1933 Act File No. 33-50773
1940 Act File No. 811-7115
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ..........
Post-Effective Amendment No. 8 ........... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 10 .......................... X
FEDERATED TOTAL RETURN SERIES, INC.
(formerly, Insight Institutional Series, Inc.)
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
on pursuant to paragraph (b)(1)(v)
--------------
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i)
-----------------
x 75 days after filing pursuant to paragraph (a)(ii)
on pursuant to paragraph (a)(ii) of Rule 485
-----------------
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
filed the Notice required by that Rule on or
------------------
intends to file the Notice required by that Rule on or about
; or
------------
X during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.
Copies To:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of Federated Total Return
Series, Inc. (formerly,Insight Institutional Series, Inc.), which consists
of four portfolios: (1) Federated Total Return Bond Fund (formerly,
Federated Government Total Return Fund), (2) Federated Total Return Limited
Duration Fund, (3) Federated Total Return Government Fund, and (4)
Federated Limited Duration Government Fund. This filing relates to
Federated Total Return Government Fund and Federated Limited Duration
Government Fund. Both portfolios consist of two classes of shares:
(a)Institutional Shares and (b)Institutional Service Shares. The
portfolios are comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page...............(1-4) Cover Page.
Item 2. Synopsis.................(1-4) Summary of Fund Expenses.
Item 3. Condensed Financial
Information.............(1-4) Performance Information.
Item 4. General Description of
Registrant..............(1-4) General Information; (1-4)
Investment Information; (1-4) Investment
Objective; (1-4) Investment Policies;
(1-4) Investment Limitations.
Item 5. Management of the Fund...(1-4) Fund Information; (1-4) Management
of the Corporation; (1-4) Distribution
of Institutional/ Institutional Service
Shares; (1-4) Administration of the
Fund; (1-4) Expenses of the Fund and
Institutional/Institutional Service
Shares.
Item 6. Capital Stock and Other
Securities..............(1-4) Dividends and Distributions; (1-4)
Shareholder Information; (1-4) Voting
Rights; (1-4) Tax Information; (1-4)
Federal Income Tax; (1-4) State and
Local Taxes.
Item 7. Purchase of Securities Being
Offered.................(1-4) Net Asset Value; (1-4) Investing
in Institutional/ Institutional Service
Shares; (1-4) Share Purchases; (1-4) (b)
Distribution Plan and Shareholder
Services; (1-4) (a) Shareholder
Services; (1-4) Minimum Investment
Required; (1-4) What Shares Cost; (1-4)
Exchanging Securities for Fund Shares;
(1-4) Certificates and Confirmations.
Item 8. Redemption or Repurchase.(1-4) Redeeming Institutional/
Institutional Service Shares; (1-4)
Telephone Redemption; (1-4) Written
Requests; (1-4) Accounts with Low
Balances.
Item 9. Pending Legal Proceedings None.
PART B.INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page...............(1-4) Cover Page.
Item 11. Table of Contents........(1-4) Table of Contents.
Item 12. General Information and
History.................(1-4) General Information About the
Fund; About Federated Investors.
Item 13. Investment Objectives and
Policies................(1-4) Investment Objective and Policies;
(1-4) Investment Limitations.
Item 14. Management of the Fund...(1-4) Federated Total Return Series,
Inc. Management; (1-4) Directors
Compensation.
Item 15. Control Persons and Principal
Holders of Securities...(1-4) Fund Ownership.
Item 16. Investment Advisory and Other
Services................(1-4) Investment Advisory Services; (1-
4) Distribution Plan and Shareholder
Services; (1-4) Other services; (1-4)
Transfer Agent; (1-4) Custodian and
Portfolio Accounting; (1-4) Fund
Administration; (1-4) Independent
Auditors.
Item 17. Brokerage Allocation.....(1-4) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities..............Not Applicable.
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered (1-4) Purchasing Shares; (1-4)
Determining Net Asset Value; (1-4)
Redeeming Shares.
Item 20. Tax Status...............(1-4) Tax Status.
Item 21. Underwriters.............Not Applicable.
Item 22. Calculation of Performance
Data....................(1-4) Total Return; (1-4) Yield; (1-4)
Performance Comparisons.
Item 23. Financial Statements.....To be filed by amendment.
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED NOVEMBER 27, 1996
[INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY ANY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.]
FEDERATED LIMITED DURATION GOVERNMENT FUND
(A PORTFOLIO OF FEDERATED TOTAL RETURN SERIES, INC.)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Federated Limited Duration Government Fund (the
"Fund") offered by this prospectus represent interests in 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 consistent
with current income. The Fund pursues this investment objective by
investing primarily in securities which are guaranteed as to payment of
principal and interest by the U.S. government or U.S. government agencies
or instrumentalities.
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 Institutional Shares of the Fund. Keep this prospectus for
future reference.
The Fund has also filed a Statement of Additional Information dated January
, 1997, with the Securities and Exchange Commission (``EC''). 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 or a paper copy of this prospectus
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information or to make inquiries
about the Fund, contact the Fund at the address listed on the back of this
prospectus. The Statement of Additional Information, material
incorporated by reference into this document, and other information
regarding the Fund is maintained electronically with the SEC at Internet
Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated January , 1997
--
Table of Contents will be generated when document is complete.
GENERAL INFORMATION
The Corporation was incorporated under the laws of the State of Maryland on
October 11, 1993. 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
classes of shares for the Fund: Institutional Shares and Institutional
Service Shares. This prospectus relates only to the Institutional Shares
of the Fund.
Institutional Shares (`Shares'') of the Fund are sold primarily to
accounts for which financial institutions act in a fiduciary or agency
capacity as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio of fixed income securities. A
minimum initial investment of $100,000 over a 90-day period is required.
Shares are sold and redeemed at net asset value without a sales charge
imposed by the Fund.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide total return consistent
with current income. 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.
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.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in U.S.
government securities. The Fund's weighted-average portfolio duration will
at all times be limited to three years or less. (See the section entitled
`Average Portfolio Duration'' in this Prospectus.) Unless indicated
otherwise, the investment policies may be changed by the Directors without
the approval of shareholders.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in U.S. government
securities, including mortgage-backed securities. These instruments are
either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. These securities include, but are not limited to:
o direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes, and bonds;
o notes, bonds, discount notes and mortgage-backed securities issued
or guaranteed by U.S. government agencies and instrumentalities
supported by the full faith and credit of the United States;
o notes, bonds, discount notes and other mortgage-backed securities
of U.S. government agencies or instrumentalities which receive or
have access to federal funding;
o notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the
instrumentalities; and
o asset-backed securities and commercial mortgage securities rated
BBB 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. As a matter of investment
policy, which may be changed by the Directors without shareholder
approval, the Fund does not intend to invest in asset-backed
securities and commercial mortgage securities, but reserves the
right to invest in these securities in the future. Shareholders
will receive at least 30 days prior notice of any such investment.
GOVERNMENT SECURITIES. Some obligations issued or guaranteed by agencies
or instrumentalities of the U.S. government are backed by the full faith
and credit of the U.S. Treasury. No assurances can be given that the U.S.
government will provide financial support to other agencies or
instrumentalities, since it is not obligated to do so. The
instrumentalities are supported by:
o the issuer's right to borrow an amount limited to a specific line
of credit from the U.S. Treasury;
o discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
o the credit of the agency or instrumentality.
The prices of fixed income securities fluctuate inversely to the
direction of interest rates.
MORTGAGE-BACKED SECURITIES. The Fund may purchase mortgage-backed
securities issued by government and non-government entities such as banks,
mortgage lenders, or other financial institutions. A mortgage-backed
security is an obligation of the issuer backed by a mortgage or pool of
mortgages or a direct interest in an underlying pool of mortgages. Some
mortgage-backed securities, such as collateralized mortgage obligations
(`CMOs''), make payments of both principal and interest at a variety of
intervals; others make semiannual interest payments at a predetermined rate
and repay principal at maturity (like a typical bond). Mortgage-backed
securities are based on different types of mortgages including those on
commercial real estate or residential properties. Other types of mortgage-
backed securities will likely be developed in the future, and the Fund may
invest in them if the investment adviser determines they are consistent
with the Fund's investment objective and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment
risk. Prepayment, which occurs when unscheduled or early payments are made
on the underlying mortgages, may shorten the effective maturities of these
securities and may lower their total returns.
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 are debt obligations
collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by Ginnie Mae, Fannie
Mae or Freddie Mac certificates, but may be collateralized by whole
loans or private pass-through securities. CMOs may have fixed or
floating rates of interest.
The Fund will invest only in CMOs that are rated A or better by a
nationally recognized statistical rating organization. The Fund may
also invest in certain CMOs which are issued by private entities
such as investment banking firms and companies related to the
construction industry. The CMOs in which the Fund may invest may be:
(i) securities which are collateralized by pools of mortgages in
which each mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. government;
(ii) securities which are collateralized by pools of mortgages in
which payment of principal and interest is guaranteed by the issuer
and such guarantee is collateralized by U.S. government securities;
(iii) collateralized by pools of mortgages in which payment of
principal and interest is dependent upon the underlying pool of
mortgages with no U.S. government guarantee; or (iv) other
securities in which the proceeds of the issuance are invested in
mortgage-backed securities and payment of the principal and interest
is supported by the credit of an agency or instrumentality of the
U.S. government.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). REMICs are
offerings of multiple class mortgage-backed securities which qualify
and elect treatment as such under provisions of the Internal Revenue
Code. Issuers of REMICs may take several forms, such as trusts,
partnerships, corporations, associations, or segregated pools of
mortgages. Once REMIC status is elected and obtained, the entity is
not subject to federal income taxation. Instead, income is passed
through the entity and is taxed to the person or persons who hold
interests in the REMIC. A REMIC interest must consist of one or more
classes of "regular interests," some of which may offer adjustable
rates of interest, and a single class of "residual interests." To
qualify as a REMIC, substantially all the assets of the entity must
be in assets directly or indirectly secured principally by real
property.
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. If the mortgage
assets which underlie the stripped mortgage-backed securities were
to experience greater than anticipated prepayments of principal, the
Fund could fail to fully recoup its initial investment in these
securities, even if they are rated in the highest rating categories
(e.g., AAA by Standard & Poor's and Fitch or Aaa by Moody's).
ASSET-BACKED SECURITIES. Asset-backed securities have structural
characteristics similar to mortgage-backed securities but have underlying
assets that generally are not mortgage loans or interests in mortgage
loans. The Fund may invest in asset-backed securities including, but not
limited to, interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables, equipment
leases, manufactured housing (mobile home) leases, or home equity loans.
These securities may be in the form of pass-through instruments or asset-
backed bonds. The securities are issued by non-governmental entities and
carry no direct or indirect government guarantee.
INVESTMENT RISKS OF MORTGAGE-BACKED AND ASSET-BACKED SECURITIES.
Mortgage-backed and asset-backed securities generally pay back
principal and interest over the life of the security. At the time the
Fund reinvests the payments and any unscheduled prepayments of
principal received, the Fund may receive a rate of interest which is
actually lower than the rate of interest paid on these securities
("prepayment risks"). Mortgage-backed and asset-backed securities are
subject to higher prepayment risks than most other types of debt
instruments with prepayment risks because the underlying mortgage
loans or the collateral supporting asset-backed securities may be
prepaid without penalty or premium. Prepayment risks on mortgage-
backed securities tend to increase during periods of declining
mortgage interest rates because many borrowers refinance their
mortgages to take advantage of the more favorable rates. Prepayments
on mortgage-backed securities are also affected by other factors, such
as the frequency with which people sell their homes or elect to make
unscheduled payments on their mortgages. Although asset-backed
securities generally are less likely to experience substantial
prepayments than are mortgage-backed securities, certain factors that
affect the rate of prepayments on mortgage-backed securities also
affect the rate of prepayments on asset-backed securities.
While mortgage-backed securities generally entail less risk of a
decline during periods of rapidly rising interest rates, mortgage-
backed securities may also have less potential for capital
appreciation than other similar investments (e.g., investments with
comparable maturities) because as interest rates decline, the
likelihood increases that mortgages will be prepaid. Furthermore, if
mortgage-backed securities are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some
loss of a holder's principal investment to the extent of the premium
paid. Conversely, if mortgage-backed securities are purchased at a
discount, both a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total returns and
would accelerate the recognition of income, which would be taxed as
ordinary income when distributed to shareholders.
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities do not have
the benefit of the same security interest in the related collateral.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer
credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance
due. Most issuers of asset-backed securities backed by motor vehicle
installment purchase obligations permit the servicer of such
receivables to retain possession of the underlying obligations. If the
servicer sells these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the
holders of the related asset-backed securities. Further, if a vehicle
is registered in one state and is then re-registered because the owner
and obligor moves to another state, such re-registration could defeat
the original security interest in the vehicle in certain cases. In
addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the
trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all
of the obligations backing such receivables. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have
been credit-enhanced by a guaranty, letter of credit or insurance. The Fund
typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party
providing the credit enhancement (the "credit enhancer"), rather than the
issuer. Generally, the Fund will not treat credit-enhanced securities as
having been issued by the credit enhancer for diversification purposes.
However, under certain circumstances applicable regulations may require the
Fund to treat the securities as having been issued by both the issuer and
the credit enhancer. The bankruptcy, receivership or default of the credit
enhancer will adversely affect the quality and marketability of the
underlying security.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed
period following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the
underlying security. The Fund uses these arrangements to provide the Fund
with liquidity and not to protect against changes in the market value of
the underlying securities. The bankruptcy, receivership or default by the
issuer of the demand feature, or a default on the underlying security or
other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying
security are treated as a form of credit enhancement.
INTEREST RATE SWAPS. As one way of managing its exposure to different types
of investments, the Fund may enter into interest rate swaps, currency
swaps, and other types of swap agreements such as caps, collars, and
floors. Depending on how they are used, swap agreements may increase or
decrease the overall volatility of the Fund's investments, its share price
and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on the Fund's performance. Swap agreements are subject
to risks related to the counterparty's ability to perform, and may decline
in value if the counterparty's creditworthiness deteriorates. The Fund may
also suffer losses if it is unable to terminate outstanding swap agreements
to reduce its exposure through offsetting transactions. When the Fund
enters into a swap agreement, assets of the Fund equal to the value of the
swap agreement will be segregated by the Fund.
FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures contracts to hedge all or a portion of its portfolio
against changes in interest rates. Financial futures contracts call for the
delivery of particular debt instruments at a certain time in the future.
The seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take delivery
of the instrument at the specified future time.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its
portfolio against decreases in value. When the Fund writes a call option on
a futures contract, it is undertaking the obligation of selling a futures
contract at a fixed price at any time during a specified period if the
option is exercised. Conversely, as purchaser of a put option on a futures
contract, the Fund is entitled (but not obligated) to sell a futures
contract at the fixed price during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the
Fund's existing futures positions and premiums paid for related options
would exceed 5% of the market value of the Fund's total assets. When the
Fund purchases a futures contract, an amount of cash and cash equivalents,
equal to the underlying commodity value of the futures contract (less any
related margin deposits), will be deposited in a segregated account with
the Fund's custodian (or the broker, if legally permitted) to collateralize
the position and thereby insure that the use of such futures contract is
unleveraged.
RISKS. When the Fund uses financial futures and options on financial
futures as hedging devices, there is a risk that the prices of the
securities subject to the futures contracts may not correlate
perfectly with the prices of the securities in the Fund's portfolio.
This may cause the futures contract and any related options to react
differently than the portfolio securities to market changes. In
addition, the Fund's investment adviser could be incorrect in its
expectations about the direction or extent of market factors such as
interest rate movements. In these events, the Fund may lose money on
the futures contract or option. It is not certain that a secondary
market for positions in futures contracts or for options will exist
at all times. Although the investment adviser will consider
liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise
will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out
futures and options positions depends on this secondary market.
DERIVATIVE CONTRACTS AND SECURITIES. The term "derivative" has
traditionally been applied to certain contracts (including, futures,
forward, option and swap contracts) that "derive" their value from changes
in the value of an underlying security, currency, commodity or index.
Certain types of securities that incorporate the performance
characteristics of these contracts are also referred to as `derivatives."
Some securities, such as stock rights, warrants and convertible securities,
although not typically referred to as derivatives, contain options that may
affect their value and performance. Derivative contracts and securities
can be used to reduce or increase the volatility of an investment
portfolio's total performance. While the response of certain derivative
contracts and securities to market changes may differ from traditional
investments, such as stock and bonds, derivatives do not necessarily
present greater market risks than traditional investments. The Fund will
only use derivative contracts for the purposes disclosed in the applicable
prospectus sections above. To the extent that the Fund invests in
securities that could be characterized as derivatives, it will only do so
in a manner consistent with its investment objective, policies and
limitations.
LEVERAGE AND BORROWING. The Fund is authorized to borrow money from banks
or otherwise in an amount up to 33 1/3% of the Fund's total assets
(including the amount borrowed), less all liabilities and indebtedness
other than the bank or other borrowing. This limitation may not be changed
without the approval of shareholders. The Fund is also authorized to
borrow an additional 5% of its total assets without regard to the foregoing
limitation for temporary purposes such as clearance of portfolio
transactions and share repurchases. The Fund will only borrow when there
is an expectation that it will benefit the Fund after taking into account
considerations such as interest income and possible gains or losses upon
liquidation. The Fund also may borrow in order to effect share purchases
and tender offers.
Borrowing by the Fund creates an opportunity for increased net income but,
at the same time, creates special risk considerations. For example,
leveraging may exaggerate changes in the net asset value of the Fund shares
and in the yield on the Fund's portfolio. Although the principal of such
borrowings will be fixed, the Fund's assets may change in value during the
time the borrowing is outstanding. Borrowing will create interest expenses
for the Fund which can exceed the income from the assets retained. To the
extent the income derived from securities purchased with borrowed funds
exceeds the interest the Fund will have to pay, the Fund's net income will
be greater than if borrowing were not used. Conversely, if the income from
the assets retained with borrowed funds is not sufficient to cover the cost
of borrowing, the net income of the Fund will be less than if borrowing
were not used, and therefore the amount available for distribution to
shareholders as dividends will be reduced. The Fund may also borrow for
emergency purposes, for the payment of dividends for share repurchases or
for the clearance of transactions.
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument 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 does not ensure this result. 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 on the Trust's records at the trade date; marked
to market daily; and maintained until the transaction is settled.
