1933 Act File No. 33-50773
1940 Act File No. 811-7115
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 3 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 5 X
FEDERATED TOTAL RETURN SERIES, INC.
(formerly, Insight Institutional Series, Inc.)
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
on _________________ pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a) (i)
on _________________ pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on _________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
filed the Notice required by that Rule on __________________ or
intends to file the Notice required by that Rule on or about
____________; or
X during the most recent fiscal year did not sell any securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and,
pursuant to Rule 24f-2(b)(2), need not file the Notice.
Copies To:
Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of Federated Total Return
Series, Inc. (formerly,Insight Institutional Series, Inc.), which consists
of two portfolios: (1) Federated Short-Term Total Return Fund (formerly,
Insight Limited Term Income Fund), and (2) Federated Government Total
Return Fund (formerly, Insight U.S. Government Fund), is comprised of the
following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page (1-2) Cover Page.
Item 2. Synopsis (1-2) Summary of Fund Expenses.
Item 3. Condensed Financial
Information (1-2) Performance Information.
Item 4. General Description of
Registrant (1-2) General Information; (1-2)
Investment Information; (1-2)
Investment Objective; (1-2) Investment
Policies; (1-2) Investment
Limitations.
Item 5. Management of the Fund (1-2) Federated Total Return Series,
Inc. Information; (1-2) Management of
the Corporation; (1-2) Distribution of
Fund Shares; (1-2) Administration of
the Fund; (1-2) Expenses of the Fund.
Item 6. Capital Stock and Other
Securities (1-2) Dividends and Distributions; (1-
2) Shareholder Information; (1-2)
Voting Rights; (1-2) Tax Information;
(1-2) Federal Income Tax; (1-2)
Pennsylvania Personal Property Taxes.
Item 7. Purchase of Securities Being
Offered (1-2) Net Asset Value; (1-2) Investing
in the Fund; (1-2) Share Purchases; (1-
2) Minimum Investment Required; (1-2)
What Shares Cost; (1-2) Exchanging
Securities for Fund Shares; (1-2)
Certificates and Confirmations.
Item 8. Redemption or Repurchase (1-2) Redeeming Shares; (1-2)
Telephone Redemption; (1-2) Written
Requests; (1-2) Accounts with Low
Balances.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page (1-2) Cover Page.
Item 11. Table of Contents (1-2) Table of Contents.
Item 12. General Information and
History (1-2) General Information About the
Fund.
Item 13. Investment Objectives and
Policies (1-2) Investment Objective and
Policies; (1-2) Investment
Limitations.
Item 14. Management of the Fund (1-2) Federated Total Return Series,
Inc. Management.
Item 15. Control Persons and Principal
Holders of Securities (1-2) Fund Ownership.
Item 16. Investment Advisory and Other
Services (1-2) Investment Advisory Services; (1-
2) Shareholder Servicing; (1-2)
Transfer Agent and Dividend Disbursing
Agent; (1-2) Administrative Services.
Item 17. Brokerage Allocation (1-2) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not Applicable.
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered (1-2) Purchasing Shares; (1-2)
Determining Net Asset Value; (1-2)
Redeeming Shares.
Item 20. Tax Status (1-2) Tax Status.
Item 21. Underwriters Not Applicable.
Item 22. Calculation of Performance
Data (1-2) Total Return; (1-2) Yield; (1-2)
Performance Comparisons.
Item 23. Financial Statements To be filed by Amendment.
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may
not be sold nor may any offers to buy be accepted prior to the time
the registration statement becomes effective. This prospectus shall
not consititute an offer to sell or the solicitation of an offer to
buy nor shall there be any sale of these securities in any State in
which such offer, solicitation, or sale would be unlawful prior to
registration or qualification under the securities laws of any such
State.
Subject to Completion, April 7, 1995
Federated Short-Term Total Return Fund
(A Portfolio of Federated Total Return Series, Inc.)
Prospectus
The shares offered by this prospectus represent interests in Federated
Short-Term Total Return Fund (the "Fund"), a diversified investment
portfolio of Federated Total Return Series, Inc. (the "Corporation"), an
open-end, management investment company (a mutual fund).
The investment objective of the Fund is to provide total return. The Fund
pursues this investment objective by seeking value among most sectors of
fixed income securities.
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
by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or
any other government agency. Investment in these shares involves
investment risks, including the possible loss of principal.
This prospectus contains the information you should read and know before
you invest in shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Statement of Additional Information dated June 5,
1995, with the Securities and Exchange Commission. The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information free of charge by calling 1-800-235-4669. To obtain
other information or to make inquiries about the Fund, contact your
financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated June 5, 1995
Summary of Fund Expenses 1
General Information 2
Investment Information 2
Investment Objective 2
Investment Policies 2
Investment Limitations 11
Net Asset Value 11
Investing in the Fund 12
Share Purchases 12
Minimum Investment Required 12
What Shares Cost 12
Exchanging Securities for
Fund Shares 12
Certificates and
Confirmations 13
Dividends and Distributions 13
Redeeming Shares 13
Telephone Redemption 14
Written Requests 14
Accounts with Low Balances 14
Management of the
Corporation 15
Distribution of Fund Shares 16
Administration of the Fund 16
Expenses of the Fund 17
Shareholder Information 17
Voting Rights 17
Tax Information 18
Federal Income Tax 18
Pennsylvania Personal
Property Taxes 18
Performance Information 18
Addresses 19
Summary of Fund Expenses
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price) None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or
redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Annual Fund Operating Expenses*
(As a percentage of projected average net assets)
Management Fee (after waiver) (1) 0.00%
12b-1 Fee. None
Total Other Expenses (after expense reimbursement) 0.45%
Shareholder Services Fee 0.25%
Total Fund Operating Expenses (2) 0.45%
(1)The estimated management fee has been reduced to reflect the
anticipated voluntary waiver of the management fee. The adviser
can terminate this voluntary waiver at any time at its sole
discretion. The maximum management fee is 0.40%.
(2)The Total Fund Operating Expenses are estimated to be 5.72% absent
the anticipated voluntary waiver of the management fee and the
anticipated voluntary reimbursement of certain other operating
expenses.
*Total Fund Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending September
30, 1995. During the course of this period, expenses may be more or
less than the average amount shown.
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder of the Fund
will bear, either directly or indirectly. For more complete descriptions
of the various costs and expenses, see "Federated Total Return Series, Inc.
Information" and "Investing in the Fund." Wire-transferred redemptions of
less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years
You would pay the following
expenses on a $1,000 investment
assuming (1) 5% annual return and
(2) redemption at the end of each
time period. $5 $ 14
The above example should not be considered a representation of
past or future expenses. Actual expenses may be greater or less than those
shown. This example is based on estimated data for the Fund's fiscal year
ending September 30, 1995.
General Information
The Corporation was incorporated under the laws of the State of Maryland on
October 11, 1993. On March 21, 1995, the name of the Corporation was
changed from "Insight Institutional Series, Inc." to "Federated Total
Return Series, Inc." and the name of the Fund was changed from "Insight
Limited Term Income Fund" to "Federated Short-Term Total Return Fund." The
Articles of Incorporation permit the Corporation to offer separate
portfolios and classes of shares. As of the date of this prospectus, the
Board of Directors (the "Directors") has established two separate
portfolios: Federated Short-Term Total Return Fund and Federated Government
Total Return Fund. This prospectus relates only to the shares of Federated
Short-Term Total Return Fund.
The Fund is designed for institutions seeking total return through a
professionally managed, diversified portfolio investing primarily in fixed
income securities. A minimum initial investment of $25,000 over a 90-day
period is required.
Fund shares are sold and redeemed at net asset value without a sales load
imposed by the Fund.
Investment Information
Investment Objective
The investment objective of the Fund is to provide total return. The
investment objective cannot be changed without approval of shareholders.
While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the investment policies
described in this prospectus.
Investment Policies
The Fund pursues its investment objective by investing primarily in a
diversified portfolio of fixed income securities. Under normal
circumstances, the Fund will invest at least 65% of the value of its total
assets in investment grade debt securities. The remainder of the Fund's
assets may be invested in any of the securities discussed below. The
Fund's weighted-average portfolio duration will at all times be limited to
three years or less. Unless indicated otherwise, the investment policies
may be changed by the Directors without the approval of shareholders.
Shareholders will be notified before any material change in these
investment policies becomes effective.
Acceptable Investments. The Fund invests in a professionally managed,
diversified portfolio consisting primarily of corporate debt obligations,
and may also invest in U.S. government obligations and mortgage-backed and
asset-backed securities. The Fund may also invest in derivative instruments
of such securities, including instruments with demand features or credit
enhancement, as well as money market instruments, cash, and stripped
mortgage-backed securities.
The securities in which the Fund invests principally are:
o domestic and foreign issues of corporate debt obligations having
floating or fixed rates of interest and rated B or better by
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("Standard & Poor's"), or Fitch Investors Service,
Inc. ("Fitch"), or which are of comparable quality in the
judgment of the adviser;
o obligations issued or guaranteed as to payment of principal and
interest by the U.S. government, or its agencies or
instrumentalities;
o mortgage-backed securities;
o asset-backed securities rated B or better by Moody's, Standard &
Poor's, or Fitch, or which are of comparable quality in the
judgment of the adviser;
o municipal securities;
o rated commercial paper which matures in 270 days or less so long
as at least one rating is considered high quality by a
nationally recognized statistical rating organization (such
ratings would include Prime-1 or Prime-2 by Moody's, A-1 or A-2
by Standard & Poor's, or F-1 or F-2 by Fitch), or which is of
comparable quality in the judgment of the adviser;
o time deposits (including savings deposits and certificates of
deposit) and bankers' acceptances in commercial or savings banks
whose accounts are insured by the Bank Insurance Fund ("BIF") or
the Savings Association Insurance Fund ("SAIF"), both of which
are administered by the Federal Deposit Insurance Corporation
("FDIC"), including certificates of deposit issued by and other
time deposits in foreign branches of FDIC insured banks or who
have at least $100 million in capital; and
o repurchase agreements collateralized by eligible investments.
Corporate Debt Obligations. The Fund invests in corporate debt
obligations, including corporate bonds, notes, medium term notes, and
debentures, which may have floating or fixed rates of interest. The
prices of fixed income securities fluctuate inversely to the
direction of interest rates.
Floating Rate Corporate Debt Obligations. The Fund expects to
invest in floating rate corporate debt obligations, including
increasing rate securities. Floating rate securities are generally
offered at an initial interest rate which is at or above
prevailing market rates. The interest rate paid on these
securities is then reset periodically (commonly every 90 days) to
an increment over some predetermined interest rate index. Commonly
utilized indices include the three-month Treasury bill rate, the
six-month Treasury bill rate, the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a bank, the
commercial paper rates, or the longer-term rates on U.S. Treasury
securities.
Increasing rate securities, which currently do not make up a
significant share of the market in corporate debt securities, are
generally offered at an initial interest rate which is at or above
prevailing market rates. Interest rates are reset periodically
(most commonly every 90 days) at different levels on a
predetermined scale. These levels of interest are ordinarily set
at progressively higher increments over time. Some increasing rate
securities may, by agreement, revert to a fixed rate status. These
securities may also contain features which allow the issuer the
option to convert the increasing rate of interest to a fixed rate
under such terms, conditions, and limitations as are described in
each issue's prospectus.
Fixed Rate Corporate Debt Obligations. The Fund will also invest
in fixed rate securities, including fixed rate securities with
short-term characteristics. Fixed rate securities with short-term
characteristics are long-term debt obligations but are treated in
the market as having short maturities because call features of the
securities may make them callable within a short period of time. A
fixed rate security with short-term characteristics would include
a fixed income security priced close to call or redemption price
or a fixed income security approaching maturity, where the
expectation of call or redemption is high.
Fixed rate securities tend to exhibit more price volatility during
times of rising or falling interest rates than securities with
floating rates of interest. This is because floating rate
securities, as described above, behave like short-term instruments
in that the rate of interest they pay is subject to periodic
adjustments based on a designated interest rate index. Fixed rate
securities pay a fixed rate of interest and are more sensitive to
fluctuating interest rates. In periods of rising interest rates
the value of a fixed rate security is likely to fall. Fixed rate
securities with short-term characteristics are not subject to the
same price volatility as fixed rate securities without such
characteristics. Therefore, they behave more like floating rate
securities with respect to price volatility.
Variable Rate Demand Notes. Variable rate demand notes are long-
term corporate debt instruments that have variable or floating
interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus
accrued interest. Such securities typically bear interest at a
rate that is intended to cause the securities to trade at par. The
interest rate may float or be adjusted at regular intervals
(ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Many variable
rate demand notes allow the Fund to demand the repurchase of the
security on not more than seven days prior notice. Other notes
only permit the Fund to tender the security at the time of each
interest rate adjustment or at other fixed intervals. See "Demand
Features."
U.S. Government Securities. The Fund may invest in U.S. government
securities, which generally include direct obligations of the U.S. Treasury
(such as U.S. Treasury bills, notes, and bonds) and obligations (including
mortgage-backed securities, bonds, notes and discount notes) issued or
guaranteed by the following U.S. government agencies or instrumentalities:
Farm Credit System, including the National Bank for Cooperatives, Farm
Credit Banks, and Banks for Cooperatives; Farmers Home Administration;
Federal Home Loan Banks; Federal Home Loan Mortgage Corporation; Federal
National Mortgage Association; Government National Mortgage Association;
and Student Loan Marketing Association. These securities are backed by:
the full faith and credit of the U.S. Treasury; the issuer's right to
borrow an amount limited to a specific line of credit from the U.S.
Treasury; the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or the credit of the
agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which are permissible
investments which may not always receive financial support from the U.S.
government are: Farm Credit System, including the National Bank for
Cooperatives, Farm Credit Banks, and Banks for Cooperatives; Federal Home
Loan Banks; Federal National Mortgage Association; Student Loan Marketing
Association; and Federal Home Loan Mortgage Corporation.
Mortgage-Backed Securities. Mortgage-backed securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property. There are currently three
basic types of mortgage-backed securities: (i) those issued or guaranteed
by the U.S. government or one of its agencies or instrumentalities, such as
Government National Mortgage Association ("Ginnie Mae"), the Federal
National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage
Corporation ("Freddie Mac"); (ii) those issued by private issuers that
represent an interest in or are collateralized by mortgage-backed
securities issued or guaranteed by the U.S. government or one of its
agencies or instrumentalities; (iii) those issued by private issuers that
represent an interest in or are collateralized by whole loans or mortgage-
backed securities without a government guarantee but usually having some
form of private credit enhancement; and (iv) privately issued securities
which are collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government.
The privately issued mortgage-related securities provide for a periodic
payment consisting of both interest and/or principal. The interest portion
of these payments will be distributed by the Fund as income, and the
capital portion will be reinvested.
Adjustable Rate Mortgage Securities ("ARMS"). ARMS are pass-
through mortgage securities with adjustable rather than fixed
interest rates. The ARMS in which the Fund invests are issued by
Ginnie Mae, Fannie Mae, and Freddie Mac and are actively traded.
The underlying mortgages which collateralize ARMS issued by Ginnie
Mae are fully guaranteed by the Federal Housing Administration or
Veterans Administration, while those collateralizing ARMS issued
by Fannie Mae or Freddie Mac are typically conventional
residential mortgages conforming to strict underwriting size and
maturity constraints.
Collateralized Mortgage Obligations ("CMOs"). CMOs are debt
obligations collateralized by mortgage loans or mortgage pass-
through securities. Typically, CMOs are collateralized by Ginnie
Mae, Fannie Mae or Freddie Mac certificates, but may be
collateralized by whole loans or private pass-through securities.
CMOs may have fixed or floating rates of interest.
The Fund will invest only in CMOs that are rated A or better by a
nationally recognized statistical rating organization. The Fund
may also invest in certain CMOs which are issued by private
entities such as investment banking firms and companies related to
the construction industry. The CMOs in which the Fund may invest
may be: (i) securities which are collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S.
government; (ii) securities which are collateralized by pools of
mortgages in which payment of principal and interest is guaranteed
by the issuer and such guarantee is collateralized by U.S.
government securities; (iii) collateralized by pools of mortgages
in which payment of principal and interest is dependent upon the
underlying pool of mortgages with no U.S. government guarantee; or
(iv) other securities in which the proceeds of the issuance are
invested in mortgage-backed securities and payment of the
principal and interest is supported by the credit of an agency or
instrumentality of the U.S. government.
Real Estate Mortgage Investment Conduits ("REMICs"). REMICs are
offerings of multiple class mortgage-backed securities which
qualify and elect treatment as such under provisions of the
Internal Revenue Code. Issuers of REMICs may take several forms,
such as trusts, partnerships, corporations, associations, or
segregated pools of mortgages. Once REMIC status is elected and
obtained, the entity is not subject to federal income taxation.
Instead, income is passed through the entity and is taxed to the
person or persons who hold interests in the REMIC. A REMIC
interest must consist of one or more classes of "regular
interests," some of which may offer adjustable rates of interest,
and a single class of "residual interests." To qualify as a REMIC,
substantially all the assets of the entity must be in assets
directly or indirectly secured principally by real property.
Asset-Backed Securities. Asset-backed securities have structural
characteristics similar to mortgage-backed securities but have underlying
assets that generally are not mortgage loans or interests in mortgage
loans. The Fund may invest in asset-backed securities including, but not
limited to, interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables, equipment
leases, manufactured housing (mobile home) leases, or home equity loans.
These securities may be in the form of pass-through instruments or asset-
backed bonds. The securities are issued by non-governmental entities and
carry no direct or indirect government guarantee.
Investment Risks of Mortgage-Backed and Asset-Backed Securities.
Mortgage-backed and asset-backed securities generally pay back
principal and interest over the life of the security. At the time
the Fund reinvests the payments and any unscheduled prepayments of
principal received, the Fund may receive a rate of interest which
is actually lower than the rate of interest paid on these
securities ("prepayment risks"). Mortgage-backed and asset-backed
securities are subject to higher prepayment risks than most other
types of debt instruments with prepayment risks because the
underlying mortgage loans or the collateral supporting asset-
backed securities may be prepaid without penalty or premium.
Prepayment risks on mortgage-backed securities tend to increase
during periods of declining mortgage interest rates because many
borrowers refinance their mortgages to take advantage of the more
favorable rates. Prepayments on mortgage-backed securities are
also affected by other factors, such as the frequency with which
people sell their homes or elect to make unscheduled payments on
their mortgages. Although asset-backed securities generally are
less likely to experience substantial prepayments than are
mortgage-backed securities, certain factors that affect the rate
of prepayments on mortgage-backed securities also affect the rate
of prepayments on asset-backed securities.
While mortgage-backed securities generally entail less risk of a
decline during periods of rapidly rising interest rates, mortgage-
backed securities may also have less potential for capital
appreciation than other similar investments (e.g., investments
with comparable maturities) because as interest rates decline, the
likelihood increases that mortgages will be prepaid. Furthermore,
if mortgage-backed securities are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some
loss of a holder's principal investment to the extent of the
premium paid. Conversely, if mortgage-backed securities are
purchased at a discount, both a scheduled payment of principal and
an unscheduled prepayment of principal would increase current and
total returns and would accelerate the recognition of income,
which would be taxed as ordinary income when distributed to
shareholders.
Asset-backed securities present certain risks that are not
presented by mortgage-backed securities. Primarily, these
securities do not have the benefit of the same security interest
in the related collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by motor vehicle installment
purchase obligations permit the servicer of such receivables to
retain possession of the underlying obligations. If the servicer
sells these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the
holders of the related asset-backed securities. Further, if a
vehicle is registered in one state and is then re-registered
because the owner and obligor moves to another state, such re-
registration could defeat the original security interest in the
vehicle in certain cases. In addition, because of the large number
of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of
asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing
such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be
available to support payments on these securities.
Bank Instruments. The Fund only invests in Bank Instruments either issued
by an institution that has capital, surplus and undivided profits over $100
million or is insured by the BIF or the SAIF. Bank Instruments may include
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). The banks issuing
these instruments are not necessarily subject to the same regulatory
requirements that apply to domestic banks, such as reserve requirements,
loan requirements, loan limitations, examinations, accounting, auditing,
and recordkeeping and the public availability of information.
Credit Facilities. Demand notes are borrowing arrangements between a
corporation and an institutional lender (such as the Fund) payable upon
demand by either party. The notice period for demand typically ranges from
one to seven days, and the party may demand full or partial payment.
Revolving credit facilities are borrowing arrangements in which the lender
agrees to make loans up to a maximum amount upon demand by the borrower
during a specified term. As the borrower repays the loan, an amount equal
to the repayment may be borrowed again during the term of the facility. The
Fund generally acquires a participation interest in a revolving credit
facility from a bank or other financial institution. The terms of the
participation require the Fund to make a pro rata share of all loans
extended to the borrower and entitles the Fund to a pro rata share of all
payments made by the borrower. Demand notes and revolving facilities
usually provide for floating or variable rates of interest.
Credit Enhancement. Certain of the Fund's acceptable investments may have
been credit enhanced by a guaranty, letter of credit or insurance. The Fund
typically evaluates the credit quality and ratings of credit enhanced
securities based upon the financial condition and ratings of the party
providing the credit enhancement (the "credit enhancer"), rather than the
issuer. Generally, the Fund will not treat credit enhanced securities as
having been issued by the credit enhancer for diversification purposes.
However, under certain circumstances applicable regulations may require the
Fund to treat the securities as having been issued by both the issuer and
the credit enhancer. The bankruptcy, receivership or default of the credit
enhancer will adversely affect the quality and marketability of the
underlying security.
Demand Features. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed
period following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the
underlying security. The Fund uses these arrangements to provide the Fund
with liquidity and not to protect against changes in the market value of
the underlying securities. The bankruptcy, receivership or default by the
issuer of the demand feature, or a default on the underlying security or
other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying
security are treated as a form of credit enhancement.
Interest Rate Swaps. As one way of managing its exposure to different
types of investments, the Fund may enter into interest rate swaps, currency
swaps, and other types of swap agreements such as caps, collars, and
floors. Depending on how they are used, swap agreements may increase or
decrease the overall volatility of the Fund's investments, its share price
and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on the Fund's performance. Swap agreements are subject
to risks related to the counterparty's ability to perform, and may decline
in value if the counterparty's creditworthiness deteriorates. The Fund may
also suffer losses if it is unable to terminate outstanding swap agreements
to reduce its exposure through offsetting transactions. When the Fund
enters into a swap agreement, assets of the Fund equal to the value of the
swap agreement will be segregated by the Fund.
Financial Futures and Options on Futures. The Fund may purchase and sell
financial futures contracts to hedge all or a portion of its portfolio
against changes in interest rates. Financial futures contracts call for the
delivery of particular debt instruments at a certain time in the future.
The seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take delivery
of the instrument at the specified future time.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its
portfolio against decreases in value. When the Fund writes a call option on
a futures contract, it is undertaking the obligation of selling a futures
contract at a fixed price at any time during a specified period if the
option is exercised. Conversely, as purchaser of a put option on a futures
contract, the Fund is entitled (but not obligated) to sell a futures
contract at the fixed price during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the
Fund's existing futures positions and premiums paid for related options
would exceed 5% of the market value of the Fund's total assets. When the
Fund purchases a futures contract, an amount of cash and cash equivalents,
equal to the underlying commodity value of the futures contract (less any
related margin deposits), will be deposited in a segregated account with
the Fund's custodian (or the broker, if legally permitted) to collateralize
the position and thereby insure that the use of such futures contract is
unleveraged.
Risks. When the Fund uses financial futures and options on
financial futures as hedging devices, there is a risk that the
prices of the securities subject to the futures contracts may not
correlate perfectly with the prices of the securities in the
Fund's portfolio. This may cause the futures contract and any
related options to react differently than the portfolio securities
to market changes. In addition, the Fund's investment adviser
could be incorrect in its expectations about the direction or
extent of market factors such as interest rate movements. In these
events, the Fund may lose money on the futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the
investment adviser will consider liquidity before entering into
options transactions, there is no assurance that a liquid
secondary market on an exchange or otherwise will exist for any
particular futures contract or option at any particular time. The
Fund's ability to establish and close out futures and options
positions depends on this secondary market.
Foreign Securities. The Fund may invest in foreign securities, including
foreign securities not publicly traded in the United States. Investments in
foreign securities involve special risks that differ from those associated
with investments in domestic securities. The risks associated with
investments in foreign securities relate to political and economic
developments abroad, as well as those that result from the differences
between the regulation of domestic securities and issuers and foreign
securities and issuers. These risks may include, but are not limited to,
expropriation, confiscatory taxation, currency fluctuations, withholding
taxes on interest, limitations on the use or transfer of assets, political
or social instability, ability to obtain or enforce court judgments abroad
and adverse diplomatic developments. Moreover, individual foreign economies
may differ favorably or unfavorably from the domestic economy in such
respects as growth of gross national product, the rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
Additional differences exist between investing in foreign and domestic
securities. Examples of such differences include: less publicly available
information about foreign issuers; credit risks associated with certain
foreign governments; the lack of uniform financial accounting standards
applicable to foreign issuers; less readily available market quotations on
foreign issues; the likelihood that securities of foreign issuers may be
less liquid or more volatile; generally higher foreign brokerage
commissions; and unreliable mail service between countries. The Fund will
not invest more than 15% of its assets in foreign securities.
Currency Risks. Foreign securities are denominated in foreign
currencies. Therefore, the value in U.S. dollars of the Fund's
assets and income may be affected by changes in exchange rates and
regulations. Although the Fund values its assets daily in U.S.
dollars, it will not convert its holdings of foreign currencies to
U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers
realize a profit on the difference between the prices at which
they buy and sell currencies.
The Fund will engage in foreign currency exchange transactions in
connection with its investments in foreign securities. The Fund
will conduct its foreign currency exchange transactions either on
a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through forward contracts to
purchase or sell foreign currencies.
Forward Foreign Currency Exchange Contracts. A forward foreign
currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These
contracts are traded directly between currency traders (usually
large commercial banks) and their customers. When the Fund enters
into a contract for the purchase or sale of a security denominated
in a foreign currency, it may want to establish the U.S. dollar
cost or proceeds, as the case may be. By entering into a forward
contract in U.S. dollars for the purchase or sale of the amount of
foreign currency involved in an underlying security transaction,
the Fund attempts to protect itself against a possible loss
between trade and settlement dates resulting from an adverse
change in the relationship between the U.S. dollar and such
foreign currency. However, this tends to limit potential gains
which might result from a positive change in such currency
relationships.
The Fund will not enter into forward foreign currency exchange
contracts or maintain a net exposure in such contracts where the
Fund would be obligated to deliver an amount of foreign currency
in excess of the value of the Fund's securities or other assets
denominated in that currency or denominated in a currency or
currencies that the adviser believes will reflect a high degree of
correlation with the currency with regard to price movements. The
Fund generally will not enter into forward foreign currency
exchange contracts with a term longer than one year.
High-Yield Debt Obligations. The Fund may invest in debt securities that
are not investment-grade bonds but are rated B or higher by Standard &
Poor's, Fitch, or Moody's (or, if unrated, determined by the adviser to be
of comparable quality). Downgraded securities will be evaluated on a case-
by-case basis by the adviser. The adviser will determine whether or not the
security continues to be an acceptable investment. If not, the security
will be sold. Securities which are rated lower than BBB by Standard &
Poor's or Fitch or Baa or lower by Moody's either have speculative
characteristics or are speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligations.
Securities rated BB or Ba and below are commonly referred to as "junk
bonds." A description of the rating categories is contained in the
Appendix to the Statement of Additional Information.
Debt obligations that are not determined to be investment grade are high-
yield, high-risk bonds, typically subject to greater market fluctuations
and greater risk of loss of income and principal due to an issuer's
default. To a greater extent than investment-grade bonds, lower-rated
bonds tend to reflect short-term corporate, economic and market
developments, as well as investor perceptions of the issuer's credit
quality. In addition, lower-rated bonds may be more difficult to dispose
of or to value than higher-rated, lower-yielding bonds.
Federated Management, the Fund's investment adviser, attempts to reduce the
risks described above through diversification of the portfolio and by
credit analysis of each issuer as well as by monitoring broad economic
trends and corporate and legislative developments.
Average Portfolio Duration. Although the Fund will not maintain a stable
net asset value, the adviser will seek to limit, to the extent consistent
with the Fund's investment objective of total return, the magnitude of
fluctuations in the Fund's net asset value by limiting the dollar-weighted
average duration of the Fund's portfolio. Duration is a commonly used
measure of the potential volatility of the price of a debt security, or the
aggregate market value of a portfolio of debt securities, prior to
maturity. Securities with shorter durations generally have less volatile
prices than securities of comparable quality with longer durations. The
Fund should be expected to maintain a higher average duration during
periods of lower expected market volatility, and a lower average duration
during periods of higher expected market volatility. In any event, the
Fund's dollar-weighted average duration will not exceed three years.
Repurchase Agreements. Repurchase agreements are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell
U.S. government securities or other securities to the Fund and agree at the
time of sale to repurchase them at a mutually agreed upon time and price.
To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any
sale of such securities.
Restricted and Illiquid Securities. The Fund intends to invest in
restricted securities. Restricted securities are any securities in which
the Fund may otherwise invest pursuant to its investment objective and
policies, but which are subject to restriction on resale under federal
securities law. The Fund will limit investments in illiquid securities,
including certain restricted securities not determined by the Directors to
be liquid, non-negotiable time deposits, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of
the value of its net assets.
Investing in Securities of Other Investment Companies. The Fund may invest
in the securities of other investment companies, but it will not own more
than 3% of the total outstanding voting stock of any investment company,
invest more than 5% of its total assets in any one investment company, or
invest more than 10% of its total assets in investment companies in
general. The Fund will invest in other investment companies primarily for
the purpose of investing short-term cash which has not yet been invested in
other portfolio instruments. It should be noted that investment companies
incur certain expenses such as management fees and, therefore, any
investment by the Fund in shares of another investment company would be
subject to such duplicate expenses. The investment adviser will waive its
investment advisory fee on assets invested in securities of open-end
investment companies.
Lending of Portfolio Securities. In order to generate additional income,
the Fund may lend portfolio securities on a short-term or long-term basis,
to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks,
or other institutions which the investment adviser has determined are
creditworthy under guidelines established by the Directors and will receive
collateral in the form of cash or U.S. government securities equal to at
least 100% of the value of the securities loaned at all times.
There is the risk that when lending portfolio securities, the securities
may not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable
price. In addition, in the event that a borrower of securities would file
for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action.
When-Issued and Delayed Delivery Transactions. The Fund may purchase
securities on a when-issued or delayed delivery basis. These transactions
are arrangements in which the Fund purchases securities with payment and
delivery scheduled for a future time. The seller's failure to complete the
transaction may cause the Fund to miss a price or yield considered to be
advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may
vary from the purchase prices. Accordingly, the Fund may pay more or less
than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
Investment Limitations
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for
a percentage of its cash value with an agreement to buy it back
on a set date) or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value
of its total assets and pledge its assets to secure such
borrowings; or
o with respect to 75% of its total assets, invest more than 5% of
the value of its total assets in securities of any one issuer
(other than cash, cash items, or securities issued or guaranteed
by the U.S. government and its agencies or instrumentalities,
and repurchase agreements collateralized by such securities) or
acquire more than 10% of the outstanding voting securities of
any one issuer.
The above investment limitations cannot be changed without
shareholder approval.
Net Asset Value
The Fund's net asset value per share fluctuates. It is determined by
dividing the sum of the market value of all securities and all other
assets, less liabilities, by the number of shares outstanding.
Investing in the Fund
Share Purchases
Fund shares are sold on days on which the New York Stock Exchange is open.
Shares may be purchased either by wire or mail.
To purchase shares of the Fund, open an account by calling Federated
Securities Corp. Information needed to establish the account will be taken
over the telephone. The Fund reserves the right to reject any purchase
request.
By Wire. To purchase shares of the Fund by Federal Reserve wire, call the
Fund before 4:00 p.m. (Eastern time) to place an order. The order is
considered received immediately. Payment by federal funds must be received
before 3:00 p.m. (Eastern time) on the next business day following the
order. Federal funds should be wired as follows: Federated Services
Company, c/o State Street Bank and Trust Company, Boston, Massachusetts;
Attention: EDGEWIRE; For Credit to: Federated Short-Term Total Return
Fund; Fund number (this number can be found on the account statement or by
contacting the Fund); Group Number or Order Number; Nominee or Institution
Name; ABA Number 011000028.
By Mail. To purchase shares of the Fund by mail, send a check made payable
to Federated Short-Term Total Return Fund to the Fund's transfer agent,
Federated Services Company, c/o State Street Bank and Trust Company, P.O.
Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are considered
received after payment by check is converted by the transfer agent's bank,
State Street Bank, into federal funds. This is normally the next business
day after State Street Bank receives the check.
Minimum Investment Required
The minimum initial investment in the Fund is $25,000 plus any non-
affiliated bank or broker's fee. However, an account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days.
An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund. Accounts established
through a non-affiliated bank or broker may be subject to a smaller minimum
investment.
What Shares Cost
Fund shares are sold at their net asset value next determined after an
order is received. There is no sales load imposed by the Fund. Investors
who purchase Shares through a non-affiliated bank or broker may be charged
an additional service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday
through Friday, except on: (i) days on which there are not sufficient
changes in the value of the Fund's portfolio securities that its net asset
value might be materially affected; (ii) days during which no shares are
tendered for redemption and no orders to purchase shares are received; and
(iii) the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day.
Exchanging Securities for Fund Shares
The Fund may accept securities in exchange for Fund shares. The Fund will
allow such exchanges only upon the prior approval of the Fund and a
determination by the Fund and the Adviser that the securities to be
exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies of
the Fund, must have a readily ascertainable market value, and must be
liquid. The market value of any securities exchanged in an initial
investment, plus any cash, must be at least equal to the minimum investment
in the Fund. The Fund acquires the exchanged securities for investment and
not for resale.
Securities accepted by the Fund will be valued in the same manner as the
Fund values its assets. The basis of the exchange will depend on the net
asset value of Fund shares on the day the securities are valued. One share
of the Fund will be issued for the equivalent amount of securities
accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends,
subscription or other rights attached to the securities become the property
of the Fund, along with the securities.
If an exchange is permitted, it will be treated as a sale for federal
income tax purposes. Depending upon the cost basis of the securities
exchanged for Fund shares, a gain or loss may be realized by the investor.
Certificates and Confirmations
As transfer agent for the Fund, Federated Services Company maintains a
share account for each shareholder. Share certificates are not issued
unless requested on the application or by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly statements are sent to report dividends paid during
the month.
Dividends and Distributions
Dividends are declared daily and paid monthly. Distributions of any net
realized long-term capital gains will be made at least once every twelve
months. Dividends and distributions are automatically reinvested in
additional shares of the Fund on payment dates at net asset value, unless
cash payments are requested by shareholders on the application or by
writing to Federated Securities Corp.
Dividends are declared just prior to determining net asset value. If an
order for shares is placed on the preceding business day, shares purchased
by wire begin earning dividends on the business day wire payment is
received by State Street Bank. If the order for shares and payment by wire
are received on the same day, shares begin earning dividends on the next
business day. Shares purchased by check begin earning dividends on the
business day after the check is converted, upon instruction of the transfer
agent, into federal funds.
Shares earn dividends through the business day that proper redemption
instructions are received by State Street Bank.
Redeeming Shares
The Fund redeems shares at their net asset value next determined after the
Fund receives the redemption request. Redemptions will be made on days on
which the Fund computes its net asset value. Redemption requests must be
received in proper form and can be made by telephone request or by written
request.
Telephone Redemption
Shareholders may redeem their shares by telephoning the Fund before 4:00
p.m. (Eastern time). The proceeds will normally be wired the following
business day, but in no event more than seven days, to the shareholder's
account at a domestic commercial bank that is a member of the Federal
Reserve System. If at any time the Fund shall determine it necessary to
terminate or modify this method of redemption, shareholders will be
promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by
the Fund, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. In the event of drastic economic or market changes,
a shareholder may experience difficulty in redeeming by telephone. If such
a case should occur, another method of redemption, such as "Written
Requests," should be considered.
Written Requests
Shares may also be redeemed by sending a written request to the Fund. Call
the Fund for specific instructions before redeeming by letter. The
shareholder will be asked to provide in the request his or her name, the
Fund name, the shareholder's account number, and the share or dollar amount
requested. If share certificates have been issued, they must be properly
endorsed and should be sent by registered or certified mail with the
written request.
Signatures. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record
with the Fund, or a redemption payable other than to the shareholder of
record must have signatures on written redemption requests guaranteed by:
o a trust company or commercial bank whose deposits are insured by
the BIF, which is administered by the FDIC;
o a member of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;
o a savings bank or savings and loan association whose deposits
are insured by the SAIF, which is administered by the FDIC; or
o any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
Receiving Payment. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a
proper written redemption request, provided that the transfer agent has
received payment for the shares from the shareholder.
Accounts with Low Balances
Due to the high cost of maintaining accounts with low balances, the Fund
may redeem shares in any account, and pay the proceeds to the shareholder,
if the account balance falls below a required minimum value of $25,000 due
to shareholder redemptions. This requirement does not apply, however, if
the balance falls below $25,000 because of changes in the Fund's net asset
value. Before shares are redeemed to close an account, the shareholder is
notified in writing and allowed 30 days to purchase additional shares to
meet the minimum requirement.
Federated Total Return Series, Inc. Information
Management of the Corporation
Board of Directors. The Fund is managed by a Board of Directors. The
Directors are responsible for managing the Corporation's business affairs
and for exercising all the Corporation's powers except those reserved for
the shareholders. The Executive Committee of the Board of Directors handles
the Directors' responsibilities between meetings of the Directors.
Investment Adviser. Investment decisions for the Fund are made by Federated
Management (the "Adviser"), the Fund's investment adviser, subject to
direction by the Directors. The Adviser continually conducts investment
research and supervision for the Fund and is responsible for the purchase
or sale of portfolio instruments, for which it receives an annual fee from
the Fund.
Advisory Fees. The Fund's Adviser receives an annual investment
advisory fee equal to 0.40 of 1% of the Fund's average daily net
assets. Under the investment advisory contract, which provides for
voluntary waivers of expenses by the Adviser, the Adviser may
voluntarily waive some or all of its fee. The Adviser can
terminate this voluntary waiver of some or all of its advisory fee
at any time at its sole discretion. The Adviser has also
undertaken to reimburse the Fund for operating expenses in excess
of limitations established by certain states.
Adviser's Background. Federated Management, a Delaware business
trust organized on April 11, 1989, is a registered investment
adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting)
shares of Federated Investors are owned by a trust, the trustees
of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated
Investors.
Federated Management and other subsidiaries of Federated Investors
serve as investment advisers to a number of investment companies
and private accounts. Certain other subsidiaries also provide
administrative services to a number of investment companies. Total
assets under management or administration by these and other
subsidiaries of Federated Investors are approximately $70 billion.
Federated Investors, which was founded in 1956 as Federated
Investors, Inc., develops and manages mutual funds primarily for
the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse
investment philosophy serve approximately 3,500 client
institutions nationwide. Through these same client institutions,
individual shareholders also have access to this same level of
investment expertise.
Portfolio Manager's Background. Susan M. Nason has been the
Fund's portfolio manager since its inception. Ms. Nason joined
Federated Investors in 1987 and has been a Vice President of the
Fund's investment adviser since 1993. Ms. Nason served as an
Assistant Vice President of the investment adviser from 1990 until
1992, and from 1987 until 1990 she acted as an investment analyst.
Ms. Nason is a Chartered Financial Analyst and received her M.B.A.
in Finance from Carnegie Mellon University.
Other Payments to Financial Institutions. In addition to periodic payments
to financial institutions under the Shareholder Services Plan, certain
financial institutions may be compensated by the Adviser or its affiliates
for the continuing investment of customers' assets in certain funds,
including the Fund, advised by those entities. These payments will be made
directly by the distributor or Adviser from their assets, and will not be
made from the assets of the Fund or by the assessment of a sales load on
shares.
The Glass-Steagall Act limits the ability of a depository institution (such
as a commercial bank or a savings and loan association) to become an
underwriter or distributor of securities. In the event the Glass-Steagall
Act is deemed to prohibit depository institutions from acting in the
capacities described in this prospectus or should Congress relax current
restrictions on depository institutions, the Directors will consider
appropriate changes in the administrative services.
State securities laws governing the ability of depository
institutions to act as underwriters or distributors of securities may
differ from interpretations given to the Glass-Steagall Act and,
therefore, banks and financial institutions may be required to
register as dealers pursuant to state law.
Distribution of Fund Shares
Federated Securities Corp. is the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
Administration of the Fund
Administrative Services. Federated Administrative Services, a subsidiary
of Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund. Federated Administrative Services provides these at an
annual rate which relates to the average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors ("Federated Funds") as
specified below:
Average Aggregate Daily Net
Assets
Maximum Administrative Fee of the Federated
Funds
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 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 Administrative Services may choose to voluntarily waive a portion
of its fee.
Shareholder Services Plan. The Fund has adopted a Shareholder Services
Plan (the "Services Plan") under which it may make payments up to 0.25 of
1% of the average daily net asset value of the Fund to obtain certain
personal services for shareholders and the maintenance of shareholder
accounts ("shareholder services"). The Fund has entered into a Shareholder
Services Agreement with Federated Shareholder Services, a subsidiary of
Federated Investors, under which Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions
to perform shareholder services. Financial institutions will receive fees
based upon shares owned by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder
Services.
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,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund and
dividend disbursing agent for the Fund.
Independent Auditors. The independent auditors for the Fund are Ernst &
Young LLP, Pittsburgh, Pennsylvania.
Expenses of the Fund
Shareholders of the Fund pay their allocable portion of Fund and
Corporation expenses.
The Corporation expenses for which shareholders pay their allocable portion
include, but are not limited to, the cost of: organizing the Corporation
and continuing its existence; registering the Corporation with federal and
state securities authorities; Directors' fees; auditors' fees; meetings of
Directors; legal fees of the Corporation; association membership dues and
such non-recurring and extraordinary items as may arise from time to time.
The Fund expenses for which shareholders pay their allocable portion
include, but are not limited to, the cost of: investment advisory and
administrative services; printing prospectuses and other Fund documents for
shareholders; registering the Fund and shares of the Fund with federal and
state securities commissions; taxes and commissions; issuing, purchasing,
repurchasing and redeeming shares; fees for custodians, transfer agents,
dividend disbursing agents, shareholder servicing agents and registrars;
printing, mailing, auditing, accounting and legal expenses; reports to
shareholders and governmental agencies; meetings of shareholders and proxy
solicitations therefor; insurance premiums; and such non-recurring and
extraordinary items as may arise from time to time.
Shareholder Information
Voting Rights
Each share of the Fund is entitled to one vote at all meetings of
shareholders. All shares of all portfolios in the Corporation have equal
voting rights except that in matters affecting only a particular portfolio,
only shares of that portfolio are entitled to vote.
As a Maryland corporation, the Fund is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Fund's operation and for the election of Directors under
certain circumstances.
Directors may be removed by a majority vote of the shareholders at a
special meeting. A special meeting of shareholders shall be called by the
Directors upon the request of shareholders owning at least 10% of the
Corporation's outstanding shares of all series entitled to vote.
Tax Information
Federal Income Tax
The Fund will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code applicable to regulated
investment companies and to receive the special tax treatment afforded to
such companies.
The Fund will be treated as a single, separate entity for federal income
tax purposes so that income (including capital gains) and losses realized
by the Corporation's other portfolios will not be combined for tax purposes
with those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income
tax on any dividends and other distributions, including capital gains
distributions, received. This applies whether dividends and distributions
are received in cash or as additional shares. Distributions representing
long-term capital gains, if any, will be taxable to shareholders as long-
term capital gains no matter how long the shareholders have held their
shares. Information on the tax status of dividends and distributions is
provided annually.
Pennsylvania Personal Property Taxes
The Fund is not subject to Pennsylvania personal property taxes. Fund
shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
Performance Information
From time to time, the Fund advertises its total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the offering price per share of the
Fund on the last day of the period. This number is then annualized using
semi-annual compounding. The yield does not necessarily reflect income
actually earned by the Fund and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
The Fund is sold without any sales load or other similar non-recurring
charges. From time to time, advertisements for the Fund may refer to
ratings, rankings, and other information in certain financial publications
and/or compare the Fund's performance to certain indices.
Addresses
Federated Short-Term Total Return Fund Federated Investors
Tower
Pittsburgh,
Pennsylvania 15222-3779
Distributor
Federated Securities Corp. Federated Investors
Tower
Pittsburgh,
Pennsylvania 15222-3779
Investment Adviser
Federated Management Federated Investors
Tower
Pittsburgh,
Pennsylvania 15222-3779
Custodian
State Street Bank and P.O. Box 8604
Trust Company Boston, Massachusetts
02266-8604
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors
Tower
Pittsburgh,
Pennsylania 15222-3779
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh,
Pennsylvania 15219
Federated Short-Term
Total Return Fund
Prospectus
A Diversified Portfolio of
Federated Total Return Series, Inc.
an Open-End, Management
Investment Company
June 5, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
3112402A (4/95)
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may
not be sold nor may any offers to buy be accepted prior to the time
the registration statement becomes effective. This Statement of
Additional Information shall not consititute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation, or sale
would be unlawful prior to registration or qualification under the
securities laws of any such State.
Subject to Completion, April 7, 1995
Federated Short-Term Total Return Fund
(A Portfolio of Federated Total Return Series, Inc. )
Statement of Additional Information
This Statement of Additional Information should be read with the
prospectus of Federated Short-Term Total Return Fund (the "Fund")
dated June 5, 1995. This Statement is not a prospectus itself. To
receive a copy of the prospectus, write or call the Fund.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated June 5, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
General Information
About the Fund 1
Investment Objective and
Policies 1
Types of Investments 1
Adjustable Rate
Mortgage Securities
("ARMS") 1
Collateralized Mortgage
Obligations ("CMOs") 1
Real Estate Mortgage
Investment Conduits
("REMICs") 2
Interest-Only and
Principal-Only
Investments 2
Privately Issued
Mortgage-Related
Securities 2
Resets of Interest 2
Caps and Floors 2
Foreign Bank
Instruments 3
Futures and Options
Transactions 3
Medium Term Notes and
Deposit Notes 4
Average Life 4
Weighted Average
Portfolio Duration 5
When-Issued and Delayed
Delivery Transactions 5
Lending of Portfolio
Securities 5
Restricted and Illiquid
Securities 5
Repurchase Agreements 6
Reverse Repurchase
Agreements 6
Portfolio Turnover 6
Investment Limitations 6
Federated Total Return
Series, Inc. Management 9
Officers and Directors 9
Fund Ownership 12
Directors Compensation 13
Director Liability 13
Investment Advisory
Services 14
Adviser to the Fund 14
Advisory Fees 14
Shareholder Servicing 14
Transfer Agent and
Dividend Disbursing
Agent 14
Administrative Services 14
Brokerage Transactions 15
Purchasing Shares 15
Determining Net Asset
Value 15
Determining Market
Value of Securities 15
Valuing Municipal Bonds 15
Use of Amortized Cost 16
Redeeming Shares 16
Redemption in Kind 16
Tax Status 16
The Fund's Tax Status 16
Shareholders' Tax
Status 16
Total Return 17
Yield 17
Performance Comparisons 17
Appendix 18
General Information About the Fund
The Fund is a portfolio of Federated Total Return Series, Inc. (the
"Corporation"). The Corporation was incorporated under the laws of the
State of Maryland on October 11, 1993. On March 21, 1995, the name of the
Corporation was changed from "Insight Institutional Series, Inc." to
"Federated Total Return Series, Inc." and the name of the Fund was changed
from "Insight Limited Term Income Fund" to "Federated Short-Term Total
Return Fund."
Investment Objective and Policies
The investment objective of the Fund is to provide total return. The
investment objective cannot be changed without approval of shareholders.
The investment policies stated below may be changed by the Board of
Directors ("Directors") without shareholder approval. Shareholders will be
notified before any material change in the investment policies becomes
effective.
Types of Investments
The Fund pursues its investment objective by investing primarily in a
diversified portfolio of fixed income securities. Under normal
circumstances, the Fund will invest at least 65% of the value of its total
assets in investment grade debt securities. The Fund's weighted-average
portfolio duration will at all times be limited to three years or less.
Adjustable Rate Mortgage Securities ("ARMS")
The ARMS in which the Fund invests will be issued by Government National
Mortgage Association, Federal National Mortgage Association, and Federal
Home Loan Mortgage Corporation. Unlike conventional bonds, ARMS pay back
principal over the life of the ARMS rather than at maturity. Thus, a
holder of the ARMS, such as the Fund, would receive monthly scheduled
payments of principal and interest, and may receive unscheduled principal
payments representing payments on the underlying mortgages. At the time
that a holder of the ARMS reinvests the payments and any unscheduled
prepayments of principal that it receives, the holder may receive a rate of
interest which is actually lower than the rate of interest paid on the
existing ARMS. As a consequence, ARMS may be a less effective means of
"locking in" long-term interest rates than other types of U.S. government
securities.
Like other U.S. government securities, the market value of ARMS will
generally vary inversely with changes in market interest rates. Thus, the
market value of ARMS generally declines when interest rates rise and
generally rises when interest rates decline.
While ARMS generally entail less risk of a decline during periods of
rapidly rising rates, ARMS may also have less potential for capital
appreciation than other similar investments (e.g., investments with
comparable maturities) because, as interest rates decline, the likelihood
increases that mortgages will be prepaid. Furthermore, if ARMS are
purchased at a premium, mortgage foreclosures and unscheduled principal
payments may result in some loss of a holder's principal investment to the
extent of the premium paid. Conversely, if ARMS are purchased at a
discount, both a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total returns and would
accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
Collateralized Mortgage Obligations ("CMOs")
The following example illustrates how mortgage cash flows are prioritized
in the case of CMOs - most of the CMOs in which the Fund invests use the
same basic structure:
(1) several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of securities.
The first three (A, B, and C bonds) pay interest at their stated rates
beginning with the issue date, and the final class (Z bond) typically
receives any excess income from the underlying investments after payments
are made to the other classes and receives no principal or interest
payments until the shorter maturity classes have been retired, but then
receives all remaining principal and interest payments;
(2) The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities; and
(3) The classes of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity class (or A bond).
When those securities are completely retired, all principal payments are
then directed to the next shortest-maturity security (or B bond). This
process continues until all of the classes have been paid off.
Because the cash flow is distributed sequentially instead of pro rata, as
with pass-through securities, the cash flows and average lives of CMOs are
more predictable, and there is a period of time during which the investors
in the longer-maturity classes receive no principal paydowns. The interest
portion of these payments is distributed by the Fund as income, and the
capital portion is reinvested.
Real Estate Mortgage Investment Conduits ("REMICs")
REMICs are offerings of multiple class mortgage-backed securities which
qualify and elect treatment as such under provisions of the Internal
Revenue Code. Issuers of REMICs may take several forms, such as trusts,
partnerships, corporations, associations, or segregated pools of mortgages.
Once REMIC status is elected and obtained, the entity is not subject to
federal income taxation. Instead, income is passed through the entity and
is taxed to the person or persons who hold interests in the REMIC. A REMIC
interest must consist of one or more classes of "regular interests," some
of which may offer adjustable rates of interest, and a single class of
"residual interests." To qualify as a REMIC, substantially all the assets
of the entity must be in assets directly or indirectly secured principally
by real property.
Interest-Only and Principal-Only Investments
Some of the securities purchased by the Fund may represent an interest
solely in the principal repayments or solely in the interest payments on
mortgage-backed securities (stripped mortgage-backed securities or
"SMBSs"). SMBSs are usually structured with two classes and receive
different proportions of the interest and principal distributions on the
pool of underlying mortgage-backed securities. Due to the possibility of
prepayments on the underlying mortgages, SMBSs may be more interest-rate
sensitive than other securities purchased by the Fund. If prevailing
interest rates fall below the level at which SMBSs were issued, there may
be substantial prepayments on the underlying mortgages, leading to the
relatively early prepayments of principal-only SMBSs (the principal-only or
"PO" class) and a reduction in the amount of payments made to holders of
interest-only SMBSs (the interest-only or "IO" class). Because the yield
to maturity of an IO class is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage-backed
securities, it is possible that the Fund might not recover its original
investment on interest-only SMBSs if there are substantial prepayments on
the underlying mortgages. The Fund's inability to fully recoup its
investments in these securities as a result of a rapid rate of principal
prepayments may occur even if the securities are rated by an NRSRO.
Therefore, interest-only SMBSs generally increase in value as interest
rates rise and decrease in value as interest rates fall, counter to changes
in value experienced by most fixed income securities.
Privately Issued Mortgage-Related Securities
Privately issued mortgage-related securities generally represent an
ownership interest in federal agency mortgage pass-through securities such
as those issued by Government National Mortgage Association as well as
those issued by non-government related entities. The terms and
characteristics of the mortgage instruments may vary among pass-through
mortgage loan pools. The market for such mortgage-related securities has
expanded considerably since its inception. The size of the primary
issuance market and the active participation in the secondary market by
securities dealers and other investors makes government-related and non-
government related pools highly liquid.
Resets of Interest
The interest rates paid on the ARMS, CMOs, and REMICs in which the Fund
invests generally are readjusted at intervals of one year or less to an
increment over some predetermined interest rate index. There are two main
categories of indices: those based on U.S. Treasury securities and those
derived from a calculated measure, such as a cost of funds index or a
moving average of mortgage rates. Commonly utilized indices include the one-
year and five-year constant maturity Treasury Note rates, the three-month
Treasury Bill rate, the 180-day Treasury Bill rate, rates on longer-term
Treasury securities, the National Median Cost of Funds, the one-month or
three-month London Interbank Offered Rate (LIBOR), the prime rate of a
specific bank, or commercial paper rates. Some indices, such as the one-
year constant maturity Treasury Note rate, closely mirror changes in market
interest rate levels.
To the extent that the adjusted interest rate on the mortgage security
reflects current market rates, the market value of an adjustable rate
mortgage security will tend to be less sensitive to interest rate changes
than a fixed rate debt security of the same stated maturity. Hence, ARMS
which use indices that lag changes in market rates should experience
greater price volatility than adjustable rate mortgage securities that
closely mirror the market.
Caps and Floors
The underlying mortgages which collateralize the ARMS, CMOs, and REMICs in
which the Fund invests will frequently have caps and floors which limit the
maximum amount by which the loan rate to the residential borrower may
change up or down: (1) per reset or adjustment interval, and (2) over the
life of the loan. Some residential mortgage loans restrict periodic
adjustments by limiting changes in the borrower's monthly principal and
interest payments rather than limiting interest rate changes. These payment
caps may result in negative amortization.
The value of mortgage securities in which the Fund invests may be affected
if market interest rates rise or fall faster and farther than the allowable
caps or floors on the underlying residential mortgage loans. Additionally,
even though the interest rates on the underlying residential mortgages are
adjustable, amortization and prepayments may occur, thereby causing the
effective maturities of the mortgage securities in which the Fund invests
to be shorter than the maturities stated in the underlying mortgages.
Foreign Bank Instruments
Eurodollar Certificates of Deposit ("ECDs"), Eurodollar Time Deposits
("ETDs"), Yankee Certificates of Deposit ("Yankee CDs"), and Europaper are
subject to somewhat different risks than domestic obligations of domestic
issuers. Examples of these risks include international, economic and
political developments, foreign governmental restrictions that may
adversely affect the payment of principal or interest, foreign withholdings
or other taxes on interest income, difficulties in obtaining or enforcing a
judgment against the issuing bank, and the possible impact of interruptions
of the flow of international currency transactions. Different risks may
also exist for ECDs, ETDs, and Yankee CDs because the banks issuing these
instruments, or their domestic or foreign branches, are not necessarily
subject to the same regulatory requirements that apply to domestic banks,
such as reserve requirements, loan requirements, loan limitations,
examinations, accounting, auditing, and recordkeeping and the public
availability of information. These factors will be carefully considered by
the Fund's adviser in selecting investments for the Fund.
Futures and Options Transactions
The Fund may attempt to hedge all or a portion of its portfolio by buying
and selling financial futures contracts, buying put options on portfolio
securities and listed put options on futures contracts, and writing call
options on futures contracts. The Fund may also write covered call options
on portfolio securities to attempt to increase its current income. The Fund
currently does not intend to invest more than 5% of its total assets in
options transactions.
Financial Futures Contracts
A futures contract is a firm commitment by two parties: the seller
who agrees to make delivery of the specific type of security called
for in the contract ("going short") and the buyer who agrees to take
delivery of the security ("going long") at a certain time in the
future. In the fixed income securities market, price moves inversely
to interest rates. A rise in rates means a drop in price. Conversely,
a drop in rates means a rise in price. In order to hedge its holdings
of fixed income securities against a rise in market interest rates,
the Fund could enter into contracts to deliver securities at a
predetermined price (i.e., "go short") to protect itself against the
possibility that the prices of its fixed income securities may
decline during the Fund's anticipated holding period. The Fund would
agree to purchase securities in the future at a predetermined price
(i.e., "go long") to hedge against a decline in market interest
rates.
Put Options on Financial Futures Contracts
The Fund may purchase listed put options on financial futures
contracts. Unlike entering directly into a futures contract, which
requires the purchaser to buy a financial instrument on a set date at
a specified price, the purchase of a put option on a futures contract
entitles (but does not obligate) its purchaser to decide on or before
a future date whether to assume a short position at the specified
price.
The Fund would purchase put options on futures contracts to protect
portfolio securities against decreases in value resulting from an
anticipated increase in market interest rates. Generally, if the
hedged portfolio securities decrease in value during the term of an
option, the related futures contracts will also decrease in value and
the option will increase in value. In such an event, the Fund will
normally close out its option by selling an identical option. If the
hedge is successful, the proceeds received by the Fund upon the sale
of the second option will be large enough to offset both the premium
paid by the Fund for the original option plus the decrease in value
of the hedged securities.
Alternatively, the Fund may exercise its put option. To do so, it
would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of the
option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the
Fund neither closes out nor exercises an option, the option will
expire on the date provided in the option contract, and the premium
paid for the contract will be lost.
Call Options on Financial Futures Contracts
In addition to purchasing put options on futures, the Fund may write
listed call options on futures contracts to hedge its portfolio
against an increase in market interest rates. When the Fund writes a
call option on a futures contract, it is undertaking the obligation
of assuming a short futures position (selling a futures contract) at
the fixed strike price at any time during the life of the option if
the option is exercised. As market interest rates rise, causing the
prices of futures to go down, the Fund's obligation under a call
option on a future (to sell a futures contract) costs less to
fulfill, causing the value of the Fund's call option position to
increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the
call, so that the Fund keeps the premium received for the option.
This premium can offset the drop in value of the Fund's fixed income
portfolio which is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of
it by the buyer, the Fund may close out the option by buying an
identical option. If the hedge is successful, the cost of the second
option will be less than the premium received by the Fund for the
initial option. The net premium income of the Fund will then offset
the decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds
the current market value of its securities portfolio plus or minus
the unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the
futures contracts. If this limitation is exceeded at any time, the
Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract.
Rather, the Fund is required to deposit an amount of "initial margin"
in cash or U.S. Treasury bills with its custodian (or the broker, if
legally permitted). The nature of initial margin in futures
transactions is different from that of margin in securities
transactions in that futures contract initial margin does not involve
the borrowing of funds by the Fund to finance the transactions.
Initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual
obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
Fund pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known
as "marking to market." Variation margin does not represent a
borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the
Fund will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin when it
writes call options on futures contracts.
Purchasing Put Options on Portfolio Securities
The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A
put option gives the Fund, in return for a premium, the right to sell
the underlying security to the writer (seller) at a specified price
during the term of the option.
Writing Covered Call Options on Portfolio Securities
The Fund may also write covered call options to generate income. As
writer of a call option, the Fund has the obligation upon exercise of
the option during the option period to deliver the underlying
security upon payment of the exercise price. The Fund may only sell
call options either on securities held in its portfolio or on
securities which it has the right to obtain without payment of
further consideration (or has segregated cash in the amount of any
additional consideration).
Medium Term Notes and Deposit Notes
Medium term notes ("MTNs") and Deposit Notes are similar to corporate debt
obligations as described in the prospectus. MTNs and Deposit Notes trade
like commercial paper, but may have maturities from 9 months to ten years.
Average Life
Average life, as applicable to asset-backed securities, is computed by
multiplying each principal repayment by the time of payment (months or
years from the evaluation date), summing these products, and dividing the
sum by the total amount of principal repaid. The weighted-average life is
calculated by multiplying the maturity of each security in a given pool by
its remaining balance, summing the products, and dividing the result by the
total remaining balance.
Weighted Average Portfolio Duration
Duration is a commonly used measure of the potential volatility of the
price of a debt security, or the aggregate market value of a portfolio of
debt securities, prior to maturity. Duration measures the magnitude of the
change in the price of a debt security relative to a given change in the
market rate of interest. The duration of a debt security depends upon three
primary variables: the security's coupon rate, maturity date and the level
of market interest rates for similar debt securities. Generally, debt
securities with lower coupons or longer maturities will have a longer
duration than securities with higher coupons or shorter maturities.
Duration is calculated by dividing the sum of the time-weighted values of
cash flows of a security or portfolio of securities, including principal
and interest payments, by the sum of the present values of the cash flows.
Certain debt seucrities, such as asset-backed securities, may be subject to
prepayment at irregular intervals. The duration of these instruments will
be calculated based upon assumptions established by the investment adviser
as the the probable amount and sequence of principal prepayments.
Mathematically, duration is measured as follows:
Duration = PVCF1(1) + PVCF2(2) + PVCF3(3) + ... + PVCFn(n)
PVTCF PVTCF PVTCF PVTCF
where
PVCTFt = the present value of the cash flow in period t discounted at
the prevailing yield-to-maturity
t = the period when the cash flow is received
n = remaining number of periods until maturity
PVTCF = total present value of the cash flow from the bond where the
present value is determined using the prevailing yield-to-
maturity.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date. These assets are
marked to market daily and are maintained until the transaction has been
settled. The Fund does not intend to engage in when-issued and delayed
delivery transactions to an extent that would cause the segregation of more
than 20% of the total value of its assets.
Lending of Portfolio Securities
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker.
Restricted and Illiquid Securities
The ability of the Directors to determine the liquidity of certain
restricted securities is permitted under the Securities and Exchange
Commission ("SEC") Staff position set forth in the adopting release for
Rule 144A under the Securities Act of 1933 (the "Rule"). The Rule is a non-
exclusive safe harbor for certain secondary market transactions involving
securities subject to restrictions on resale under federal securities laws.
The Rule provides an exemption from registration for resales of otherwise
restricted securities to qualified institutional buyers. The Rule was
expected to further enhance the liquidity of the secondary market for
securities eligible for resale under Rule 144A. The Fund believes that the
Staff of the SEC has left the question of determining the liquidity of all
restricted securities to the Directors. The Directors consider the
following criteria in determining the liquidity of certain restricted
securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
Repurchase Agreements
The Fund requires its custodian to take possession of the securities
subject to repurchase agreements, and these securities are marked to market
daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. In the event that a defaulting seller
files for bankruptcy or becomes insolvent, disposition of securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. 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 guidelines established by the Directors.
