richard M. Winkowski, Jr.
...... Lori A. Wolff
...... George B. Wright

Assistant Vice Presidents: Catherine A. Arendas
...... Angela A. Auchey
...... Nicholas P. Besh
...... David Burns
...... Hanan Callas
...... Regina Chi
...... David W. Cook
...... James R. Crea, Jr.
...... Karol M. Crummie
...... Adrian Davies
...... David Dao
...... Richard J. Gallo
...... John T. Gentry
...... Anthony Han
...... Kathryn P. Heagy
...... Carol Kayworth
...... J. Andrew Kirschler
...... Ram Kolluri
...... Ted T. Lietz, Sr.
...... Monica Lugani
...... Tracey L. Lusk
...... Theresa Miller
...... Thomas Mitchell
...... Bob Nolte
...... Mary Kay Pavuk
...... Rae Ann Rice
...... James W. Schaub
...... Jennifer G. Setzenfand
...... John Sidawi
...... Diane R. Startari
...... Kyle D. Stewart
...... Mary Ellen Tesla
...... Michael R. Tucker
...... Steven J. Wagner

Secretary:.. G. Andrew Bonnewell

Treasurer:.. Thomas R. Donahue

Assistant Secretaries: C. Grant Anderson
...... Leslie K. Ross

Assistant Treasurer: Denis McAuley, III

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.

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:

Cash Trust Series II; Cash Trust Series, Inc.; CCMI Funds; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated Limited Duration Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Core Trust;
Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fixed Income
Securities, Inc.;
Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; 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 International Series, Inc.; Federated Investment Series Funds, Inc.;
Federated Managed Allocation Portfolios; Federated Municipal Opportunities Fund,
Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Securities
Income Trust; Federated Short-Term Municipal Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock 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 Total Return Government Bond
Fund; Federated Utility Fund, Inc.; Federated World Investment Series, Inc.;
FirstMerit Funds; Hibernia Funds; Independence One Mutual Funds; Intermediate
Municipal Trust; Marshall Funds; Money Market Obligations Trust; Regions Morgan
Keegan Select Funds; RIGGS Funds; SouthTrust Funds; Wachovia Variable Insurance
Funds; The Wachovia Funds; The Wachovia Municipal Funds; and Vision Group of Funds.

(b)

(1) (2) (3)
Positions and Offices Positions and Offices
With Distributor Name With Registrant
--------------------- ------------- ---------------------

Chairman: Richard B. Fisher Vice President

Director: Arthur L. Cherry

President-Institutional
Sales and Director: John B. Fisher

Director, Executive Vice
Vice President and Assistant
Secretary: Thomas R. Donahue

President-Broker/Dealer
And Director: James F. Getz

Senior Vice Presidents:
Mark W. Bloss
Richard W. Boyd
Laura M. Deger
Peter W. Eisenbrandt
Theodore Fadool, Jr.
Christopher T. Fives
James S. Hamilton
James M. Heaton
Keith Nixon
Solon A. Person, IV
Ronald M. Petnuch
Timothy C. Pillion
Thomas E. Territ
Robert F. Tousignant

Vice Presidents: Ernest G. Anderson
Teresa M. Antoszyk
John B. Bohnet
Jane E. Broeren-Lambesis
David J. Callahan
Mark Carroll
Scott Charlton
Steven R. Cohen
Mary J. Combs
R. Edmond Connell, Jr.
Kevin J. Crenny
Daniel T. Culbertson
G. Michael Cullen
Marc C. Danile
Robert J. Deuberry
Ron Dorman
William C. Doyle
Donald C. Edwards
Timothy Franklin
Joseph D. Gibbons
John K. Goettlicher
G. Tad Gullickson
Scott Gundersen
Dayna C. Haferkamp
Raymond J. Hanley
Vincent L. Harper, Jr.
Bruce E. Hastings
Charlene H. Jennings
H. Joseph Kennedy
Michael W. Koenig
Ed Koontz
Christopher A. Layton
Michael H. Liss
Michael R. Manning
Martin J. McCaffrey
Maurice W. McKinley
Amy Michalisyn
Mark J. Miehl
Richard C. Mihm
Vincent T. Morrow
Alec H. Neilly
Thomas A. Peter III
Raleigh Peters
Robert F. Phillips
Richard A. Recker
Eugene B. Reed
Christopher Renwick
John Rogers
Brian S. Ronayne
Timothy A. Rosewicz
Thomas S. Schinabeck
Edward J. Segura
Edward L. Smith
David W. Spears
Greg Spralding
John A. Staley
Colin B. Starks
Jeffrey A. Stewart
William C. Tustin
Paul A. Uhlman
Richard B. Watts
G. Walter Whalen
Patrick M. Wiethorn
Edward J. Wojnarowski
Michael P. Wolff
Scott F. Wright