The Fund may enter into `dollar rolls'' in which the Fund sells securities
for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity)
securities on a specified future date. During the roll period, the Fund
foregoes principal and interest paid on the securities. The Fund is
compensated by the difference between the current sales price and the lower
forward price for the future purchase (often referred to as the `drop'')
as well as by the interest earned on the cash proceeds of the initial sale.
A `covered roll'' is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which
matures on or before the forward settlement date of the dollar roll
transaction. The Fund does not consider dollar rolls to be a borrowing.
To the extent that dollar rolls are not covered rolls, they will be
included in the 33 1/3% limit.
The Fund expects that some of its borrowings may be made on a secured
basis. In such situations, either the custodian will segregate the pledged
assets for the benefit of the lender or arrangements will be made with (i)
the lender to act as a subcustodian if the lender is a bank or otherwise
qualifies as a custodian of investment company assets or (ii) a suitable
subcustodian. Because few or none of its assets will consist of margin
securities, the Fund does not expect to borrow on margin.
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 Fund reserves the right to invest up to 100% of its assets in one
or more investment companies, but would do so only after a regulatory
change or receipt of an exemptive order from the Securities and
Exchange Commission permitting this. If, in the future, applicable
regulations change or the Fund does receive such an exemptive order,
the Fund would notify shareholders of its intent to increase the level
of investment in other investment companies. However, shareholder
approval will not be required to effect any such change in this
investment policy.
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 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.
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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase U.S.
government 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 these transactions 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.
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.
PORTFOLIO TRANSACTIONS. The Fund conducts portfolio transactions to
accomplish its investment objective as interest rates change, to invest new
money obtained from selling its shares, and to meet redemption requests.
The Fund may dispose of portfolio securities at any time if it appears that
selling the securities will help the Fund achieve its investment objective.
INVESTMENT LIMITATIONS
The following limitation may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective.
The Fund will not invest more than 15% of the value of its net assets in
securities which are illiquid, including repurchase agreements providing
for settlement in more than seven days after notice.
HUB AND SPOKE OPTION
If the Directors determine it to be in the best interest of the Fund and
its shareholders, the Fund may in the future seek to achieve its investment
objective by investing all of its assets in another investment company
having the same investment objective and substantially the same investment
policies and restrictions as those applicable to the Fund. It is expected
that any such investment company would be managed in substantially the same
manner as the Fund.
The initial shareholder of the Fund (which is an affiliate of Federated
Securities Corp.) voted to vest authority to use this investment structure
in the sole discretion of the Directors. No further approval of
shareholders is required. Shareholders will receive at least 30 days prior
notice of any such investment.
In making its determination, the Directors will consider, among other
things, the benefits to shareholders and/or the opportunity to reduce costs
and achieve operational efficiencies. Although it is expected that the
Directors will not approve an arrangement that is likely to result in
higher costs, no assurance is given that costs will remain the same or be
materially reduced if this investment structure is implemented.
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset value for
Shares 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. The net asset value for Shares may exceed that of
Institutional Service Shares due to the variance in daily net income
realized by each class. Such variance will reflect only accrued net income
to which the shareholders of a particular class are entitled.
INVESTING IN INSTITUTIONAL SHARES
SHARE PURCHASES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received on days on which the New York Stock
Exchange is open for business. 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 Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston,
Massachusetts; Attention: EDGEWIRE; For Credit to: Federated Limited
Duration Government Fund - Institutional Shares; 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.
Shares cannot be purchased by wire on holidays when wire transfers are
restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.
BY MAIL. To purchase shares of the Fund by mail, send a check made payable
to Federated Limited Duration Government Fund - Institutional Shares to:
Federated Shareholder Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600. Orders by mail are considered received when
payment by check is converted by State Street Bank and Trust Company
(`State Street Bank'') into federal funds. This is normally the next
business day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $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
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who
purchase Shares through a financial intermediary may be charged a service
fee by that financial intermediary.
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 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, and must have a readily ascertainable market value. 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 Shares on the day the securities are valued. One Share 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 Shares, a gain or loss may be realized by the investor.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Shareholder 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 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 INSTITUTIONAL SHARES
The Fund redeems Shares at their net asset value next determined after the
Fund receives the redemption request. Investors who redeem Shares through a
financial intermediary may be charged a service fee by that financial
intermediary. 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. Proceeds from redemption requests received on holidays
when wire transfers are restricted will be wired the following business
day. Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative
at the telephone number listed on your account statement. 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 be redeemed in any amount by mailing a written request to:
Federated Shareholder Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600. If share certificates have been issued, they
should be sent unendorsed with the written request by registered or
certified mail to the address noted above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of Shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the Shares are registered.
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
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 their signatures guaranteed by a
commercial or savings bank, trust company or savings association whose
deposits are insured by an organization which is administered by the
Federal Deposit Insurance Corporation; a member firm of a domestic stock
exchange; 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
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 FUND
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 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 .40% 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.
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 $80 billion invested across more than 250 funds under
management and/or administration by its subsidiaries, as of December
31, 1995, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 1,800
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.
Both the Corporation 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.
Susan M. Nason has been the Fund's portfolio manager since 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.S. in Industrial Administration from Carnegie Mellon
University.
Kathleen M. Foody-Malus has been the Fund's portfolio manager since
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.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional
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 .25% of the average
daily net asset value of the Institutional Shares, computed at an annual
rate, to obtain certain personal services for shareholders and to maintain
shareholder accounts. From time to time and for such periods as deemed
appropriate, the amount stated above may be reduced voluntarily. Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions
to perform shareholder services. Financial institutions will receive fees
based upon Shares owned by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder
Services. Currently, Institutional Shares are accruing no shareholder
services fees. Shareholders will be notified if this changes.
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 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
investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund. Federated Services Company provides these at an annual
rate which relates to the average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors as specified below:
MAXIMUM
AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose to voluntarily waive a portion of its
fee.
EXPENSES OF THE FUND AND INSTITUTIONAL SHARES
Holders of Institutional Shares pay their allocable portion of Corporation
and Fund expenses.
The Corporation expenses for which holders of Shares 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 and shareholders and proxy solicitations therefor;
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 holders of Shares pay their allocable portion
include, but are not limited to: registering the portfolio and Shares of
the portfolio; investment advisory services; taxes and commissions;
custodian fees; insurance premiums; auditors' fees; and such non-recurring
and extraordinary items as may arise from time to time.
At present, the only expenses which would be allocated specifically to
Shares as a class are expenses under the Corporation's Shareholder Services
Agreement. However, the Directors reserve the right to allocate certain
other expenses to holders of Shares as they deem appropriate (`Class
Expenses'). In any case, Class Expenses would be limited to:
distribution fees; transfer agent fees as identified by the transfer agent
as attributable to holders of Shares; printing and postage expenses related
to preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders; registration fees paid to
the Securities and Exchange Commission and to state securities commissions;
expenses related to adminstrative personnel and services as required to
support holders of Shares; and Directors' fees incurred as a result of
issues relating solely to Shares.
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
or class of shares, only shares of that portfolio or class of shares are
entitled to vote.
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.
STATE AND LOCAL TAXES
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.
Shares are sold without any sales charge or other similar non-recurring
charges.
Total return and yield will be calculated separately for Institutional
Shares and Institutional Service Shares.
From time to time, advertisements for the Fund's Institutional Shares may
refer to ratings, rankings, and other information in certain financial
publications and/or compare the Fund's Institutional Shares performance to
certain indices.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Service
Shares which are sold at net asset value to accounts for financial
institutions and are subject to a minimum initial investment of $25,000
over a 90-day period.
Institutional Service Shares are distributed under a 12b-1 Plan adopted by
the Fund and are also subject to shareholder services fees.
Institutional Service Shares and Institutional Shares are subject to
certain of the same expenses. Expense differences, however, between
Institutional Service Shares and Institutional Shares may affect the
performance of each class.
To obtain more information and a prospectus for Institutional Service
Shares, investors may call 1-800-341-7400.
ADDRESSES
Federated Limited Duration
Government 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 c/o Federated Services Company
Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services
Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
FEDERATED LIMITED DURATION GOVERNMENT FUND
Institutional Shares
Prospectus
A Diversified Portfolio of Federated Total Return Series, Inc. an
Open-End, Management Investment Company
Prospectus dated January , 1997
--
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 31428Q
---
G01744- -IS (1/97)
--
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED NOVEMBER 27, 1996
[INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY ANY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.]
FEDERATED LIMITED DURATION GOVERNMENT FUND
(A PORTFOLIO OF FEDERATED TOTAL RETURN SERIES, INC.)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of Federated Limited Duration Government
Fund (the "Fund") offered by this prospectus represent interests in 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 consistent
with current income. The Fund pursues this investment objective by
investing primarily in securities which are guaranteed as to payment of
principal and interest by the U.S. government or U.S. government agencies
or instrumentalities.
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 Institutional Service Shares of the Fund. Keep this
prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated January
, 1997, with the Securities and Exchange Commission (``EC''). 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 or a paper copy of this prospectus
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information or to make inquiries
about the Fund, contact the Fund at the address listed on the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Fund
is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated January , 1997
The Table of Contents will be generated when document is complete.
GENERAL INFORMATION
The Corporation was incorporated under the laws of the State of Maryland on
October 11, 1993. 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
classes of shares for the Fund: Institutional Service Shares and
Institutional Shares. This prospectus relates only to the Institutional
Service Shares of the Fund.
Institutional Service Shares (`Shares'') of the Fund are designed
primarily for retail and private banking customers of financial
institutions as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio investing primarily in fixed
income securities. A minimum initial investment of $25,000 over a 90-day
period is required.
Shares are sold and redeemed at net asset value without a sales charge
imposed by the Fund.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide total return consistent
with current income. 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.
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.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in U.S.
government securities. The Fund's weighted-average portfolio duration will
at all times be limited to three years or less. (See the section entitled
`Average Portfolio Duration'' in this Prospectus.) Unless indicated
otherwise, the investment policies may be changed by the Directors without
the approval of shareholders.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in U.S. government
securities, including mortgage-backed securities. These instruments are
either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. These securities include, but are not limited to:
o direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes, and bonds;
o notes, bonds, discount notes and mortgage-backed securities issued
or guaranteed by U.S. government agencies and instrumentalities
supported by the full faith and credit of the United States;
o notes, bonds, discount notes and other mortgage-backed securities
of U.S. government agencies or instrumentalities which receive or
have access to federal funding;
o notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the
instrumentalities; and
o asset-backed securities and commercial mortgage securities rated
BBB 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. As a matter of investment
policy, which may be changed by the Directors without shareholder
approval, the Fund does not intend to invest in asset-backed
securities and commercial mortgage securities, but reserves the
right to invest in these securities in the future. Shareholders
will receive at least 30 days prior notice of any such investment.
GOVERNMENT SECURITIES. Some obligations issued or guaranteed by agencies
or instrumentalities of the U.S. government are backed by the full faith
and credit of the U.S. Treasury. No assurances can be given that the U.S.
government will provide financial support to other agencies or
instrumentalities, since it is not obligated to do so. The
instrumentalities are supported by:
o the issuer's right to borrow an amount limited to a specific line
of credit from the U.S. Treasury;
o discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
o the credit of the agency or instrumentality.
The prices of fixed income securities fluctuate inversely to the
direction of interest rates.
MORTGAGE-BACKED SECURITIES. The Fund may purchase mortgage-backed
securities issued by government and non-government entities such as banks,
mortgage lenders, or other financial institutions. A mortgage-backed
security is an obligation of the issuer backed by a mortgage or pool of
mortgages or a direct interest in an underlying pool of mortgages. Some
mortgage-backed securities, such as collateralized mortgage obligations (``
CMOs'), make payments of both principal and interest at a variety of
intervals; others make semiannual interest payments at a predetermined rate
and repay principal at maturity (like a typical bond). Mortgage-backed
securities are based on different types of mortgages including those on
commercial real estate or residential properties. Other types of mortgage-
backed securities will likely be developed in the future, and the Fund may
invest in them if the investment adviser determines they are consistent
with the Fund's investment objective and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment
risk. Prepayment, which occurs when unscheduled or early payments are made
on the underlying mortgages, may shorten the effective maturities of these
securities and may lower their total returns.
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 are debt obligations
collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by Ginnie Mae, Fannie
Mae or Freddie Mac certificates, but may be collateralized by whole
loans or private pass-through securities. CMOs may have fixed or
floating rates of interest.
The Fund will invest only in CMOs that are rated A or better by a
nationally recognized statistical rating organization. The Fund may
also invest in certain CMOs which are issued by private entities
such as investment banking firms and companies related to the
construction industry. The CMOs in which the Fund may invest may be:
(i) securities which are collateralized by pools of mortgages in
which each mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. government;
(ii) securities which are collateralized by pools of mortgages in
which payment of principal and interest is guaranteed by the issuer
and such guarantee is collateralized by U.S. government securities;
(iii) collateralized by pools of mortgages in which payment of
principal and interest is dependent upon the underlying pool of
mortgages with no U.S. government guarantee; or (iv) other
securities in which the proceeds of the issuance are invested in
mortgage-backed securities and payment of the principal and interest
is supported by the credit of an agency or instrumentality of the
U.S. government.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). REMICs are
offerings of multiple class mortgage-backed securities which qualify
and elect treatment as such under provisions of the Internal Revenue
Code. Issuers of REMICs may take several forms, such as trusts,
partnerships, corporations, associations, or segregated pools of
mortgages. Once REMIC status is elected and obtained, the entity is
not subject to federal income taxation. Instead, income is passed
through the entity and is taxed to the person or persons who hold
interests in the REMIC. A REMIC interest must consist of one or more
classes of "regular interests," some of which may offer adjustable
rates of interest, and a single class of "residual interests." To
qualify as a REMIC, substantially all the assets of the entity must
be in assets directly or indirectly secured principally by real
property.
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. If the mortgage
assets which underlie the stripped mortgage-backed securities were
to experience greater than anticipated prepayments of principal, the
Fund could fail to fully recoup its initial investment in these
securities, even if they are rated in the highest rating categories
(e.g., AAA by Standard & Poor's and Fitch or Aaa by Moody's).
ASSET-BACKED SECURITIES. Asset-backed securities have structural
characteristics similar to mortgage-backed securities but have underlying
assets that generally are not mortgage loans or interests in mortgage
loans. The Fund may invest in asset-backed securities including, but not
limited to, interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables, equipment
leases, manufactured housing (mobile home) leases, or home equity loans.
These securities may be in the form of pass-through instruments or asset-
backed bonds. The securities are issued by non-governmental entities and
carry no direct or indirect government guarantee.
INVESTMENT RISKS OF MORTGAGE-BACKED AND ASSET-BACKED SECURITIES.
Mortgage-backed and asset-backed securities generally pay back
principal and interest over the life of the security. At the time the
Fund reinvests the payments and any unscheduled prepayments of
principal received, the Fund may receive a rate of interest which is
actually lower than the rate of interest paid on these securities
("prepayment risks"). Mortgage-backed and asset-backed securities are
subject to higher prepayment risks than most other types of debt
instruments with prepayment risks because the underlying mortgage
loans or the collateral supporting asset-backed securities may be
prepaid without penalty or premium. Prepayment risks on mortgage-
backed securities tend to increase during periods of declining
mortgage interest rates because many borrowers refinance their
mortgages to take advantage of the more favorable rates. Prepayments
on mortgage-backed securities are also affected by other factors, such
as the frequency with which people sell their homes or elect to make
unscheduled payments on their mortgages. Although asset-backed
securities generally are less likely to experience substantial
prepayments than are mortgage-backed securities, certain factors that
affect the rate of prepayments on mortgage-backed securities also
affect the rate of prepayments on asset-backed securities.
While mortgage-backed securities generally entail less risk of a
decline during periods of rapidly rising interest rates, mortgage-
backed securities may also have less potential for capital
appreciation than other similar investments (e.g., investments with
comparable maturities) because as interest rates decline, the
likelihood increases that mortgages will be prepaid. Furthermore, if
mortgage-backed securities are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some
loss of a holder's principal investment to the extent of the premium
paid. Conversely, if mortgage-backed securities are purchased at a
discount, both a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total returns and
would accelerate the recognition of income, which would be taxed as
ordinary income when distributed to shareholders.
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities do not have
the benefit of the same security interest in the related collateral.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer
credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance
due. Most issuers of asset-backed securities backed by motor vehicle
installment purchase obligations permit the servicer of such
receivables to retain possession of the underlying obligations. If the
servicer sells these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the
holders of the related asset-backed securities. Further, if a vehicle
is registered in one state and is then re-registered because the owner
and obligor moves to another state, such re-registration could defeat
the original security interest in the vehicle in certain cases. In
addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the
trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all
of the obligations backing such receivables. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have
been credit-enhanced by a guaranty, letter of credit or insurance. The Fund
typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party
providing the credit enhancement (the "credit enhancer"), rather than the
issuer. Generally, the Fund will not treat credit-enhanced securities as
having been issued by the credit enhancer for diversification purposes.
However, under certain circumstances applicable regulations may require the
Fund to treat the securities as having been issued by both the issuer and
the credit enhancer. The bankruptcy, receivership or default of the credit
enhancer will adversely affect the quality and marketability of the
underlying security.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed
period following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the
underlying security. The Fund uses these arrangements to provide the Fund
with liquidity and not to protect against changes in the market value of
the underlying securities. The bankruptcy, receivership or default by the
issuer of the demand feature, or a default on the underlying security or
other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying
security are treated as a form of credit enhancement.
INTEREST RATE SWAPS. As one way of managing its exposure to different types
of investments, the Fund may enter into interest rate swaps, currency
swaps, and other types of swap agreements such as caps, collars, and
floors. Depending on how they are used, swap agreements may increase or
decrease the overall volatility of the Fund's investments, its share price
and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on the Fund's performance. Swap agreements are subject
to risks related to the counterparty's ability to perform, and may decline
in value if the counterparty's creditworthiness deteriorates. The Fund may
also suffer losses if it is unable to terminate outstanding swap agreements
to reduce its exposure through offsetting transactions. When the Fund
enters into a swap agreement, assets of the Fund equal to the value of the
swap agreement will be segregated by the Fund.
FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures contracts to hedge all or a portion of its portfolio
against changes in interest rates. Financial futures contracts call for the
delivery of particular debt instruments at a certain time in the future.
The seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take delivery
of the instrument at the specified future time.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its
portfolio against decreases in value. When the Fund writes a call option on
a futures contract, it is undertaking the obligation of selling a futures
contract at a fixed price at any time during a specified period if the
option is exercised. Conversely, as purchaser of a put option on a futures
contract, the Fund is entitled (but not obligated) to sell a futures
contract at the fixed price during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the
Fund's existing futures positions and premiums paid for related options
would exceed 5% of the market value of the Fund's total assets. When the
Fund purchases a futures contract, an amount of cash and cash equivalents,
equal to the underlying commodity value of the futures contract (less any
related margin deposits), will be deposited in a segregated account with
the Fund's custodian (or the broker, if legally permitted) to collateralize
the position and thereby insure that the use of such futures contract is
unleveraged.
RISKS. When the Fund uses financial futures and options on financial
futures as hedging devices, there is a risk that the prices of the
securities subject to the futures contracts may not correlate
perfectly with the prices of the securities in the Fund's portfolio.
This may cause the futures contract and any related options to react
differently than the portfolio securities to market changes. In
addition, the Fund's investment adviser could be incorrect in its
expectations about the direction or extent of market factors such as
interest rate movements. In these events, the Fund may lose money on
the futures contract or option. It is not certain that a secondary
market for positions in futures contracts or for options will exist
at all times. Although the investment adviser will consider
liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise
will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out
futures and options positions depends on this secondary market.
DERIVATIVE CONTRACTS AND SECURITIES. The term "derivative" has
traditionally been applied to certain contracts (including, futures,
forward, option and swap contracts) that "derive" their value from changes
in the value of an underlying security, currency, commodity or index.
Certain types of securities that incorporate the performance
characteristics of these contracts are also referred to as `derivatives."
Some securities, such as stock rights, warrants and convertible securities,
although not typically referred to as derivatives, contain options that may
affect their value and performance. Derivative contracts and securities
can be used to reduce or increase the volatility of an investment
portfolio's total performance. While the response of certain derivative
contracts and securities to market changes may differ from traditional
investments, such as stock and bonds, derivatives do not necessarily
present greater market risks than traditional investments. The Fund will
only use derivative contracts for the purposes disclosed in the applicable
prospectus sections above. To the extent that the Fund invests in
securities that could be characterized as derivatives, it will only do so
in a manner consistent with its investment objective, policies and
limitations.
LEVERAGE AND BORROWING. The Fund is authorized to borrow money from banks
or otherwise in an amount up to 33 1/3% of the Fund's total assets
(including the amount borrowed), less all liabilities and indebtedness
other than the bank or other borrowing. This limitation may not be changed
without the approval of shareholders. The Fund is also authorized to
borrow an additional 5% of its total assets without regard to the foregoing
limitation for temporary purposes such as clearance of portfolio
transactions and share repurchases. The Fund will only borrow when there
is an expectation that it will benefit the Fund after taking into account
considerations such as interest income and possible gains or losses upon
liquidation. The Fund also may borrow in order to effect share purchases
and tender offers.
Borrowing by the Fund creates an opportunity for increased net income but,
at the same time, creates special risk considerations. For example,
leveraging may exaggerate changes in the net asset value of the Fund shares
and in the yield on the Fund's portfolio. Although the principal of such
borrowings will be fixed, the Fund's assets may change in value during the
time the borrowing is outstanding. Borrowing will create interest expenses
for the Fund which can exceed the income from the assets retained. To the
extent the income derived from securities purchased with borrowed funds
exceeds the interest the Fund will have to pay, the Fund's net income will
be greater than if borrowing were not used. Conversely, if the income from
the assets retained with borrowed funds is not sufficient to cover the cost
of borrowing, the net income of the Fund will be less than if borrowing
were not used, and therefore the amount available for distribution to
shareholders as dividends will be reduced. The Fund may also borrow for
emergency purposes, for the payment of dividends for share repurchases or
for the clearance of transactions.
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument 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 does not ensure this result. 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 on the Trust's records at the trade date; marked
to market daily; and maintained until the transaction is settled.
The Fund may enter into `dollar rolls'' in which the Fund sells securities
for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity)
securities on a specified future date. During the roll period, the Fund
foregoes principal and interest paid on the securities. The Fund is
compensated by the difference between the current sales price and the lower
forward price for the future purchase (often referred to as the `drop'')
as well as by the interest earned on the cash proceeds of the initial sale.
A `covered roll'' is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which
matures on or before the forward settlement date of the dollar roll
transaction. The Fund does not consider dollar rolls to be a borrowing.
To the extent that dollar rolls are not covered rolls, they will be
included in the 33 1/3% limit.
The Fund expects that some of its borrowings may be made on a secured
basis. In such situations, either the custodian will segregate the pledged
assets for the benefit of the lender or arrangements will be made with (i)
the lender to act as a subcustodian if the lender is a bank or otherwise
qualifies as a custodian of investment company assets or (ii) a suitable
subcustodian. Because few or none of its assets will consist of margin
securities, the Fund does not expect to borrow on margin.
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 Fund reserves the right to invest up to 100% of its assets in one
or more investment companies, but would do so only after a regulatory
change or receipt of an exemptive order from the Securities and
Exchange Commission permitting this. If, in the future, applicable
regulations change or the Fund does receive such an exemptive order,
the Fund would notify shareholders of its intent to increase the level
of investment in other investment companies. However, shareholder
approval will not be required to effect any such change in this
investment policy.
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 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.
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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase U.S.
government 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 these transactions 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.
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.
PORTFOLIO TRANSACTIONS. The Fund conducts portfolio transactions to
accomplish its investment objective as interest rates change, to invest new
money obtained from selling its shares, and to meet redemption requests.
The Fund may dispose of portfolio securities at any time if it appears that
selling the securities will help the Fund achieve its investment objective.
INVESTMENT LIMITATIONS
The following limitation may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material
change in this limitation becomes effective.
The Fund will not invest more than 15% of the value of its net assets in
securities which are illiquid, including repurchase agreements providing
for settlement in more than seven days after notice.
HUB AND SPOKE OPTION
If the Directors determine it to be in the best interest of the Fund and
its shareholders, the Fund may in the future seek to achieve its investment
objective by investing all of its assets in another investment company
having the same investment objective and substantially the same investment
policies and restrictions as those applicable to the Fund. It is expected
that any such investment company would be managed in substantially the same
manner as the Fund.
The initial shareholder of the Fund (which is an affiliate of Federated
Securities Corp.) voted to vest authority to use this investment structure
in the sole discretion of the Directors. No further approval of
shareholders is required. Shareholders will receive at least 30 days prior
notice of any such investment.
In making its determination, the Directors will consider, among other
things, the benefits to shareholders and/or the opportunity to reduce costs
and achieve operational efficiencies. Although it is expected that the
Directors will not approve an arrangement that is likely to result in
higher costs, no assurance is given that costs will remain the same or be
materially reduced if this investment structure is implemented.
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset value for
Shares 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. The net asset value for Institutional Shares may exceed that
of Shares due to the variance in daily net income realized by each class.
Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
INVESTING IN INSTITUTIONAL SERVICE SHARES
SHARE PURCHASES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received on days on which the New York Stock
Exchange is open for business. 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 Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston,
Massachusetts; Attention: EDGEWIRE; For Credit to: Federated Limited
Duration Government Fund - Institutional Service Shares; 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. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed
to your shareholder services representative at the telephone number listed
on your account statement.
BY MAIL. To purchase Shares of the Fund by mail, send a check made payable
to Federated Limited Duration Government Fund - Institutional Service
Shares to: Federated Shareholder Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600. Orders by mail are considered received when
payment by check is converted by State Street Bank & Trust Company (`State
Street Bank') into federal funds. This is normally the next business day
after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $25,000 plus any non-
affiliated bank or broker's fee. However, an account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days. An
institutional investor's minimum investment will be calculated by combining
all accounts it maintains with the Fund. Accounts established through a
non-affiliated bank or broker may be subject to a smaller minimum
investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who
purchase Shares through a financial intermediary may be charged a service
fee by that financial intermediary.
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 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, and must have a readily ascertainable market value. 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 Shares on the day the securities are valued. One Share 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 Shares, a gain or loss may be realized by the investor.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Shareholder 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 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 INSTITUTIONAL SERVICE SHARES
The Fund redeems Shares at their net asset value next determined after the
Fund receives the redemption request. Investors who redeem Shares through a
financial intermediary may be charged a service fee by that financial
intermediary. 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. Proceeds from redemption requests received on holidays
when wire transfers are restricted will be wired the following business
day. Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative
at the telephone number listed on your account statement. 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 be redeemed in any amount by mailing a written request to:
Federated Shareholder Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600. If share certificates have been issued, they
should be sent unendorsed with the written request by registered or
certified mail to the address noted above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of Shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the Shares are registered.
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
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 their signatures guaranteed by a
commercial or savings bank, trust company or savings association whose
deposits are insured by an organization which is administered by the
Federal Deposit Insurance Corporation; a member firm of a domestic stock
exchange; 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
Due to the high cost of maintaining accounts with low balances, the Fund
may redeem Shares in any account, and pay the proceeds to the shareholder,
if the account balance falls below a required minimum value of $25,000 due
to shareholder redemptions. This requirement does not apply, however, if
the balance falls below $25,000 because of changes in the Fund's net asset
value. Before Shares are redeemed to close an account, the shareholder is
notified in writing and allowed 30 days to purchase additional shares to
meet the minimum requirement.
FUND INFORMATION
MANAGEMENT OF THE FUND
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 Managment, 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 .40% 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.
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 $80 billion invested across more than 250 funds under
management and/or administration by its subsidiaries, as of December
31, 1995, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 1,800
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.
Both the Corporation 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.
Susan M. Nason has been the Fund's portfolio manager since 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.S. in Industrial Administration from Carnegie Mellon
University.
Kathleen M. Foody-Malus has been the Fund's portfolio manager since
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.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares. 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.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan
adopted in accordance with Rule 12b-1 under the Investment Company Act of
1940 (the "Plan"), the distributor may be paid a fee by the Fund in an
amount computed at an annual rate of .25% of the average daily net asset
value of Institutional Service Shares of the Fund. The distributor may
select financial institutions such as banks, fiduciaries, custodians for
public funds, investment advisers, and broker/dealers to provide sales
services or distribution-related support services as agents for their
clients or customers.
The Plan is a compensation-type plan. As such, the Fund makes no payments
to the distributor except as described above. Therefore, the Fund does not
pay for unreimbursed expenses of the distributor, including amounts
expended by the distributor in excess of amounts received by it from the
Fund, interest, carrying or other financing charges in connection with
excess amounts expended, or the distributor's overhead expenses. However,
the distributor may be able to recover such amounts or may earn a profit
from future payments made by the Fund under the Plan.
In addition, 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 .25% of the average daily net
asset value of Shares to obtain certain personal services for shareholders
and to maintain shareholder accounts. From time to time and for such
periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or
will select financial institutions to perform shareholder services.
Financial institutions will receive fees based upon Shares owned by their
clients or customers. The schedules of such fees and the basis upon which
such fees will be paid will be determined from time to time by the Fund and
Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Plan and 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 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 investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund. Federated Services Company provides these at an annual
rate which relates to the average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors as specified below:
MAXIMUM
AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose to voluntarily waive a portion of its
fee.
EXPENSES OF THE FUND AND INSTITUTIONAL SERVICE SHARES
Holders of Institutional Service Shares pay their allocable portion of
Corporation and Fund expenses.
The Corporation expenses for which holders of Shares 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 and shareholders and proxy solicitations therefor;
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 holders of Shares pay their allocable portion
include, but are not limited to: registering the portfolio and Shares of
the portfolio; investment advisory services; taxes and commissions;
custodian fees; insurance premiums; auditors' fees; and such non-recurring
and extraordinary items as may arise from time to time.
At present, the only expenses which are allocated specifically to Shares as
a class are expenses under the Corporation's Distribution Plan and
Shareholder Services Agreement. However, the Directors reserve the right
to allocate certain other expenses to holders of Shares as they deem
appropriate (`Class Expenses''). In any case, Class Expenses would be
limited to: transfer agent fees as identified by the transfer agent as
attributable to holders of Shares; printing and postage expenses related to
preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders; registration fees paid to
the Securities and Exchange Commission and to state securities commissions;
expenses related to adminstrative personnel and services as required to
support holders of Shares; and Directors' fees incurred as a result of
issues relating solely to Shares.
Shares; and Directors' fees incurred as a result of issues relating solely
to Institutional Service Shares.
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
or class of shares, only shares of that portfolio or class of shares are
entitled to vote.
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.
STATE AND LOCAL TAXES
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.
Shares are sold without any sales charge or other similar non-recurring
charges.
Total return and yield will be calculated separately for Institutional
Service Shares and Institutional Shares.
From time to time, advertisements for the Fund's Institutional Service
Shares may refer to ratings, rankings, and other information in certain
financial publications and/or compare the Fund's Institutional Service
Shares performance to certain indices.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Shares
which are sold at net asset value to accounts for financial institutions
and are subject to a minimum initial investment of $100,000 over a 90-day
period.
Institutional Shares are distributed with no 12b-1 Plan and are also
subject to shareholder services fees.
Institutional Shares and Institutional Service Shares are subject to
certain of the same expenses. Expense differences, however, between
Institutional Shares and Institutional Service Shares may affect the
performance of each class.
To obtain more information and a prospectus for Institutional Shares,
investors may call 1-800-341-7400.
ADDRESSES
Federated Limited Duration
Government 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 c/o Federated Services Company
Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services
Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
Ernst & Young LLP
One Oxford Centre
Pittsburgh, Pennsylvania 15219
FEDERATED LIMITED DURATION GOVERNMENT FUND
Institutional Service Shares
Prospectus
A Diversified Portfolio of Federated Total Return Series, Inc. an
Open-End, Management Investment Company
Prospectus dated January , 1997
--
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip
-------------
G01744- -SS (1/97)
--
SUBJECT TO COMPLETION, PRELIMINARY STATEMENT DATED NOVEMBER 27, 1996
[INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY ANY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS STATEMENT SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.]
FEDERATED LIMITED DURATION GOVERNMENT FUND
(A PORTFOLIO OF FEDERATED TOTAL RETURN SERIES, INC.)
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus(es) of Federated Limited Duration Government Fund (the
`Fund''), a portfolio of Federated Total Return Series, Inc. (the
`Corporation'') dated January , 1997. This Statement is not a
--
prospectus. You may request a copy of a prospectus or a paper copy of
this Statement, if you have received it electronically, free of charge
by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January , 1997
--
Table of Contents
GENERAL INFORMATION ABOUT THE FUND 3
INVESTMENT OBJECTIVE AND POLICIES 4
TYPES OF INVESTMENTS 1
ADJUSTABLE RATE MORTGAGE SECURITIES (``RMS'') 1
COLLATERALIZED MORTGAGE OBLIGATIONS (``MOS'') 1
REAL ESTATE MORTGAGE INVESTMENT CONDUITS
(``EMICS'') 2
INTEREST-ONLY AND PRINCIPAL-ONLY INVESTMENTS 2
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES 2
RESETS OF INTEREST 2
CAPS AND FLOORS 2
FUTURES AND OPTIONS TRANSACTIONS 3
LEVERAGING 4
LEVERAGE THROUGH BORROWING 4
MEDIUM TERM NOTES AND DEPOSIT NOTES 5
AVERAGE LIFE 5
WEIGHTED AVERAGE PORTFOLIO DURATION 5
LENDING OF PORTFOLIO SECURITIES 5
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS 6
REPURCHASE AGREEMENTS 6
REVERSE REPURCHASE AGREEMENTS 6
PORTFOLIO TURNOVER 6
INVESTMENT LIMITATIONS 6
Table of Contents
FEDERATED TOTAL RETURN SERIES, INC. MANAGEMENT 8
OFFICERS AND DIRECTORS 8
FUND OWNERSHIP 12
DIRECTORS' COMPENSATION 12
DIRECTOR LIABILITY 13
INVESTMENT ADVISORY SERVICES 13
ADVISER TO THE FUND 13
ADVISORY FEES 13
BROKERAGE TRANSACTIONS 13
OTHER SERVICES 14
FUND ADMINISTRATION 14
CUSTODIAN AND PORTFOLIO ACCOUNTING 14
TRANSFER AGENT 14
INDEPENDENT AUDITORS 14
PURCHASING SHARES 14
DISTRIBUTION PLAN (INSTITUTIONAL SERVICE SHARES ONLY )
AND SHAREHOLDER SERVICES 14
DETERMINING NET ASSET VALUE 14
DETERMINING MARKET VALUE OF SECURITIES 15
USE OF AMORTIZED COST 15
REDEEMING SHARES 15
REDEMPTION IN KIND 15
TAX STATUS 15
THE FUND'S TAX STATUS 15
SHAREHOLDERS' TAX STATUS 16
TOTAL RETURN 16
YIELD 16
PERFORMANCE COMPARISONS 16
ECONOMIC AND MARKET INFORMATION 17
ABOUT FEDERATED INVESTORS 17
MUTUAL FUND MARKET 17
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." The Articles of Incorporation permit
the Corporation to offer separate portfolios and classes of shares.
Shares of the Fund are offered in two classes, known as Institutional
Shares and Institutional Service Shares (individually and collectively
referred to as ``hares,'' as the context may require). This Statement of
Additional Information relates to the above-mentioned Shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide total return consistent
with current income. 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 U.S. government 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.
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).
LEVERAGING
Leveraging exaggerates the effect on the net asset value of any increase or
decrease in the market value of the portfolio. Money borrowed for
leveraging will be limited to 33 1/3% of the value of the Fund's total
assets. These borrowings will be subject to interest costs which may or
may not be recovered by appreciation of the securities purchased; in
certain cases, interest costs may exceed the return received on the
securities purchased.
LEVERAGE THROUGH BORROWING
For the borrowings for investment purposes, the Investment Company Act of
1940 requires the Fund to maintain continuous asset coverage (i.e., total
assets including borrowings, less liabilities exclusive of borrowings) of
300% of the amount borrowed. If the required coverage should decline as a
result of market fluctuations or other reason, the Fund may be required to
sell some of its portfolio holdings within 3 days to reduce the debt and
restore the 300% coverage, even though it may be disadvantageous from an
investment standpoint to sell at that time. The Fund also may be required
to maintain minimum average balances in connection with such borrowings or
to pay a commitment fee to maintain a line of credit; either of those
requirements would increase the cost of borrowings over the stated rate.
To the extent the Fund enters into a reverse repurchase agreement, the Fund
will maintain in a segregated custodial account cash or U.S. governement
securities or other high quality liquid debt securities at least equal to
the aggregate amount of its reverse repurchase obligations, plus accrued
interest in certain cases, in accordance with releases promulgated by the
SEC. The SEC views reverse repurchase as collateralized borrowings by the
Fund.
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.
The duration of interest rate agreements, such as interest rates swaps,
caps and floors, is calculated in the same manner as other securities.
However, certain interest rate agreements have negative durations, which
the Fund may use to reduce its weighted average portfolio duration.
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.
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. The Fund does not
have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to
the investment.
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
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund`s records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
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 such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such
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. This
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 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.
INVESTMENT LIMITATIONS
The following limitations are fundamental [except that no investment
limitation of the Fund shall prevent the Fund from investing substantially
all of its assets (except for assets which are not considered `investment
securities''under the Investment Company Act of 1940, or assets exempted
by the Securities and Exchange Commission) in an open-end investment
company with substantially the same investment objectives]:
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities.
BORROWING MONEY
The Fund will not borrow money, except to the extent permitted under the
1940 Act (which currently limits borrowings to no more than 33 1/3% of the
value of the Fund's total assets). For purposes of this investment
restriction, the entry into options, forward contracts, futures contracts,
including those related to indices, and options on futures contracts or
indices shall not constitute borrowing.
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.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the value of
total assets at the time of the borrowing.
LENDING CASH OR SECURITIES
The Fund will not lend any assets except portfolio securities. (This will
not prevent the purchase or holding of bonds, debentures, notes,
certificates of indebtedness or other debt securities of an issuer,
repurchase agreements or other transactions which are permitted by the
Fund's investment objective and policies or Articles of Incorporation).
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities, except as permitted by its
investment objective and policies.
The above limitations cannot be changed without shareholder approval. The
following limitation, however, may be changed by the Directors without
shareholder approval [except that no investment limitation of the Fund
shall prevent the Fund from investing substantially all of its assets
(except for assets which are not considered `investment securities'' under
the Investment Company Act of 1940, or assets exempted by the Securities
and Exchange Commission) in an open-end investment company with
substantially the same investment objectives]. Shareholders will be
notified before any material changes in this limitation become effective.
INVESTING IN RESTRICTED AND ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
securities, including certain restricted securities (except for Section
4(2) commercial paper and certain other restricted securities which meet
the criteria for liquidity as established by the Directors), non-negotiable
time deposits, and repurchase agreements providing for settlement in more
than seven days after notice.
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.
The Fund reserves the right to invest up to 100% of its assets in one or
more investment companies, but would do so only after a regulatory change
or receipt of an exemptive order from the Securities and Exchange
Commission permitting this. If, in the future, applicable regulations
change or the Fund does receive such an exemptive order, the Fund would
notify shareholders of its intent to increase the level of investment in
other investment companies. However, shareholder approval will not be
required to effect any such change in this investment policy.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
As a matter of operating policy, the Fund will not purchase any securities
while borrowings in excess of 5% of its total assets are outstanding.
FEDERATED TOTAL RETURN SERIES, INC. MANAGEMENT
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 or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Corporation .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director or Trustee 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 or Trustee 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 or Trustee 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 Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Director of the Corporation.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee 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 or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney-at-law; Shareholder, Miller, Ament, Henny & Kochuba; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director or Trustee of the Funds; formerly, Counsel, Horizon Financial,
F.A., Western Region.
Peter E. Madden
Seacliff
562 Bellevue Avenue
New port, RI
Birthdate: March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts; Director
or Trustee of the Funds; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Shareholder, Miller, Ament, Henny & Kochuba; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or
Trustee 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 or Trustee 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 or Trustee 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 or Trustee 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.
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 Shareholder Services Company; 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, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds.
* This Directors is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board
of Directorss handles the responsibilities of the Board between
meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ;
DG Investor Series; Edward Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders
Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity
Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Master Trust; Federated Investment
Portfolios; Federated Investment Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government Securities
Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years;
Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility
Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield
Cash Trust; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust,
Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust;
Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.
FUND OWNERSHIP
Officers and Directors as a group own less than 1% of the Fund`s
outstanding shares.
DIRECTORS' COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
CORPORATION CORPORATION* FROM FUND COMPLEX +
John F. Donahue, $ 0 $0 for the Corporation and
Chairman and Director 54 other investment companies in the Fund
Complex
Thomas G. Bigley++ $ $86,331 for the
----
Corporation and
Director 54 other investment companies in the Fund
Complex
John T. Conroy, Jr., $ $115,760 for the Corporation and
---
Director 54 other investment companies in the Fund
Complex
William J. Copeland, $ $115,760 for the Corporation and
---
Director 54 other investment companies in the Fund
Complex
J. Christopher Donahue, $ 0 $0 for the Corporation and
Executive Vice President 16 other investment companies in the Fund
Complex
andDirector
James E. Dowd, $ $115,760 for the Corporation and
---
Director 54 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D., $ $104,898 for the Corporation and
---
Director 54 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr., $ $115,760 for the Corporation and
---
Director 54 other investment companies in the Fund
Complex
Peter E. Madden, $ $104,898 for the Corporation and
---
Director 54 other investment companies in the Fund
Complex
Gregor F. Meyer, $ $104,898 for the Corporation and
---
Director 54 other investment companies in the Fund
Complex
John E. Murray, Jr., $ $104,898 for the Corporationand
---
Director 54 other investment companies in the Fund
Complex
Wesley W. Posvar,$ $104,898 for the Corporation and
---
Director 54 other investment companies in the Fund
Complex
Marjorie P. Smuts, $ $104,898 for the Corporation and
---
Director 54 other investment companies in the Fund
Complex
*Information is furnished for the fiscal year ended September 30, 1996 and
the Corporation was comprised of 2 portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
Complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
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.
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 guidelines established 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: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the Adviser or by affiliates in advising the Fund 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. 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.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the Adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the Adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described
in the prospectus.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, Massachusetts, is custodian
for the securities and cash of the Fund. Federated Services Company,
Pittsburgh, Pennsylvania, provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments. 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.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based upon the
size, type and number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
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 each Share's prospectus under "Investing in the Institutional Shares''
or `Investing in Institutional Service Shares."
DISTRIBUTION PLAN (INSTITUTIONAL SERVICE SHARES ONLY) AND SHAREHOLDER
SERVICES
As explained in the respective prospectuses, with respect to Shares of the
Fund, the Fund has adopted a Shareholder Services Agreement, and, with
respect to Institutional Service Shares, has adopted a Distribution Plan.
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and 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: marketing efforts; 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 Plan, the Directors expect that the Fund will be able to
achieve a more predictable flow of cash for investment purposes and to meet
redemptions. This will facilitate more efficient portfolio management and
assist the Fund in pursuing its investment objectives. By identifying
potential investors whose needs are served by the Fund's objectives, and
properly servicing these accounts, it may be possible to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
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.
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
Instituional Shares''or ``Redeeming Institutional Service 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 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 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 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 net
asset value over a specific period of time. From time to time, the
Trust will quote its Lipper ranking in the "U.S. government 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.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Fund. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors 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. These traders
handle trillions of dollars in annual trading volume.
In the government sector, as of December 31, 1995, Federated Investors
managed 9 mortgage-backed, 5 government/agency and 17 government money
market mutual funds, with assets approximating $7.7 billion, $1.7 billion
and $20.9 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 $3 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 CLIENTS
Federated Investors 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 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.
Federated's service to financial professionals and institutions has
earned it high rankings in several surveys performed by DALBAR, Inc.
DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James
F. Getz, President, Broker/Dealer Division.
*source: Investment Company Institute
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED NOVEMBER 27, 1996
[INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY ANY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.]
FEDERATED TOTAL RETURN GOVERNMENT FUND
(A PORTFOLIO OF FEDERATED TOTAL RETURN SERIES, INC.)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Federated Total Return Government Fund (the
`Fund'') offered by this prospectus represent interests in 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 investing primarily in a portfolio of
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 Institutional Shares of the Fund. Keep this prospectus for
future reference.
The Fund has also filed a Statement of Additional Information dated January
, 1997, with the Securities and Exchange Commission (``EC''). 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 or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information or to make inquiries
about the Fund, contact the Fund at the address listed on the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Fund
is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated January , 1997
--
Table of Contents will be generated when
document is complete.
GENERAL INFORMATION
The Corporation was incorporated under the laws of the State of Maryland on
October 11, 1993. 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
classes of shares for the Fund: Institutional Shares and Institutional
Service Shares. This prospectus relates only to Institutional Shares of
the Fund.
Institutional Shares (``hares'') of the Fund are sold primarily to
accounts for which financial institutions act in a fiduciary or agency
capacity as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio of investment grade debt
securities. A minimum initial investment of $100,000 over a 90-day period
is required.
Shares are sold and redeemed at net asset value without a sales charge
imposed by the Fund.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide total return. The
investment objective cannot be changed without approval of shareholders.
While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the investment policies
described in this prospectus.
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.
INVESTMENT POLICIES
The Fund pursues this investment objective by investing in U.S. government
securities, including mortgage-backed securities and other mortgage-backed
securities and asset-backed 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 securities in which the Fund invests
principally are:
o direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes, and bonds;
o notes, bonds, discount notes and mortgage-backed securities issued
or guaranteed by U.S. government agencies and instrumentalities
supported by the full faith and credit of the United States;
o notes, bonds, discount notes and other mortgage-backed securities
of U.S. government agencies or instrumentalities which receive or
have access to federal funding;
o notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the
instrumentalities; and
o asset-backed securities and commercial mortgage securities rated
BBB 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.
GOVERNMENT SECURITIES. Some obligations issued or guaranteed by agencies
or instrumentalities of the U.S. government are backed by the full faith
and credit of the U.S. Treasury. No assurances can be given that the U.S.
government will provide financial support to other agencies or
instrumentalities, since it is not obligated to do so. The
instrumentalities are supported by:
o the issuer's right to borrow an amount limited to a specific line
of credit from the U.S. Treasury;
o discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
o the credit of the agency or instrumentality.
The prices of fixed income securities fluctuate inversely to the
direction of interest rates.
MORTGAGE-BACKED SECURITIES. The Fund may purchase mortgage-backed
securities issued by government and non-government entities such as banks,
mortgage lenders, or other financial institutions. A mortgage-backed
security is an obligation of the issuer backed by a mortgage or pool of
mortgages or a direct interest in an underlying pool of mortgages. Some
mortgage-backed securities, such as collateralized mortgage obligations
(`CMOs''), make payments of both principal and interest at a variety of
intervals; others make semiannual interest payments at a predetermined rate
and repay principal at maturity (like a typical bond). Mortgage-backed
securities are based on different types of mortgages including those on
commercial real estate or residential properties. Other types of mortgage-
backed securities will likely be developed in the future, and the Fund may
invest in them if the investment adviser determines they are consistent
with the Fund's investment objective and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment
risk. Prepayment, which occurs when unscheduled or early payments are made
on the underlying mortgages, may shorten the effective maturities of these
securities and may lower their total returns.
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 are debt obligations
collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by Ginnie Mae, Fannie
Mae or Freddie Mac certificates, but may be collateralized by whole
loans or private pass-through securities. CMOs may have fixed or
floating rates of interest.
The Fund will invest only in CMOs that are rated A or better by a
nationally recognized statistical rating organization. The Fund may
also invest in certain CMOs which are issued by private entities
such as investment banking firms and companies related to the
construction industry. The CMOs in which the Fund may invest may be:
(i) securities which are collateralized by pools of mortgages in
which each mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. government;
(ii) securities which are collateralized by pools of mortgages in
which payment of principal and interest is guaranteed by the issuer
and such guarantee is collateralized by U.S. government securities;
(iii) collateralized by pools of mortgages in which payment of
principal and interest is dependent upon the underlying pool of
mortgages with no U.S. government guarantee; or (iv) other
securities in which the proceeds of the issuance are invested in
mortgage-backed securities and payment of the principal and interest
is supported by the credit of an agency or instrumentality of the
U.S. government.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). REMICs are
offerings of multiple class mortgage-backed securities which qualify
and elect treatment as such under provisions of the Internal Revenue
Code. Issuers of REMICs may take several forms, such as trusts,
partnerships, corporations, associations, or segregated pools of
mortgages. Once REMIC status is elected and obtained, the entity is
not subject to federal income taxation. Instead, income is passed
through the entity and is taxed to the person or persons who hold
interests in the REMIC. A REMIC interest must consist of one or more
classes of "regular interests," some of which may offer adjustable
rates of interest, and a single class of "residual interests." To
qualify as a REMIC, substantially all the assets of the entity must
be in assets directly or indirectly secured principally by real
property.
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 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. If the mortgage
assets which underlie the stripped mortgage-backed securities were
to experience greater than anticipated prepayments of principal, the
Fund could fail to fully recoup its initial investment in these
securities, even if they are rated in the highest rating categories
(e.g., AAA by Standard & Poor's and Fitch or Aaa by Moody's).
ASSET-BACKED SECURITIES. Asset-backed securities have structural
characteristics similar to mortgage-backed securities but have underlying
assets that generally are not mortgage loans or interests in mortgage
loans. The Fund may invest in asset-backed securities including, but not
limited to, interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables, equipment
leases, manufactured housing (mobile home) leases, or home equity loans.
These securities may be in the form of pass-through instruments or asset-
backed bonds. The securities are issued by non-governmental entities and
carry no direct or indirect government guarantee.
INVESTMENT RISKS OF MORTGAGE-BACKED AND ASSET-BACKED SECURITIES.
Mortgage-backed and asset-backed securities generally pay back
principal and interest over the life of the security. At the time the
Fund reinvests the payments and any unscheduled prepayments of
principal received, the Fund may receive a rate of interest which is
actually lower than the rate of interest paid on these securities
("prepayment risks"). Mortgage-backed and asset-backed securities are
subject to higher prepayment risks than most other types of debt
instruments with prepayment risks because the underlying mortgage
loans or the collateral supporting asset-backed securities may be
prepaid without penalty or premium. Prepayment risks on mortgage-
backed securities tend to increase during periods of declining
mortgage interest rates because many borrowers refinance their
mortgages to take advantage of the more favorable rates. Prepayments
on mortgage-backed securities are also affected by other factors, such
as the frequency with which people sell their homes or elect to make
unscheduled payments on their mortgages. Although asset-backed
securities generally are less likely to experience substantial
prepayments than are mortgage-backed securities, certain factors that
affect the rate of prepayments on mortgage-backed securities also
affect the rate of prepayments on asset-backed securities.
While mortgage-backed securities generally entail less risk of a
decline during periods of rapidly rising interest rates, mortgage-
backed securities may also have less potential for capital
appreciation than other similar investments (e.g., investments with
comparable maturities) because as interest rates decline, the
likelihood increases that mortgages will be prepaid. Furthermore, if
mortgage-backed securities are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some
loss of a holder's principal investment to the extent of the premium
paid. Conversely, if mortgage-backed securities are purchased at a
discount, both a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total returns and
would accelerate the recognition of income, which would be taxed as
ordinary income when distributed to shareholders.
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities do not have
the benefit of the same security interest in the related collateral.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer
credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance
due. Most issuers of asset-backed securities backed by motor vehicle
installment purchase obligations permit the servicer of such
receivables to retain possession of the underlying obligations. If the
servicer sells these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the
holders of the related asset-backed securities. Further, if a vehicle
is registered in one state and is then re-registered because the owner
and obligor moves to another state, such re-registration could defeat
the original security interest in the vehicle in certain cases. In
addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the
trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all
of the obligations backing such receivables. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have
been credit-enhanced by a guaranty, letter of credit or insurance. The Fund
typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party
providing the credit enhancement (the "credit enhancer"), rather than the
issuer. Generally, the Fund will not treat credit-enhanced securities as
having been issued by the credit enhancer for diversification purposes.
However, under certain circumstances applicable regulations may require the
Fund to treat the securities as having been issued by both the issuer and
the credit enhancer. The bankruptcy, receivership or default of the credit
enhancer will adversely affect the quality and marketability of the
underlying security.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed
period following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the
underlying security. The Fund uses these arrangements to provide the Fund
with liquidity and not to protect against changes in the market value of
the underlying securities. The bankruptcy, receivership or default by the
issuer of the demand feature, or a default on the underlying security or
other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying
security are treated as a form of credit enhancement.
INTEREST RATE SWAPS. As one way of managing its exposure to different types
of investments, the Fund may enter into interest rate swaps, currency
swaps, and other types of swap agreements such as caps, collars, and
floors. Depending on how they are used, swap agreements may increase or
decrease the overall volatility of the Fund's investments, its share price
and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on the Fund's performance. Swap agreements are subject
to risks related to the counterparty's ability to perform, and may decline
in value if the counterparty's creditworthiness deteriorates. The Fund may
also suffer losses if it is unable to terminate outstanding swap agreements
to reduce its exposure through offsetting transactions. When the Fund
enters into a swap agreement, assets of the Fund equal to the value of the
swap agreement will be segregated by the Fund.
FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures contracts to hedge all or a portion of its portfolio
against changes in interest rates. Financial futures contracts call for the
delivery of particular debt instruments at a certain time in the future.
The seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take delivery
of the instrument at the specified future time.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its
portfolio against decreases in value. When the Fund writes a call option on
a futures contract, it is undertaking the obligation of selling a futures
contract at a fixed price at any time during a specified period if the
option is exercised. Conversely, as purchaser of a put option on a futures
contract, the Fund is entitled (but not obligated) to sell a futures
contract at the fixed price during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the
Fund's existing futures positions and premiums paid for related options
would exceed 5% of the market value of the Fund's total assets. When the
Fund purchases a futures contract, an amount of cash and cash equivalents,
equal to the underlying commodity value of the futures contract (less any
related margin deposits), will be deposited in a segregated account with
the Fund's custodian (or the broker, if legally permitted) to collateralize
the position and thereby insure that the use of such futures contract is
unleveraged.
RISKS. When the Fund uses financial futures and options on financial
futures as hedging devices, there is a risk that the prices of the
securities subject to the futures contracts may not correlate
perfectly with the prices of the securities in the Fund's portfolio.
This may cause the futures contract and any related options to react
differently than the portfolio securities to market changes. In
addition, the Fund's investment adviser could be incorrect in its
expectations about the direction or extent of market factors such as
interest rate movements. In these events, the Fund may lose money on
the futures contract or option. It is not certain that a secondary
market for positions in futures contracts or for options will exist
at all times. Although the investment adviser will consider
liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise
will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out
futures and options positions depends on this secondary market.
DERIVATIVE CONTRACTS AND SECURITIES. The term "derivative" has
traditionally been applied to certain contracts (including, futures,
forward, option and swap contracts) that "derive" their value from changes
in the value of an underlying security, currency, commodity or index.
Certain types of securities that incorporate the performance
characteristics of these contracts are also referred to as `derivatives."
Some securities, such as stock rights, warrants and convertible securities,
although not typically referred to as derivatives, contain options that may
affect their value and performance. Derivative contracts and securities
can be used to reduce or increase the volatility of an investment
portfolio's total performance. While the response of certain derivative
contracts and securities to market changes may differ from traditional
investments, such as stock and bonds, derivatives do not necessarily
present greater market risks than traditional investments. The Fund will
only use derivative contracts for the purposes disclosed in the applicable
prospectus sections above. To the extent that the Fund invests in
securities that could be characterized as derivatives, it will only do so
in a manner consistent with its investment objective, policies and
limitations.
LEVERAGE AND BORROWING. The Fund is authorized to borrow money from banks
or otherwise in an amount up to 33 1/3% of the Fund's total assets
(including the amount borrowed), less all liabilities and indebtedness
other than the bank or other borrowing. This limitation may not be changed
without the approval of shareholders. The Fund is also authorized to
borrow an additional 5% of its total assets without regard to the foregoing
limitation for temporary purposes such as clearance of portfolio
transactions and share repurchases. The Fund will only borrow when there
is an expectation that it will benefit the Fund after taking into account
considerations such as interest income and possible gains or losses upon
liquidation. The Fund also may borrow in order to effect share purchases
and tender offers.
Borrowing by the Fund creates an opportunity for increased net income but,
at the same time, creates special risk considerations. For example,
leveraging may exaggerate changes in the net asset value of the Fund shares
and in the yield on the Fund's portfolio. Although the principal of such
borrowings will be fixed, the Fund's assets may change in value during the
time the borrowing is outstanding. Borrowing will create interest expenses
for the Fund which can exceed the income from the assets retained. To the
extent the income derived from securities purchased with borrowed funds
exceeds the interest the Fund will have to pay, the Fund's net income will
be greater than if borrowing were not used. Conversely, if the income from
the assets retained with borrowed funds is not sufficient to cover the cost
of borrowing, the net income of the Fund will be less than if borrowing
were not used, and therefore the amount available for distribution to
shareholders as dividends will be reduced. The Fund may also borrow for
emergency purposes, for the payment of dividends for share repurchases or
for the clearance of transactions.
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument 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 does not ensure this result. 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 on the Trust's records at the trade date; marked
to market daily; and maintained until the transaction is settled.
The Fund may enter into `dollar rolls'' in which the Fund sells securities
for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity)
securities on a specified future date. During the roll period, the Fund
foregoes principal and interest paid on the securities. The Fund is
compensated by the difference between the current sales price and the lower
forward price for the future purchase (often referred to as the `drop'')
as well as by the interest earned on the cash proceeds of the initial sale.
A `covered roll'' is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which
matures on or before the forward settlement date of the dollar roll
transaction. The Fund does not consider dollar rolls to be a borrowing.
To the extent that dollar rolls are not covered rolls, they will be
included in the 33 1/3% limit.
The Fund expects that some of its borrowings may be made on a secured
basis. In such situations, either the custodian will segregate the pledged
assets for the benefit of the lender or arrangements will be made with (i)
the lender to act as a subcustodian if the lender is a bank or otherwise
qualifies as a custodian of investment company assets or (ii) a suitable
subcustodian. Because few or none of its assets will consist of margin
securities, the Fund does not expect to borrow on margin.
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 Fund reserves the right to invest up to 100% of its assets in one
or more investment companies, but would do so only after a regulatory
change or receipt of an exemptive order from the Securities and
Exchange Commission permitting this. If, in the future, applicable
regulations change or the Fund does receive such an exemptive order,
the Fund would notify shareholders of its intent to increase the level
of investment in other investment companies. However, shareholder
approval will not be required to effect any such change in this
investment policy.
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 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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase U.S.
government obligations 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 these transactions may cause the Fund to miss a price 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.
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 in
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.
PORTFOLIO TURNOVER
The Fund does not attempt to set or meet any specific portfolio turnover
rate, since turnover is incidental to transactions undertaken in an attempt
to achieve the Fund's investment objective. High turnover rates may result
in higher brokerage commissions and capital gains. See "Tax Information" in
this prospectus.
HUB AND SPOKE OPTION
If the Directors determine it to be in the best interest of the Fund and
its shareholders, the Fund may in the future seek to achieve its investment
objective by investing all of its assets in another investment company
having the same investment objective and substantially the same investment
policies and restrictions as those applicable to the Fund. It is expected
that any such investment company would be managed in substantially the same
manner as the Fund.
The initial shareholder of the Fund (which is an affiliate of Federated
Securities Corp.) voted to vest authority to use this investment structure
in the sole discretion of the Directors. No further approval of
shareholders is required. Shareholders will receive at least 30 days prior
notice of any such investment.
In making its determination, the Directors will consider, among other
things, the benefits to shareholders and/or the opportunity to reduce costs
and achieve operational efficiencies. Although it is expected that the
Directors will not approve an arrangement that is likely to result in
higher costs, no assurance is given that costs will remain the same or be
materially reduced if this investment structure is implemented.
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset value for
Shares 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. The net asset value for Shares may exceed that of
Institutional Service Shares due to the variance in daily net income
realized by each class. Such variance will reflect only accrued net income
to which the shareholders of a particular class are entitled.
INVESTING IN INSTITUTIONAL SHARES
SHARE PURCHASES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received on days on which the New York Stock
Exchange is open for business. 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 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 Shareholder Services Company,
c/o State Street Bank and Trust Company, Boston, Massachusetts; Attention:
EDGEWIRE; For Credit to: Federated Total Return Government Fund -
Institutional Shares; 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. Shares cannot be purchased by
wire on holidays when wire transfers are restricted. Questions on wire
purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
BY MAIL. To purchase Shares by mail, send a check made payable to
Federated Total Return Government Fund - Institutional Shares to:
Federated Shareholder Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600. Orders by mail are considered received when
payment by check is converted by State Street Bank and Trust Company
(`State Street Bank'') into federal funds. This is normally the next
business day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $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
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who
purchase Shares through a financial intermediary may be charged a service
fee by that financial intermediary.
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 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, and must have a readily ascertainable market value. 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 Shares on the day the securities are valued. One Share 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 Shares, a gain or loss may be realized by the investor.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Shareholder 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 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 INSTITUTIONAL SHARES
The Fund redeems Shares at their net asset value next determined after the
Fund receives the redemption request. Investors who redeem Shares through a
financial intermediary may be charged a service fee by that financial
intermediary. 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. Proceeds from redemption requests received on holidays
when wire transfers are restricted will be wired the following business
day. Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative
at the telephone number listed on your account statement. 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 be redeemed in any amount by mailing a written request to:
Federated Shareholder Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600. If share certificates have been issued, they
should be sent unendorsed with the written request by registered or
certified mail to the address noted above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of Shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the Shares are registered.
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
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 their signatures guaranteed by a
commercial or savings bank, trust company or savings association whose
deposits are insured by an organization which is administered by the
Federal Deposit Insurance Corporation; a member firm of a domestic stock
exchange; 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
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 FUND
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 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 .40% 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.
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 $80 billion invested across more than 250 funds under
management and/or administration by its subsidiaries, as of December
31, 1995, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 1,800
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.
Both the Corporation 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.
Kathleen M. Foody-Malus has been the Fund's portfolio manager since
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 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.S. in Industrial Administration from Carnegie Mellon
University.
Edward J. Tiedge has been the Fund's portfolio manager since
inception. Mr. Tiedge joined Federated Investors in 1993 and has been
a Vice President of the Fund's investment adviser since January 1996.
He served as an Assistant Vice President of the Fund's investment
adviser in 1995, and an Investment Analyst during 1993 and 1994. Mr.
Tiedge served as Director of Investments at Duquesne Light Company
from 1990 to 1993. Mr. Tiedge is a Chartered Financial Analyst and
received his M.S. in Industrial Administration from Carnegie Mellon
University.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional
Shares. 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 .25% of the average
daily net asset value of the Institutional Shares, computed at an annual
rate, to obtain certain personal services for shareholders and to maintain
shareholder accounts. From time to time and for such periods as deemed
appropriate, the amount stated above may be reduced voluntarily. Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions
to perform shareholder services. Financial institutions will receive fees
based upon Shares owned by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder
Services. Currently, Institutional Shares are accruing no shareholder
services fees. Shareholders will be notified if this changes.
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 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
investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund. Federated Services Company provides these at an annual
rate which relates to the average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors as specified below:
MAXIMUM
AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
EXPENSES OF THE FUND AND INSTITUTIONAL SHARES
Holders of Institutional Shares pay their allocable portion of Corporation
and Fund expenses.
The Corporation expenses for which holders of Shares 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 and shareholders and proxy solicitations therefor;
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 holders of Shares pay their allocable portion
include, but are not limited to: registering the portfolio and Shares of
the portfolio; investment advisory services; taxes and commissions;
custodian fees; insurance premiums; auditors' fees; and such non-recurring
and extraordinary items as may arise from time to time.
At present, the only expenses which would be allocated specifically to
Shares as a class are expenses under the Corporation's Shareholder Services
Agreement. However, the Directors reserve the right to allocate certain
other expenses to holders of Shares as they deem appropriate (`Class
Expenses'). In any case, Class Expenses would be limited to:
distribution fees; transfer agent fees as identified by the transfer agent
as attributable to holders of Shares; printing and postage expenses related
to preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders; registration fees paid to
the Securities and Exchange Commission and to state securities commissions;
expenses related to adminstrative personnel and services as required to
support holders of Shares; and Directors' fees incurred as a result of
issues relating solely to Shares.
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
or class of shares, only shares of that portfolio or class of shares are
entitled to vote.
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.
STATE AND LOCAL TAXES
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.
Shares are sold without any sales charge or other similar non-recurring
charges.
Total return and yield will be calculated separately for Institutional
Shares and Institutional Service Shares.
From time to time, advertisements for the Fund's Institutional Shares may
refer to ratings, rankings, and other information in certain financial
publications and/or compare the Fund's Institutional Shares performance to
certain indices.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Service
Shares which are sold at net asset value to accounts for financial
institutions and are subject to a minimum initial investment of $25,000
over a 90-day period.
Institutional Service Shares are distributed under a 12b-1 Plan adopted by
the Fund and are also subject to shareholder services fees.
Institutional Service Shares and Institutional Shares are subject to
certain of the same expenses. Expense differences, however, between
Institutional Service Shares and Institutional Shares may affect the
performance of each class.
To obtain more information and a prospectus for Institutional Service
Shares, investors may call 1-800-341-7400.
ADDRESSES
Federated Total Return
Government 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 c/o Federated Services Company
Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services
Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
FEDERATED TOTAL RETURN GOVERNMENT FUND
INSTITUTIONAL SHARES
Prospectus
A Diversified Portfolio of
Federated Total Return Series, Inc.
an Open-End, Management
Investment Company
Prospectus dated January , 1997
--
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 31428Q
---
G01721- -IS (1/97)
--
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED NOVEMBER 27, 1996
[INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY ANY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.]
FEDERATED TOTAL RETURN GOVERNMENT FUND
(A PORTFOLIO OF FEDERATED TOTAL RETURN SERIES, INC.)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of Federated Total Return Government Fund
(the `Fund'') offered by this prospectus represent interests in 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 investing primarily in a portfolio of
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 Institutional Service Shares of the Fund. Keep this
prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated January
, 1997, with the Securities and Exchange Commission (`SEC''). 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 or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information or to make inquiries
about the Fund, contact the Fund at the address listed on the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Fund
is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated January , 1997
Table of Contents will be generated
when document is complete.
GENERAL INFORMATION
The Corporation was incorporated under the laws of the State of Maryland on
October 11, 1993. 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
classes of shares for the Fund: Institutional Service Shares and
Institutional Shares. This prospectus relates only to Institutional
Service Shares of the Fund.
Institutional Service Shares (`Shares'') of the Fund are designed
primarily for retail and private banking customers of financial
institutions as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio investing primarily in
investment grade debt securities. A minimum initial investment of $25,000
over a 90-day period is required.
Shares are sold and redeemed at net asset value without a sales charge
imposed by the Fund.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide total return. The
investment objective cannot be changed without approval of shareholders.
While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the investment policies
described in this prospectus.
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.
INVESTMENT POLICIES
The Fund pursues this investment objective by investing in U.S. government
securities, including mortgage-backed securities and other mortgage-backed
securities and asset-backed 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 securities in which the Fund invests
principally are:
o direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes, and bonds;
o notes, bonds, discount notes and mortgage-backed securities issued
or guaranteed by U.S. government agencies and instrumentalities
supported by the full faith and credit of the United States;
o notes, bonds, discount notes and other mortgage-backed securities
of U.S. government agencies or instrumentalities which receive or
have access to federal funding;
o notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the
instrumentalities; and
o asset-backed securities and commercial mortgage securities rated
BBB 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.
GOVERNMENT SECURITIES. Some obligations issued or guaranteed by agencies
or instrumentalities of the U.S. government are backed by the full faith
and credit of the U.S. Treasury. No assurances can be given that the U.S.
government will provide financial support to other agencies or
instrumentalities, since it is not obligated to do so. The
instrumentalities are supported by:
o the issuer's right to borrow an amount limited to a specific line
of credit from the U.S. Treasury;
o discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
o the credit of the agency or instrumentality.
The prices of fixed income securities fluctuate inversely to the
direction of interest rates.
MORTGAGE-BACKED SECURITIES. The Fund may purchase mortgage-backed
securities issued by government and non-government entities such as banks,
mortgage lenders, or other financial institutions. A mortgage-backed
security is an obligation of the issuer backed by a mortgage or pool of
mortgages or a direct interest in an underlying pool of mortgages. Some
mortgage-backed securities, such as collateralized mortgage obligations
(`CMOs''), make payments of both principal and interest at a variety of
intervals; others make semiannual interest payments at a predetermined rate
and repay principal at maturity (like a typical bond). Mortgage-backed
securities are based on different types of mortgages including those on
commercial real estate or residential properties. Other types of mortgage-
backed securities will likely be developed in the future, and the Fund may
invest in them if the investment adviser determines they are consistent
with the Fund's investment objective and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment
risk. Prepayment, which occurs when unscheduled or early payments are made
on the underlying mortgages, may shorten the effective maturities of these
securities and may lower their total returns.
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 are debt obligations
collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by Ginnie Mae, Fannie
Mae or Freddie Mac certificates, but may be collateralized by whole
loans or private pass-through securities. CMOs may have fixed or
floating rates of interest.
The Fund will invest only in CMOs that are rated A or better by a
nationally recognized statistical rating organization. The Fund may
also invest in certain CMOs which are issued by private entities
such as investment banking firms and companies related to the
construction industry. The CMOs in which the Fund may invest may be:
(i) securities which are collateralized by pools of mortgages in
which each mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. government;
(ii) securities which are collateralized by pools of mortgages in
which payment of principal and interest is guaranteed by the issuer
and such guarantee is collateralized by U.S. government securities;
(iii) collateralized by pools of mortgages in which payment of
principal and interest is dependent upon the underlying pool of
mortgages with no U.S. government guarantee; or (iv) other
securities in which the proceeds of the issuance are invested in
mortgage-backed securities and payment of the principal and interest
is supported by the credit of an agency or instrumentality of the
U.S. government.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). REMICs are
offerings of multiple class mortgage-backed securities which qualify
and elect treatment as such under provisions of the Internal Revenue
Code. Issuers of REMICs may take several forms, such as trusts,
partnerships, corporations, associations, or segregated pools of
mortgages. Once REMIC status is elected and obtained, the entity is
not subject to federal income taxation. Instead, income is passed
through the entity and is taxed to the person or persons who hold
interests in the REMIC. A REMIC interest must consist of one or more
classes of "regular interests," some of which may offer adjustable
rates of interest, and a single class of "residual interests." To
qualify as a REMIC, substantially all the assets of the entity must
be in assets directly or indirectly secured principally by real
property.
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 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. If the mortgage
assets which underlie the stripped mortgage-backed securities were
to experience greater than anticipated prepayments of principal, the
Fund could fail to fully recoup its initial investment in these
securities, even if they are rated in the highest rating categories
(e.g., AAA by Standard & Poor's and Fitch or Aaa by Moody's).
ASSET-BACKED SECURITIES. Asset-backed securities have structural
characteristics similar to mortgage-backed securities but have underlying
assets that generally are not mortgage loans or interests in mortgage
loans. The Fund may invest in asset-backed securities including, but not
limited to, interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables, equipment
leases, manufactured housing (mobile home) leases, or home equity loans.
These securities may be in the form of pass-through instruments or asset-
backed bonds. The securities are issued by non-governmental entities and
carry no direct or indirect government guarantee.
INVESTMENT RISKS OF MORTGAGE-BACKED AND ASSET-BACKED SECURITIES.
Mortgage-backed and asset-backed securities generally pay back
principal and interest over the life of the security. At the time the
Fund reinvests the payments and any unscheduled prepayments of
principal received, the Fund may receive a rate of interest which is
actually lower than the rate of interest paid on these securities
("prepayment risks"). Mortgage-backed and asset-backed securities are
subject to higher prepayment risks than most other types of debt
instruments with prepayment risks because the underlying mortgage
loans or the collateral supporting asset-backed securities may be
prepaid without penalty or premium. Prepayment risks on mortgage-
backed securities tend to increase during periods of declining
mortgage interest rates because many borrowers refinance their
mortgages to take advantage of the more favorable rates. Prepayments
on mortgage-backed securities are also affected by other factors, such
as the frequency with which people sell their homes or elect to make
unscheduled payments on their mortgages. Although asset-backed
securities generally are less likely to experience substantial
prepayments than are mortgage-backed securities, certain factors that
affect the rate of prepayments on mortgage-backed securities also
affect the rate of prepayments on asset-backed securities.
While mortgage-backed securities generally entail less risk of a
decline during periods of rapidly rising interest rates, mortgage-
backed securities may also have less potential for capital
appreciation than other similar investments (e.g., investments with
comparable maturities) because as interest rates decline, the
likelihood increases that mortgages will be prepaid. Furthermore, if
mortgage-backed securities are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some
loss of a holder's principal investment to the extent of the premium
paid. Conversely, if mortgage-backed securities are purchased at a
discount, both a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total returns and
would accelerate the recognition of income, which would be taxed as
ordinary income when distributed to shareholders.
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities do not have
the benefit of the same security interest in the related collateral.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer
credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance
due. Most issuers of asset-backed securities backed by motor vehicle
installment purchase obligations permit the servicer of such
receivables to retain possession of the underlying obligations. If the
servicer sells these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the
holders of the related asset-backed securities. Further, if a vehicle
is registered in one state and is then re-registered because the owner
and obligor moves to another state, such re-registration could defeat
the original security interest in the vehicle in certain cases. In
addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the
trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all
of the obligations backing such receivables. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have
been credit-enhanced by a guaranty, letter of credit or insurance. The Fund
typically evaluates the credit quality and ratings of credit-enhanced
securities based upon the financial condition and ratings of the party
providing the credit enhancement (the "credit enhancer"), rather than the
issuer. Generally, the Fund will not treat credit-enhanced securities as
having been issued by the credit enhancer for diversification purposes.
However, under certain circumstances applicable regulations may require the
Fund to treat the securities as having been issued by both the issuer and
the credit enhancer. The bankruptcy, receivership or default of the credit
enhancer will adversely affect the quality and marketability of the
underlying security.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed
period following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the
underlying security. The Fund uses these arrangements to provide the Fund
with liquidity and not to protect against changes in the market value of
the underlying securities. The bankruptcy, receivership or default by the
issuer of the demand feature, or a default on the underlying security or
other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying
security are treated as a form of credit enhancement.
INTEREST RATE SWAPS. As one way of managing its exposure to different types
of investments, the Fund may enter into interest rate swaps, currency
swaps, and other types of swap agreements such as caps, collars, and
floors. Depending on how they are used, swap agreements may increase or
decrease the overall volatility of the Fund's investments, its share price
and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on the Fund's performance. Swap agreements are subject
to risks related to the counterparty's ability to perform, and may decline
in value if the counterparty's creditworthiness deteriorates. The Fund may
also suffer losses if it is unable to terminate outstanding swap agreements
to reduce its exposure through offsetting transactions. When the Fund
enters into a swap agreement, assets of the Fund equal to the value of the
swap agreement will be segregated by the Fund.
FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures contracts to hedge all or a portion of its portfolio
against changes in interest rates. Financial futures contracts call for the
delivery of particular debt instruments at a certain time in the future.
The seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take delivery
of the instrument at the specified future time.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its
portfolio against decreases in value. When the Fund writes a call option on
a futures contract, it is undertaking the obligation of selling a futures
contract at a fixed price at any time during a specified period if the
option is exercised. Conversely, as purchaser of a put option on a futures
contract, the Fund is entitled (but not obligated) to sell a futures
contract at the fixed price during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the
Fund's existing futures positions and premiums paid for related options
would exceed 5% of the market value of the Fund's total assets. When the
Fund purchases a futures contract, an amount of cash and cash equivalents,
equal to the underlying commodity value of the futures contract (less any
related margin deposits), will be deposited in a segregated account with
the Fund's custodian (or the broker, if legally permitted) to collateralize
the position and thereby insure that the use of such futures contract is
unleveraged.
RISKS. When the Fund uses financial futures and options on financial
futures as hedging devices, there is a risk that the prices of the
securities subject to the futures contracts may not correlate
perfectly with the prices of the securities in the Fund's portfolio.
This may cause the futures contract and any related options to react
differently than the portfolio securities to market changes. In
addition, the Fund's investment adviser could be incorrect in its
expectations about the direction or extent of market factors such as
interest rate movements. In these events, the Fund may lose money on
the futures contract or option. It is not certain that a secondary
market for positions in futures contracts or for options will exist
at all times. Although the investment adviser will consider
liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise
will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out
futures and options positions depends on this secondary market.
DERIVATIVE CONTRACTS AND SECURITIES. The term "derivative" has
traditionally been applied to certain contracts (including, futures,
forward, option and swap contracts) that "derive" their value from changes
in the value of an underlying security, currency, commodity or index.
Certain types of securities that incorporate the performance
characteristics of these contracts are also referred to as `derivatives."
Some securities, such as stock rights, warrants and convertible securities,
although not typically referred to as derivatives, contain options that may
affect their value and performance. Derivative contracts and securities
can be used to reduce or increase the volatility of an investment
portfolio's total performance. While the response of certain derivative
contracts and securities to market changes may differ from traditional
investments, such as stock and bonds, derivatives do not necessarily
present greater market risks than traditional investments. The Fund will
only use derivative contracts for the purposes disclosed in the applicable
prospectus sections above. To the extent that the Fund invests in
securities that could be characterized as derivatives, it will only do so
in a manner consistent with its investment objective, policies and
limitations.
LEVERAGE AND BORROWING. The Fund is authorized to borrow money from banks
or otherwise in an amount up to 33 1/3% of the Fund's total assets
(including the amount borrowed), less all liabilities and indebtedness
other than the bank or other borrowing. This limitation may not be changed
without the approval of shareholders. The Fund is also authorized to
borrow an additional 5% of its total assets without regard to the foregoing
limitation for temporary purposes such as clearance of portfolio
transactions and share repurchases. The Fund will only borrow when there
is an expectation that it will benefit the Fund after taking into account
considerations such as interest income and possible gains or losses upon
liquidation. The Fund also may borrow in order to effect share purchases
and tender offers.
Borrowing by the Fund creates an opportunity for increased net income but,
at the same time, creates special risk considerations. For example,
leveraging may exaggerate changes in the net asset value of the Fund shares
and in the yield on the Fund's portfolio. Although the principal of such
borrowings will be fixed, the Fund's assets may change in value during the
time the borrowing is outstanding. Borrowing will create interest expenses
for the Fund which can exceed the income from the assets retained. To the
extent the income derived from securities purchased with borrowed funds
exceeds the interest the Fund will have to pay, the Fund's net income will
be greater than if borrowing were not used. Conversely, if the income from
the assets retained with borrowed funds is not sufficient to cover the cost
of borrowing, the net income of the Fund will be less than if borrowing
were not used, and therefore the amount available for distribution to
shareholders as dividends will be reduced. The Fund may also borrow for
emergency purposes, for the payment of dividends for share repurchases or
for the clearance of transactions.
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument 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 does not ensure this result. 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 on the Trust's records at the trade date; marked
to market daily; and maintained until the transaction is settled.
The Fund may enter into `dollar rolls'' in which the Fund sells securities
for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity)
securities on a specified future date. During the roll period, the Fund
foregoes principal and interest paid on the securities. The Fund is
compensated by the difference between the current sales price and the lower
forward price for the future purchase (often referred to as the `drop'')
as well as by the interest earned on the cash proceeds of the initial sale.
A `covered roll'' is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which
matures on or before the forward settlement date of the dollar roll
transaction. The Fund does not consider dollar rolls to be a borrowing.
To the extent that dollar rolls are not covered rolls, they will be
included in the 33 1/3% limit.
The Fund expects that some of its borrowings may be made on a secured
basis. In such situations, either the custodian will segregate the pledged
assets for the benefit of the lender or arrangements will be made with (i)
the lender to act as a subcustodian if the lender is a bank or otherwise
qualifies as a custodian of investment company assets or (ii) a suitable
subcustodian. Because few or none of its assets will consist of margin
securities, the Fund does not expect to borrow on margin.
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 Fund reserves the right to invest up to 100% of its assets in one
or more investment companies, but would do so only after a regulatory
change or receipt of an exemptive order from the Securities and
Exchange Commission permitting this. If, in the future, applicable
regulations change or the Fund does receive such an exemptive order,
the Fund would notify shareholders of its intent to increase the level
of investment in other investment companies. However, shareholder
approval will not be required to effect any such change in this
investment policy.
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 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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase U.S.
government obligations 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 these transactions may cause the Fund to miss a price 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.
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 in
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.
PORTFOLIO TURNOVER
The Fund does not attempt to set or meet any specific portfolio turnover
rate, since turnover is incidental to transactions undertaken in an attempt
to achieve the Fund's investment objective. High turnover rates may result
in higher brokerage commissions and capital gains. See "Tax Information" in
this prospectus.
HUB AND SPOKE OPTION
If the Directors determine it to be in the best interest of the Fund and
its shareholders, the Fund may in the future seek to achieve its investment
objective by investing all of its assets in another investment company
having the same investment objective and substantially the same investment
policies and restrictions as those applicable to the Fund. It is expected
that any such investment company would be managed in substantially the same
manner as the Fund.
The initial shareholder of the Fund (which is an affiliate of Federated
Securities Corp.) voted to vest authority to use this investment structure
in the sole discretion of the Directors. No further approval of
shareholders is required. Shareholders will receive at least 30 days prior
notice of any such investment.
In making its determination, the Directors will consider, among other
things, the benefits to shareholders and/or the opportunity to reduce costs
and achieve operational efficiencies. Although it is expected that the
Directors will not approve an arrangement that is likely to result in
higher costs, no assurance is given that costs will remain the same or be
materially reduced if this investment structure is implemented.
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset value for
Shares 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. The net asset value for Institutional Shares may exceed that
of Shares due to the variance in daily net income realized by each class.
Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
INVESTING IN INSTITUTIONAL SERVICE SHARES
SHARE PURCHASES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received on days on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or
mail.
To purchase Shares, 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 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 Shareholder Services Company,
c/o State Street Bank and Trust Company, Boston, Massachusetts; Attention:
EDGEWIRE; For Credit to: Federated Total Return Government Fund -
Institutional Service Shares; 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. Shares cannot be
purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
BY MAIL. To purchase Shares by mail, send a check made payable to
Federated Total Return Government Fund - Institutional Service Shares to:
Federated Shareholder Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600. Orders by mail are considered received when
payment by check is converted by State Street Bank and Trust Company
(`State Street Bank'') into federal funds. This is normally the next
business day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $25,000 plus any non-
affiliated bank or broker's fee. However, an account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days. An
institutional investor's minimum investment will be calculated by combining
all accounts it maintains with the Fund. Accounts established through a
non-affiliated bank or broker may be subject to a smaller minimum
investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who
purchase Shares through a financial intermediary may be charged a service
fee by that financial intermediary.
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 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, and must have a readily ascertainable market value. 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 Shares on the day the securities are valued. One Share 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 Shares, a gain or loss may be realized by the investor.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Shareholder 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 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 INSTITUTIONAL SERVICE SHARES
The Fund redeems Shares at their net asset value next determined after the
Fund receives the redemption request. Investors who redeem Shares through a
financial intermediary may be charged a service fee by that financial
intermediary. 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. Proceeds from redemption requests received on holidays
when wire transfers are restricted will be wired the following business
day. Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative
at the telephone number listed on your account statement. 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 be redeemed in any amount by mailing a written request to:
Federated Shareholder Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600. If share certificates have been issued, they
should be sent unendorsed with the written request by registered or
certified mail to the address noted above.
The written request should state: the Fund name and the class designation;
the account name as registered with the Fund; the account number; and the
number of Shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the Shares are registered.
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
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 their signatures guaranteed by a
commercial or savings bank, trust company or savings association whose
deposits are insured by an organization which is administered by the
Federal Deposit Insurance Corporation; a member firm of a domestic stock
exchange; 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
Due to the high cost of maintaining accounts with low balances, the Fund
may redeem Shares in any account, and pay the proceeds to the shareholder,
if the account balance falls below a required minimum value of $25,000 due
to shareholder redemptions. This requirement does not apply, however, if
the balance falls below $25,000 because of changes in the Fund's net asset
value. Before Shares are redeemed to close an account, the shareholder is
notified in writing and allowed 30 days to purchase additional Shares to
meet the minimum requirement.
FUND INFORMATION
MANAGEMENT OF THE FUND
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 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 .40% 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.
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 $80 billion invested across more than 250 funds under
management and/or administration by its subsidiaries, as of December
31, 1995, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 1,800
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.
Both the Corporation 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.
Kathleen M. Foody-Malus has been the Fund's portfolio manager since
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 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.S. in Industrial Administration from Carnegie Mellon
University.
Edward J. Tiedge has been the Fund's portfolio manager since
inception. Mr. Tiedge joined Federated Investors in 1993 and has been
a Vice President of the Fund's investment adviser since January 1996.
He served as an Assistant Vice President of the Fund's investment
adviser in 1995, and an Investment Analyst during 1993 and 1994. Mr.
Tiedge served as Director of Investments at Duquesne Light Company
from 1990 to 1993. Mr. Tiedge is a Chartered Financial Analyst and
received his M.S. in Industrial Administration from Carnegie Mellon
University.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares. 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.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan
adopted in accordance with Rule 12b-1 under the Investment Company Act of
1940 (the "Plan"), the distributor may be paid a fee by the Fund in an
amount computed at an annual rate of .25% of the average daily net asset
value of Institutional Service Shares of the Fund. The distributor may
select financial institutions such as banks, fiduciaries, custodians for
public funds, investment advisers, and broker/dealers to provide sales
services or distribution-related support services as agents for their
clients or customers.
The Plan is a compensation-type plan. As such, the Fund makes no payments
to the distributor except as described above. Therefore, the Fund does not
pay for unreimbursed expenses of the distributor, including amounts
expended by the distributor in excess of amounts received by it from the
Fund, interest, carrying or other financing charges in connection with
excess amounts expended, or the distributor's overhead expenses. However,
the distributor may be able to recover such amounts or may earn a profit
from future payments made by the Fund under the Plan.
In addition, 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 .25% of the average daily net
asset value of Shares to obtain certain personal services for shareholders
and to maintain shareholder accounts. From time to time and for such
periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or
will select financial institutions to perform shareholder services.
Financial institutions will receive fees based upon Shares owned by their
clients or customers. The schedules of such fees and the basis upon which
such fees will be paid will be determined from time to time by the Fund and
Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments
made pursuant to the Plan and 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 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 investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund. Federated Services Company provides these at an annual
rate which relates to the average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors as specified below:
MAXIMUM
AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
EXPENSES OF THE FUND AND INSTITUTIONAL SERVICE SHARES
Holders of Institutional Service Shares pay their allocable portion of
Corporation and Fund expenses.
The Corporation expenses for which holders of Shares 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 and shareholders and proxy solicitations therefor;
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 holders of Shares pay their allocable portion
include, but are not limited to: registering the portfolio and Shares of
the portfolio; investment advisory services; taxes and commissions;
custodian fees; insurance premiums; auditors' fees; and such non-recurring
and extraordinary items as may arise from time to time.
At present, the only expenses which are allocated specifically to Shares as
a class are expenses under the Corporation's Distribution Plan and
Shareholder Services Agreement. However, the Directors reserve the right
to allocate certain other expenses to holders of Shares as they deem
appropriate (`Class Expenses''). In any case, Class Expenses would be
limited to: transfer agent fees as identified by the transfer agent as
attributable to holders of Shares; printing and postage expenses related to
preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders; registration fees paid to
the Securities and Exchange Commission and to state securities commissions;
expenses related to adminstrative personnel and services as required to
support holders of Shares; and Directors' fees incurred as a result of
issues relating solely to Shares.
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
or class of shares, only shares of that portfolio or class of shares are
entitled to vote.
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.
STATE AND LOCAL TAXES
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.
Shares are sold without any sales charge or other similar non-recurring
charges.
Total return and yield will be calculated separately for Institutional
Service Shares and Institutional Shares.
From time to time, advertisements for the Fund's Institutional Service
Shares may refer to ratings, rankings, and other information in certain
financial publications and/or compare the Fund's Institutional Service
Shares performance to certain indices.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Institutional Shares
which are sold at net asset value to accounts for financial institutions
and are subject to a minimum initial investment of $100,000 over a 90-day
period.
Institutional Shares are distributed with no 12b-1 Plan and may be subject
to shareholder services fees.
Institutional Shares and Institutional Service Shares are subject to
certain of the same expenses. Expense differences, however, between
Institutional Shares and Institutional Service Shares may affect the
performance of each class.
To obtain more information and a prospectus for Institutional Shares,
investors may call 1-800-341-7400.
ADDRESSES
Federated Total Return
Government 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 c/o Federated Services Company
Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services
Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
FEDERATED TOTAL RETURN GOVERNMENT FUND
INSTITUTIONAL SERVICE SHARES
Prospectus
A Diversified Portfolio of
Federated Total Return Series, Inc.
an Open-End, Management
Investment Company
Prospectus dated January , 1997
--
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 31428Q
---
G01721- -SS (1/97)
--
SUBJECT TO COMPLETION, PRELIMINARY STATEMENT DATED NOVEMBER 27, 1996
[INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY ANY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS STATEMENT SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.]
FEDERATED TOTAL RETURN GOVERNMENT FUND
(A PORTFOLIO OF FEDERATED TOTAL RETURN SERIES, INC.)
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus(es) of Federated Total Return Government Fund (the
`Fund''), a portfolio of Federated Total Return Series, Inc. (the
`Corporation'') dated January , 1997. This Statement is not a
--
prospectus. You may request a copy of a prospectus or a paper copy of
this Statement, if you have received it electronically, free of charge
by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January , 1997
--
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
GENERAL INFORMATION ABOUT THE FUND 3
INVESTMENT OBJECTIVE AND POLICIES 4
TYPES OF INVESTMENTS 1
ADJUSTABLE RATE MORTGAGE SECURITIES (`ARMS'') 1
COLLATERALIZED MORTGAGE OBLIGATIONS (`CMOS'') 1
REAL ESTATE MORTGAGE INVESTMENT CONDUITS
(`REMICS'') 2
INTEREST-ONLY AND PRINCIPAL-ONLY INVESTMENTS 2
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES 2
RESETS OF INTEREST 2
CAPS AND FLOORS 2
FUTURES AND OPTIONS TRANSACTIONS 3
LEVERAGING 4
LEVERAGE THROUGH BORROWING 4
MEDIUM TERM NOTES AND DEPOSIT NOTES 5
AVERAGE LIFE 5
WEIGHTED AVERAGE PORTFOLIO DURATION 5
LENDING OF PORTFOLIO SECURITIES 5
Table of Contents
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS 5
REPURCHASE AGREEMENTS 6
REVERSE REPURCHASE AGREEMENTS 6
PORTFOLIO TURNOVER 6
INVESTMENT LIMITATIONS 6
FEDERATED TOTAL RETURN SERIES, INC. MANAGEMENT 8
OFFICERS AND DIRECTORS 8
FUND OWNERSHIP 11
DIRECTORS' COMPENSATION 12
DIRECTOR LIABILITY 12
INVESTMENT ADVISORY SERVICES 13
ADVISER TO THE FUND 13
ADVISORY FEES 13
BROKERAGE TRANSACTIONS 13
OTHER SERVICES 13
FUND ADMINISTRATION 13
CUSTODIAN AND PORTFOLIO ACCOUNTING 13
TRANSFER AGENT 13
INDEPENDENT AUDITORS 14
PURCHASING SHARES 14
DISTRIBUTION PLAN (INSTITUTIONAL SERVICE SHARES ONLY )
AND SHAREHOLDER SERVICES 14
Table of Contents
DETERMINING NET ASSET VALUE 14
DETERMINING MARKET VALUE OF SECURITIES 14
USE OF AMORTIZED COST 14
REDEEMING SHARES 15
REDEMPTION IN KIND 15
TAX STATUS 15
THE FUND'S TAX STATUS 15
SHAREHOLDERS' TAX STATUS 15
TOTAL RETURN 15
YIELD 15
PERFORMANCE COMPARISONS 16
ECONOMIC AND MARKET INFORMATION 16
ABOUT FEDERATED INVESTORS 16
MUTUAL FUND MARKET 17
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of Federated Total Return Series, Inc. 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." The Articles of Incorporation permit the Corporation
to offer separate portfolios and classes of shares.
Shares of the Fund are offered in two classes, known as Institutional
Shares and Institutional Service Shares (individually and collectively
referred to as `Shares,'' as the context may require). This Statement of
Additional Information relates to the above-mentioned Shares of the 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
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 Fund may also invest in
the securities described below and in the prospectus.
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.
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).
LEVERAGING
Leveraging exaggerates the effect on the net asset value of any increase or
decrease in the market value of the portfolio. Money borrowed for
leveraging will be limited to 33 1/3% of the value of the Fund's total
assets. These borrowings will be subject to interest costs which may or
may not be recovered by appreciation of the securities purchased; in
certain cases, interest costs may exceed the return received on the
securities purchased.
LEVERAGE THROUGH BORROWING
For the borrowings for investment purposes, the Investment Company Act of
1940 requires the Fund to maintain continuous asset coverage (i.e., total
assets including borrowings, less liabilities exclusive of borrowings) of
300% of the amount borrowed. If the required coverage should decline as a
result of market fluctuations or other reason, the Fund may be required to
sell some of its portfolio holdings within 3 days to reduce the debt and
restore the 300% coverage, even though it may be disadvantageous from an
investment standpoint to sell at that time. The Fund also may be required
to maintain minimum average balances in connection with such borrowings or
to pay a commitment fee to maintain a line of credit; either of those
requirements would increase the cost of borrowings over the stated rate.
To the extent the Fund enters into a reverse repurchase agreement, the Fund
will maintain in a segregated custodial account cash or U.S. governement
securities or other high quality liquid debt securities at least equal to
the aggregate amount of its reverse repurchase obligations, plus accrued
interest in certain cases, in accordance with releases promulgated by the
SEC. The SEC views reverse repurchase as collateralized borrowings by the
Fund.
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.
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. The Fund does not
have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to
the investment.
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
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date. These assets are
marked to market daily and are maintained until the transaction has been
settled. The Fund does not intend to engage in when-issued and delayed
delivery transactions to an extent that would cause the segregation of more
than 20% of the total value of its assets.
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 such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such
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. This
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 maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund conducts portfolio transactions to accomplish its investment
objective as interest rates change, to invest new money obtained from
selling its shares, and to meet redemption requests. The Fund may dispose
of portfolio securities at any time if it appears that selling the
securities will help the Fund achieve its investment objective.
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.
INVESTMENT LIMITATIONS
The following limitations are fundamental [except that no investment
limitation of the Fund shall prevent the Fund from investing substantially
all of its assets (except for assets which are not considered `investment
securities''under the Investment Company Act of 1940, or assets exempted
by the Securities and Exchange Commission) in an open-end investment
company with substantially the same investment objectives]:
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities.
BORROWING MONEY
The Fund will not borrow money, except to the extent permitted under the
1940 Act (which currently limits borrowings to no more than 33 1/3% of the
value of the Fund's total assets). For purposes of this investment
restriction, the entry into options, forward contracts, futures contracts,
including those related to indices, and options on futures contracts or
indices shall not constitute borrowing.
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.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the value of
total assets at the time of the borrowing.
LENDING CASH OR SECURITIES
The Fund will not lend any assets except portfolio securities. (This will
not prevent the purchase or holding of bonds, debentures, notes,
certificates of indebtedness or other debt securities of an issuer,
repurchase agreements or other transactions which are permitted by the
Fund's investment objective and policies or Articles of Incorporation).
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities, except as permitted by its
investment objective and policies.
The above limitations cannot be changed without shareholder approval. The
following limitation, however, may be changed by the Directors without
shareholder approval [except that no investment limitation of the Fund
shall prevent the Fund from investing substantially all of its assets
(except for assets which are not considered `investment securities'' under
the Investment Company Act of 1940, or assets exempted by the Securities
and Exchange Commission) in an open-end investment company with
substantially the same investment objectives]. Shareholders will be
notified before any material changes in this limitation become effective.
INVESTING IN RESTRICTED AND ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
securities, including certain restricted securities (except for Section
4(2) commercial paper and certain other restricted securities which meet
the criteria for liquidity as established by the Directors), non-negotiable
time deposits, and repurchase agreements providing for settlement in more
than seven days after notice.
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.
The Fund reserves the right to invest up to 100% of its assets in one or
more investment companies, but would do so only after a regulatory change
or receipt of an exemptive order from the Securities and Exchange
Commission permitting this. If, in the future, applicable regulations
change or the Fund does receive such an exemptive order, the Fund would
notify shareholders of its intent to increase the level of investment in
other investment companies. However, shareholder approval will not be
required to effect any such change in this investment policy.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
FEDERATED TOTAL RETURN SERIES, INC. MANAGEMENT
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 or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Corporation .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
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 or Trustee 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 or Trustee 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 Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Director of the Corporation.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee 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 or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney-at-law; Shareholder, Miller, Ament, Henny & Kochuba; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director or Trustee of the Funds; formerly, Counsel, Horizon Financial,
F.A., Western Region.
Peter E. Madden
Seacliff
562 Bellevue Avenue
New port, RI
Birthdate: March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts; Director
or Trustee of the Funds; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Shareholder, Miller, Ament, Henny & Kochuba; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or
Trustee 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 or Trustee 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 or Trustee 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/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee 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.
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 Shareholder Services Company; 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, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds.
* This Directors is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board
of Directorss handles the responsibilities of the Board between
meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ;
DG Investor Series; Edward Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders
Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity
Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Master Trust; Federated Investment
Portfolios; Federated Investment Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government Securities
Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years;
Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility
Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield
Cash Trust; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Term Trust,
Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust;
Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.
FUND OWNERSHIP
Officers and Directors as a group own less than 1% of the Fund`s
outstanding shares.
DIRECTORS' COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
CORPORATION CORPORATION* FROM FUND COMPLEX +
John F. Donahue, $ 0 $0 for the Corporation and
Chairman and Director 54 other investment companies in the Fund
Complex
Thomas G. Bigley++ $ $86,331 for the
----
Corporation and
Director 54 other investment companies in the Fund
Complex
John T. Conroy, Jr., $ $115,760 for the Corporation and
---
Director 54 other investment companies in the Fund
Complex
William J. Copeland, $ $115,760 for the Corporation and
---
Director 54 other investment companies in the Fund
Complex
J. Christopher Donahue, $ 0 $0 for the Corporation and
Executive Vice President 16 other investment companies in the Fund
Complex
andDirector
James E. Dowd, $ $115,760 for the Corporation and
---
Director 54 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D., $ $104,898 for the Corporation and
---
Director 54 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr., $ $115,760 for the Corporation and
---
Director 54 other investment companies in the Fund
Complex
Peter E. Madden, $ $104,898 for the Corporation and
---
Director 54 other investment companies in the Fund
Complex
Gregor F. Meyer, $ $104,898 for the Corporation and
---
Director 54 other investment companies in the Fund
Complex
John E. Murray, Jr., $ $104,898 for the Corporationand
---
Director 54 other investment companies in the Fund
Complex
Wesley W. Posvar,$ $104,898 for the Corporation and
---
Director 54 other investment companies in the Fund
Complex
Marjorie P. Smuts, $ $104,898 for the Corporation and
---
Director 54 other investment companies in the Fund
Complex
*Information is furnished for the fiscal year ended September 30, 1996 and
the Corporation was comprised of 2 portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
Complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
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.
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 guidelines established 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: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the Adviser or by affiliates in advising the Fund 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. 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.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the Adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the Adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, Massachusetts, is custodian
for the securities and cash of the Fund. Federated Services Company,
Pittsburgh, Pennsylvania, provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments. 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.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based upon the
size, type and number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
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 each Share's prospectus under "Investing in the Institutional Shares''
or `Investing in Institutional Service Shares."
DISTRIBUTION PLAN (INSTITUTIONAL SERVICE SHARES ONLY) AND SHAREHOLDER
SERVICES
As explained in the respective prospectuses, with respect to Shares of the
Fund, the Fund has adopted a Shareholder Services Agreement, and, with
respect to Institutional Service Shares, the Fund has adopted a
Distribution Plan.
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and 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: marketing efforts; 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 Plan, the Directors expect that the Fund will be able to
achieve a more predictable flow of cash for investment purposes and to meet
redemptions. This will facilitate more efficient portfolio management and
assist the Fund in pursuing its investment objectives. By identifying
potential investors whose needs are served by the Fund's objectives, and
properly servicing these accounts, it may be possible to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
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.
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
Instituional Shares''or ``Redeeming Institutional Service 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 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 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
"Intermediate Investment Grade Debt " category in advertising and
sales literature.
o SALOMON BROTHERS 15 YEAR MORTGAGE BACKED SECURITIES INDEX includes
the average of all 15 year mortgage securities which include
Federal Home Loan Mortgage Corp. (Freddie Mac), Federal National
Mortgage Association (Fannie Mae), and Government National
Mortgage Association (GNMA).
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.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Fund. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors 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. These traders
handle trillions of dollars in annual trading volume.
In the government sector, as of December 31, 1995, Federated Investors
managed 9 mortgage-backed, 5 government/agency and 17 government money
market mutual funds, with assets approximating $7.7 billion, $1.7 billion
and $20.9 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 $3 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 CLIENTS
Federated Investors 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 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.
Federated's service to financial professionals and institutions has
earned it high rankings in several surveys performed by DALBAR, Inc.
DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James
F. Getz, President, Broker/Dealer Division.
*source: Investment Company Institute
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements. (to be filed by amendment.)
(b) Exhibits:
(1)(i) Conformed copy of Articles of
Incorporation (1);
(ii) Conformed copy of Articles of Amendment
of Articles of Incorporation (2);
(2) Copy of By-Laws (1);
(3) Not Applicable;
(4) Copy of Specimen Certificate for Shares of
Capital Stock of the Registrant;+
(5) Copy of Investment Advisory Contract and
conformed copies of Exhibits A and B of
Investment Advisory Contract (7);
(6) (i) Copy of Distributor's Contract and
Conformed copies of Exhibits A, B, C, and D to
Distributor's Contract (4);
(ii) Copy of Distributor's Contract and
Conformed copies of Exhibits E and F to
Distributor's Contract;+
(iii)The Registrant hereby incorporates the conformed copy
of the specimen Mutual Funds Sales and Service
Agreement; Mutual Funds Service Agreement; and Plan
Trustee/Mutual Funds Service Agreement from Item 24 (b)
(6) of the Cash Trust Series II Registration Statement
on Form N-1A, filed with the Commission on July 24,
1995. (File Numbers 33-38550 and 811-6269);
+ All exhibits have been filed electronically.
(1) Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed October 25, 1993. (File Nos.
33-50773 and 811-7115).
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed December 21, 1993. (File Nos. 33-
50773 and 811-7115).
(4) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed May 27, 1994. (File Nos. 33-50773
and 811-7115).
(6) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed April 7, 1995. (File Nos. 33-50773
and 811-7115).
(7) Response is incorporated by reference to Registrant's Post-Effective
Amendment No.4 on Form N-1A filed June 6, 1995. (File Nos. 33-50773
and 811-7115).
(7) Not Applicable;
(8) Conformed copy of the Custodian Agreement of
the Registrant (4);
(9)(i) Conformed copy of Fund Accounting, Shareholder
Recordkeeping, and Custody Services Procurement
Agreement of the Registrant (4);
(ii) Conformed copy of Administrative
Services Agreement (4);
(iii) The responses described in Item 24 (b) (6) are
hereby incorporated by reference;
(iv) Form of Shareholder Services Agreement of the
Registrant (8);
(10) Conformed copy of Opinion and Consent of
Counsel as to legality of shares being
registered (2);
(11) Conformed copy of Consent of Independent
Auditors (8);
(12) Not Applicable;
(13) Conformed copy of Initial Capital
Understanding (3);
(14) Not Applicable;
(15) (i) Form of Distribution Plan of the
Registrant (8);
(ii) Conformed copy of Exhibit C to Distribution
Plan;+
(iii) The responses described in Item 24(b)(6)
are hereby incorporated by reference;
(16) Not Applicable
(17) Copy of Financial Data Schedules (8);
(18) The Registrant hereby incorporates the conformed
copy of the specimen Multiple Class Plan from
Item 24(b)(18) of the World Investment Series,
Inc. Registration Statement on Form N-1A, filed
with the Commission on January 26, 1996. (File Nos. 33-
52149 and 811-07141);
(19) (i) Conformed copy of Power of Attorney (9);
(ii) Conformed copy of Limited Power of
Attorney;+
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
+ All exhibits have been filed electronically.
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed December 21, 1993. (File Nos. 33-
50773 and 811-7115).
(3) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 on Form N-1A filed January 13, 1994. (File Nos. 33-
50773 and 811-7115).
(4) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed May 27, 1994. (File Nos. 33-50773
and 811-7115).
(7) Response is incorporated by reference to Registrant's Post-Effective
Amendment No.4 on Form N-1A filed June 6, 1995. (File Nos. 33-50773
and 811-7115).
(8) Response is incorporated by reference to Registrant's Post-Effective
Amendment No.5 on Form N-1A filed November 22, 1995. (File Nos. 33-
50773 and 811-7115).
(9) Response is incorporated by reference to Registrant's Post-Effective
Amendment No.6 on Form N-1A filed June 10, 1996. (File Nos. 33-50773
and 811-7115).
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of November 19, 1996
-
Shares of capital stock
($0.001 per Share par value)
Federated Total Return Bond Fund
Institutional Shares 1,009
Institutional Service Shares 1,005
Federated Total Return Limited Duration Fund
Institutional Shares 1,006
Institutional Service Shares 1,005
Federated Total Return Government Fund
Institutional Shares Not currently effective
Institutional Service Shares Not currently effective
Federated Limited Duration Government Fund
Institutional Shares Not currently effective
Institutional Service Shares Not currently effective
Item 27. Indemnification: (1)
Item 28. Business and Other Connections of Investment Adviser:
For a description of the other business of the investment
adviser, see the section entitled "Fund Information - Management
of the Corporation" in Part A. The affiliations with the
Registrant of four of the Trustees and one of the Officers of the
investment adviser are included in Part B of this Registration
Statement under "Federated Total Return Series, Inc. Management -
Officers and Directors." The remaining Trustee of the investment
adviser, his position with the investment adviser, and, in
parentheses, his principal occupation is: Mark D. Olson,
(Partner, Wilson, Holbrook and Bayard), 107 W. Market Street,
Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are: William D.
Dawson, III, Henry A. Frantzen, J. Thomas Madden, and Mark L.
Mallon, Executive Vice Presidents; Henry J. Gailliot, Senior Vice
President-Economist; Peter R. Anderson, Drew J. Collins, Jonathan
C. Conley and J. Alan Minteer, Senior Vice Presidents; J. Scott
Albrecht, Joseph M. Balestrino, Randall A. Bauer, David A.
Briggs, Kenneth J. Cody, Deborah A. Cunningham, Michael P.
Donnelly, Linda A. Duessel, Mark E. Durbiano, Kathleen M. Foody-
Malus, Thomas M. Franks, Edward C. Gonzales, Timothy E. Keefe,
Stephen A. Keen, Mark S. Kopinski, Jeff A. Kozemchak, Marian R.
Marinack, Susan M. Nason, Mary Jo Ochson, Robert J. Ostrowski,
Frederick L. Plautz, Jr., Charles A. Ritter, James D. Roberge,
Frank Semack, William F. Stoltz, Sandra L. Weber, and
Christopher H. Wiles, Vice Presidents;Thomas R. Donahue,
Treasurer; and Stephen A. Keen, Secretary. The business address
of each of the Officers of the investment adviser is Federated
Investors Tower, Pittsburgh, PA 15222-3779. These individuals
are also officers of a majority of the investment advisers to the
Funds listed in Part B of this Registration Statement.
Item 29. Principal Underwriters:
(a) 111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; BayFunds; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government Securities
Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years;
Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility
Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield
Cash Trust; Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument
Funds; SouthTrust Vulcan Funds; Star Funds; Targeted Duration Trust; Tax-
Free Instruments Trust; The Biltmore Funds; The Biltmore Municipal Funds;
The Monitor Funds; The Planters Funds; The Starburst Funds; The Starburst
Funds II; The Virtus Funds; Tower Mutual Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; andWorld Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive ViceExecutive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.
