FEDERATED TOTAL RETURN SERIES INC, 497, 1997-05-29

FEDERATED TOTAL RETURN SERIES INC
497, 1997-05-29

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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
February 10, 1997 (Revised June 2, 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 February 10, 1997

(Revised June 2, 1997)

TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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GENERAL INFORMATION 2
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INVESTMENT INFORMATION 2
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Investment Objective 2
Investment Policies 2

Investment Limitations 10

Hub and Spoke(R) Option 10

NET ASSET VALUE 10

INVESTING IN INSTITUTIONAL SHARES 11

Share Purchases 11

Minimum Investment Required 11

What Shares Cost 11

Exchanging Securities for Fund Shares 12

Certificates and Confirmations 12

Dividends and Distributions 12

REDEEMING INSTITUTIONAL SHARES 13

Telephone Redemption 13

Written Requests 13

Accounts With Low Balances 14

FUND INFORMATION 14

Management of the Fund 14

Distribution of Institutional Shares 15

Administration of the Fund 16

Expenses of the Fund and Institutional

Shares 16

SHAREHOLDER INFORMATION 17

Voting Rights 17

TAX INFORMATION 17

Federal Income Tax 17

State and Local Taxes 17

PERFORMANCE INFORMATION 18
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OTHER CLASSES OF SHARES 18

ADDRESSES 19

SUMMARY OF FUND EXPENSES

<TABLE>
<S> <C> <C>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)................................................. None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)............................... None
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None

ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(1)...................................................... 0.01%
12b-1 Fee............................................................................. None
Total Other Expenses.................................................................. 0.24%
Shareholder Services Fee(2)............................................. 0.00%
Total Operating Expenses(3)................................................. 0.25%
</TABLE>

(1)The estimated management fee has been reduced to reflect the
anticipated voluntary waiver of a portion of the management fee. The
adviser can terminate this voluntary waiver at any time at its sole
discretion. The maximum management fee is 0.40%.

(2) Institutional Shares has no present intention of paying or accruing the
shareholder services fee during the fiscal year ending September 30, 1997. If
Institutional Shares were paying or accruing the shareholder services fee,
Institutional Shares would be able to pay up to 0.25% of its average daily net
assets for the shareholder services fee. See "Fund Information."

(3)The total operating expenses are estimated to be 0.64% absent the
anticipated voluntary waiver of a portion of the management fee.

* Total Institutional Shares operating expenses are estimated based on
average expenses expected to be incurred during the period ending
September 30, 1997. During the course of this period, expenses may be
more or less than the average amount shown.

The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder of the
Institutional Shares of the Fund will bear, either directly or
indirectly. For more complete descriptions of the various costs and
expenses, see "Fund Information." Wire-transferred redemptions of less
than $5,000 may be subject to additional fees.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
- --------------------------------------------------------------------------- ------ -------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period....... $3 $ 8
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE INSTITUTIONAL SHARES FISCAL YEAR
ENDING SEPTEMBER 30, 1997.

GENERAL INFORMATION
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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 U.S. government
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
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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, or 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. 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. 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's dollar weighted-average 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:

- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds;

- 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;

- notes, bonds, discount notes and mortgage-backed securities of U.S.
government agencies or instrumentalities which receive or have access to
federal funding;

- notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities;
and

- 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.

The prices of fixed income securities fluctuate inversely to the
direction of interest rates.

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:

- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;

- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or

- the credit of the agency or instrumentality.

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
generally 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. Interest-only stripped mortgage-backed securities
yield to maturity 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 stripped
mortgage-backed securities if there are substantial prepayments
on the underlying mortgages. Interest-only stripped
mortgage-backed securities 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.

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 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.

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 stocks 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 purchase 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 dollar
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. To the extent that dollar rolls are not covered rolls,
they will be included in the 33 1/3% borrowing 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. In pursuing its
investment objective, the Fund may, from time to time, invest its
assets in securities of other investment companies. Since investment
companies incur certain expenses such as management fees, any
investment by the Fund in shares of other investment companies may be
subject to some duplicate expenses.