Assistant Vice Presidents: Lisa Arcuri
Robert W. Bauman
Edward R. Bozek
Charles L. Davis, Jr.
Beth C. Dell
Jennifer Fetteroff
John T. Glickson
Ernest L. Linane
Renee L. Martin
Lynn Sherwood-Long

Secretary: Kirk A. Montgomery

Treasurer: Denis McAuley, III

Assistant Secretaries: Thomas R. Donahue
Timothy S. Johnson
Victor R. Siclari

The business address of each of the Officers of Federated Securities Corp. is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania 15222-3779.

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:

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

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

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

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

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

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

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 removal of Trustees and the calling of special
shareholder meetings by shareholders.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, FEDERATED U.S. Government Securities FUND: 1-3
YEARS, certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, duly authorized, in the City of Pittsburgh
and Commonwealth of Pennsylvania, on the 26th day of April, 2002.

FEDERATED U.S. Government Securities FUND: 1-3 YEARS

BY: /s/ C. Grant Anderson
C. Grant Anderson, Assistant Secretary
Attorney in Fact for John F. Donahue
April 26, 2002

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/ C. Grant Anderson
C. Grant Anderson Attorney In Fact April 26, 2002
ASSISTANT SECRETARY For the Persons
Listed Below

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

William D. Dawson, III* Chief Investment Officer

J. Christopher Donahue* President and Trustee

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

Thomas G. Bigley* Trustee

John T. Conroy, Jr.* Trustee

Nicholas P. Constantakis* Trustee

John F. Cunningham* Trustee

Lawrence D. Ellis, M.D.* Trustee

Peter E. Madden* Trustee

Charles F. Mansfield, Jr.* Trustee

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

Marjorie P. Smuts* Trustee

John S. Walsh* Trustee

* By Power of Attorney

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

PROSPECTUS

INSTITUTIONAL SHARES

CONTENTS

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

Risk/Return Bar Chart

Average Annual Total Return Table

(For the periods ended December 31, 2001)

What are the Fund's Fees and Expenses?

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

FEES AND EXPENSES

EXAMPLE

What are the Fund's Investment Strategies?

PORTFOLIO TURNOVER

What are the Principal Securities in Which the Fund Invests?

TREASURY SECURITIES

AGENCY SECURITIES

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

What Do Shares Cost?

How is the Fund Sold?

How to Purchase Shares

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

By Wire

By Check

THROUGH AN EXCHANGE

BY AUTOMATED CLEARING HOUSE (ACH)

How to Redeem and Exchange Shares

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

By Telephone

By Mail

Signature Guarantees

PAYMENT METHODS FOR REDEMPTIONS

Redemption in Kind

LIMITATIONS ON REDEMPTION PROCEEDS

EXCHANGE PRIVILEGE

ADDITIONAL CONDITIONS

Telephone Transactions

Share Certificates

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

Who Manages the Fund?

THE FUND'S PORTFOLIO MANAGERS ARE:

Susan M. Nason

Robert J. Ostrowski

ADVISORY FEES

Financial Information

FINANCIAL HIGHLIGHTS

Financial Highlights

Portfolio of Investments

Statement of Assets and Liabilities

Statement of Operations

Statement of Changes in Net Assets

Notes to Financial Statements

ORGANIZATION

SIGNIFICANT ACCOUNTING POLICIES

Investment Valuation

Repurchase Agreements

Investment Income, Expenses and Distributions

Federal Taxes

When-Issued and Delayed Delivery Transactions

Securities Lending

Use of Estimates

Other

SHARES OF BENEFICIAL INTEREST

INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Administrative Fee

Distribution Services Fee

Shareholder Services Fee

Transfer and Dividend Disbursing Agent Fees and Expenses

Portfolio Accounting Fees

TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS: