FEDERATED TOTAL RETURN SERIES INC, N-30D, 1995-11-29

FEDERATED TOTAL RETURN SERIES INC
N-30D, 1995-11-29

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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 November 30,
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,
which is in paper form only, or a paper copy of this prospectus if you have
received your prospectus electronically, free of charge by calling
1-800-235-4669. To obtain other information or to make inquiries about the Fund,
contact the Fund at the address listed on the back of this prospectus.

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 November 30, 1995

TABLE OF CONTENTS
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<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES 1
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GENERAL INFORMATION 2
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INVESTMENT INFORMATION 2
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Investment Objective 2
Investment Policies 2
Investment Limitations 12

NET ASSET VALUE 13
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INVESTING IN THE FUND 13
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Share Purchases 13
Minimum Investment Required 13
What Shares Cost 13
Exchanging Securities for Fund Shares 14
Certificates and Confirmations 14
Dividends and Distributions 14
REDEEMING SHARES 15
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Telephone Redemption 15
Written Requests 15
Accounts With Low Balances 16

FUND INFORMATION 16
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Management of the Corporation 16
Distribution of Fund Shares 18
Administration of the Fund 18
Expenses of the Fund 19

SHAREHOLDER INFORMATION 20
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Voting Rights 20

TAX INFORMATION 20
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Federal Income Tax 20
Pennsylvania Personal Property Taxes 20

PERFORMANCE INFORMATION 21
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FINANCIAL STATEMENTS 22
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REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 23
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ADDRESSES 24
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</TABLE>

SUMMARY OF FUND EXPENSES
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<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
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)*
<S> <C> <C>
Management Fee (after waiver) (1)................................................................ 0.00%
12b-1 Fee........................................................................................ None
Total Other Expenses (after expense reimbursement).................................... 0.45%
Shareholder Services Fee (2)........................................................ 0.00%
Total Operating Expenses (3)............................................................. 0.45%
</TABLE>

(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 Fund has no present intention of paying or accruing a
shareholder
services fee during the period ending September 30, 1996. If the Fund were
paying or accruing a shareholder services fee, the Fund would be able to
pay up to 0.25% of its average daily net assets for the shareholder
services fee. See "Fund Information."

(3) The total Fund operating expenses are estimated to be 2.61% 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, 1996. 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 "Fund Information" and "Investing in the Fund." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ---------------------------------------- ------ -------
<S> <C> <C>
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redewmption at the
end of each time period................. $5 $14
</TABLE>

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, 1996.

GENERAL INFORMATION
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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 $100,000 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
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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 and
stripped mortgage-backed securities), as well as money market instruments and
cash.

The securities in which the Fund invests principally are:

- obligations issued or guaranteed as to payment of principal and interest
by the U.S. government, or its agencies or instrumentalities;

- mortgage-backed securities;

- 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;

- 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;

- municipal securities;

- 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;

- 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

- 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 four 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; or (iii) 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, as amended.
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.

STRIPPED MORTGAGE-BACKED SECURITIES. The Fund may invest in stripped
mortgage-backed securities. Stripped mortgage-backed securities are derivative
multiclass securities which may be issued by agencies or instrumentalities of
the U.S. government, or by private originators of, or investors in, mortgage
loans, such as savings and loan associations, mortgage banks, commercial banks,
investment banks, and special purpose subsidiaries of the foregoing
organizations. The market volatility of stripped mortgage-backed securities
tends to be greater than the market volatility of the other types of
mortgage-related securities in which the Fund invests. Principal-only stripped
mortgage-backed securities are used primarily to hedge against interest rate
risk to the capital assets of the Fund in a changing interest rate environment.
A principal only investor is assured of receiving cash flows in the amount of
principal purchased--the unknown is when the cash flows will be received.
Interest only investments over the life of the investment horizon may not
receive cash flows in the amount of the original investment.

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 are 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.

8
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.

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 BB or B or Ba or B, respectively, by a nationally recognized
statistical rating organization are considered 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.

TOTAL RETURN. The "total return" sought by the Fund will consist of interest
and dividends from underlying securities, capital appreciation reflected in
unrealized increases in value of portfolio securities (realized by the
shareholder only upon selling shares) or realized from the purchase and sale of
securities, and successful use of futures and options, or gains from favorable
changes in foreign currency exchange rates. Generally, over the long term, the
total return obtained by a portfolio investing primarily in fixed income
securities is not expected to be as great as that obtained by a portfolio that
invests primarily in equity securities. At the same time, the market risk and
price volatility of a fixed income portfolio is expected to be less than that of
an equity portfolio.

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, interest rate swaps,
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:

- 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

- 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: Federated Services Company, P.O. Box
8600, Boston, Massachusetts 02266-8600. Orders by mail are considered received
after payment by check is converted into federal funds. This is normally the
next business day after the check is received.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in the Fund is $100,000 plus any non-affiliated
bank or broker's fee. However, an account may be opened with a smaller amount as
long as the $100,000 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 as of the close of trading (normally 4:00
p.m., Eastern time), on the New York Stock Exchange, 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; or (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 Federated Services
Company, P.O. Box 8600, Boston, Massachusetts 2266-8600. 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 insured
mail to Federated Services Company, 500 Victory Road - 2nd Floor, North Quincy,
Massachusetts 02171 with the written request.

SIGNATURES. Shareholders requesting 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:

- a trust company or commercial bank whose deposits are insured by the BIF,
which is administered by the FDIC;

- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;

- a savings bank or savings and loan association whose deposits are insured
by the SAIF, which is administered by the FDIC; or

- 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 $100,000 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $100,000 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.

FUND 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.

Both the Fund and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such

persons owe a fiduciary duty to the Fund's shareholders and must place the
interests of shareholders ahead of the employees' own interests. Among other
things, the codes: require preclearance and periodic reporting of personal
securities transactions; prohibit personal transactions in securities being
purchased or sold, or being considered for purchase or sale, by the Fund;
prohibit purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the codes are
subject to review by the Directors and could result in severe penalties.

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. With over $72 billion invested across more
than 260 funds under management and/or administration by its subsidiaries,
as of December 31, 1994, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,750
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.

PORTFOLIO MANAGER'S BACKGROUND. Kathleen M. Foody-Malus has been the Fund's
lead 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. Ms. Foody-Malus received her
M.B.A. in Accounting/Finance from the University of Pittsburgh.

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. Ms.
Nason is a Chartered Financial Analyst and received her M.B.A. in Finance
from Carnegie Mellon University.

Joseph M. Balestrino has been the Fund's portfolio manager since March 1,
1995. Mr. Balestrino joined Federated Investors in 1986 and has been a Vice
President of the Fund's investment adviser since 1995. Mr. Balestrino was an
Assistant Vice President of the investment adviser from 1991 until 1995 and
served as an Investment Analyst of the investment adviser from 1989 until
1991. Mr. Balestrino is a Chartered Financial Analyst and received his
Master's Degree in Urban and Regional Planning from the University of
Pittsburgh.

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.

SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to 0.25 of 1.00% of the
average daily net asset value of the Fund to obtain certain personal services
for shareholders and to maintain shareholder accounts. Under the Shareholder
Services Agreement, Federated Shareholder Services will either perform
shareholder services directly or will select financial institutions to perform
shareholder services. From time to time and for such periods as deemed
appropriate, the amount stated above may be reduced voluntarily. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which fees will be paid
will be determined from time to time by the Fund and Federated Shareholder
Services.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars at
recreational-type facilities for their employees, providing sales literature and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's adviser or its affiliates.
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.

ADMINISTRATION OF THE FUND

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:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
-------------------- ------------------------------------
<C> <S>
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
</TABLE>

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.

CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Fund.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Boston, Massachusetts, 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 of November 10, 1995, Federated Management
Corp. owned 98.04% of the voting securities of the Fund and, therefore, may for
certain purposes be deemed to control the Fund and be able to affect the outcome
of certain matters presented for a vote of shareholders.

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, as amended, 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

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 maximum 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.

FEDERATED GOVERNMENT TOTAL RETURN FUND
(FORMERLY, INSIGHT U.S. GOVERNMENT FUND)
(A PORTFOLIO OF FEDERATED TOTAL RETURN SERIES, INC.)
(FORMERLY, A PORTFOLIO OF INSIGHT INSTITUTIONAL SERIES, INC.)
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------
Total investments in securities, at amortized cost and value $134,976
- ---------------------------------------------------------------------
Cash 3,335
- --------------------------------------------------------------------- --------
Total assets 138,311
- --------------------------------------------------------------------- --------
LIABILITIES:
- ---------------------------------------------------------------------
Income distribution payable $ 667
- ------------------------------------------------------------
Accrued expenses 37,437
- ------------------------------------------------------------ -------
Total liabilities 38,104
- --------------------------------------------------------------------- --------
NET ASSETS for 10,021 shares outstanding $100,207
- --------------------------------------------------------------------- --------
--------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------
Paid-in capital $100,207
- --------------------------------------------------------------------- --------
Total Net Assets $100,207
- --------------------------------------------------------------------- --------
--------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per
Share:
- ---------------------------------------------------------------------
($100,207 DIVIDED BY 10,021 shares outstanding) $ 10.00
- --------------------------------------------------------------------- --------
--------
</TABLE>

NOTES:

(1) Federated Total Return Series, Inc. (the "Corporation") was established as
a
Maryland Corporation under the Articles of Incorporation dated October 11,
1993, and had no operations since that date other than those relating to
organization matters, including the issuance on December 15, 1993, of 10,000
shares of the Federated Government Total Return Fund (the "Fund") at $10.00
per share to Federated Administrative Services, the Administrator to the
Fund. 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." For the period from
December 15, 1993 (start of business) to September 30, 1995 net investment
income was distributed in cash or in reinvested shares to the Corporation's
Administrator. Expenses of organization incurred by the Corporation,
estimated at $36,782 were borne initially by the Administrator. The
Corporation has agreed to reimburse the Administrator for the organizational
expenses and start-up administrative expenses during the five year period
following January 19, 1994 (date the Corporation became effective).

(2) Reference is made to "Management of the Corporation," "Administration of
the
Fund," and "Tax Information," in this Prospectus for a description of the
investment advisory fee, administration and other services and other federal
tax aspects of the Fund.

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------

To the Board of Directors and Shareholders of
FEDERATED TOTAL RETURN SERIES, INC.

We have audited the accompanying statement of assets and liabilities of
Federated Government Total Return Fund as of September 30, 1995. This statement
of assets and liabilities is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this statement of assets and
liabilities based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. We believe that our audit
provides a reasonable basis for our opinion.

In our opinion, the statement of assets and liabilities presents fairly, in all
material respects, the net assets of the Federated Government Total Return Fund
as of September 30, 1995 in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

Pittsburgh, Pennsylvania
November 13, 1995

ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
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 Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- -------------------------------------------------------------------------------------------

Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- -------------------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------

FEDERATED GOVERNMENT
TOTAL RETURN FUND

PROSPECTUS
A Diversified Portfolio of
Federated Total Return Series, Inc.
an Open-End, Management
Investment Company
Prospectus dated November 30, 1995

[FEDERATED SECURITIES CORP. LOGO]
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Cusip 31428Q 101
G01111-01 (11/95) [RECYCLED PAPER LOGO]
RECYCLED
PAPER

- --------------------------------------------------------------------------------
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.

This prospectus contains the information you should read and know before you
invest in shares of the Fund. Keep this prospectus for future reference.

Prospectus dated November 30, 1995

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES 1
- --------------------------------------------------
GENERAL INFORMATION 2
- --------------------------------------------------
INVESTMENT INFORMATION 2
- --------------------------------------------------
Investment Objective 2
Investment Policies 2
Investment Limitations 12

NET ASSET VALUE 13
- --------------------------------------------------
INVESTING IN THE FUND 13
- --------------------------------------------------
Share Purchases 13
Minimum Investment Required 13
What Shares Cost 14
Exchanging Securities for Fund Shares 14
Certificates and Confirmations 14
Dividends and Distributions 14
REDEEMING SHARES 15
- --------------------------------------------------
Telephone Redemption 15
Written Requests 15
Accounts with Low Balances 16

FUND INFORMATION 16
- --------------------------------------------------
Management of the Corporation 16
Distribution of Fund Shares 18
Administration of the Fund 19
Expenses of the Fund 19

SHAREHOLDER INFORMATION 20
- --------------------------------------------------
Voting Rights 20

TAX INFORMATION 20
- --------------------------------------------------
Federal Income Tax 20
Pennsylvania Personal Property Taxes 20

PERFORMANCE INFORMATION 21
- --------------------------------------------------
ADDRESSES 22
- --------------------------------------------------

I
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
(2)........................................................ 0.00%
Total Operating Expenses
(3)............................................................. 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 Fund has no present intention of paying or accruing a shareholder
services fee during the period ending September 30, 1996. If the Fund were
paying or accruing a shareholder services fee, the Fund would be able to
pay up to 0.25% of its average daily net assets for the shareholder
services fee. See "Fund Information."

(3) The total fund operating expenses are estimated to be 2.61% absent the
anticipated voluntary waiver of the management fee and the anticipated
voluntary reimbursement of certain other operating expenses.

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

1
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 $100,000 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

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 and stripped mortgage-backed securities), as well as money market
instruments and cash.

The securities in which the Fund invests principally are:

- 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 &

2
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;

- obligations issued or guaranteed as to payment of principal and interest
by the U.S. government, or its agencies or instrumentalities;

- mortgage-backed securities;

- 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;

- municipal securities;

- repurchase agreements collateralized by eligible investments.

3
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.

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.

4
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 four 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.

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, as amended.
Issuers of REMICs may take several forms, such as
5
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.

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 are 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.

6
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.

7
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.

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.

8
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.

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;

9
and unreliable mail service between countries. The Fund will not invest more
than 15% of its assets in foreign securities.

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 BB or B or Ba or B, respectively, by a nationally recognized
statistical rating organization are considered 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.

10
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.

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.

11
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.

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 will not:

12
- 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
- --------------------------------------------------------------------------------

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.

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: Federated Services Company, P.O. Box
8600, Boston, Massachusetts 02266-8600. Orders by mail are considered received
after payment by check is converted into federal funds. This is normally the
next business day after the check is received.

MINIMUM INVESTMENT REQUIRED

13
WHAT SHARES COST

The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time), on the New York Stock Exchange, 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; or (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

CERTIFICATES AND CONFIRMATIONS

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

14
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.

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

WRITTEN REQUESTS

Shares may also be redeemed by sending a written request to Federated Services
Company, P.O. Box 8600, Boston, Massachusetts 2266-8600. 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 insured
mail to Federated Services Company, 500 Victory Road--2nd Floor, North Quincy,
Massachusetts 02171 with the written request.

15
SIGNATURES. Shareholders requesting 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:

- a trust company or commercial bank whose deposits are insured by the BIF,
which is administered by the FDIC;

- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;

- a savings bank or savings and loan association whose deposits are insured
by the SAIF, which is administered by the FDIC; or

- 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.

ACCOUNTS WITH LOW BALANCES

FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE CORPORATION

16
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.

Both the Fund and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Directors and could
result in severe penalties.

PORTFOLIO MANAGER'S BACKGROUND. Susan M. Nason has been the Fund's lead
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. Ms. Nason is a Chartered Financial Analyst and
received her M.B.A. in Finance from Carnegie Mellon University.

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. Ms. Foody-Malus received her M.B.A. in Accounting/ Finance from
the University of Pittsburgh.