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 falling interest rates,
and a lower average duration during periods of rising interest rates.
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 TURNOVER. The Fund does not attempt to set or meet any
specific portfolio 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.

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(R) 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.

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 $110 billion invested across over 300 funds
under management and/or administration by its subsidiaries, as of
December 31, 1996, Federated Investors is one of the largest
mutual fund investment managers in the United States. With more
than 2,000 employees, Federated continues to be led by the
management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions
nationwide.

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 Senior Vice President of the
Fund's investment adviser since April 1997. Ms. Nason served as a Vice President
of the investment adviser from 1993 to 1997, and 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.I.A. concentrating in Finance from
Carnegie Mellon University.

Todd A. Abraham has been the Fund's portfolio manager since inception. Mr.
Abraham joined Federated Investors in 1993 as an Investment Analyst and has been
an Assistant Vice President of the Fund's investment adviser since 1995. Mr.
Abraham served as a Portfolio Analyst at Ryland Mortgage Co. from 1992 to 1993.
Mr. Abraham received his M.B.A. in Finance from Loyola College.

Robert J. Ostrowski has been the Fund's portfolio manager since inception. Mr.
Ostrowski joined Federated Investors in 1987 as an Investment Analyst and has
been a Vice President of the Fund's investment adviser since 1993. From 1990 to
1992, he served as an Assistant Vice President. Mr. Ostrowski is a Chartered
Financial Analyst. He received his M.S.I.A. concentrating in Finance from
Carnegie Mellon University.

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.

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:

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS
- --------------------- ------------------------------------
<S> <C>
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
</TABLE>

The administrative fee received during any fiscal year shall be at
least $125,000 per portfolio and $30,000 per each additional class of
shares. Federated 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.

ers; registration fees paid to the Securities and Exchange Commission
and to state securities commissions; expenses related to
administrative 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
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
Federated Limited Duration Federated Investors Tower
Government Fund Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------

Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------

Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------

Custodian
State Street Bank and
Trust Company c/o Federated Services 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
- ------------------------------------------------------------------------------------------------
</TABLE>

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

- --------------------------------------------------------------------------------
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 February 10, 1997

(Revised June 2, 1997)

LOGO

G01923-01-IS (6/97)

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

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).

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.

Prospectus dated February 10, 1997

(Revised June 2, 1997)

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

SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------

GENERAL INFORMATION 2
- ------------------------------------------------------

INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2

Investment Limitations 10
Hub and Spoke(R) Option 10

NET ASSET VALUE 10

INVESTING IN INSTITUTIONAL
SERVICE SHARES 11

Share Purchases 11

Minimum Investment Required 11

What Shares Cost 11

Exchanging Securities for Fund Shares 12

Certificates and Confirmations 12

Dividends and Distributions 12

REDEEMING INSTITUTIONAL SERVICE SHARES 13

Telephone Redemption 13

Written Requests 13

Accounts With Low Balances 14

FUND INFORMATION 14

Management of the Fund 14

Distribution of Institutional Service Shares 15

Administration of the Fund 16

Expenses of the Fund and Institutional

Service Shares 16

SHAREHOLDER INFORMATION 17

Voting Rights 17

TAX INFORMATION 17

Federal Income Tax 17

State and Local Taxes 18

PERFORMANCE INFORMATION 18

OTHER CLASSES OF SHARES 19

ADDRESSES 20

SUMMARY OF FUND EXPENSES

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

<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)......... None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering
price).............................................................................. None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)............................... None
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None

ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(1)...................................................... 0.01%
12b-1 Fee (after waiver)(2)........................................................... 0.05%
Total Other Expenses.................................................................. 0.49%
Shareholder Services Fee................................................... 0.25%
Total Operating Expenses(3)........................................................... 0.55%
</TABLE>

(1) The estimated management fee has been reduced to reflect the
anticipated voluntary waiver of a portion of the management fee. The
adviser can terminate this voluntary waiver at any time at its sole
discretion. The maximum management fee is 0.40%.

(2) The 12b-1 fee has been reduced to reflect the voluntary waiver of
a portion of the 12b-1 fee. The distributor can terminate the
voluntary waiver at any time at its sole discretion. The maximum 12b-1
fee is 0.25%.

(3) The total operating expenses are estimated to be 1.14% absent the
anticipated voluntary waivers of a portion of the management fee and
12b-1 fee."

* Total Institutional Service Shares operating expenses are estimated
based on average expenses expected to be incurred during the period
ending September 30, 1997. During the course of this period, expenses
may be more or less than the average amount shown.

The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder of the
Institutional Service Shares of the Fund will bear, either directly or
indirectly. For more complete descriptions of the various costs and
expenses, see "Fund Information." Wire- transferred redemptions of
less than $5,000 may be subject to additional fees.

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
U.S. government 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

INVESTMENT POLICIES

- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds;

- 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;

- notes, bonds, discount notes and mortgage-backed securities of U.S.
government agencies or instrumentalities which receive or have access to
federal funding;

- notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities;
and

The prices of fixed income securities fluctuate inversely to the
direction of interest rates.

- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;

- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or

- the credit of the agency or instrumentality.

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.

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.

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.

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(R) OPTION

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

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

purchase Shares are received; or (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.

EXCHANGING SECURITIES FOR FUND SHARES

CERTIFICATES AND CONFIRMATIONS

Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly statements are sent to report dividends paid
during the month.

DIVIDENDS AND DISTRIBUTIONS

Dividends are declared 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
- --------------------------------------------------------------------------------

TELEPHONE REDEMPTION

WRITTEN REQUESTS

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

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.

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

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS
- ------------------- ------------------------------------
<S> <C>
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
</TABLE>

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.

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
administrative 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

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

FEDERAL INCOME TAX

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.

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

Distributor
Federated Securities Corp. 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 P.O. Box 8600
Company Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------

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

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

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 February 10, 1997

(Revised June 2, 1997)

LOGO

G01923-02-SS (6/97)

<PAGE>

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 February 10, 1997
(Revised June 2, 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 February 10, 1997

(Revised June 2, 1997)

Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 31428Q705
31428Q606
G01923-03(2/97)

<PAGE>

Table of Contents

General Information About the Fund 1

Investment Objective and Policies 1
Types of Investments 1
Adjustable Rate Mortgage Securities ("ARMS") 1
Collateralized Mortgage Obligations ("CMOs") 1
Real Estate Mortgage Investment Conduits
("REMICs") 2
Interest-Only and Principal-Only Investments 2
Privately Issued Mortgage-Related Securities 2
Resets of Interest 2
Caps and Floors 3
Futures and Options Transactions 3
Leveraging 4
Leverage Through Borrowing 5
Medium Term Notes and Deposit Notes 5
Average Life 5
Weighted Average Portfolio Duration 5
Lending of Portfolio Securities 6
When-Issued and Delayed Delivery Transactions 6
Repurchase Agreements 6
Reverse Repurchase Agreements 6
Portfolio Turnover 6

Investment Limitations 7

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

<PAGE>

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 "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
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 generally 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 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 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.

<PAGE>

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 transactions
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 present 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. 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. 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.

Certain debt securities, such as mortgage-backed and asset-backed
securities, may be subject to prepayment at irregular intervals. The
duration of these instruments will be calculated based upon
assumptions established by the investment adviser as the probable
amount and sequence of principal prepayments. Duration calculated in
this manner, commonly referred to as "effective duration," allows for
changing prepayment rates as interest rates change and expected future
cash flows are affected. The calculation of effective duration will
depend upon the investment adviser's assumed prepayment rate.

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

<PAGE>

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. Concentration of Investments

The Fund will not acquire more than 25% of its total assets in
securities of issuers having their principal business
activities in the same industry.
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, options on
futures contracts or indices, and dollar roll transactions 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. 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 and Director of the
Corporation .

Thomas G. Bigley
15 Old Timber Trail
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.;
Director, Member of Executive Committee, 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.

<PAGE>

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 of Counsel, 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.

<PAGE>

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Consultant; Former State Representative, Commonwealth of
Massachusetts; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation; Director or Trustee of
the Funds.

Gregor F. Meyer
Boca Grande Club
Boca Grande, FL
Birthdate: October 6, 1926
Director
Attorney, Retired Member of 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., National Defense University, U.S. Space
Foundation and Czech Management Center; President Emeritus, University
of Pittsburgh; Founding Chairman, National Advisory Council for
Environmental Policy and Technology, Federal Emergency Management
Advisory Board and Czech Management Center; Director or Trustee of the
Funds.

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.

<PAGE>

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; Treasurer of some 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; 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 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; 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
Obligations Trust II; 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; Wesmark Funds; 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 +
<S> <C> <C>
John F. Donahue, $ 0 $0 for the Corporation and
Chairman and Director 54 other investment companies in the Fund Complex

Thomas G. Bigley++ $1,008.14 $86,331 for the Corporation and
Director 54 other investment companies in the Fund Complex

John T. Conroy, Jr., $1,109.11 $115,760 for the Corporation and
Director 54 other investment companies in the Fund Complex

William J. Copeland, $1,109.11 $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, $1,109.11 $115,760 for the Corporation and
Director 54 other investment companies in the Fund Complex

Lawrence D. Ellis, M.D., $1,008.14 $104,898 for the Corporation and
Director 54 other investment companies in the Fund Complex

Edward L. Flaherty, Jr., $1,109.11 $115,760 for the Corporation and
Director 54 other investment companies in the Fund Complex

Peter E. Madden, $1,008.14 $104,898 for the Corporation and
Director 54 other investment companies in the Fund Complex

Gregor F. Meyer, $1,008.14 $104,898 for the Corporation and
Director 54 other investment companies in the Fund Complex

John E. Murray, Jr., $1,008.14 $104,898 for the Corporationand
Director 54 other investment companies in the Fund Complex

Wesley W. Posvar, $1,008.14 $104,898 for the Corporation and
Director 54 other investment companies in the Fund Complex

Marjorie P. Smuts, $1,008.14 $104,898 for the Corporation and
Director 54 other investment companies in the Fund Complex

</TABLE>

*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.

<PAGE>

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. Treasury 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 "short U.S. Treasury 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, 1996, Federated Investors managed 9
mortgage-backed, 5 government/agency and 17 government money market
mutual funds, with assets approximating $6.3 billion, $1.7 billion and
$23.6 billion, respectively. Federated trades approximately $309
million in U.S. government and mortgage-backed securities daily and
places approximately $17 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 $30 billion in government funds within these
maturity ranges. J. Thomas Madden, Executive Vice President, oversees
Federated Investors' equity and high yield corporate bond management
while William D. Dawson, Executive Vice President, oversees Federated
Investors' domestic fixed income management. Henry A. Frantzen,
Executive Vice President, oversees the management of Federated
Investors' international and global portfolios. Mutual Fund Market

Thirty-seven percent of American households are pursuing their
financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $3.5 trillion to the
more than 6,000 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.

<PAGE>

Bank Marketing

Other institutional clients include close relationships with
more than 1,600 banks and trust organizations. Virtually all of the
trust divisions of the top 100 bank holding companies use Federated
funds in their clients' portfolios. The marketing effort to trust
clients is headed by 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--we have over 2,200 broker/dealer and bank
broker/dealer relationships across the country--supported by more
wholesalers than any other mutual fund distributor. Federated's
service to financial professionals and institutions has earned it high
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

<PAGE>

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

FEDERATED GOVERNMENT FUND
(A PORTFOLIO OF FEDERATED TOTAL RETURN SERIES, INC.)
INSTITUTIONAL SHARES
PROSPECTUS

The Institutional Shares of Federated 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.

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
February 10, 1997 (Revised June 2, 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).

Prospectus dated February 10, 1997

(Revised June 2, 1997)

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

SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------

GENERAL INFORMATION 2
- ------------------------------------------------------

INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2

Portfolio Turnover 9

Hub and Spoke(R) Option 10

NET ASSET VALUE 10
- ------------------------------------------------------

INVESTING IN INSTITUTIONAL SHARES 10

- ------------------------------------------------------
Share Purchases 10

Minimum Investment Required 11
What Shares Cost 11

Exchanging Securities for Fund Shares 11

Certificates and Confirmations 12
Dividends and Distributions 12

REDEEMING INSTITUTIONAL SHARES 12

Telephone Redemption 12

Written Requests 13

Accounts With Low Balances 13

FUND INFORMATION 13

Management of the Fund 13
Distribution of Institutional Shares 15

Administration of the Fund 15

Expenses of the Fund and
Institutional Shares 16

SHAREHOLDER INFORMATION 16

Voting Rights 16

TAX INFORMATION 17
- ------------------------------------------------------
Federal Income Tax 17
State and Local Taxes 17

PERFORMANCE INFORMATION 17

OTHER CLASSES OF SHARES 18
- ------------------------------------------------------

ADDRESSES 19
- ------------------------------------------------------

SUMMARY OF FUND EXPENSES

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

ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(1)...................................................... 0.06%
12b-1 Fee............................................................................. None
Total Other Expenses.................................................................. 0.24%
Shareholder Services Fee(2)........................................ 0.00%
Total Operating Expenses(3)...................................................... 0.30%
</TABLE>

(1) The estimated management fee has been reduced to reflect the
anticipated voluntary waiver of a portion of the management fee. The
adviser can terminate this voluntary waiver at any time at its sole
discretion. The maximum management fee is 0.40%.

(3) The total operating expenses are estimated to be 0.64% absent the
anticipated voluntary waiver of a portion of the management fee.

GENERAL INFORMATION
- --------------------------------------------------------------------------------

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.

INVESTMENT POLICIES

The Fund pursues this investment objective by investing in U.S.
government securities, including mortgage-backed securities and
non-U.S. government 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:

- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds;

- 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;

- - notes, bonds, discount notes and mortgage-backed securities of U.S.
government agencies or instrumentalities which receive or have access to
federal funding;

- notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities;
and

The prices of fixed income securities fluctuate inversely to the
direction of interest rates.

- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;

- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or

- the credit of the agency or instrumentality.

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.

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. Interest-only stripped mortgage-backed securities
yield to maturity 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 stripped
mortgage-backed securities if there are substantial prepayments
on the underlying mortgages. Interest-only stripped mortgage-

backed securities 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.

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.

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.

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.

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.

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(R) OPTION

NET ASSET VALUE
- --------------------------------------------------------------------------------

INVESTING IN INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------

SHARE PURCHASES

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 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 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

WHAT SHARES COST

The net asset value is determined as of the close of trading (normally
4:00 p.m., Eastern time), on the New York Stock Exchange, Monday
through Friday, except on: (i) days on which there are not sufficient
changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no
shares are tendered for redemption and no orders to purchase shares
are received; or (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.

EXCHANGING SECURITIES FOR FUND SHARES

CERTIFICATES AND CONFIRMATIONS

Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly statements are sent to report dividends paid
during the month.