Reverse Repurchase Agreements
The Fund may also enter into reverse repurchase agreements. A reverse
repurchase transaction is similar to borrowing cash. In a reverse
repurchase agreement the Fund transfers possession of a portfolio
instrument to another person, such as a financial institution, broker, or
dealer, in return for a percentage of the instrument's market value in
cash, and agrees that on a stipulated date in the future, the Fund will
repurchase the portfolio instrument by remitting the original consideration
plus interest at an agreed upon rate. The use of reverse repurchase
agreements may enable the Fund to avoid selling portfolio instruments at a
time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will
be able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
Portfolio Turnover
The Fund will not attempt to set or meet a portfolio turnover rate since
any turnover would be incidental to transactions undertaken in an attempt
to achieve the Fund's investment objective. It is not anticipated that the
portfolio trading engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%.
Investment Limitations
Selling Short or Buying on Margin
The Fund will not sell any securities short or purchase any
securities on margin, but may obtain such short-term credits as may
be necessary for clearance of purchases and sales of portfolio
securities. The deposit or payment by the Fund of initial or
variation margin in connection with futures contracts or related
options transactions is not considered the purchase of a security on
margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may
borrow money directly or through reverse repurchase agreements in
amounts up to one-third of the value of its total assets, including
the amount borrowed. The Fund will not borrow money or engage in
reverse repurchase agreements for investment leverage, but rather as
a temporary, extraordinary, or emergency measure to facilitate
management of the Fund by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while any borrowings in excess of 5% of its total assets
are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets:
margin deposits for the purchase and sale of financial futures
contracts and related options, and segregation or collateral
arrangements made in connection with options activities or the
purchase of securities on a when-issued basis.
Diversification of Investments
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one
issuer (other than cash, cash items, or securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities,
and repurchase agreements collateralized by such securities) if, as a
result, more than 5% of the value of its total assets would be
invested in the securities of that issuer, and will not acquire more
than 10% of the outstanding voting securities of any one issuer.
Investing in Real Estate
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate
or in securities which are secured by real estate or interests in
real estate.
Investing in Commodities
The Fund will not purchase or sell commodities, commodity contracts,
or commodity futures contracts except to the extent that the Fund may
engage in transactions involving financial futures contracts or
options on financial futures contracts.
Underwriting
The Fund will not underwrite any issue of securities, except as it
may be deemed to be an underwriter under the Securities Act of 1933
in connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio
securities. This shall not prevent the Fund from purchasing or
holding U.S. government obligations, money market instruments,
variable rate demand notes, bonds, debentures, notes, certificates of
indebtedness, or other debt securities, entering into repurchase
agreements, or engaging in other transactions where permitted by the
Fund's investment objective, policies, and limitations.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets
in any one industry (other than securities issued by the U.S.
government, its agencies or instrumentalities).
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Directors without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
Investing in Restricted Securities
The Fund will not invest more than 10% of the value of its total
assets in securities subject to restrictions on resale under the
Securities Act of 1933, except for commercial paper issued under
Section 4(2) of the Securities Act of 1933 and certain other
restricted securities which meet the criteria for liquidity as
established by the Directors.
Investing in Illiquid Securities
The Fund will not invest more than 15% of the value of its net assets
in illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed
time deposits with maturities over seven days, and certain restricted
securities not determined by the Directors to be liquid.
Investing in New Issuers
The Fund will not invest more than 5% of the value of its total
assets in securities of companies, including their predecessors, that
have been in operation for less than three years. With respect to
asset-backed securities, the Fund will treat the originator of the
asset pool as the company issuing the security for purposes of
determining compliance with this limitation.
Investing in Minerals
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest
in the securities of issuers which invest in or sponsor such
programs.
Investing in Securities of Other Investment Companies
The Fund will limit its investment in other investment companies to
no more than 3% of the total outstanding voting stock of any
investment company, invest no more than 5% of its total assets in any
one investment company, and invest no more than 10% of its total
assets in investment companies in general. The Fund will purchase
securities of investment companies only in open-market transactions
involving only customary broker's commissions. However, these
limitations are not applicable if the securities are acquired in a
merger, consolidation, or acquisition of assets.
Dealing in Puts and Calls
The Fund will not purchase puts, calls, straddles, spreads, or any
combination of them, if by reason thereof the value of such
securities would exceed 5% of its total assets.
Investing in Issuers Whose Securities are Owned by Officers and
Directors of the Corporation
The Fund will not purchase or retain the securities of any issuer if
the officers and Directors of the Corporation or the Fund's
investment adviser, owning individually more than 1/2 of 1% of the
issuer's securities, together own more than 5% of the issuer's
securities.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of the 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 does not expect to borrow money, pledge securities or engage in
reverse repurchase agreements during the coming fiscal year.
To comply with registration requirements in certain states, the Fund
(1) will limit the aggregate value of the assets underlying covered call
options or put options written by the Fund to not more than 25% of its net
assets, (2) will limit the premiums paid for options purchased by the Fund
to 5% of its net assets, and (3) will limit the margin deposits on futures
contracts entered into by the Fund to 5% of its net assets. (If state
requirements change, these restrictions may be revised without shareholder
notification.)
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items."
Federated Total Return Series, Inc. Management
Officers and Directors
Officers and Directors are listed with their addresses, birthdates,
present positions with Federated Total Return Series, Inc., and principal
occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life and
Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Vice President and Director of the Corporation.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of
the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; President, Northgate Village
Development Corporation; Partner or Trustee in private real estate ventures
in Southwest Florida; Director, Trustee, or Managing General Partner of the
Funds; formerly, President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director,
Ryan Homes, Inc.
J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Vice President and Director
th
the son of John F. Donahue, Chairman and Director of the Corporation.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; Director, Trustee, or Managing General Partner of the
Funds.
Edward L. Flaherty, Jr.@
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Brithdate: June 18, 1924
Director
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.
Peter E. Madden
225 Franklin Street
Boston, MA
Brithdate: April 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President,
State Street Bank and Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee,
or Managing General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
John E. Murray, Jr., J.D., S.J.D.
Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the
Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds; staff member, Federated Securities Corp. and Federated
Administrative Services.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice President
and Treasurer, Federated Advisers, Federated Management, Federated
Research, Federated Research Corp., and Passport Research, Ltd.; Executive
Vice President, Treasurer, and Director, Federated Securities Corp.;
Trustee, Federated Services Company and Federated Shareholder Services;
Chairman, Treasurer, and Trustee, Federated Administrative Services;
Trustee or Director of some of the Funds; Vice President and Treasurer of
the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Federate
Federated Administrative Services; Secretary and Trustee, Federated
Shareholder Services; Executive Vice President and Director, Federated
Securities Corp.; Vice President and Secretary of the Funds.
* This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of the Board
of Directors handles the responsibilities of the Board of Directors
between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Cash Management Trust; Automated Government
Money Trust; California Municipal Cash Trust; Cash Trust Series II; Cash
Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated Growth Trust;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Intermediate Government Trust; Federated Master Trust; Federated
Municipal Trust; Federated Short-Intermediate Government Trust; Federated
Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free
Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed
Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund,
Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.;
Fund for U.S. Government Securities, Inc.; Government Income Securities,
Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.; Insurance
Management Series; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty
Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty
Municipal Securities Fund, Inc.; Liberty U.S. Government Money Market
Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid
Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; New York Municipal Cash Trust; 111 Corcoran Funds;
Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut
Funds; Short-Term Municipal Trust; Star Funds; The Starburst Funds; The
Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted
Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for
Financial Institutions; Trust For Government Cash Reserves; Trust for Short-
Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The
Virtus Funds; and World Investment Series, Inc.
Fund Ownership
Officers and Directors own less than 1% of the outstanding shares of the
Fund.
Directors Compensation
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
CORPORATION CORPORATION*# FROM FUND COMPLEX +
John F. Donahue $ -0- $ -0- for the Corporation and
Chairman and Director 68 other investment companies in the Fund
Complex
Thomas G. Bigley $ -0- $ 20,688 for the Corporation and
Director 49 other investment companies in the Fund Complex
John T. Conroy, Jr. $ -0- $ 117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
William J. Copeland $ -0- $ 117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
J. Christopher Donahue $ -0- $ -0- for the Corporation and
Vice President and Director 14 other investment companies in the Fund Complex
James E. Dowd $ -0- $ 117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $ -0- $ 106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $ -0- $117,202 for the Corporation and
Director 64 other investment companies in the Fund Complex
Peter E. Madden $ -0- $ 90,563 for the Corporation and
Director 64 other investment companies in the Fund Complex
Gregor F. Meyer $ -0- $ 106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
John E. Murray, Jr. $ -0- $ -0- for the Corporation and
Director 69 other investment companies in the Fund Complex
Wesley W. Posvar $ -0- $ 106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
Marjorie P. Smuts $ -0- $ 106,460 for the Corporation and
Director 64 other investment companies in the Fund Complex
*Information is furnished for the period from October 12, 1993,
organization date of the Corporation, to September 30, 1994.
#The aggregate compensation is provided for the Corporation which is
comprised of 2 portfolios.
+The information is provided for the last calendar year.
Director Liability
The Corporation's Articles of Incorporation provide that the Directors will
not be liable for errors of judgment or mistakes of fact or law. However,
they are not protected against any liability to which they would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of their
office.
Investment Advisory Services
Adviser to the Fund
The Fund's investment adviser is Federated Management (the "Adviser"). It
is a subsidiary of Federated Investors. All of the voting securities of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund or any 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.
Advisory Fees
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectus.
State Expense Limitation
The Adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose shares
are registered for sale in those states. If the Fund's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2-1/2% per year of the first $30 million of average
net assets, 2% per year of the next $70 million of average net
assets, and 1-1/2% per year of the remaining average net assets, the
Adviser will reimburse the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
expense limitation, the investment advisory fee paid will be reduced
by the amount of the excess, subject to an annual adjustment. If the
expense limitation is exceeded, the amount to be waived by the
Adviser will be limited, in any single fiscal year, by the amount of
the investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
Shareholder Servicing
In return for providing shareholder servicing to its customers who from
time to time may be owners of record or beneficial owners of shares of the
Fund, a financial institution may receive payments from the Fund at a rate
not exceeding 0.25 of 1% of the average daily net assets of the shares
beneficially owned by the financial institution's customers for whom it is
holder of record or with whom it has a servicing relationship. These
services may include, but are not limited to, the provision of personal
services and maintenance of shareholder accounts.
Federated Securities Corp. may also pay financial institutions a fee based
upon the net asset value of the Fund shares beneficially owned by the
financial institution's clients or customers. This fee is in addition to
amounts paid under the Shareholder Services Plan and will be reimbursed by
the Adviser.
Transfer Agent and Dividend Disbursing Agent
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Fund. The fee paid to the transfer agent is based upon the
size, type and number of accounts and transactions made by shareholders.
Federated Services Company also maintains the Corporation's accounting
records. The fee paid for this service is based upon the level of the
Fund's average net assets for the period plus out-of-pocket expenses.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Directors.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
Adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of the
brokerage and research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising Federated funds and other
accounts. To the extent that receipt of these services may supplant
services for which the Adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses.
Purchasing Shares
Except under certain circumstances described in the prospectus, shares are
sold at their net asset value on days the New York Stock Exchange is open
for business. The procedure for purchasing shares of the Fund is explained
in the prospectus under "Investing in the Fund."
Determining Net Asset Value
Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the prospectus.
Determining Market Value of Securities
Market values of the Fund's securities, other than options, are determined
as follows:
o as provided by an independent pricing service;
o for short-term obligations, according to the mean bid and asked prices,
as furnished by an independent pricing service, or for short-term
obligations with remaining maturities of 60 days or less at the time of
purchase, at amortized cost unless the Directors determine this is not
fair value; or
o at fair value as determined in good faith by the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:
yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data.
The Fund will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
option trading on such exchanges unless the Directors determine in good
faith that another method of valuing option positions is necessary.
Valuing Municipal Bonds
The Directors use an independent pricing service to value municipal bonds.
The independent pricing service takes into consideration yield, stability,
risk, quality, coupon rate, maturity, type of issue, trading
characteristics, special circumstances of a security or trading market, and
any other factors or market data it considers relevant in determining
valuations for normal institutional size trading units of debt securities
and does not rely exclusively on quoted prices.
Use of Amortized Cost
The Directors have decided that the fair value of debt securities
authorized to be purchased by the Fund with remaining maturities of 60 days
or less at the time of purchase shall be their amortized cost value, unless
the particular circumstances of the security indicate otherwise. Under
this method, portfolio instruments and assets are valued at the acquisition
cost as adjusted for amortization of premium or accumulation of discount
rather than at current market value. The Executive Committee continually
assesses this method of valuation and recommends changes where necessary to
assure that the Fund's portfolio instruments are valued at their fair value
as determined in good faith by the Directors.
Redeeming Shares
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although State Street Bank does not
charge for telephone redemptions, it reserves the right to charge a fee for
the cost of wire-transferred redemptions of less than $5,000.
Redemption in Kind
The Corporation has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940, under which a Fund is obligated to redeem shares for
any one shareholder solely in cash only up to the lesser of $250,000 or 1%
of the Fund's net asset value during any 90-day period.
Any redemption beyond this amount will also be in cash unless the Directors
determine that payments should be in kind. In such a case, the Fund will
pay all or a portion of the remainder of the redemption in portfolio
instruments, valued in the same way that net asset value is determined. The
portfolio instruments will be selected in a manner that the Directors deem
fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
Tax Status
The Fund's Tax Status
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional shares. No portion of any income
dividend paid by the Fund is eligible for the dividends received deduction
available to corporations.
Capital Gains
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have
held the Fund shares.
Total Return
The average annual total return for the Fund is the average compounded rate
of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of shares owned at the end of
the period by the net asset value per share at the end of the period. The
number of shares owned at the end of the period is based on the number of
shares purchased at the beginning of the period with $1,000, adjusted over
the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
Yield
The yield of the Fund is determined by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the offering price per share of the
Fund on the last day of the period. This value is annualized using semi-
annual compounding. This means that the amount of income generated during
the thirty-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Fund because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may not
correlate to the dividends or other distributions paid to shareholders. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, performance will be reduced for those shareholders paying those fees.
Performance Comparisons
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio duration;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings
and offering price per share are factors in the computation of yield and
total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
o Merrill Lynch 1-3 Year Treasury Index is an unmanaged index
tracking short-term U.S. government securities between 1 and
2.99 years. The index is produced by Merrill Lynch, Pierce,
Fenner & Smith, Inc.
o Lipper Analytical Services, Inc., ranks funds in various fund
categories by making comparative calculations using total
return. Total return assumes the reinvestment of all capital
gains distributions and income dividends and takes into account
any change in offering price over a specific period of time.
From time to time, the Fund will quote its Lipper ranking in the
"Short-Term Investment Grade Bond Funds" category in advertising
and sales literature.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. These total
returns represent the historic change in the value of an investment in the
Fund based on monthly reinvestment of dividends over a specified period of
time.
Appendix
Standard and Poor's Ratings Group Corporate Bond Ratings
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B--Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
Moody's Investors Service, Inc. Corporate Bond Ratings
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Fitch Investors Service, Inc. Long-Term Debt Ratings
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
Moody's Investors Service, Inc. Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-
1 repayment capacity will normally be evidenced by the following
characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- - Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
- - Well established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2--Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Standard and Poor's Ratings Group Commercial Paper Ratings
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Fitch Investors Service, Inc. Commercial Paper Rating Definitions
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded
as having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issues.
3112402B (4/95)
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may
not be sold nor may any offers to buy be accepted prior to the time
the registration statement becomes effective. This prospectus shall
not consititute an offer to sell or the solicitation of an offer to
buy nor shall there be any sale of these securities in any State in
which such offer, solicitation, or sale would be unlawful prior to
registration or qualification under the securities laws of any such
State.
Subject to Completion, April 7, 1995
Federated Government Total Return Fund
(A Portfolio of Federated Total Return Series, Inc.)
Prospectus
The shares offered by this prospectus represent interests in Federated
Government Total Return Fund (the "Fund"), a diversified investment
portfolio of Federated Total Return Series, Inc. (the "Corporation"), an
open-end, management investment company (a mutual fund).
The investment objective of the Fund is to provide total return. The Fund
pursues this investment objective by seeking value among most sectors of
fixed income securities, focusing on U.S. government securities.
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
by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or
any other government agency. Investment in these shares involves
investment risks, including the possible loss of principal.
This prospectus contains the information you should read and know before
you invest in shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Statement of Additional Information dated June 5,
1995, with the Securities and Exchange Commission. The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information free of charge by calling 1-800-235-4669. To obtain
other information or to make inquiries about the Fund, contact your
financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated June 5, 1995
Summary of Fund Expenses 1
General Information 2
Investment Information 2
Investment Objective 2
Investment Policies 2
Investment Limitations 11
Net Asset Value 11
Investing in the Fund 11
Share Purchases 11
Minimum Investment Required 12
What Shares Cost 12
Exchanging Securities for
Fund Shares 12
Certificates and
Confirmations 13
Dividends and Distributions 13
Redeeming Shares 13
Telephone Redemption 13
Written Requests 14
Accounts with Low Balances 14
Management of the
Corporation 14
Distribution of Fund Shares 16
Administration of the Fund 16
Expenses of the Fund 17
Shareholder Information 17
Voting Rights 17
Tax Information 17
Federal Income Tax 17
Pennsylvania Personal
Property Taxes 18
Performance Information 18
Addresses 19
Summary of Fund Expenses
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price) None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or
redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Annual Fund Operating Expenses*
(As a percentage of projected average net assets)
Management Fee (after waiver) (1) 0.00%
12b-1 Fee. None
Total Other Expenses (after expense reimbursement) 0.45%
Shareholder Services Fee 0.25%
Total Fund Operating Expenses(2) 0.45%
(1)The estimated management fee has been reduced to reflect the
anticipated voluntary waiver of the management fee. The adviser
can terminate this voluntary waiver at any time at its sole
discretion. The maximum management fee is 0.40%.
(2)The Total Fund Operating Expenses are estimated to be 5.72% absent
the anticipated voluntary waiver of the management fee, and the
anticipated voluntary reimbursement of certain other operating
expenses.
*Total Fund Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending September
30, 1995. During the course of this period, expenses may be more or
less than the average amount shown.
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder of the Fund
will bear, either directly or indirectly. For more complete descriptions
of the various costs and expenses, see "Federated Total Return Series, Inc.
Information" and "Investing in the Fund." Wire-transferred redemptions of
less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years
You would pay the following
expenses on a $1,000 investment
assuming (1) 5% annual return and
(2) redemption at the end of each
time period. $5 $ 14
The above example should not be considered a representation of
past or future expenses. Actual expenses may be greater or less than those
shown. This example is based on estimated data for the Fund's fiscal year
ending September 30, 1995.
General Information
The Corporation was incorporated under the laws of the State of Maryland on
October 11, 1993. On March 21, 1995, the name of the Corporation was
changed from "Insight Institutional Series, Inc." to "Federated Total
Return Series, Inc." and the name of the Fund was changed from "Insight
U.S. Government Fund" to "Federated Government Total Return Fund." The
Articles of Incorporation permit the Corporation to offer separate
portfolios and classes of shares. As of the date of this prospectus, the
Board of Directors (the "Directors") has established two separate
portfolios: Federated Government Total Return Fund and Federated Short-Term
Total Return Fund. This prospectus relates only to the shares of Federated
Government Total Return Fund.
The Fund is designed for institutions seeking total return through a
professionally managed, diversified portfolio investing primarily in U.S.
government securities. A minimum initial investment of $25,000 over a 90-
day period is required.
Fund shares are sold and redeemed at net asset value without a sales load
imposed by the Fund.
Investment Information
Investment Objective
The investment objective of the Fund is to provide total return. The
investment objective cannot be changed without approval of shareholders.
While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the investment policies
described in this prospectus.
Investment Policies
The Fund pursues its investment objective by investing primarily in a
diversified portfolio of U.S. government securities. Under normal
circumstances, the Fund will invest at least 65% of the value of its total
assets in securities that are issued or guaranteed by the U.S. government,
its agencies or instrumentalities. The remainder of the Fund's assets may
be invested in any of the securities discussed below. Unless indicated
otherwise, the investment policies may be changed by the Directors without
the approval of shareholders. Shareholders will be notified before any
material change in these investment policies becomes effective.
Acceptable Investments. The Fund invests in a professionally managed,
diversified portfolio consisting primarily of U.S. government obligations,
mortgage-backed securities, asset-backed securities, and corporate debt
obligations. The Fund may also invest in derivative instruments of such
securities, including instruments with demand features or credit
enhancement, as well as money market instruments, cash, and stripped
mortgage-backed securities.
The securities in which the Fund invests principally are:
o obligations issued or guaranteed as to payment of principal and
interest by the U.S. government, or its agencies or
instrumentalities;
o mortgage-backed securities;
o asset-backed securities rated B or better by Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Ratings Group
("Standard & Poor's"), or Fitch Investors Service, Inc.
("Fitch"), or which are of comparable quality in the judgment of
the adviser;
o domestic and foreign issues of corporate debt obligations having
floating or fixed rates of interest and rated B or better by
Moody's, Standard & Poor's, or Fitch, or which are of comparable
quality in the judgment of the adviser;
o municipal securities;
o rated commercial paper which matures in 270 days or less so long
as at least one rating is considered high quality by a
nationally recognized statistical rating organization (such
ratings would include Prime-1 or Prime-2 by Moody's, A-1 or A-2
by Standard & Poor's, or F-1 or F-2 by Fitch), or which is of
comparable quality in the judgment of the adviser;
o time deposits (including savings deposits and certificates of
deposit) and bankers' acceptances in commercial or savings banks
whose accounts are insured by the Bank Insurance Fund ("BIF") or
the Savings Association Insurance Fund ("SAIF"), both of which
are administered by the Federal Deposit Insurance Corporation
("FDIC"), including certificates of deposit issued by and other
time deposits in foreign branches of FDIC insured banks or who
have at least $100 million in capital; and
o repurchase agreements collateralized by eligible investments.
U.S. Government Securities. The Fund may invest in U.S. government
securities, which generally include direct obligations of the U.S. Treasury
(such as U.S. Treasury bills, notes, and bonds) and obligations (including
mortgage-backed securities, bonds, notes and discount notes) issued or
guaranteed by the following U.S. government agencies or instrumentalities:
Farm Credit System, including the National Bank for Cooperatives, Farm
Credit Banks, and Banks for Cooperatives; Farmers Home Administration;
Federal Home Loan Banks; Federal Home Loan Mortgage Corporation; Federal
National Mortgage Association; Government National Mortgage Association;
and Student Loan Marketing Association. These securities are backed by:
the full faith and credit of the U.S. Treasury; the issuer's right to
borrow an amount limited to a specific line of credit from the U.S.
Treasury; the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or the credit of the
agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which are permissible
investments which may not always receive financial support from the U.S.
government are: Farm Credit System, including the National Bank for
Cooperatives, Farm Credit Banks, and Banks for Cooperatives; Federal Home
Loan Banks; Federal National Mortgage Association; Student Loan Marketing
Association; and Federal Home Loan Mortgage Corporation.
Mortgage-Backed Securities. Mortgage-backed securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property. There are currently three
basic types of mortgage-backed securities: (i) those issued or guaranteed
by the U.S. government or one of its agencies or instrumentalities, such as
Government National Mortgage Association ("Ginnie Mae"), the Federal
National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage
Corporation ("Freddie Mac"); (ii) those issued by private issuers that
represent an interest in or are collateralized by mortgage-backed
securities issued or guaranteed by the U.S. government or one of its
agencies or instrumentalities; (iii) those issued by private issuers that
represent an interest in or are collateralized by whole loans or mortgage-
backed securities without a government guarantee but usually having some
form of private credit enhancement; and (iv) privately issued securities
which are collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government.
The privately issued mortgage-related securities provide for a periodic
payment consisting of both interest and/or principal. The interest portion
of these payments will be distributed by the Fund as income, and the
capital portion will be reinvested.
Adjustable Rate Mortgage Securities ("ARMS"). ARMS are pass-
through mortgage securities with adjustable rather than fixed
interest rates. The ARMS in which the Fund invests are issued by
Ginnie Mae, Fannie Mae, and Freddie Mac and are actively traded.
The underlying mortgages which collateralize ARMS issued by Ginnie
Mae are fully guaranteed by the Federal Housing Administration or
Veterans Administration, while those collateralizing ARMS issued
by Fannie Mae or Freddie Mac are typically conventional
residential mortgages conforming to strict underwriting size and
maturity constraints.
Collateralized Mortgage Obligations ("CMOs"). CMOs are debt
obligations collateralized by mortgage loans or mortgage pass-
through securities. Typically, CMOs are collateralized by Ginnie
Mae, Fannie Mae or Freddie Mac certificates, but may be
collateralized by whole loans or private pass-through securities.
CMOs may have fixed or floating rates of interest.
The Fund will invest only in CMOs that are rated A or better by a
nationally recognized statistical rating organization. The Fund
may also invest in certain CMOs which are issued by private
entities such as investment banking firms and companies related to
the construction industry. The CMOs in which the Fund may invest
may be: (i) securities which are collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S.
government; (ii) securities which are collateralized by pools of
mortgages in which payment of principal and interest is guaranteed
by the issuer and such guarantee is collateralized by U.S.
government securities; (iii) collateralized by pools of mortgages
in which payment of principal and interest is dependent upon the
underlying pool of mortgages with no U.S. government guarantee; or
(iv) other securities in which the proceeds of the issuance are
invested in mortgage-backed securities and payment of the
principal and interest is supported by the credit of an agency or
instrumentality of the U.S. government.
Real Estate Mortgage Investment Conduits ("REMICs"). REMICs are
offerings of multiple class mortgage-backed securities which
qualify and elect treatment as such under provisions of the
Internal Revenue Code. Issuers of REMICs may take several forms,
such as trusts, partnerships, corporations, associations, or
segregated pools of mortgages. Once REMIC status is elected and
obtained, the entity is not subject to federal income taxation.
Instead, income is passed through the entity and is taxed to the
person or persons who hold interests in the REMIC. A REMIC
interest must consist of one or more classes of "regular
interests," some of which may offer adjustable rates of interest,
and a single class of "residual interests." To qualify as a REMIC,
substantially all the assets of the entity must be in assets
directly or indirectly secured principally by real property.
Asset-Backed Securities. Asset-backed securities have structural
characteristics similar to mortgage-backed securities but have underlying
assets that generally are not mortgage loans or interests in mortgage
loans. The Fund may invest in asset-backed securities including, but not
limited to, interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables, equipment
leases, manufactured housing (mobile home) leases, or home equity loans.
These securities may be in the form of pass-through instruments or asset-
backed bonds. The securities are issued by non-governmental entities and
carry no direct or indirect government guarantee.
Investment Risks of Mortgage-Backed and Asset-Backed Securities.
Mortgage-backed and asset-backed securities generally pay back
principal and interest over the life of the security. At the time
the Fund reinvests the payments and any unscheduled prepayments of
principal received, the Fund may receive a rate of interest which
is actually lower than the rate of interest paid on these
securities ("prepayment risks"). Mortgage-backed and asset-backed
securities are subject to higher prepayment risks than most other
types of debt instruments with prepayment risks because the
underlying mortgage loans or the collateral supporting asset-
backed securities may be prepaid without penalty or premium.
Prepayment risks on mortgage-backed securities tend to increase
during periods of declining mortgage interest rates because many
borrowers refinance their mortgages to take advantage of the more
favorable rates. Prepayments on mortgage-backed securities are
also affected by other factors, such as the frequency with which
people sell their homes or elect to make unscheduled payments on
their mortgages. Although asset-backed securities generally are
less likely to experience substantial prepayments than are
mortgage-backed securities, certain factors that affect the rate
of prepayments on mortgage-backed securities also affect the rate
of prepayments on asset-backed securities.
While mortgage-backed securities generally entail less risk of a
decline during periods of rapidly rising interest rates, mortgage-
backed securities may also have less potential for capital
appreciation than other similar investments (e.g., investments
with comparable maturities) because as interest rates decline, the
likelihood increases that mortgages will be prepaid. Furthermore,
if mortgage-backed securities are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some
loss of a holder's principal investment to the extent of the
premium paid. Conversely, if mortgage-backed securities are
purchased at a discount, both a scheduled payment of principal and
an unscheduled prepayment of principal would increase current and
total returns and would accelerate the recognition of income,
which would be taxed as ordinary income when distributed to
shareholders.
Asset-backed securities present certain risks that are not
presented by mortgage-backed securities. Primarily, these
securities do not have the benefit of the same security interest
in the related collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by motor vehicle installment
purchase obligations permit the servicer of such receivables to
retain possession of the underlying obligations. If the servicer
sells these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the
holders of the related asset-backed securities. Further, if a
vehicle is registered in one state and is then re-registered
because the owner and obligor moves to another state, such re-
registration could defeat the original security interest in the
vehicle in certain cases. In addition, because of the large number
of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of
asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing
such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be
available to support payments on these securities.
Corporate Debt Obligations. The Fund invests in corporate debt
obligations, including corporate bonds, notes, medium term notes, and
debentures, which may have floating or fixed rates of interest. The
prices of fixed income securities fluctuate inversely to the
direction of interest rates.
Floating Rate Corporate Debt Obligations. The Fund expects to
invest in floating rate corporate debt obligations, including
increasing rate securities. Floating rate securities are generally
offered at an initial interest rate which is at or above
prevailing market rates. The interest rate paid on these
securities is then reset periodically (commonly every 90 days) to
an increment over some predetermined interest rate index. Commonly
utilized indices include the three-month Treasury bill rate, the
six-month Treasury bill rate, the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a bank, the
commercial paper rates, or the longer-term rates on U.S. Treasury
securities.
Increasing rate securities, which currently do not make up a
significant share of the market in corporate debt securities, are
generally offered at an initial interest rate which is at or above
prevailing market rates. Interest rates are reset periodically
(most commonly every 90 days) at different levels on a
predetermined scale. These levels of interest are ordinarily set
at progressively higher increments over time. Some increasing rate
securities may, by agreement, revert to a fixed rate status. These
securities may also contain features which allow the issuer the
option to convert the increasing rate of interest to a fixed rate
under such terms, conditions, and limitations as are described in
each issue's prospectus.
Fixed Rate Corporate Debt Obligations. The Fund will also invest
in fixed rate securities, including fixed rate securities with
short-term characteristics. Fixed rate securities with short-term
characteristics are long-term debt obligations but are treated in
the market as having short maturities because call features of the
securities may make them callable within a short period of time. A
fixed rate security with short-term characteristics would include
a fixed income security priced close to call or redemption price
or a fixed income security approaching maturity, where the
expectation of call or redemption is high.
Fixed rate securities tend to exhibit more price volatility during
times of rising or falling interest rates than securities with
floating rates of interest. This is because floating rate
securities, as described above, behave like short-term instruments
in that the rate of interest they pay is subject to periodic
adjustments based on a designated interest rate index. Fixed rate
securities pay a fixed rate of interest and are more sensitive to
fluctuating interest rates. In periods of rising interest rates
the value of a fixed rate security is likely to fall. Fixed rate
securities with short-term characteristics are not subject to the
same price volatility as fixed rate securities without such
characteristics. Therefore, they behave more like floating rate
securities with respect to price volatility.
Variable Rate Demand Notes. Variable rate demand notes are long-
term corporate debt instruments that have variable or floating
interest rates and provide the Fund with the right to tender the
security for repurchase at its stated principal amount plus
accrued interest. Such securities typically bear interest at a
rate that is intended to cause the securities to trade at par. The
interest rate may float or be adjusted at regular intervals
(ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Many variable
rate demand notes allow the Fund to demand the repurchase of the
security on not more than seven days prior notice. Other notes
only permit the Fund to tender the security at the time of each
interest rate adjustment or at other fixed intervals. See "Demand
Features."
Bank Instruments. The Fund only invests in Bank Instruments either issued
by an institution that has capital, surplus and undivided profits over $100
million or is insured by the BIF or the SAIF. Bank Instruments may include
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). The banks issuing
these instruments are not necessarily subject to the same regulatory
requirements that apply to domestic banks, such as reserve requirements,
loan requirements, loan limitations, examinations, accounting, auditing,
and recordkeeping and the public availability of information.
Credit Facilities. Demand notes are borrowing arrangements between a
corporation and an institutional lender (such as the Fund) payable upon
demand by either party. The notice period for demand typically ranges from
one to seven days, and the party may demand full or partial payment.
Revolving credit facilities are borrowing arrangements in which the lender
agrees to make loans up to a maximum amount upon demand by the borrower
during a specified term. As the borrower repays the loan, an amount equal
to the repayment may be borrowed again during the term of the facility. The
Fund generally acquires a participation interest in a revolving credit
facility from a bank or other financial institution. The terms of the
participation require the Fund to make a pro rata share of all loans
extended to the borrower and entitles the Fund to a pro rata share of all
payments made by the borrower. Demand notes and revolving facilities
usually provide for floating or variable rates of interest.
Credit Enhancement. Certain of the Fund's acceptable investments may have
been credit enhanced by a guaranty, letter of credit or insurance. The Fund
typically evaluates the credit quality and ratings of credit enhanced
securities based upon the financial condition and ratings of the party
providing the credit enhancement (the "credit enhancer"), rather than the
issuer. Generally, the Fund will not treat credit enhanced securities as
having been issued by the credit enhancer for diversification purposes.
However, under certain circumstances applicable regulations may require the
Fund to treat the securities as having been issued by both the issuer and
the credit enhancer. The bankruptcy, receivership or default of the credit
enhancer will adversely affect the quality and marketability of the
underlying security.
Demand Features. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed
period following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the
underlying security. The Fund uses these arrangements to provide the Fund
with liquidity and not to protect against changes in the market value of
the underlying securities. The bankruptcy, receivership or default by the
issuer of the demand feature, or a default on the underlying security or
other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying
security are treated as a form of credit enhancement.
Interest Rate Swaps. As one way of managing its exposure to different
types of investments, the Fund may enter into interest rate swaps, currency
swaps, and other types of swap agreements such as caps, collars, and
floors. Depending on how they are used, swap agreements may increase or
decrease the overall volatility of the Fund's investments, its share price
and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on the Fund's performance. Swap agreements are subject
to risks related to the counterparty's ability to perform, and may decline
in value if the counterparty's creditworthiness deteriorates. The Fund may
also suffer losses if it is unable to terminate outstanding swap agreements
to reduce its exposure through offsetting transactions. When the Fund
enters into a swap agreement, assets of the Fund equal to the value of the
swap agreement will be segregated by the Fund.
Financial Futures and Options on Futures. The Fund may purchase and sell
financial futures contracts to hedge all or a portion of its portfolio
against changes in interest rates. Financial futures contracts call for the
delivery of particular debt instruments at a certain time in the future.
The seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take delivery
of the instrument at the specified future time.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its
portfolio against decreases in value. When the Fund writes a call option on
a futures contract, it is undertaking the obligation of selling a futures
contract at a fixed price at any time during a specified period if the
option is exercised. Conversely, as purchaser of a put option on a futures
contract, the Fund is entitled (but not obligated) to sell a futures
contract at the fixed price during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the
Fund's existing futures positions and premiums paid for related options
would exceed 5% of the market value of the Fund's total assets. When the
Fund purchases a futures contract, an amount of cash and cash equivalents,
equal to the underlying commodity value of the futures contract (less any
related margin deposits), will be deposited in a segregated account with
the Fund's custodian (or the broker, if legally permitted) to collateralize
the position and thereby insure that the use of such futures contract is
unleveraged.
Risks. When the Fund uses financial futures and options on
financial futures as hedging devices, there is a risk that the
prices of the securities subject to the futures contracts may not
correlate perfectly with the prices of the securities in the
Fund's portfolio. This may cause the futures contract and any
related options to react differently than the portfolio securities
to market changes. In addition, the Fund's investment adviser
could be incorrect in its expectations about the direction or
extent of market factors such as interest rate movements. In these
events, the Fund may lose money on the futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the
investment adviser will consider liquidity before entering into
options transactions, there is no assurance that a liquid
secondary market on an exchange or otherwise will exist for any
particular futures contract or option at any particular time. The
Fund's ability to establish and close out futures and options
positions depends on this secondary market.
Foreign Securities. The Fund may invest in foreign securities, including
foreign securities not publicly traded in the United States. Investments in
foreign securities involve special risks that differ from those associated
with investments in domestic securities. The risks associated with
investments in foreign securities relate to political and economic
developments abroad, as well as those that result from the differences
between the regulation of domestic securities and issuers and foreign
securities and issuers. These risks may include, but are not limited to,
expropriation, confiscatory taxation, currency fluctuations, withholding
taxes on interest, limitations on the use or transfer of assets, political
or social instability, ability to obtain or enforce court judgments abroad
and adverse diplomatic developments. Moreover, individual foreign economies
may differ favorably or unfavorably from the domestic economy in such
respects as growth of gross national product, the rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
Additional differences exist between investing in foreign and domestic
securities. Examples of such differences include: less publicly available
information about foreign issuers; credit risks associated with certain
foreign governments; the lack of uniform financial accounting standards
applicable to foreign issuers; less readily available market quotations on
foreign issues; the likelihood that securities of foreign issuers may be
less liquid or more volatile; generally higher foreign brokerage
commissions; and unreliable mail service between countries. The Fund will
not invest more than 15% of its assets in foreign securities.
Currency Risks. Foreign securities are denominated in foreign
currencies. Therefore, the value in U.S. dollars of the Fund's
assets and income may be affected by changes in exchange rates and
regulations. Although the Fund values its assets daily in U.S.
dollars, it will not convert its holdings of foreign currencies to
U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers
realize a profit on the difference between the prices at which
they buy and sell currencies.
The Fund will engage in foreign currency exchange transactions in
connection with its investments in foreign securities. The Fund
will conduct its foreign currency exchange transactions either on
a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through forward contracts to
purchase or sell foreign currencies.
Forward Foreign Currency Exchange Contracts. A forward foreign
currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These
contracts are traded directly between currency traders (usually
large commercial banks) and their customers. When the Fund enters
into a contract for the purchase or sale of a security denominated
in a foreign currency, it may want to establish the U.S. dollar
cost or proceeds, as the case may be. By entering into a forward
contract in U.S. dollars for the purchase or sale of the amount of
foreign currency involved in an underlying security transaction,
the Fund attempts to protect itself against a possible loss
between trade and settlement dates resulting from an adverse
change in the relationship between the U.S. dollar and such
foreign currency. However, this tends to limit potential gains
which might result from a positive change in such currency
relationships.
The Fund will not enter into forward foreign currency exchange
contracts or maintain a net exposure in such contracts where the
Fund would be obligated to deliver an amount of foreign currency
in excess of the value of the Fund's securities or other assets
denominated in that currency or denominated in a currency or
currencies that the adviser believes will reflect a high degree of
correlation with the currency with regard to price movements. The
Fund generally will not enter into forward foreign currency
exchange contracts with a term longer than one year.
High-Yield Debt Obligations. The Fund may invest in debt securities that
are not investment-grade bonds but are rated B or higher by Standard &
Poor's, Fitch, or Moody's (or, if unrated, determined by the adviser to be
of comparable quality). Downgraded securities will be evaluated on a case-
by-case basis by the adviser. The adviser will determine whether or not the
security continues to be an acceptable investment. If not, the security
will be sold. Securities which are rated lower than BBB by Standard &
Poor's or Fitch or Baa or lower by Moody's either have speculative
characteristics or are speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligations.
Securities rated BB or Ba and below are commonly referred to as "junk
bonds." A description of the rating categories is contained in the
Appendix to the Statement of Additional Information.
Debt obligations that are not determined to be investment grade are high-
yield, high-risk bonds, typically subject to greater market fluctuations
and greater risk of loss of income and principal due to an issuer's
default. To a greater extent than investment-grade bonds, lower-rated
bonds tend to reflect short-term corporate, economic and market
developments, as well as investor perceptions of the issuer's credit
quality. In addition, lower-rated bonds may be more difficult to dispose
of or to value than higher-rated, lower-yielding bonds.
Federated Management, the Fund's investment adviser, attempts to reduce the
risks described above through diversification of the portfolio and by
credit analysis of each issuer as well as by monitoring broad economic
trends and corporate and legislative developments.
Repurchase Agreements. Repurchase agreements are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell
U.S. government securities or other securities to the Fund and agree at the
time of sale to repurchase them at a mutually agreed upon time and price.
To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any
sale of such securities.
Restricted and Illiquid Securities. The Fund intends to invest in
restricted securities. Restricted securities are any securities in which
the Fund may otherwise invest pursuant to its investment objective and
policies, but which are subject to restriction on resale under federal
securities law. The Fund will limit investments in illiquid securities,
including certain restricted securities not determined by the Directors to
be liquid, and repurchase agreements providing for settlement in more than
seven days after notice, to 15% of the value of its net assets.
Investing in Securities of Other Investment Companies. The Fund may invest
in the securities of other investment companies, but it will not own more
than 3% of the total outstanding voting stock of any investment company,
invest more than 5% of its total assets in any one investment company, or
invest more than 10% of its total assets in investment companies in
general. The Fund will invest in other investment companies primarily for
the purpose of investing short-term cash which has not yet been invested in
other portfolio instruments. It should be noted that investment companies
incur certain expenses such as management fees and, therefore, any
investment by the Fund in shares of another investment company would be
subject to such duplicate expenses. The investment adviser will waive its
investment advisory fee on assets invested in securities of open-end
investment companies.
Lending of Portfolio Securities. In order to generate additional income,
the Fund may lend portfolio securities on a short-term or long-term basis,
to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks,
or other institutions which the investment adviser has determined are
creditworthy under guidelines established by the Directors and will receive
collateral in the form of cash or U.S. government securities equal to at
least 100% of the value of the securities loaned at all times.
There is the risk that when lending portfolio securities, the securities
may not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable
price. In addition, in the event that a borrower of securities would file
for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action.
When-Issued and Delayed Delivery Transactions. The Fund may purchase
securities on a when-issued or delayed delivery basis. These transactions
are arrangements in which the Fund purchases securities with payment and
delivery scheduled for a future time. The seller's failure to complete the
transaction may cause the Fund to miss a price or yield considered to be
advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may
vary from the purchase prices. Accordingly, the Fund may pay more or less
than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
Investment Limitations
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for
a percentage of its cash value with an agreement to buy it back
on a set date) or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value
of its total assets and pledge its assets to secure such
borrowings; or
o with respect to 75% of its total assets, invest more than 5% of
the value of its total assets in securities of any one issuer
(other than cash, cash items, or securities issued or guaranteed
by the U.S. government and its agencies or instrumentalities,
and repurchase agreements collateralized by such securities) or
acquire more than 10% of the outstanding voting securities of
any one issuer.
The above investment limitations cannot be changed without
shareholder approval.
Net Asset Value
The Fund's net asset value per share fluctuates. It is determined by
dividing the sum of the market value of all securities and all other
assets, less liabilities, by the number of shares outstanding.
Investing in the Fund
Share Purchases
Fund shares are sold on days on which the New York Stock Exchange is open.
Shares may be purchased either by wire or mail.
To purchase shares of the Fund, open an account by calling Federated
Securities Corp. Information needed to establish the account will be taken
over the telephone. The Fund reserves the right to reject any purchase
request.
By Wire. To purchase shares of the Fund by Federal Reserve wire, call the
Fund before 4:00 p.m. (Eastern time) to place an order. The order is
considered received immediately. Payment by federal funds must be received
before 3:00 p.m. (Eastern time) on the next business day following the
order. Federal funds should be wired as follows: Federated Services
Company, c/o State Street Bank and Trust Company, Boston, Massachusetts;
Attention: EDGEWIRE; For Credit to: Federated Government Total Return
Fund; Fund number (this number can be found on the account statement or by
contacting the Fund); Group Number or Order Number; Nominee or Institution
Name; ABA Number 011000028.
By Mail. To purchase shares of the Fund by mail, send a check made payable
to Federated Government Total Return Fund to the Fund's transfer agent,
Federated Services Company, c/o State Street Bank and Trust Company, P.O.
Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are considered
received after payment by check is converted by the transfer agent's bank,
State Street Bank, into federal funds. This is normally the next business
day after State Street Bank receives the check.
Minimum Investment Required
The minimum initial investment in the Fund is $25,000 plus any non-
affiliated bank or broker's fee. However, an account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days.
An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Fund. Accounts established
through a non-affiliated bank or broker may be subject to a smaller minimum
investment.
What Shares Cost
Fund shares are sold at their net asset value next determined after an
order is received. There is no sales load imposed by the Fund. Investors
who purchase Shares through a non-affiliated bank or broker may be charged
an additional service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday
through Friday, except on: (i) days on which there are not sufficient
changes in the value of the Fund's portfolio securities that its net asset
value might be materially affected; (ii) days during which no shares are
tendered for redemption and no orders to purchase shares are received; and
(iii) the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day.
Exchanging Securities for Fund Shares
The Fund may accept securities in exchange for Fund shares. The Fund will
allow such exchanges only upon the prior approval of the Fund and a
determination by the Fund and the Adviser that the securities to be
exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies of
the Fund, must have a readily ascertainable market value, and must be
liquid. The market value of any securities exchanged in an initial
investment, plus any cash, must be at least equal to the minimum investment
in the Fund. The Fund acquires the exchanged securities for investment and
not for resale.
Securities accepted by the Fund will be valued in the same manner as the
Fund values its assets. The basis of the exchange will depend on the net
asset value of Fund shares on the day the securities are valued. One share
of the Fund will be issued for the equivalent amount of securities
accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends,
subscription or other rights attached to the securities become the property
of the Fund, along with the securities.
If an exchange is permitted, it will be treated as a sale for federal
income tax purposes. Depending upon the cost basis of the securities
exchanged for Fund shares, a gain or loss may be realized by the investor.
Certificates and Confirmations
As transfer agent for the Fund, Federated Services Company maintains a
share account for each shareholder. Share certificates are not issued
unless requested on the application or by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly statements are sent to report dividends paid during
the month.
Dividends and Distributions
Dividends are declared daily and paid monthly. Distributions of any net
realized long-term capital gains will be made at least once every twelve
months. Dividends and distributions are automatically reinvested in
additional shares of the Fund on payment dates at net asset value, unless
cash payments are requested by shareholders on the application or by
writing to Federated Securities Corp.
Dividends are declared just prior to determining net asset value. If an
order for shares is placed on the preceding business day, shares purchased
by wire begin earning dividends on the business day wire payment is
received by State Street Bank. If the order for shares and payment by wire
are received on the same day, shares begin earning dividends on the next
business day. Shares purchased by check begin earning dividends on the
business day after the check is converted, upon instruction of the transfer
agent, into federal funds.
Shares earn dividends through the business day that proper redemption
instructions are received by State Street Bank.
Redeeming Shares
The Fund redeems shares at their net asset value next determined after the
Fund receives the redemption request. Redemptions will be made on days on
which the Fund computes its net asset value. Redemption requests must be
received in proper form and can be made by telephone request or by written
request.
Telephone Redemption
Shareholders may redeem their shares by telephoning the Fund before 4:00
p.m. (Eastern time). The proceeds will normally be wired the following
business day, but in no event more than seven days, to the shareholder's
account at a domestic commercial bank that is a member of the Federal
Reserve System. If at any time the Fund shall determine it necessary to
terminate or modify this method of redemption, shareholders will be
promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by
the Fund, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. In the event of drastic economic or market changes,
a shareholder may experience difficulty in redeeming by telephone. If such
a case should occur, another method of redemption, such as "Written
Requests," should be considered.
Written Requests
Shares may also be redeemed by sending a written request to the Fund. Call
the Fund for specific instructions before redeeming by letter. The
shareholder will be asked to provide in the request his or her name, the
Fund name, the shareholder's account number, and the share or dollar amount
requested. If share certificates have been issued, they must be properly
endorsed and should be sent by registered or certified mail with the
written request.
Signatures. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record
with the Fund, or a redemption payable other than to the shareholder of
record must have signatures on written redemption requests guaranteed by:
o a trust company or commercial bank whose deposits are insured by
the BIF, which is administered by the FDIC;
o a member of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;
o a savings bank or savings and loan association whose deposits
are insured by the SAIF, which is administered by the FDIC; or
o any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
Receiving Payment. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a
proper written redemption request, provided that the transfer agent has
received payment for the shares from the shareholder.
Accounts with Low Balances
Due to the high cost of maintaining accounts with low balances, the Fund
may redeem shares in any account, and pay the proceeds to the shareholder,
if the account balance falls below a required minimum value of $25,000 due
to shareholder redemptions. This requirement does not apply, however, if
the balance falls below $25,000 because of changes in the Fund's net asset
value. Before shares are redeemed to close an account, the shareholder is
notified in writing and allowed 30 days to purchase additional shares to
meet the minimum requirement.
Federated Total Return Series, Inc. Information
Management of the Corporation
Board of Directors. The Fund is managed by a Board of Directors. The
Directors are responsible for managing the Corporation's business affairs
and for exercising all the Corporation's powers except those reserved for
the shareholders. The Executive Committee of the Board of Directors handles
the Directors' responsibilities between meetings of the Directors.
Investment Adviser. Investment decisions for the Fund are made by Federated
Management (the "Adviser"), the Fund's investment adviser, subject to
direction by the Directors. The Adviser continually conducts investment
research and supervision for the Fund and is responsible for the purchase
or sale of portfolio instruments, for which it receives an annual fee from
the Fund.
Advisory Fees. The Fund's Adviser receives an annual investment
advisory fee equal to 0.40 of 1% of the Fund's average daily net
assets. Under the investment advisory contract, which provides for
voluntary waivers of expenses by the Adviser, the Adviser may
voluntarily waive some or all of its fee. The Adviser can
terminate this voluntary waiver of some or all of its advisory fee
at any time at its sole discretion. The Adviser has also
undertaken to reimburse the Fund for operating expenses in excess
of limitations established by certain states.
Adviser's Background. Federated Management, a Delaware business
trust organized on April 11, 1989, is a registered investment
adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting)
shares of Federated Investors are owned by a trust, the trustees
of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated
Investors.
Federated Management and other subsidiaries of Federated Investors
serve as investment advisers to a number of investment companies
and private accounts. Certain other subsidiaries also provide
administrative services to a number of investment companies. Total
assets under management or administration by these and other
subsidiaries of Federated Investors are approximately $70 billion.
Federated Investors, which was founded in 1956 as Federated
Investors, Inc., develops and manages mutual funds primarily for
the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse
investment philosophy serve approximately 3,500 client
institutions nationwide. Through these same client institutions,
individual shareholders also have access to this same level of
investment expertise.
Portfolio Manager's Background. Kathleen M. Foody-Malus has been
the Fund's portfolio manager since its inception. Ms. Foody-Malus
joined Federated Investors in 1983 and has been a Vice President
of the Fund's investment adviser since 1993. Ms. Foody-Malus
served as an Assistant Vice President of the investment adviser
from 1990 until 1992, and from 1986 until 1989 she acted as an
investment analyst. Ms. Foody-Malus received her M.B.A. in
Accounting/Finance from the University of Pittsburgh.
Other Payments to Financial Institutions. In addition to periodic payments
to financial institutions under the Shareholder Services Plan, certain
financial institutions may be compensated by the Adviser or its affiliates
for the continuing investment of customers' assets in certain funds,
including the Fund, advised by those entitites. These payments will be
made directly by the distributor or Adviser from their assets, and will not
be made from the assets of the Fund or by the assessment of a sales load on
shares.
The Glass-Steagall Act limits the ability of a depository institution (such
as a commercial bank or a savings and loan association) to become an
underwriter or distributor of securities. In the event the Glass-Steagall
Act is deemed to prohibit depository institutions from acting in the
capacities described in this prospectus or should Congress relax current
restrictions on depository institutions, the Directors will consider
appropriate changes in the administrative services.
State securities laws governing the ability of depository
institutions to act as underwriters or distributors of securities may
differ from interpretations given to the Glass-Steagall Act and,
therefore, banks and financial institutions may be required to
register as dealers pursuant to state law.
Distribution of Fund Shares
Federated Securities Corp. is the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
Administration of the Fund
Administrative Services. Federated Administrative Services, a subsidiary
of Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund. Federated Administrative Services provides these at an
annual rate which relates to the average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors ("Federated Funds") as
specified below:
Average Aggregate Daily Net
Assets
Maximum Administrative Fee of the Federated
Funds
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 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 Administrative Services may choose voluntarily to waive a portion
of its fee.
Shareholder Services Plan. The Fund has adopted a Shareholder Services
Plan (the "Services Plan") under which it may make payments up to 0.25 of
1% of the average daily net asset value of the Fund to obtain certain
personal services for shareholders and the maintenance of shareholder
accounts ("shareholder services"). The Fund has entered into a Shareholder
Services Agreement with Federated Shareholder Services, a subsidiary of
Federated Investors, under which Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions
to perform shareholder services. Financial institutions will receive fees
based upon shares owned by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder
Services.
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,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund and
dividend disbursing agent for the Fund.
Independent Auditors. The independent auditors for the Fund are Ernst &
Young LLP, Pittsburgh, Pennsylvania.
Expenses of the Fund
Shareholders of the Fund pay their allocable portion of Fund and
Corporation expenses.
The Corporation expenses for which shareholders pay their allocable portion
include, but are not limited to, the cost of: organizing the Corporation
and continuing its existence; registering the Corporation with federal and
state securities authorities; Directors' fees; auditors' fees; meetings of
Directors; legal fees of the Corporation; association membership dues and
such non-recurring and extraordinary items as may arise from time to time.
The Fund expenses for which shareholders pay their allocable portion
include, but are not limited to, the cost of: investment advisory and
administrative services; printing prospectuses and other Fund documents for
shareholders; registering the Fund and shares of the Fund with federal and
state securities commissions; taxes and commissions; issuing, purchasing,
repurchasing and redeeming shares; fees for custodians, transfer agents,
dividend disbursing agents, shareholder servicing agents and registrars;
printing, mailing, auditing, accounting and legal expenses; reports to
shareholders and governmental agencies; meetings of shareholders and proxy
solicitations therefor; insurance premiums; and such non-recurring and
extraordinary items as may arise from time to time.
Shareholder Information
Voting Rights
Each share of the Fund is entitled to one vote at all meetings of
shareholders. All shares of all portfolios in the Corporation have equal
voting rights except that in matters affecting only a particular portfolio,
only shares of that portfolio are entitled to vote.
As a Maryland corporation, the Fund is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Fund's operation and for the election of Directors under
certain circumstances.
Directors may be removed by a majority vote of the shareholders at a
special meeting. A special meeting of shareholders shall be called by the
Directors upon the request of shareholders owning at least 10% of the
Corporation's outstanding shares of all series entitled to vote.
Tax Information
Federal Income Tax
The Fund will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code applicable to regulated
investment companies and to receive the special tax treatment afforded to
such companies.
The Fund will be treated as a single, separate entity for federal income
tax purposes so that income (including capital gains) and losses realized
by the Corporation's other portfolios will not be combined for tax purposes
with those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income
tax on any dividends and other distributions, including capital gains
distributions, received. This applies whether dividends and distributions
are received in cash or as additional shares. Distributions representing
long-term capital gains, if any, will be taxable to shareholders as long-
term capital gains no matter how long the shareholders have held their
shares. Information on the tax status of dividends and distributions is
provided annually.
Pennsylvania Personal Property Taxes
The Fund is not subject to Pennsylvania personal property taxes. Fund
shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
Performance Information
From time to time, the Fund advertises its total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the offering price per share of the
Fund on the last day of the period. This number is then annualized using
semi-annual compounding. The yield does not necessarily reflect income
actually earned by the Fund and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
The Fund is sold without any sales load or other similar non-recurring
charges. From time to time, advertisements for the Fund may refer to
ratings, rankings, and other information in certain financial publications
and/or compare the Fund's performance to certain indices.
Addresses
Federated Government Total Return Fund Federated Investors
Tower
Pittsburgh,
Pennsylvania 15222-3779
Distributor
Federated Securities Corp. Federated Investors
Tower
Pittsburgh,
Pennsylvania 15222-3779
Investment Adviser
Federated Management Federated Investors
Tower
Pittsburgh,
Pennsylvania 15222-3779
Custodian
State Street Bank and P.O. Box 8604
Trust Company Boston, Massachusetts
02266-8604
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors
Tower
Pittsburgh,
Pennsylvania 15222-3779
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh,
Pennsylvania 15219
Federated Government
Total Return Fund
Prospectus
A Diversified Portfolio of
Federated Total Return Series, Inc.
an Open-End, Management
Investment Company
Prospectus dated June 5, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
3112401A (4/95)
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may
not be sold nor may any offers to buy be accepted prior to the time
the registration statement becomes effective. This Statement of
Additional Information shall not consititute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation, or sale
would be unlawful prior to registration or qualification under the
securities laws of any such State.
Subject to Completion, April 7, 1995
Federated Government Total Return Fund
(A Portfolio of Federated Total Return Series, Inc.)
Statement of Additional Information
This Statement of Additional Information should be read with the
prospectus of Federated Government Total Return Fund (the "Fund")
dated June 5, 1995. This Statement is not a prospectus itself. To
receive a copy of the prospectus, write or call the Fund.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated June 5, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
General Information
About the Fund 1
Investment Objective and
Policies 1
Types of Investments 1
Adjustable Rate
Mortgage Securities
("ARMS") 1
Collateralized Mortgage
Obligations ("CMOs") 1
Real Estate Mortgage
Investment Conduits
("REMICs") 2
Interest-Only and
Principal-Only
Investments 2
Privately Issued
Mortgage-Related
Securities 2
Resets of Interest 2
Caps and Floors 2
Foreign Bank
Instruments 3
Futures and Options
Transactions 3
Medium Term Notes and
Deposit Notes 4
Average Life 4
Weighted Average
Portfolio Duration 5
When-Issued and Delayed
Delivery Transactions 5
Lending of Portfolio
Securities 5
Restricted and Illiquid
Securities 5
Repurchase Agreements 6
Reverse Repurchase
Agreements 6
Portfolio Turnover 6
Investment Limitations 6
Federated Total Return
Series, Inc. Management 9
Officers and Directors 9
Fund Ownership 12
Directors Compensation 13
Director Liability 13
Investment Advisory
Services 14
Adviser to the Fund 14
Advisory Fees 14
Shareholder Servicing 14
Transfer Agent and
Dividend Disbursing
Agent 14
Administrative Services 14
Brokerage Transactions 15
Purchasing Shares 15
Determining Net Asset
Value 15
Determining Market
Value of Securities 15
Valuing Municipal Bonds 15
Use of Amortized Cost 16
Redeeming Shares 16
Redemption in Kind 16
Tax Status 16
The Fund's Tax Status 16
Shareholders' Tax
Status 16
Total Return 17
Yield 17
Performance Comparisons 17
Appendix 19
General Information About the Fund
The Fund is a portfolio of Federated Total Return Series, Inc. (the
"Corporation"). The Corporation was incorporated under the laws of the
State of Maryland on October 11, 1993. On March 21, 1995, the name of the
Corporation was changed from "Insight Institutional Series, Inc." to
"Federated Total Return Series, Inc." and the name of the Fund was changed
from "Insight U.S. Government Fund" to "Federated Government Total Return
Fund."
Investment Objective and Policies
The investment objective of the Fund is to provide total return. The
investment objective cannot be changed without approval of shareholders.
The investment policies stated below may be changed by the Board of
Directors ("Directors") without shareholder approval. Shareholders will be
notified before any material change in the investment policies becomes
effective.
Types of Investments
The Fund invests primarily in a diversified portfolio of U.S. government
securities. Under normal circumstances, the Fund will invest at least 65%
of the value of its total assets in securities that are issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
Adjustable Rate Mortgage Securities ("ARMS")
The ARMS in which the Fund invests will be issued by Government National
Mortgage Association, Federal National Mortgage Association, and Federal
Home Loan Mortgage Corporation. Unlike conventional bonds, ARMS pay back
principal over the life of the ARMS rather than at maturity. Thus, a
holder of the ARMS, such as the Fund, would receive monthly scheduled
payments of principal and interest, and may receive unscheduled principal
payments representing payments on the underlying mortgages. At the time
that a holder of the ARMS reinvests the payments and any unscheduled
prepayments of principal that it receives, the holder may receive a rate of
interest which is actually lower than the rate of interest paid on the
existing ARMS. As a consequence, ARMS may be a less effective means of
"locking in" long-term interest rates than other types of U.S. government
securities.
Like other U.S. government securities, the market value of ARMS will
generally vary inversely with changes in market interest rates. Thus, the
market value of ARMS generally declines when interest rates rise and
generally rises when interest rates decline.
While ARMS generally entail less risk of a decline during periods of
rapidly rising rates, ARMS may also have less potential for capital
appreciation than other similar investments (e.g., investments with
comparable maturities) because, as interest rates decline, the likelihood
increases that mortgages will be prepaid. Furthermore, if ARMS are
purchased at a premium, mortgage foreclosures and unscheduled principal
payments may result in some loss of a holder's principal investment to the
extent of the premium paid. Conversely, if ARMS are purchased at a
discount, both a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total returns and would
accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
Collateralized Mortgage Obligations ("CMOs")
The following example illustrates how mortgage cash flows are prioritized
in the case of CMOs - most of the CMOs in which the Fund invests use the
same basic structure:
(1) several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of securities.
The first three (A, B, and C bonds) pay interest at their stated rates
beginning with the issue date, and the final class (Z bond) typically
receives any excess income from the underlying investments after payments
are made to the other classes and receives no principal or interest
payments until the shorter maturity classes have been retired, but then
receives all remaining principal and interest payments;
(2) The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities; and
(3) The classes of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity class (or A bond).
When those securities are completely retired, all principal payments are
then directed to the next shortest-maturity security (or B bond). This
process continues until all of the classes have been paid off.
Because the cash flow is distributed sequentially instead of pro rata, as
with pass-through securities, the cash flows and average lives of CMOs are
more predictable, and there is a period of time during which the investors
in the longer-maturity classes receive no principal paydowns. The interest
portion of these payments is distributed by the Fund as income, and the
capital portion is reinvested.
Real Estate Mortgage Investment Conduits ("REMICs")
REMICs are offerings of multiple class mortgage-backed securities which
qualify and elect treatment as such under provisions of the Internal
Revenue Code. Issuers of REMICs may take several forms, such as trusts,
partnerships, corporations, associations, or segregated pools of mortgages.
Once REMIC status is elected and obtained, the entity is not subject to
federal income taxation. Instead, income is passed through the entity and
is taxed to the person or persons who hold interests in the REMIC. A REMIC
interest must consist of one or more classes of "regular interests," some
of which may offer adjustable rates of interest, and a single class of
"residual interests." To qualify as a REMIC, substantially all the assets
of the entity must be in assets directly or indirectly secured principally
by real property.
Interest-Only and Principal-Only Investments
Some of the securities purchased by the Fund may represent an interest
solely in the principal repayments or solely in the interest payments on
mortgage-backed securities (stripped mortgage-backed securities or
"SMBSs"). SMBSs are usually structured with two classes and receive
different proportions of the interest and principal distributions on the
pool of underlying mortgage-backed securities. Due to the possibility of
prepayments on the underlying mortgages, SMBSs may be more interest-rate
sensitive than other securities purchased by the Fund. If prevailing
interest rates fall below the level at which SMBSs were issued, there may
be substantial prepayments on the underlying mortgages, leading to the
relatively early prepayments of principal-only SMBSs (the principal-only or
"PO" class) and a reduction in the amount of payments made to holders of
interest-only SMBSs (the interest-only or "IO" class). Because the yield
to maturity of an IO class is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying mortgage-backed
securities, it is possible that the Fund might not recover its original
investment on interest-only SMBSs if there are substantial prepayments on
the underlying mortgages. The Fund's inability to fully recoup its
investments in these securities as a result of a rapid rate of principal
prepayments may occur even if the securities are rated by an NRSRO.
Therefore, interest-only SMBSs generally increase in value as interest
rates rise and decrease in value as interest rates fall, counter to changes
in value experienced by most fixed income securities.
Privately Issued Mortgage-Related Securities
Privately issued mortgage-related securities generally represent an
ownership interest in federal agency mortgage pass-through securities such
as those issued by Government National Mortgage Association as well as
those issued by non-government related entities. The terms and
characteristics of the mortgage instruments may vary among pass-through
mortgage loan pools. The market for such mortgage-related securities has
expanded considerably since its inception. The size of the primary
issuance market and the active participation in the secondary market by
securities dealers and other investors makes government-related and non-
government related pools highly liquid.
Resets of Interest
The interest rates paid on the ARMS, CMOs, and REMICs in which the Fund
invests generally are readjusted at intervals of one year or less to an
increment over some predetermined interest rate index. There are two main
categories of indices: those based on U.S. Treasury securities and those
derived from a calculated measure, such as a cost of funds index or a
moving average of mortgage rates. Commonly utilized indices include the one-
year and five-year constant maturity Treasury Note rates, the three-month
Treasury Bill rate, the 180-day Treasury Bill rate, rates on longer-term
Treasury securities, the National Median Cost of Funds, the one-month or
three-month London Interbank Offered Rate (LIBOR), the prime rate of a
specific bank, or commercial paper rates. Some indices, such as the one-
year constant maturity Treasury Note rate, closely mirror changes in market
interest rate levels.
To the extent that the adjusted interest rate on the mortgage security
reflects current market rates, the market value of an adjustable rate
mortgage security will tend to be less sensitive to interest rate changes
than a fixed rate debt security of the same stated maturity. Hence, ARMS
which use indices that lag changes in market rates should experience
greater price volatility than adjustable rate mortgage securities that
closely mirror the market.
Caps and Floors
The underlying mortgages which collateralize the ARMS, CMOs, and REMICs in
which the Fund invests will frequently have caps and floors which limit the
maximum amount by which the loan rate to the residential borrower may
change up or down: (1) per reset or adjustment interval, and (2) over the
life of the loan. Some residential mortgage loans restrict periodic
adjustments by limiting changes in the borrower's monthly principal and
interest payments rather than limiting interest rate changes. These payment
caps may result in negative amortization.
The value of mortgage securities in which the Fund invests may be affected
if market interest rates rise or fall faster and farther than the allowable
caps or floors on the underlying residential mortgage loans. Additionally,
even though the interest rates on the underlying residential mortgages are
adjustable, amortization and prepayments may occur, thereby causing the
effective maturities of the mortgage securities in which the Fund invests
to be shorter than the maturities stated in the underlying mortgages.
Foreign Bank Instruments
Eurodollar Certificates of Deposit ("ECDs"), Eurodollar Time Deposits
("ETDs"), Yankee Certificates of Deposit ("Yankee CDs"), and Europaper are
subject to somewhat different risks than domestic obligations of domestic
issuers. Examples of these risks include international, economic and
political developments, foreign governmental restrictions that may
adversely affect the payment of principal or interest, foreign withholdings
or other taxes on interest income, difficulties in obtaining or enforcing a
judgment against the issuing bank, and the possible impact of interruptions
of the flow of international currency transactions. Different risks may
also exist for ECDs, ETDs, and Yankee CDs because the banks issuing these
instruments, or their domestic or foreign branches, are not necessarily
subject to the same regulatory requirements that apply to domestic banks,
such as reserve requirements, loan requirements, loan limitations,
examinations, accounting, auditing, and recordkeeping and the public
availability of information. These factors will be carefully considered by
the Fund's adviser in selecting investments for the Fund.
Futures and Options Transactions
The Fund may attempt to hedge all or a portion of its portfolio by buying
and selling financial futures contracts, buying put options on portfolio
securities and listed put options on futures contracts, and writing call
options on futures contracts. The Fund may also write covered call options
on portfolio securities to attempt to increase its current income. The Fund
currently does not intend to invest more than 5% of its total assets in
options transactions.
Financial Futures Contracts
A futures contract is a firm commitment by two parties: the seller
who agrees to make delivery of the specific type of security called
for in the contract ("going short") and the buyer who agrees to take
delivery of the security ("going long") at a certain time in the
future. In the fixed income securities market, price moves inversely
to interest rates. A rise in rates means a drop in price. Conversely,
a drop in rates means a rise in price. In order to hedge its holdings
of fixed income securities against a rise in market interest rates,
the Fund could enter into contracts to deliver securities at a
predetermined price (i.e., "go short") to protect itself against the
possibility that the prices of its fixed income securities may
decline during the Fund's anticipated holding period. The Fund would
agree to purchase securities in the future at a predetermined price
(i.e., "go long") to hedge against a decline in market interest
rates.
Put Options on Financial Futures Contracts
The Fund may purchase listed put options on financial futures
contracts. Unlike entering directly into a futures contract, which
requires the purchaser to buy a financial instrument on a set date at
a specified price, the purchase of a put option on a futures contract
entitles (but does not obligate) its purchaser to decide on or before
a future date whether to assume a short position at the specified
price.
The Fund would purchase put options on futures contracts to protect
portfolio securities against decreases in value resulting from an
anticipated increase in market interest rates. Generally, if the
hedged portfolio securities decrease in value during the term of an
option, the related futures contracts will also decrease in value and
the option will increase in value. In such an event, the Fund will
normally close out its option by selling an identical option. If the
hedge is successful, the proceeds received by the Fund upon the sale
of the second option will be large enough to offset both the premium
paid by the Fund for the original option plus the decrease in value
of the hedged securities.
Alternatively, the Fund may exercise its put option. To do so, it
would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of the
option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the
Fund neither closes out nor exercises an option, the option will
expire on the date provided in the option contract, and the premium
paid for the contract will be lost.
Call Options on Financial Futures Contracts
In addition to purchasing put options on futures, the Fund may write
listed call options on futures contracts to hedge its portfolio
against an increase in market interest rates. When the Fund writes a
call option on a futures contract, it is undertaking the obligation
of assuming a short futures position (selling a futures contract) at
the fixed strike price at any time during the life of the option if
the option is exercised. As market interest rates rise, causing the
prices of futures to go down, the Fund's obligation under a call
option on a future (to sell a futures contract) costs less to
fulfill, causing the value of the Fund's call option position to
increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the
call, so that the Fund keeps the premium received for the option.
This premium can offset the drop in value of the Fund's fixed income
portfolio which is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of
it by the buyer, the Fund may close out the option by buying an
identical option. If the hedge is successful, the cost of the second
option will be less than the premium received by the Fund for the
initial option. The net premium income of the Fund will then offset
the decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds
the current market value of its securities portfolio plus or minus
the unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the
futures contracts. If this limitation is exceeded at any time, the
Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract.
Rather, the Fund is required to deposit an amount of "initial margin"
in cash or U.S. Treasury bills with its custodian (or the broker, if
legally permitted). The nature of initial margin in futures
transactions is different from that of margin in securities
transactions in that futures contract initial margin does not involve
the borrowing of funds by the Fund to finance the transactions.
Initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual
obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
Fund pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known
as "marking to market." Variation margin does not represent a
borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the
Fund will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin when it
writes call options on futures contracts.
Purchasing Put Options on Portfolio Securities
The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A
put option gives the Fund, in return for a premium, the right to sell
the underlying security to the writer (seller) at a specified price
during the term of the option.
Writing Covered Call Options on Portfolio Securities
The Fund may also write covered call options to generate income. As
writer of a call option, the Fund has the obligation upon exercise of
the option during the option period to deliver the underlying
security upon payment of the exercise price. The Fund may only sell
call options either on securities held in its portfolio or on
securities which it has the right to obtain without payment of
further consideration (or has segregated cash in the amount of any
additional consideration).
Medium Term Notes and Deposit Notes
Medium term notes ("MTNs") and Deposit Notes are similar to corporate debt
obligations as described in the prospectus. MTNs and Deposit Notes trade
like commercial paper, but may have maturities from 9 months to ten years.
Average Life
Average life, as applicable to asset-backed securities, is computed by
multiplying each principal repayment by the time of payment (months or
years from the evaluation date), summing these products, and dividing the
sum by the total amount of principal repaid. The weighted-average life is
calculated by multiplying the maturity of each security in a given pool by
its remaining balance, summing the products, and dividing the result by the
total remaining balance.
Weighted Average Portfolio Duration
Duration is a commonly used measure of the potential volatility of the
price of a debt security, or the aggregate market value of a portfolio of
debt securities, prior to maturity. Duration measures the magnitude of the
change in the price of a debt security relative to a given change in the
market rate of interest. The duration of a debt security depends upon three
primary variables: the security's coupon rate, maturity date and the level
of market interest rates for similar debt securities. Generally, debt
securities with lower coupons or longer maturities will have a longer
duration than securities with higher coupons or shorter maturities.
Duration is calculated by dividing the sum of the time-weighted values of
cash flows of a security or portfolio of securities, including principal
and interest payments, by the sum of the present values of the cash flows.
Certain debt seucrities, such as asset-backed securities, may be subject to
prepayment at irregular intervals. The duration of these instruments will
be calculated based upon assumptions established by the investment adviser
as the the probable amount and sequence of principal prepayments.
Mathematically, duration is measured as follows:
Duration = PVCF1(1) + PVCF2(2) + PVCF3(3) + ... + PVCFn(n)
PVTCF PVTCF PVTCF PVTCF
where
PVCTFt = the present value of the cash flow in period t discounted at
the prevailing yield-to-maturity
t = the period when the cash flow is received
n = remaining number of periods until maturity
PVTCF = total present value of the cash flow from the bond where the
present value is determined using the prevailing yield-to-
maturity.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date. These assets are
marked to market daily and are maintained until the transaction has been
settled. The Fund does not intend to engage in when-issued and delayed
delivery transactions to an extent that would cause the segregation of more
than 20% of the total value of its assets.
Lending of Portfolio Securities
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker.
Restricted and Illiquid Securities
The ability of the Directors to determine the liquidity of certain
restricted securities is permitted under the Securities and Exchange
Commission ("SEC") Staff position set forth in the adopting release for
Rule 144A under the Securities Act of 1933 (the "Rule"). The Rule is a non-
exclusive safe harbor for certain secondary market transactions involving
securities subject to restrictions on resale under federal securities laws.
The Rule provides an exemption from registration for resales of otherwise
restricted securities to qualified institutional buyers. The Rule was
expected to further enhance the liquidity of the secondary market for
securities eligible for resale under Rule 144A. The Fund believes that the
Staff of the SEC has left the question of determining the liquidity of all
restricted securities to the Directors. The Directors consider the
following criteria in determining the liquidity of certain restricted
securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
Repurchase Agreements
The Fund requires its custodian to take possession of the securities
subject to repurchase agreements, and these securities are marked to market
daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. In the event that a defaulting seller
files for bankruptcy or becomes insolvent, disposition of securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. 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 guidelines established by the Directors.
Reverse Repurchase Agreements
The Fund may also enter into reverse repurchase agreements. A reverse
repurchase transaction is similar to borrowing cash. In a reverse
repurchase agreement the Fund transfers possession of a portfolio
instrument to another person, such as a financial institution, broker, or
dealer, in return for a percentage of the instrument's market value in
cash, and agrees that on a stipulated date in the future, the Fund will
repurchase the portfolio instrument by remitting the original consideration
plus interest at an agreed upon rate. The use of reverse repurchase
agreements may enable the Fund to avoid selling portfolio instruments at a
time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will
be able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
Portfolio Turnover
The Fund will not attempt to set or meet a portfolio turnover rate since
any turnover would be incidental to transactions undertaken in an attempt
to achieve the Fund's investment objective. It is not anticipated that the
portfolio trading engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%.
Investment Limitations
Selling Short or Buying on Margin
The Fund will not sell any securities short or purchase any
securities on margin, but may obtain such short-term credits as may
be necessary for clearance of purchases and sales of portfolio
securities. The deposit or payment by the Fund of initial or
variation margin in connection with futures contracts or related
options transactions is not considered the purchase of a security on
margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund may
borrow money directly or through reverse repurchase agreements in
amounts up to one-third of the value of its total assets, including
the amount borrowed. The Fund will not borrow money or engage in
reverse repurchase agreements for investment leverage, but rather as
a temporary, extraordinary, or emergency measure to facilitate
management of the Fund by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while any borrowings in excess of 5% of its total assets
are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets:
margin deposits for the purchase and sale of financial futures
contracts and related options, and segregation or collateral
arrangements made in connection with options activities or the
purchase of securities on a when-issued basis.
Diversification of Investments
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one
issuer (other than cash, cash items, or securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities,
and repurchase agreements collateralized by such securities) if, as a
result, more than 5% of the value of its total assets would be
invested in the securities of that issuer, and will not acquire more
than 10% of the outstanding voting securities of any one issuer.
Investing in Real Estate
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate
or in securities which are secured by real estate or interests in
real estate.
Investing in Commodities
The Fund will not purchase or sell commodities, commodity contracts,
or commodity futures contracts except to the extent that the Fund may
engage in transactions involving financial futures contracts or
options on financial futures contracts.
Underwriting
The Fund will not underwrite any issue of securities, except as it
may be deemed to be an underwriter under the Securities Act of 1933
in connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio
securities. This shall not prevent the Fund from purchasing or
holding U.S. government obligations, money market instruments,
variable rate demand notes, bonds, debentures, notes, certificates of
indebtedness, or other debt securities, entering into repurchase
agreements, or engaging in other transactions where permitted by the
Fund's investment objective, policies, and limitations.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets
in any one industry (other than securities issued by the U.S.
government, its agencies or instrumentalities).
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Directors without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
Investing in Restricted Securities
The Fund will not invest more than 10% of the value of its total
assets in securities subject to restrictions on resale under the
Securities Act of 1933, except for commercial paper issued under
Section 4(2) of the Securities Act of 1933 and certain other
restricted securities which meet the criteria for liquidity as
established by the Directors.
Investing in Illiquid Securities
The Fund will not invest more than 15% of the value of its net assets
in illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed
time deposits with maturities over seven days, and certain restricted
securities not determined by the Directors to be liquid.
Investing in New Issuers
The Fund will not invest more than 5% of the value of its total
assets in securities of companies, including their predecessors, that
have been in operation for less than three years. With respect to
asset-backed securities, the Fund will treat the originator of the
asset pool as the company issuing the security for purposes of
determining compliance with this limitation.
Investing in Minerals
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest
in the securities of issuers which invest in or sponsor such
programs.
Investing in Securities of Other Investment Companies
The Fund will limit its investment in other investment companies to
no more than 3% of the total outstanding voting stock of any
investment company, invest no more than 5% of its total assets in any
one investment company, and invest no more than 10% of its total
assets in investment companies in general. The Fund will purchase
securities of investment companies only in open-market transactions
involving only customary broker's commissions. However, these
limitations are not applicable if the securities are acquired in a
merger, consolidation, or acquisition of assets.
Dealing in Puts and Calls
The Fund will not purchase puts, calls, straddles, spreads, or any
combination of them, if by reason thereof the value of such
securities would exceed 5% of its total assets.
Investing in Issuers Whose Securities are Owned by Officers and
Directors of the Corporation
The Fund will not purchase or retain the securities of any issuer if
the officers and Directors of the Corporation or the Fund's
investment adviser, owning individually more than 1/2 of 1% of the
issuer's securities, together own more than 5% of the issuer's
securities.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of the 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 does not expect to borrow money, pledge securities or engage in
reverse repurchase agreements during the coming fiscal year.
To comply with registration requirements in certain states, the Fund
(1) will limit the aggregate value of the assets underlying covered call
options or put options written by the Fund to not more than 25% of its net
assets, (2) will limit the premiums paid for options purchased by the Fund
to 5% of its net assets, and (3) will limit the margin deposits on futures
contracts entered into by the Fund to 5% of its net assets. (If state
requirements change, these restrictions may be revised without shareholder
notification.)
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items."
Federated Total Return Series, Inc. Management
Officers and Directors
Officers and Directors are listed with their addresses, birthdates,
present positions with Federated Total Return Series, Inc., and principal
occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life and
Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Vice President and Director of the Corporation.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner of
the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; President, Northgate Village
Development Corporation; Partner or Trustee in private real estate ventures
in Southwest Florida; Director, Trustee, or Managing General Partner of the
Funds; formerly, President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director,
Ryan Homes, Inc.
J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Vice President and Director
th
the son of John F. Donahue, Chairman and Director of the Corporation.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; Director, Trustee, or Managing General Partner of the
Funds.
Edward L. Flaherty, Jr.@
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Brithdate: June 18, 1924
Director
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.
Peter E. Madden
225 Franklin Street
Boston, MA
Brithdate: April 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President,
State Street Bank and Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee,
or Managing General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
John E. Murray, Jr., J.D., S.J.D.
Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the
Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds; staff member, Federated Securities Corp. and Federated
Administrative Services.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice President
and Treasurer, Federated Advisers, Federated Management, Federated
Research, Federated Research Corp., and Passport Research, Ltd.; Executive
Vice President, Treasurer, and Director, Federated Securities Corp.;
Trustee, Federated Services Company and Federated Shareholder Services;
Chairman, Treasurer, and Trustee, Federated Administrative Services;
Trustee or Director of some of the Funds; Vice President and Treasurer of
the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Federate
Federated Administrative Services; Secretary and Trustee, Federated
Shareholder Services; Executive Vice President and Director, Federated
Securities Corp.; Vice President and Secretary of the Funds.
* This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of the Board
of Directors handles the responsibilities of the Board of Directors
between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Cash Management Trust; Automated Government
Money Trust; California Municipal Cash Trust; Cash Trust Series II; Cash
Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated Growth Trust;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Intermediate Government Trust; Federated Master Trust; Federated
Municipal Trust; Federated Short-Intermediate Government Trust; Federated
Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free
Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed
Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund,
Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.;
Fund for U.S. Government Securities, Inc.; Government Income Securities,
Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.; Insurance
Management Series; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty
Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty
Municipal Securities Fund, Inc.; Liberty U.S. Government Money Market
Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid
Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; New York Municipal Cash Trust; 111 Corcoran Funds;
Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut
Funds; Short-Term Municipal Trust; Star Funds; The Starburst Funds; The
Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted
Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for
Financial Institutions; Trust For Government Cash Reserves; Trust for Short-
Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The
Virtus Funds; and World Investment Series, Inc.
Fund Ownership
Officers and Directors own less than 1% of the outstanding shares of the
Fund.
Directors Compensation
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
CORPORATION CORPORATION*# FROM FUND COMPLEX +
John F. Donahue $ -0- $ -0- for the Corporation and
Chairman and Director 68 other investment companies in the Fund
Complex
Thomas G. Bigley $ -0- $ 20,688 for the Corporation and
Director 49 other investment companies in the Fund
Complex
John T. Conroy, Jr. $ -0- $ 117,202 for the Corporation and
Director 64 other investment companies in the Fund
Complex
William J. Copeland $ -0- $ 117,202 for the Corporation and
Director 64 other investment companies in the Fund
Complex
J. Christopher Donahue $ -0- $ -0- for the Corporation and
Vice President and Director 14 other investment companies in the Fund
Complex
James E. Dowd $ -0- $ 117,202 for the Corporation and
Director 64 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D. $ -0- $ 106,460 for the Corporation and
Director 64 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr. $ -0- $117,202 for the Corporation and
Director 64 other investment companies in the Fund
Complex
Peter E. Madden $ -0- $ 90,563 for the Corporation and
Director 64 other investment companies in the Fund
Complex
Gregor F. Meyer $ -0- $ 106,460 for the Corporation and
Director 64 other investment companies in the Fund
Complex
John E. Murray, Jr. $ -0- $ -0- for the Corporation and
Director 69 other investment companies in the Fund
Complex
Wesley W. Posvar $ -0- $ 106,460 for the Corporation and
Director 64 other investment companies in the Fund
Complex
Marjorie P. Smuts $ -0- $ 106,460 for the Corporation and
Director 64 other investment companies in the Fund
Complex
*Information is furnished for the period from October 12, 1993,
organization date of the Corporation, to September 30, 1994.
#The aggregate compensation is provided for the Corporation which is
comprised of 2 portfolios.
+The information is provided for the last calendar year.
Director Liability
The Corporation's Articles of Incorporation provide that the Directors will
not be liable for errors of judgment or mistakes of fact or law. However,
they are not protected against any liability to which they would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of their
office.
Investment Advisory Services
Adviser to the Fund
The Fund's investment adviser is Federated Management (the "Adviser"). It
is a subsidiary of Federated Investors. All of the voting securities of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, his wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund or any 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.
Advisory Fees
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectus.
State Expense Limitation
The Adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose shares
are registered for sale in those states. If the Fund's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2-1/2% per year of the first $30 million of average
net assets, 2% per year of the next $70 million of average net
assets, and 1-1/2% per year of the remaining average net assets, the
Adviser will reimburse the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
expense limitation, the investment advisory fee paid will be reduced
by the amount of the excess, subject to an annual adjustment. If the
expense limitation is exceeded, the amount to be waived by the
Adviser will be limited, in any single fiscal year, by the amount of
the investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
Shareholder Servicing
In return for providing shareholder servicing to its customers who from
time to time may be owners of record or beneficial owners of shares of the
Fund, a financial institution may receive payments from the Fund at a rate
not exceeding 0.25 of 1% of the average daily net assets of the shares
beneficially owned by the financial institution's customers for whom it is
holder of record or with whom it has a servicing relationship. These
services may include, but are not limited to, the provision of personal
services and maintenance of shareholder accounts.
Federated Securities Corp. may also pay financial institutions a fee based
upon the net asset value of the Fund shares beneficially owned by the
financial institution's clients or customers. This fee is in addition to
amounts paid under the Shareholder Services Plan and will be reimbursed by
the Adviser.
Transfer Agent and Dividend Disbursing Agent
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Fund. The fee paid to the transfer agent is based upon the
size, type and number of accounts and transactions made by shareholders.
Federated Services Company also maintains the Corporation's accounting
records. The fee paid for this service is based upon the level of the
Fund's average net assets for the period plus out-of-pocket expenses.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Directors.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
Adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of the
brokerage and research services provided. Research services provided by
brokers may be used by the Adviser or by affiliates of Federated Investors
in advising Federated funds and other accounts. To the extent that receipt
of these services may supplant services for which the Adviser or its
affiliates might otherwise have paid, it would tend to reduce their
expenses.
Purchasing Shares
Except under certain circumstances described in the prospectus, shares are
sold at their net asset value on days the New York Stock Exchange is open
for business. The procedure for purchasing shares of the Fund is explained
in the prospectus under "Investing in the Fund."
Determining Net Asset Value
Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the prospectus.
Determining Market Value of Securities
Market values of the Fund's securities, other than options, are determined
as follows:
o as provided by an independent pricing service;
o for short-term obligations, according to the mean bid and asked prices,
as furnished by an independent pricing service, or for short-term
obligations with remaining maturities of 60 days or less at the time of
purchase, at amortized cost unless the Directors determine this is not
fair value; or
o at fair value as determined in good faith by the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:
yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data.
The Fund will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
option trading on such exchanges unless the Directors determine in good
faith that another method of valuing option positions is necessary.
Valuing Municipal Bonds
The Directors use an independent pricing service to value municipal bonds.
The independent pricing service takes into consideration yield, stability,
risk, quality, coupon rate, maturity, type of issue, trading
characteristics, special circumstances of a security or trading market, and
any other factors or market data it considers relevant in determining
valuations for normal institutional size trading units of debt securities
and does not rely exclusively on quoted prices.
Use of Amortized Cost
The Directors have decided that the fair value of debt securities
authorized to be purchased by the Fund with remaining maturities of 60 days
or less at the time of purchase shall be their amortized cost value, unless
the particular circumstances of the security indicate otherwise. Under
this method, portfolio instruments and assets are valued at the acquisition
cost as adjusted for amortization of premium or accumulation of discount
rather than at current market value. The Executive Committee continually
assesses this method of valuation and recommends changes where necessary to
assure that the Fund's portfolio instruments are valued at their fair value
as determined in good faith by the Directors.
Redeeming Shares
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although State Street Bank does not
charge for telephone redemptions, it reserves the right to charge a fee for
the cost of wire-transferred redemptions of less than $5,000.
Redemption in Kind
The Corporation has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940, under which a Fund is obligated to redeem shares for
any one shareholder solely in cash only up to the lesser of $250,000 or 1%
of the Fund's net asset value during any 90-day period.
Any redemption beyond this amount will also be in cash unless the Directors
determine that payments should be in kind. In such a case, the Fund will
pay all or a portion of the remainder of the redemption in portfolio
instruments, valued in the same way that net asset value is determined. The
portfolio instruments will be selected in a manner that the Directors deem
fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
Tax Status
The Fund's Tax Status
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional shares. No portion of any income
dividend paid by the Fund is eligible for the dividends received deduction
available to corporations.
Capital Gains
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have
held the Fund shares.
Total Return
The average annual total return for the Fund is the average compounded rate
of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of shares owned at the end of
the period by the net asset value per share at the end of the period. The
number of shares owned at the end of the period is based on the number of
shares purchased at the beginning of the period with $1,000, adjusted over
the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
Yield
The yield of the Fund is determined by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the offering price per share of the
Fund on the last day of the period. This value is annualized using semi-
annual compounding. This means that the amount of income generated during
the thirty-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Fund because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may not
correlate to the dividends or other distributions paid to shareholders. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, performance will be reduced for those shareholders paying those fees.
Performance Comparisons
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings
and offering price per share are factors in the computation of yield and
total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
o Salomon Brothers Mortgage-Backed Securities Index--15 Years
includes the average of all 15-year mortgage securities, which
include Federal Home Loan Mortgage Corporation (Freddie Mac),
Federal National Mortgage Association (Fannie Mae), and
Government National Mortgage Association (Ginnie Mae).
o Lipper Analytical Services, Inc., ranks funds in various fund
categories by making comparative calculations using total
return. Total return assumes the reinvestment of all capital
gains distributions and income dividends and takes into account
any change in offering price over a specific period of time.
From time to time, the Fund will quote its Lipper ranking in the
"U.S. Government Funds" category in advertising and sales
literature.
o Lehman Brothers Aggregate Bond Index is a total return index
measuring both the capital price changes and income provided by
the underlying universe of securities, weighted by market value
outstanding. The Aggregate Bond Index is comprised of the
Lehman Brothers Government Bond Index, Corporate Bond Index,
Mortgage-Backed Securities Index and the Yankee Bond Index.
These indices include: U.S. Treasury obligations, including
bonds and notes; U.S. agency obligations, including those of the
Federal Farm Credit Bank, Federal Land Bank and the Bank for Co-
Operatives; foreign obligations, U.S. investment-grade corporate
debt and mortgage-backed obligations. All corporate debt
included in the Aggregate Bond Index has a minimum rating of BBB
by S&P or Fitch, or a minimum rating of Baa by Moody's.
(Government Fund)
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. These total
returns represent the historic change in the value of an investment in the
Fund based on monthly reinvestment of dividends over a specified period of
time.
Appendix
Standard and Poor's Ratings Group Bond Ratings
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B--Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
Moody's Investors Service, Inc. Bond Ratings
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Fitch Investors Service, Inc. Long-Term Debt Ratings
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
Moody's Investors Service, Inc. Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-
1 repayment capacity will normally be evidenced by the following
characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- - Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
- - Well established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2--Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Standard and Poor's Ratings Group Commercial Paper Ratings
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Fitch Investors Service, Inc. Commercial Paper Rating Definitions
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded
as having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issues.
3112401B (4/95)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (To be filed by Amendment)
(b) Exhibits:
(1)(i) Conformed copy of Articles of
Incorporation (1);
(ii) Conformed copy of Articles of Amendment
of Articles of Incorporation (2);
(2) Copy of By-Laws (1);
(3) Not Applicable;
(4) Copy of Specimen Certificate for Shares of
Capital Stock of the Registrant;+
(5) Copy of Investment Advisory Contract and
conformed copies of Exhibits A, B, C, and D
of Investment Advisory Contract (3);
(6) Copy of Distributor's Contract and
Conformed copies of Exhibits A, B, C, and D to
Distributor's Contract (4);
(7) Not Applicable;
(8) Conformed copy of the Custodian Agreement of
the Registrant (4);
(9)(i) Conformed copy of Fund Accounting, Shareholder
Recordkeeping, and Custody Services Procurement
Agreement of the Registrant (4);
(ii) Conformed copy of Administrative
Services Agreement (4);
(iii)Conformed copy of Shareholder Services Plan (4);
(iv) Conformed copy of Shareholder Services
Agreeement (4);
(v) Form of Shareholder Services Sub-Contract (4);
(10) Conformed copy of Opinion and Consent of
Counsel as to legality of shares being
registered (2);
(11) Not Applicable;
(12) Not Applicable;
(13) Conformed copy of Initial Capital
Understanding (3);
(14) Not Applicable;
(15) Not Applicable;
__________________________________________________
+ All exhibits have been filed electronically.
(1) Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed October 25, 1993. (File Nos. 33-50773 and
811-7115).
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed December 21, 1993. (File Nos. 33-50773
and 811-7115).
(3) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 on Form N-1A filed January 13, 1994. (File Nos. 33-50773
and 811-7115).
(4) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed May 27, 1994. (File Nos. 33-50773 and
811-7115).
(5) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed January 30, 1995. (File Nos. 33-50773
and 811-7115).
(16) Not Applicable;
(17) Copy of Financial Data Schedules (To be filed by
Amendment);
(18) Not Applicable;
(19) Conformed copy of Power of Attorney; +
__________________________________________________
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of January 10, 1995_
Shares of capital stock
($0.001 per Share par value)
Insight Limited Term Income Fund 5
Insight U.S. Government Fund 5
Item 27. Indemnification: (1)
Item 28. Business and Other Connections of Investment Adviser:
For a description of the other business of the investment adviser,
see the section entitled "Federated Total Return Series, Inc.
Information - Management of the Corporation" in Part A. The
affiliations with the Registrant of four of the Trustees and one of
the Officers of the investment adviser are included in Part B of
this Registration Statement under "Federated Total Return Series,
Inc. Management - Officers and Directors." The remaining Trustee of
the investment adviser, his position with the investment adviser,
and, in parentheses, his principal occupation is: Mark D. Olson,
(Partner, Wilson, Holbrook and Bayard), 107 W. Market Street,
Georgetown, Deleware 19447.
The remaining Officers of the investment adviser are: William D.
Dawson, III, J. Thomas Madden, and Mark L. Mallon, Executive Vice
Presidents; Henry J. Gailliot, Senior Vice President-Economist;
Peter R. Anderson, and J. Alan Minteer, Senior Vice Presidents; J.
Scott Albrecht, Randall A. Bauer, David A. Briggs, Jonathan C.
Conley, Deborah A. Cunningham, Michael P. Donnelly, Mark E.
Durbiano, Kathleen M. Foody-Malus, Thomas M. Franks, Edward C.
Gonzales, Jeff A. Kozemchak, Marian R. Marinack, John W. McGonigle,
Gregory M. Melvin, Susan M. Nason, Mary Jo Ochson, Robert J.
Ostrowski, Frederick L. Plautz, Jr., Charles A. Ritter, James D.
Roberge, Sandra L. Weber, and Christopher H. Wiles, Vice Presidents;
Edward C. Gonzales, Treasurer; and John W. McGonigle, Secretary.
The business address of each of the Officers of the investment
adviser is Federated Investors Tower, Pittsburgh, PA 15222-3779.
These individuals are also officers of a majority of the investment
advisers to the Funds listed in Part B of this Registration
Statement.
__________________________________________________
+ All exhibits have been filed electronically.
(1) Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed October 25, 1993. (File Nos.
33-50773 and 811-7115).
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the
following open-end investment companies: Alexander Hamilton
Funds; American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Cash Management Trust; Automated
Government Money Trust; BayFunds; The Biltmore Funds; The
Biltmore Municipal Funds; California Municipal Cash Trust; Cash
Trust Series, Inc.; Cash Trust Series II; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs
Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust;
Federated Government Trust; Federated Growth Trust; Federated
High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-
Intermediate Government Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free
Trust; Federated U.S. Government Bond Fund; First Priority
Funds; First Union Funds; Fixed Income Securities, Inc.;
Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress
Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.;
Fountain Square Funds; Fund for U.S. Government Securities,
Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Independence One Mutual Funds; Insight Institutional
Series, Inc.; Insurance Management Series; Intermediate
Municipal Trust; International Series Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty
Municipal Securities Fund, Inc.; Liberty U.S. Government Money
Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust;
Managed Series Trust; Marshall Funds, Inc.; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market
Trust; The Monitor Funds; Municipal Securities Income Trust;
Newpoint Funds; New York Municipal Cash Trust; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument
Funds; The Shawmut Funds; Short-Term Municipal Trust;
SouthTrust Vulcan Funds; Star Funds; The Starburst Funds; The
Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; Tower
Mutual Funds; Trademark Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury
Obligations; The Virtus Funds; Vision Fiduciary Funds, Inc.;
Vision Group of Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter
for the following closed-end investment company: Liberty Term
Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief --
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Vice President
Federated Investors Tower President, and Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities
Corp.
John W. McGonigle Director, Executive Vice Vice President and
Federated Investors Tower President, and Assistant Secretary
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President,
Federated Investors Tower Federated Securities Corp. --
Pittsburgh, PA 15222-3779
Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President,
Federated Investors Tower Federated Securities Corp. --
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President,
Federated Investors Tower Federated Securities Corp. --
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph L. Epstein Vice President,
Federated Investors Tower Federated Securities Corp. --
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael D. Fitzgerald Vice President,
Federated Investors Tower Federated Securities Corp. --
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President,
Federated Investors Tower Federated Securities Corp. --
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Stephen A. LaVersa Vice President,
Federated Investors Tower Federated Securities Corp. --
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President,
Federated Investors Tower Federated Securities Corp. --
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President,
Federated Investors Tower Federated Securities Corp. --
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John C. Shelar, Jr. Vice President,
Federated Investors Tower Federated Securities Corp. --
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President,
Federated Investors Tower Federated Securities Corp. --
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President,
Federated Investors Tower Federated Securities Corp. --
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President,
Federated Investors Tower Federated Securities Corp. --
Pittsburgh, PA 15222-3779
Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President,
Federated Investors Tower Federated Securities Corp. --
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Assistant
Federated Investors Tower Federated Securities Corp. Secretary
Pittsburgh, PA 15222-3779
(c) Not applicable
Item 30. 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
Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent and
Portfolio Recordkeeper
Federated Administrative Federated Investors Tower
Services Pittsburgh, PA 15222-3779
Federated Management Federated Investors Tower
Investment Adviser Pittsburgh, PA 15222-3779
State Street Bank and P.O. Box 8604
Trust Company Boston, Massachusetts 02266
Custodian
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Directors and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered, a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED TOTAL RETURN
SERIES, INC. (formerly, Insight Institutional Series, Inc.) has duly caused
this Amendment to its Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, all in the City of Pittsburgh
and Commonwealth of Pennsylvania, on the 7th day of April, 1995.
FEDERATED TOTAL RETURN SERIES, INC.
(formerly, Insight Institutional Series, Inc.)
BY: /s/ J. Crilley Kelly
J. Crilley Kelly, Assistant Secretary
Attorney in Fact for John F. Donahue
April 7, 1995
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/ J. Crilley Kelly
J. Crilley Kelly Attorney In Fact April 7, 1995
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
Glen R. Johnson* President
Edward C. Gonzales* Vice President and Treasurer
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Director
John T. Conroy, Jr.* Director
William J. Copeland* Director
J. Christopher Donahue* Vice President and Director
James E. Dowd* Director
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr.* Director
Peter E. Madden* Director
Gregor F. Meyer* Director
John E. Murray, Jr.* Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
* By Power of Attorney
Exhibit 17 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of Federated Total Return Series, Inc. and
the Assistant General Counsel of Federated Investors, and each of them, their
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution for them and in their names, place and stead, in any and all
capacities, to sign any and all documents to be filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, by means of the
EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as each of them
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/ John F. Donahue Chairman and Director March 30, 1995
John F. Donahue (Chief Executive Officer)
/s/ Glen R. Johnson President March 30, 1995
Glen R. Johnson
/s/ Edward C. Gonzales Vice President and Treasurer March 30, 1995
Edward C. Gonzales (Principal Financial and
Accounting Officer)
/s/ Thomas G. Bigley Director March 30, 1995
Thomas G. Bigley
/s/ John T. Conroy, Jr. Director March 30, 1995
John T. Conroy, Jr.
/s/ William J. Copeland Director March 30, 1995
William J. Copeland
/s/ J. Christopher Donahue Vice President and Director March 30, 1995
J. Christopher Donahue
/s/ James E. Dowd Director March 30, 1995
James E. Dowd
/s/ Lawrence D. Ellis, M.D. Director March 30, 1995
Lawrence D. Ellis, M.D.
/s/ Edward L. Flaherty, Jr. Director March 30, 1995
Edward L. Flaherty, Jr.
/s/ Peter E. Madden Director March 30, 1995
Peter E. Madden
/s/ Gregor F. Meyer Director March 30, 1995
Gregor F. Meyer
/s/ John E. Murray, Jr. Director March 30, 1995
John E. Murray, Jr.
/s/ Wesley W. Posvar Director March 30, 1995
Wesley W. Posvar
/s/ Marjorie P. Smuts Director March 30, 1995
Marjorie P. Smuts
Sworn to and subscribed before me this 30th day of March, 1995
(SEAL)
/s/ Marie M. Hamm ____________________________________________
Notary Public
Notarial Seal
Marie M. Hamm, Notary Public
Plum Boro, Allegheny County
My Commission Expires September 16, 1996
Member, Pennsylvania Association of Notaries
Exhibit 4 under Form N-1A
Exhibit 3(c) under Item 601/Reg. S-K
Federated Total Return Series, Inc.
Federated Short-Term Total Return Fund
Number Shares
_____ _____
Account No. Incorporated Under the Laws of See Reverse Side For
the State of Maryland Certain Definitions
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Common Stock of Federated Short-Term
Total Return Fund Portfolio of Federated Total Return Series, Inc. hereafter
called the Company, transferable on the books of the Company by the owner, in
person or by duly authorized attorney, upon surrender of this Certificate
properly endorsed.
The shares represented hereby are issued and shall be held subject to
the provisions of the Articles of Incorporation and By-Laws of the Company,
and all amendments thereto, to all of which the holder by acceptance hereof
assents.
This Certificate is not valid unless countersigned by the Transfer
Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be
signed in its name by its proper officers and to be sealed with its Seal.
Dated: Federated Total Return Series, Inc.
Corporate Seal
(1995)
Maryland
/s/ Glen R. Johnson /s/ John W. McGonigle
President Secretary
Countersigned: Federated Services
Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-...Custodian...
TEN ENT - as tenants by the entirety (Cust) (Minors)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received__________ hereby sell, assign, and transfer unto
Please insert social security or other
identifying number of assignee
______________________________________
_____________________________________________________________________________
(Please print or typewrite name and address, including zip code, of assignee)
_____________________________________________________________________________
_____________________________________________________________________________
______________________________________________________________________ shares
of common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________Attorney
to transfer the said shares on the books of the within named Company with
full power of substitution in the premises.
Dated______________________
NOTICE:______________________________
The signature to this assignment must
correspond with the name as written upon
the face of the certificate in every
particular, without alteration or
enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in
the upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee
appears in a box in the top-third upper-left area of the page.
Federated Total Return Series, Inc.
Federated Government Total Return Fund
Number Shares
_____ _____
Account No. Incorporated Under the Laws of See Reverse Side For
the State of Maryland Certain Definitions
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Common Stock of Federated Government
Total Return Fund Portfolio of Federated Total Return Series, Inc. hereafter
called the Company, transferable on the books of the Company by the owner, in
person or by duly authorized attorney, upon surrender of this Certificate
properly endorsed.
The shares represented hereby are issued and shall be held subject to
the provisions of the Articles of Incorporation and By-Laws of the Company,
and all amendments thereto, to all of which the holder by acceptance hereof
assents.
This Certificate is not valid unless countersigned by the Transfer
Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be
signed in its name by its proper officers and to be sealed with its Seal.
Dated: Federated Total Return Series, Inc.
Corporate Seal
(1995)
Maryland
/s/ Glen R. Johnson /s/ John W. McGonigle
President Secretary
Countersigned: Federated Services
Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-...Custodian...
TEN ENT - as tenants by the entirety (Cust) (Minors)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received__________ hereby sell, assign, and transfer unto
Please insert social security or other
identifying number of assignee
______________________________________
_____________________________________________________________________________
(Please print or typewrite name and address, including zip code, of assignee)
_____________________________________________________________________________
_____________________________________________________________________________
______________________________________________________________________ shares
of common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________Attorney
to transfer the said shares on the books of the within named Company with
full power of substitution in the premises.
Dated______________________
NOTICE:______________________________
The signature to this assignment must
correspond with the name as written upon
the face of the certificate in every
particular, without alteration or
enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in
the upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee
appears in a box in the top-third upper-left area of the page.