17
Joseph M. Balestrino has been the Fund's portfolio manager since March 1,
1995. Mr. Balestrino joined Federated Investors in 1986 and has been a Vice
President of the Fund's investment adviser since 1995. Mr. Balestrino was an
Assistant Vice President of the investment adviser from 1991 until 1995 and
served as an Investment Analyst of the investment adviser from 1989 until
1991. Mr. Balestrino is a Chartered Financial Analyst and received his
Master's Degree in Urban and Regional Planning from the University of
Pittsburgh.

DISTRIBUTION OF FUND 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.

18
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:

MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS
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

CUSTODIAN. State Street Bank and Trust Company, ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Fund.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Boston, Massachusetts, 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.

19
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 of November 10, 1995, Federated Management
Corp. owned 99.99% of the voting securities of the Fund and, therefore, may for
certain purposes be deemed to control the Fund and be able to affect the outcome
of certain matters presented for a vote of shareholders.

TAX INFORMATION
- --------------------------------------------------------------------------------

FEDERAL INCOME TAX

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.

20
PERFORMANCE INFORMATION
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From time to time, the Fund advertises its total return and yield.

21
ADDRESSES
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Federated Short-Term Total Return Fund
Federated
Investors Tower
Pittsburgh,
Pennsylvania 15222-3779
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Distributor
Federated Securities Corp. Federated
Investors Tower
Pittsburgh,
Pennsylvania 15222-3779
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Investment Adviser
Federated Management Federated
Investors Tower
Pittsburgh,
Pennsylvania 15222-3779
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Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston,
Massachusetts 02266-8600
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Transfer Agent and Dividend Disbursing Agent
Federated Services Company P.O. Box 8600
Boston,
Massachusetts 02266-8600
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Independent Auditors
Ernst & Young LLP One Oxford
Centre
Pittsburgh,
Pennsylvania 15219
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FEDERATED SHORT-TERM
TOTAL RETURN FUND

PROSPECTUS
A Diversified Portfolio
of Federated Total Return Series,
Inc.
an Open-End, Management
Investment Company
Prospectus dated November 30, 1995

[FEDERATED SECURITIES CORP. LOGO]
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Cusip 31428Q 200
G01112-01 (11/95) [RECYCLED PAPER LOGO]
RECYCLED
PAPER

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 November 30,
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 November 30, 1995

FEDERATED SECURITIES
CORP.

Distributor
A subsidiary of FEDERATED
INVESTORS

RESTRICTED AND ILLIQUID SECURITIES
15
GENERAL INFORMATION ABOUT THE FUND3
REPURCHASE AGREEMENTS 16
INVESTMENT OBJECTIVE AND POLICIES3 REVERSE REPURCHASE AGREEMENTS 16
PORTFOLIO TURNOVER 17
TYPES OF INVESTMENTS 3
INVESTMENT LIMITATIONS 17
ADJUSTABLE RATE MORTGAGE SECURITIES
("ARMS") 3 FEDERATED TOTAL RETURN SERIES, INC.
COLLATERALIZED MORTGAGE OBLIGATIONS MANAGEMENT 22
("CMOS") 4
OFFICERS AND DIRECTORS 22
REAL ESTATE MORTGAGE INVESTMENT
FUND OWNERSHIP 30
CONDUITS ("REMICS") 5
DIRECTORS' COMPENSATION 30
INTEREST-ONLY AND PRINCIPAL-ONLY
DIRECTOR LIABILITY 32
INVESTMENTS 6
PRIVATELY ISSUED MORTGAGE-RELATED
SECURITIES 6
RESETS OF INTEREST 7
CAPS AND FLOORS 7
FOREIGN BANK INSTRUMENTS 8
FUTURES AND OPTIONS TRANSACTIONS9
MEDIUM TERM NOTES AND DEPOSIT NOTES
13
AVERAGE LIFE 13
WEIGHTED AVERAGE PORTFOLIO DURATION
13
WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS 14
LENDING OF PORTFOLIO SECURITIES15