DIVIDENDS AND DISTRIBUTIONS

Dividends are declared 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
- --------------------------------------------------------------------------------

TELEPHONE REDEMPTION

WRITTEN REQUESTS

ACCOUNTS WITH LOW BALANCES

FUND INFORMATION
- --------------------------------------------------------------------------------

MANAGEMENT OF THE FUND

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.

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.I.A. concentrating in Finance from Carnegie Mellon University.

Donald T. Ellenberger has been the Fund's portfolio manager since inception. Mr.
Ellenberger joined Federated Investors in 1996 as a Vice President of a
Federated advisory subsidiary. He has been a Vice President of the Fund's
investment adviser since March, 1997. From 1986 to 1996, he served as a
Trader/Portfolio Manager for Mellon Bank, N.A. Mr. Ellenberger received his
M.B.A. in Finance from Stanford 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.

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

relates to the average aggregate daily net assets of all funds advised
by subsidiaries of Federated Investors as specified below:

EXPENSES OF THE FUND AND INSTITUTIONAL SHARES

Holders of Institutional Shares pay their allocable portion of
Corporation and Fund expenses.

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
administrative 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

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

FEDERAL INCOME TAX

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.

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.

OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------

Institutional Service Shares are distributed under a 12b-1 Plan
adopted by the Fund and are also subject to shareholder services fees.

To obtain more information and a prospectus for Institutional Service
Shares, investors may call 1-800-341-7400.

ADDRESSES
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
Federated Government Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------

Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------

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

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

FEDERATED
GOVERNMENT FUND
INSTITUTIONAL SHARES
PROSPECTUS

A Diversified Portfolio of
Federated Total Return Series,
Inc.,
an Open-End, Management
Investment Company

Prospectus dated February 10, 1997

(Revised June 2, 1997)

LOGO

G01922-01-IS (6/97)

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FEDERATED GOVERNMENT FUND
(A PORTFOLIO OF FEDERATED TOTAL RETURN SERIES, INC.)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS

The Institutional Service Shares of Federated 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.

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
February 10, 1997, (Revised June 2, 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).

Prospectus dated February 10, 1997

(Revised June 2, 1997)

TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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GENERAL INFORMATION 2
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INVESTMENT INFORMATION 2
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Investment Objective 2
Investment Policies 2
Portfolio Turnover 9

Hub and Spoke(R) Option 10

NET ASSET VALUE 10
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INVESTING IN INSTITUTIONAL SERVICE SHARES 10

Share Purchases 10

Minimum Investment Required 11
What Shares Cost 11

Exchanging Securities for Fund Shares 11

Certificates and Confirmations 12
Dividends and Distributions 12

REDEEMING INSTITUTIONAL SERVICE SHARES 12

Telephone Redemption 12

Written Requests 13

Accounts With Low Balances 13

FUND INFORMATION 13

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Management of the Fund 13

Distribution of Institutional
Service Shares 15
Administration of the Fund 16
Expenses of the Fund and
Institutional Service Shares 16

SHAREHOLDER INFORMATION 17
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Voting Rights 17

TAX INFORMATION 17
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Federal Income Tax 17

State and Local Taxes 17

PERFORMANCE INFORMATION 18
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OTHER CLASSES OF SHARES 18

ADDRESSES 19

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SUMMARY OF FUND EXPENSES
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<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)................................................. None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)............................... None
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None

ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(1)...................................................... 0.06%
12b-1 Fee (after waiver)(2)........................................................... 0.05%
Total Other Expenses.................................................................. 0.49%
Shareholder Services Fee................................................... 0.25%
Total Operating Expenses(3)........................................................... 0.60%
</TABLE>

(1) The estimated management fee has been reduced to reflect the
anticipated voluntary waiver of a portion of the management fee. The
adviser can terminate this voluntary waiver at any time at its sole
discretion. The maximum management fee is 0.40%.

(3) The total operating expense are estimated to be 1.14% absent the
anticipated voluntary waivers of a portion of the management fee and
12b-1 fee.

GENERAL INFORMATION
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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.