Thomas R. Donahue Director, Assistant Secretary,
Federated Investors Tower Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dale R. Browne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard Suder Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(c) Not applicable
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of
the following locations:
Registrant...............Federated Investors Tower
.........................Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
Transfer Agent, Dividend.Pittsburgh, PA 15222-3779
Disbursing Agent and
Portfolio Recordkeeper
Federated Administrative Federated Investors Tower
Services.................Pittsburgh, PA 15222-3779
Federated Management.....Federated Investors Tower
Investment Adviser.......Pittsburgh, PA 15222-3779
State Street Bank and....P.O. Box 8600
Trust Company............Boston, Massachusetts 02266
Custodian
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Directors and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered, a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
Registrant hereby undertakes to file a post-effective amendment
on behalf of Federated Total Return Government Fund and Federated
Limited Duration Government Fund, using financial statements for
Federated Total Return Government Fund and Federated Limited
Duration Government Fund, which need not be certified, within
four to six months from the effective date of this Post-Effective
Amendment No. 8.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED TOTAL RETURN
SERIES, INC. (formerly, Insight Institutional Series, Inc.) certifies that
it meets all of the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(a) under the Securities Act of
1933 and has duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Pittsburgh and Commonwealth of Pennsylvania, on the 27th day of
November, 1996.
FEDERATED TOTAL RETURN SERIES, INC.
(formerly, Insight Institutional Series, Inc.)
BY: /s/ J. Crilley Kelly
J. Crilley Kelly, Assistant Secretary
Attorney in Fact for John F. Donahue
November 27, 1996
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By:/s/ J. Crilley Kelly
J. Crilley Kelly Attorney In Fact November 27, 1996
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Director November 27, 1996
(Chief Executive Officer)
Glen R. Johnson* President
J. Christopher Donahue* Executive Vice President
and Director
John W. McGonigle* Executive Vice President and
Treasurer (Principal Financial and
Accounting Officer)
Thomas G. Bigley* Director
John T. Conroy, Jr.* Director
William J. Copeland* Director
James E. Dowd* Director
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr.* Director
Peter E. Madden* Director
Gregor F. Meyer* Director
John E. Murray, Jr.* Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
Exhibit (4)
FEDERATED TOTAL RETURN SERIES, INC.
FEDERATED TOTAL RETURN LIMITED DURATION FUND
(INSTITUTIONAL SHARES)
Number Shares
Account No. Alpha Code See Reverse Side For
Certain Definitions
PORTFOLIO
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
THIS IS TO CERTIFY THAT is the owner of
CUSIP 31428Q 40 8
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED TOTAL RETURN
LIMITED DURATION FUND (INSTITUTIONAL SHARES) Portfolio of FEDERATED TOTAL RETURN
SERIES, INC. hereafter called the Company, transferable on the books of the
Company by the owner in person or by duly authorized attorney upon surrender of
this certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company and all
amendments thereto, all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its seal.
Dated: FEDERATED TOTAL RETURN SERIES, INC.
Corporate Seal
(1993)
Maryland
/s/John W. McGonigle /s/ John F. Donahue
Executive Vice President, Treasurer Chairman
& Secretary
Countersigned: Federated Shareholder Services
Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
The Company will furnish to any stockholder, on request and without charge,
a full statement of designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the stock of each
class which the corporation is authorized to issue.
For value received hereby sell, assign, and transfer unto
----------
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
==========================================
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by a light purple one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
Exhibit (4)
FEDERATED TOTAL RETURN SERIES, INC.
FEDERATED TOTAL RETURN LIMITED DURATION FUND
(INSTITUTIONAL SERVICE SHARES)
Number Shares
Account No. Alpha Code See Reverse Side For
Certain Definitions
PORTFOLIO
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
THIS IS TO CERTIFY THAT is the owner of
CUSIP 31428Q 30 9
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED TOTAL RETURN
LIMITED DURATION FUND (INSTITUTIONAL SERVICE SHARES) Portfolio of FEDERATED
TOTAL RETURN SERIES, INC. hereafter called the Company, transferable on the
books of the Company by the owner in person or by duly authorized attorney upon
surrender of this certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company and all
amendments thereto, all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its seal.
Dated: FEDERATED TOTAL RETURN SERIES, INC.
Corporate Seal
(1993)
Maryland
/s/John W. McGonigle /s/ John F. Donahue
Executive Vice President, Treasurer Chairman
& Secretary
Countersigned: Federated Shareholder Services
Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
The Company will furnish to any stockholder, on request and without charge,
a full statement of designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the stock of each
class which the corporation is authorized to issue.
For value received hereby sell, assign, and transfer unto
----------
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
==========================================
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by a light purple one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
Exhibit (4)
FEDERATED TOTAL RETURN SERIES, INC.
FEDERATED TOTAL RETURN BOND FUND
(INSTITUTIONAL SHARES)
Number Shares
Account No. Alpha Code See Reverse Side For
Certain Definitions
PORTFOLIO
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
THIS IS TO CERTIFY THAT is the owner of
CUSIP 31428Q 10 1
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED TOTAL RETURN
BOND FUND (INSTITUTIONAL SHARES) Portfolio of FEDERATED TOTAL RETURN SERIES,
INC. hereafter called the Company, transferable on the books of the Company by
the owner in person or by duly authorized attorney upon surrender of this
certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company and all
amendments thereto, all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its seal.
Dated: FEDERATED TOTAL RETURN SERIES, INC.
Corporate Seal
(1993)
Maryland
/s/John W. McGonigle /s/ John F. Donahue
Executive Vice President, Treasurer Chairman
& Secretary
Countersigned: Federated Shareholder Services
Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
The Company will furnish to any stockholder, on request and without charge,
a full statement of designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the stock of each
class which the corporation is authorized to issue.
For value received hereby sell, assign, and transfer unto
----------
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
==========================================
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by a light purple one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
Exhibit (4)
FEDERATED TOTAL RETURN SERIES, INC.
FEDERATED TOTAL RETURN BOND FUND
(INSTITUTIONAL SERVICE SHARES)
Number Shares
Account No. Alpha Code See Reverse Side For
Certain Definitions
PORTFOLIO
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
THIS IS TO CERTIFY THAT is the owner of
CUSIP 31428Q 50 7
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED TOTAL RETURN
BOND FUND (INSTITUTIONAL SERVICE SHARES) Portfolio of FEDERATED TOTAL RETURN
SERIES, INC. hereafter called the Company, transferable on the books of the
Company by the owner in person or by duly authorized attorney upon surrender of
this certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Company and all
amendments thereto, all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its seal.
Dated: FEDERATED TOTAL RETURN SERIES, INC.
Corporate Seal
(1993)
Maryland
/s/John W. McGonigle /s/ John F. Donahue
Executive Vice President, Treasurer Chairman
& Secretary
Countersigned: Federated Shareholder Services
Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
The Company will furnish to any stockholder, on request and without charge,
a full statement of designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the stock of each
class which the corporation is authorized to issue.
For value received hereby sell, assign, and transfer unto
----------
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
==========================================
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by a light purple one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Maryland corporate seal appears in the bottom middle of the page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
Exhibit 6(ii)
Exhibit E
to the
Distributor's Contract
Federated Total Return Limited Duration Fund
Institutional Shares
In consideration of the mutual covenants set forth in the
Distributor's Contract dated December 1, 1993 between Federated Total
Return Series, Inc. and Federated Securities Corp., Federated Total
Return Series, Inc. executes and delivers this Exhibit on behalf of the
Funds, and with respect to the Institutional Shares thereof, first set
forth in this Exhibit.
Witness the due execution hereof this 1st day of September, 1996.
ATTEST: FEDERATED TOTAL RETURN SERIES, INC.
/s/ John W. McGonigle By:/s/ Glen R. Johnson
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ Byron F. Bowman By:/s/ Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit 6(ii)
Exhibit F
to the
Distributor's Contract
FEDERATED TOTAL RETURN SERIES, INC.
Federated Total Return Limited Duration Fund
Institutional Service Shares
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated December 1, 1993 between Federated Total
Return Series, Inc. and Federated Securities Corp. with respect to the
Classes of shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Classes
("Shares"). Pursuant to this appointment, FSC is authorized to select a
group of financial institutions ("Financial Institutions") to sell
Shares at the current offering price thereof as described and set forth
in the respective prospectuses of the Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of .25 of 1% of the average aggregate net asset value of the
Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
of any fee payable on the basis of the number of days that the Agreement
is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class' expenses exceed such
lower expense limitation as FSC may, by notice to the Corporation,
voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be
paid shall be determined from time to time by FSC in its sole
discretion.
5. FSC will prepare reports to the Board of Directors of the Corporation on
a quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated December 1, 1993, between Federated Total
Return Series, Inc. and Federated Securities Corp., Federated Total
Return Series, Inc. executes and delivers this Exhibit on behalf of the
Funds, and with respect to the Institutional Service Shares thereof,
first set forth in this Exhibit.
Witness the due execution hereof this 1st day of September, 1996.
ATTEST: Federated Total Return Series, Inc.
/s/ John W. McGonigle By: /s/ Glen R. Johnson
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ Byron F. Bowman By: /s/ Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit 15(ii)
EXHIBIT C
to the
Distribution Plan
FEDERATED TOTAL RETURN SERIES, INC.
FEDERATED TOTAL RETURN LIMITED DURATION FUND
INSTITUTIONAL SERVICE SHARES
This Distribution Plan is adopted by Federated Total Return Series,
Inc. with respect to the Class of Shares of the portfolio of the
Corporation set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of .25 of 1% of the
average aggregate net assets value of the Institutional Service Shares of
Federated Total Return Limited Duration Fund held during the month.
Witness the due execution hereof this 1st day of September, 1996.
Federated Total Return Series, Inc.
By: /s/ Glen R. Johnson
President
Exhibit 19(ii)
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, dated as of October 1, 1996, that
Federated Total Return Series, Inc., a corporation duly organized under the laws
of the State of Maryland (the "Corporation") does hereby nominate, constitute
and appoint Federated Advisers, a business trust duly organized under the laws
of the State of Delaware (the "Adviser"), to act hereunder as the true and
lawful agent and attorney-in-fact of the Corporation, acting on behalf of each
of the series portfolios for which the Adviser acts as investment adviser shown
on Schedule 1 attached hereto and incorporated by reference herein (each such
series portfolio being hereinafter referred to as a "Fund" and collectively as
the "Funds"), for the specific purpose of executing and delivering all such
agreements, instruments, contracts, assignments, bond powers, stock powers,
transfer instructions, receipts, waivers, consents and other documents, and
performing all such acts, as the Adviser may deem necessary or reasonably
desirable, related to the acquisition, disposition and/or reinvestment of the
funds and assets of a Fund of the Corporation in accordance with Adviser's
supervision of the investment, sale and reinvestment of the funds and assets of
each Fund pursuant to the authority granted to the Adviser as investment Adviser
of each Fund under that certain investment advisory contract dated December 1,
1993 by and between the Adviser and the Corporation (such investment advisory
contract, as may be amended, supplemented or otherwise modified from time to
time is hereinafter referred to as the "Investment Advisory Contract").
The Adviser shall exercise or omit to exercise the powers and
authorities granted herein in each case as the Adviser in its sole and absolute
discretion deems desirable or appropriate under existing circumstances. The
Corporation hereby ratifies and confirms as good and effectual, at law or in
equity, all that the Adviser, and its officers and employees, may do by virtue
hereof. However, despite the above provisions, nothing herein shall be
construed as imposing a duty on the Adviser to act or assume responsibility for
any matters referred to above or other matters even though the Adviser may have
power or authority hereunder to do so. Nothing in this Limited Power of
Attorney shall be construed (i) to be an amendment or modifications of, or
supplement to, the Investment Advisory Contract, (ii) to amend, modify, limit or
denigrate any duties, obligations or liabilities of the Adviser under the terms
of the Investment Advisory Contract or (iii) exonerate, relieve or release the
Adviser any losses, obligations, penalties, actions, judgments and suits and
other costs, expenses and disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against the Adviser (x) under the
terms of the Investment Advisory Contract or (y) at law, or in equity, for the
performance of its duties as the investment Adviser of any of the Funds.
The Corporation hereby agrees to indemnify and save harmless the
Adviser and its trustees, officers and employees (each of the foregoing an
"Indemnified Party" and collectively the "Indemnified Parties") against and from
any and all losses, obligations, penalties, actions, judgments and suits and
other costs, expenses and disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against an Indemnified Party, other
than as a consequence of gross negligence or willful misconduct on the part of
an Indemnified Party, arising out of or in connection with this Limited Power of
Attorney or any other agreement, instrument or document executed in connection
with the exercise of the authority granted to the Adviser herein to act on
behalf of the Corporation, including without limitation the reasonable costs,
expenses and disbursements in connection with defending such Indemnified Party
against any claim or liability related to the exercise or performance of any of
the Adviser's powers or duties under this Limited Power of Attorney or any of
the other agreements, instruments or documents executed in connection with the
exercise of the authority granted to the Adviser herein to act on behalf of the
Corporation, or the taking of any action under or in connection with any of the
foregoing. The obligations of the Corporation under this paragraph shall
survive the termination of this Limited Power of Attorney with respect to
actions taken by the Adviser on behalf of the Corporation during the term of
this Limited Power of Attorney. No Fund shall have any joint or several
obligation with any other Fund to reimburse or indemnify an Indemnified Party
for any action, event, matter or occurrence performed or omitted by or on behalf
of the Adviser in its capacity as agent or attorney-in-fact of Corporation
acting on behalf of any other Fund hereunder.
Any person, partnership, corporation or other legal entity dealing
with the Adviser in its capacity as attorney-in-fact hereunder for the
Corporation is hereby expressly put on notice that the Adviser is acting solely
in the capacity as an agent of the Corporation and that any such person,
partnership, corporation or other legal entity must look solely to the
Corporation in question for enforcement of any claim against the Corporation, as
the Adviser assumes no personal liability whatsoever for obligations of the
Corporation entered into by the Adviser in its capacity as attorney-in-fact for
the Corporation.
Each person, partnership, corporation or other legal entity which
deals with a Fund of the Corporation through the Adviser in its capacity as
agent and attorney-in-fact of the Corporation, is hereby expressly put on notice
(i) that all persons or entities dealing with the Corporation must look solely
to the assets of the Fund of the Corporation on whose behalf the Adviser is
acting pursuant to its powers hereunder for enforcement of any claim against the
Corporation, as the directors, officers and/or agents of such Corporation, the
shareholders of the various classes of shares of the Corporation and the other
Funds of the Corporation assume no personal liability whatsoever for obligations
entered into on behalf of such Fund of the Corporation, and (ii) that the
rights, liabilities and obligations of any one Fund are separate and distinct
from those of any other Fund of the Corporation.
The execution of this Limited Power of Attorney by the Corporation
acting on behalf of the several Funds shall not be deemed to evidence the
existence of any express or implied joint undertaking or appointment by and
among any or all of the Funds. Liability for or recourse under or upon any
undertaking of the Adviser pursuant to the power or authority granted to the
Adviser under this Limited Power of Attorney under any rule of law, statute or
constitution or by the enforcement of any assessment or penalty or by legal or
equitable proceedings or otherwise shall be limited only to the assets of the
Fund of the Corporation on whose behalf the Adviser was acting pursuant to the
authority granted hereunder.
The Corporation hereby agrees that no person, partnership, corporation
or other legal entity dealing with the Adviser shall be bound to inquire into
the Adviser's power and authority hereunder and any such person, partnership,
corporation or other legal entity shall be fully protected in relying on such
power or authority unless such person, partnership, corporation or other legal
entity has received prior written notice from the Corporation that this Limited
Power of Attorney has been revoked. This Limited Power of Attorney shall be
revoked and terminated automatically upon the cancellation or termination of the
Investment Advisory Contract between the Corporation and the Adviser. Except as
provided in the immediately preceding sentence, the powers and authorities
herein granted may be revoked or terminated by the Corporation at any time
provided that no such revocation or termination shall be effective until the
Adviser has received actual notice of such revocation or termination in writing
from the Corporation.
This Limited Power of Attorney constitutes the entire agreement
between the Corporation and the Adviser, may be changed only by a writing signed
by both of them, and shall bind and benefit their respective successors and
assigns; provided, however, the Adviser shall have no power or authority
hereunder to appoint a successor or substitute attorney in fact for the
Corporation.
This Limited Power of Attorney shall be governed and construed in
accordance with the laws of the Commonwealth of Pennsylvania without reference
to principles of conflicts of laws. If any provision hereof, or any power or
authority conferred upon the Adviser herein, would be invalid or unexercisable
under applicable law, then such provision, power or authority shall be deemed
modified to the extent necessary to render it valid or exercisable while most
nearly preserving its original intent, and no provision hereof, or power or
authority conferred upon the Adviser herein, shall be affected by the invalidity
or the non-exercisability of another provision hereof, or of another power or
authority conferred herein.
This Limited Power of Attorney may be executed in as many identical
counterparts as may be convenient and by the different parties hereto on
separate counterparts. This Limited Power of Attorney shall become binding on
the Corporation when the Corporation shall have executed at least one
counterpart and the Adviser shall have accepted its appointment by executing
this Limited Power of Attorney. Immediately after the execution of a
counterpart original of this Limited Power of Attorney and solely for the
convenience of the parties hereto, the Corporation and the Adviser will execute
sufficient counterparts so that the Adviser shall have a counterpart executed by
it and the Corporation, and the Corporation shall have a counterpart executed by
the Corporation and the Adviser. Each counterpart shall be deemed an original
and all such taken together shall constitute but one and the same instrument,
and it shall not be necessary in making proof of this Limited Power of Attorney
to produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the Corporation has caused this Limited Power of
Attorney to be executed by its duly authorized officer as of the date first
written above.
ATTEST: Federated Total Return Series, Inc.
By: /s/ John W. McGonigle By: /s/ J. Christopher Donahue
Title: Secretary Title: Executive Vice President
Accepted and agreed to this
1st day of October, 1996
Federated Advisers
By: /s/ J. Thomas Madden
Title: Executive Vice President
Schedule 1
to Limited Power of Attorney
dated as of October 1, 1996
by Federated Total Return Series, Inc.
(the "Corporation"), acting on
behalf of each of the series portfolios
listed below, and appointing
Federated Advisers
the attorney-in-fact of the
Corporation
List of Series Portfolios
Federated Total Return Bond Fund
Federated Total Return Limited Duration Fund