INVESTMENT ADVISORY SERVICES 32 ABOUT FEDERATED INVESTORS 41

ADVISER TO THE FUND 32 MUTUAL FUND MARKET 42
ADVISORY FEES 33 APPENDIX 43
SHAREHOLDER SERVICES AGREEMENT 33

TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT 34

ADMINISTRATIVE SERVICES 34

BROKERAGE TRANSACTIONS 34

PURCHASING SHARES 35

DETERMINING NET ASSET VALUE 36

DETERMINING MARKET VALUE OF
SECURITIES 36
VALUING MUNICIPAL BONDS 36
USE OF AMORTIZED COST 37
REDEEMING SHARES 37

REDEMPTION IN KIND 37
TAX STATUS 38

THE FUND'S TAX STATUS 38
SHAREHOLDERS' TAX STATUS 38
TOTAL RETURN 39

YIELD 39

PERFORMANCE COMPARISONS 40

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, as
amended. 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
securities, 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 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. 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. 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, interest rate swaps, 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. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President and Director of the Company .

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
Executive Vice President and Director

President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Vice President of the Funds;
Director, Trustee, or Managing General Partner of some of the Funds. Mr. Donahue
is the son of John F. Donahue, Chairman and Director of the Company.

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.

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, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney-at-law; Shareholder, Henny, Kochuba, 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
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 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.

Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA

Birthdate: October 6, 1926
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.

John E. Murray, Jr., J.D., S.J.D.
President, 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, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for

Environmental Policy and Technology and Federal Emergency Management Advisory
Board.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; 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
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research

Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee or Director of some of the Funds; President, Executive Vice
President and Treasurer of some of the Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global Research
Corp.; Trustee, Federated Services Company; Executive Vice President, Secretary,
and Trustee, Federated Administrative Services; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive Vice
President and Secretary of the Funds.

David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President, Controller, and Trustee, Federated Investors; Controller,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., and Passport Research, Ltd.; Senior Vice President, Federated

Shareholder Services; Vice President, Federated Administrative Services;
Treasurer of some 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 Government Money Trust; Blanchard Funds; Blanchard
Precious Metals, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs
Fund; Federated Equity Funds; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Master Trust; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5
Years; 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; 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; 111 Corcoran Funds; Peachtree Funds;
The Planters Funds; RIMCO Monument Funds; The Shawmut Funds; 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; 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 Fund
Chairman and Director 68 other investment companies in the
Fund Complex

Thomas G. Bigley $ 750 $ 20,688 for the Fund
Director 49 other investment companies in the
Fund Complex
John T. Conroy, Jr. $ 825 $ 117,202 for the Fund
Director 64 other investment companies in the
Fund Complex
William J. Copeland $ 825 $ 117,202 for the Fund and
Director 64 other investment companie in the Fund
Complex
James E. Dowd $ 825 $ 117,202 for the Fund and
Director 64 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $ 750 $ 106,460 for the Fund and
Director 64 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $ 825 $ 117,202 for the Fund and
Director 64 other investment companies in the
Fund Complex
Peter E. Madden $ 750 $ 90,563 for the Fund and
Director 64 other investment companies in the
Fund Complex
Gregor F. Meyer $ 750 $ 106,460 for the Fund and
Director 64 other investment companies in the
Fund Complex
John E. Murray, Jr. $ 750 $ 0 for the Fund and
Director 69 other investment companies in the
Fund Complex
Wesley W. Posvar $ 750 $ 106,460 for the Fund and

Director 64 other investment companies in the
Fund Complex
Marjorie P. Smuts $ 750 $ 106,460 for the Fund and
Director 64 other investment companies in the
Fund Complex

* Information is furnished for the fiscal year ended September 30, 1995.
+ The information is provided for the last calendar year.
# The aggregate compensation is provided for the Corporation which is comprised
of 2 portfolios.
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 SERVICES AGREEMENT

to establish and maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses. By adopting the
Shareholder Services Agreement, the Directors expect that the Fund will benefit
by (1) providing personal services to the shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholder's requests and inquiries concerning their accounts. For the fiscal
year ended September 30, 1995, the Fund paid no shareholder services fees.
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

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, as amended,
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 GOVERNMENT INDEX is an index composed of bonds publicly
issued by the U.S. government or its agencies. It is limited to securities
with maturities of 10 years or longer. The index calculates total return
for one-month, three-month, twelve-month and ten-year periods and year-to-
date.
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.
ABOUT FEDERATED INVESTORS

Federated is dedicated to meeting investor needs which is reflected in its
investment decision making-structured, straightforward, and consistent. This
has resulted in a history of competitive performance with a range of competitive
investment products that have gained the confidence of thousands of clients and
their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors.
In the government sector, as of December 31, 1994, Federated managed 9
mortgage-backed, 4 government/agency and 17 government money market mutual
funds, with assets approximating $8.5 billion, $1.6 billion and $17 billion,
respectively. Federated trades approximately $300 million in U.S. government
and mortgage-backed securities daily and places approximately $13 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982

and currently manages nearly $10 billion in government funds within these
maturity ranges.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and high
yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated's domestic fixed income management. Henry A.
Frantzen, Executive Vice President, oversees the management of Federated's
international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $2 trillion to the more than 5,500 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL
Federated meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional
clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by
John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions of
the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through major brokerage
firms nationwide--including 200 New York Stock Exchange firms--supported by
more wholesalers than any other mutual fund distributor. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer Division.
*source: Investment Company Institute

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:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
o 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.

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 November 30,
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 November 30, 1995

Cusip 31428Q101
G01111-02 (11/95)

FEDERATED SECURITIES
CORP.

Distributor
A subsidiary of FEDERATED
INVESTORS

RESTRICTED AND ILLIQUID SECURITIES
15
GENERAL INFORMATION ABOUT THE FUND3
REPURCHASE AGREEMENTS 16
INVESTMENT OBJECTIVE AND POLICIES3 REVERSE REPURCHASE AGREEMENTS 16
PORTFOLIO TURNOVER 17
TYPES OF INVESTMENTS 3
INVESTMENT LIMITATIONS 17
ADJUSTABLE RATE MORTGAGE SECURITIES
("ARMS") 3 FEDERATED TOTAL RETURN SERIES, INC.
COLLATERALIZED MORTGAGE OBLIGATIONS MANAGEMENT 22
("CMOS") 4
OFFICERS AND DIRECTORS 22
REAL ESTATE MORTGAGE INVESTMENT
FUND OWNERSHIP 30
CONDUITS ("REMICS") 5
DIRECTORS' COMPENSATION 30
INTEREST-ONLY AND PRINCIPAL-ONLY
DIRECTOR LIABILITY 32
INVESTMENTS 6
INVESTMENT ADVISORY SERVICES 32
PRIVATELY ISSUED MORTGAGE-RELATED
SECURITIES 6 ADVISER TO THE FUND 32
RESETS OF INTEREST 7 ADVISORY FEES 33
CAPS AND FLOORS 8
FOREIGN BANK INSTRUMENTS 8
FUTURES AND OPTIONS TRANSACTIONS9
MEDIUM TERM NOTES AND DEPOSIT NOTES
13
AVERAGE LIFE 13
WEIGHTED AVERAGE PORTFOLIO DURATION
13
WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS 14
LENDING OF PORTFOLIO SECURITIES15

SHAREHOLDER SERVICES AGREEMENT 34 APPENDIX 43

TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT 34

ADMINISTRATIVE SERVICES 35

BROKERAGE TRANSACTIONS 35

PURCHASING SHARES 36

DETERMINING NET ASSET VALUE 36

DETERMINING MARKET VALUE OF
SECURITIES 36
VALUING MUNICIPAL BONDS 37
USE OF AMORTIZED COST 37
REDEEMING SHARES 37

REDEMPTION IN KIND 38
TAX STATUS 38

THE FUND'S TAX STATUS 38
SHAREHOLDERS' TAX STATUS 39
TOTAL RETURN 39

YIELD 39

PERFORMANCE COMPARISONS 40

ABOUT FEDERATED INVESTORS 41

MUTUAL FUND MARKET 42

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, as
amended. 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
securities, 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 probable amount
and sequence of principal prepayments.
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. 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. 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.

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.

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.

J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President and Director
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Vice President of the Funds;
Director, Trustee, or Managing General Partner of some of the Funds. Mr. Donahue
is the son of John F. Donahue, Chairman and Director of the Company.

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.

Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; 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, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management Advisory
Board.

Edward C. Gonzales
Federated Investors Tower

Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee or Director of some of the Funds; President, Executive Vice
President and Treasurer of some of the Funds.

David M. Taylor
Federated Investors Tower
Pittsburgh, PA

Birthdate: January 13, 1947
Treasurer
Senior Vice President, Controller, and Trustee, Federated Investors; Controller,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., and Passport Research, Ltd.; Senior Vice President, Federated
Shareholder Services; Vice President, Federated Administrative Services;
Treasurer of some of the Funds.

Years; 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; 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; 111 Corcoran Funds; Peachtree Funds;
The Planters Funds; RIMCO Monument Funds; The Shawmut Funds; 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; 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 Fund
Chairman and Director 68 other investment companies in the
Fund Complex
Thomas G. Bigley $ 0 $ 20,688 for the Fund
Director 49 other investment companies in the
Fund Complex
John T. Conroy, Jr. $ 0 $ 117,202 for the Fund
Director 64 other investment companies in the
Fund Complex
William J. Copeland $ 0 $ 117,202 for the Fund and
Director 64 other investment companie in the Fund
Complex
James E. Dowd $ 0 $ 117,202 for the Fund and
Director 64 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $ 0 $ 106,460 for the Fund and
Director 64 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $ 0 $ 117,202 for the Fund and
Director 64 other investment companies in the
Fund Complex
Peter E. Madden $ 0 $ 90,563 for the Fund and
Director 64 other investment companies in the
Fund Complex
Gregor F. Meyer $ 0 $ 106,460 for the Fund and

Director 64 other investment companies in the
Fund Complex
John E. Murray, Jr. $ 0 $ 0 for the Fund and
Director 69 other investment companies in the
Fund Complex
Wesley W. Posvar $ 0 $ 106,460 for the Fund and
Director 64 other investment companies in the
Fund Complex
Marjorie P. Smuts $ 0 $ 106,460 for the Fund and
Director 64 other investment companies in the
Fund Complex

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 SERVICES AGREEMENT

This arrangement permits the payment of fees to Federated Shareholder Services
and to financial institutions to cause services to be provided to shareholders
by a representative who has knowledge of the shareholder's particular
circumstances and goals. These activities and services may include, but are not
limited to: providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or beneficial
to establish and maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses. By adopting the
Shareholder Services Agreement, the Directors expect that the Fund will benefit
by (1) providing personal services to the shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholder's requests and inquiries concerning their accounts. For the fiscal
year ended September 30, 1995, the Fund paid no shareholder services fees.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

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

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

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

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

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

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 Bonds 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.
ABOUT FEDERATED INVESTORS

Federated's corporate bond decision making--based on intensive, diligent credit
analysis--is backed by over 20 years of experience in the corporate bond sector.
In 1972, Federated introduced one of the first high-yield bond funds in the
industry. In 17 years ending December 1994, Federated's high-yield portfolios
experienced a default rate of just 1.86%, versus 3.10% for the market as a
whole. In 1983, Federated was one of the first fund managers to participate in
the asset-backed securities market, a market totaling more than $200 billion.
J. Thomas Madden, Executive Vice President, oversees Federated's equity and high
yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated's domestic fixed income management. Henry A.
Frantzen, Executive Vice President, oversees the management of Federated's
international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $2 trillion to the more than 5,500 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL
Federated meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional
clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by
John B. Fisher, President, Institutional Sales Division.

TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions of
the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through major brokerage
firms nationwide--including 200 New York Stock Exchange firms--supported by
more wholesalers than any other mutual fund distributor. The marketing effort
to these firms is headed by James F. Getz, President, Broker/Dealer Division.
*source: Investment Company Institute

APPENDIX

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:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
o 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.

Cusip 31428Q200