1933 Act File No. 33-50773
1940 Act File No. 811-7115
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
-
Pre-Effective Amendment No.______.................... __
Post-Effective Amendment No. 15 ................... X
------ -
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 19.................................... X
FEDERATED TOTAL RETURN SERIES, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to paragraph (b)
____ on _________, 199__ pursuant to paragraph (b)(1)(v)
_XX_ 60 days after filing pursuant to paragraph (a) (i) on _______ pursuant to
____ paragraph (a) (i) 75 days after filing pursuant to paragraph (a)(ii) on
____ _________________ pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies To:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
<PAGE>
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of Federated Total Return
Series, Inc., which consists of four portfolios: (1) Federated Total Return Bond
Fund, (2) Federated Limited Duration Fund (formerly, Federated Total Return
Limited Duration Fund), (3) Federated Government Fund, and (4) Federated
Ultrashort Bond Fund (formerly, Federated Limited Duration Government Fund).
This filing relates only to Federated Ultrashort Bond Fund (formerly, Federated
Limited DurationGovernment Fund and is comprised of the following (the remaining
references to other portfolios have been kept for easier cross reference):
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page....................(1-4) Cover Page.
Item 2. Synopsis......................(1-4) Summary of Fund Expenses.
Item 3. Condensed Financial
Information (1-4) Performance Information.
Item 4. General Description of
Registrant...................(1-4) General Information; (1-4)
Investment Information; (1-4)
Investment Objective; (1-4)
Investment Policies; (1-4) Investment
Limitations; (1-4) Hub and Spoke
Option.
Item 5. Management of the Fund........(1-4) Fund Information; (1-4)
Management of the Corporation; (1-4)
Distribution of Institutional/
Institutional Service Shares; (1-4)
Administration of the Fund; (1-4)
Expenses of the Fund and
Institutional/Institutional Service
Shares.
Item 6. Capital Stock and Other
Securities...................(1-4) Dividends and Distributions;
(1-4) Shareholder Information; (1-4)
Voting Rights; (1-4) Tax Information;
(1-4) Federal Income Tax; (1-4) State
and Local Taxes; (1-3) Other Classes
of Shares.
Item 7. Purchase of Securities Being
Offered......................(1-4) Net Asset Value; (1-4) Investing
in Institutional/ Institutional
Service Shares; (1-4) Share
Purchases; (1-4) Minimum Investment
Required; (1-4) What Shares Cost;
(1-4) Exchanging Securities
for Fund Shares; (1-4) Certificates and Confirmations.
Item 8. Redemption or Repurchase......(1-4) Redeeming Institutional/
Institutional Service Shares; (1-4)
Telephone Redemption; (1-4) Written
Requests; (1-4) Accounts with Low
Balances.
Item 9. Pending Legal Proceedings.....None.
<PAGE>
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page....................(1-4) Cover Page.
Item 11. Table of Contents.............(1-4) Table of Contents.
Item 12. General Information and
History......................(1-4) General Information About the
Fund; (1-4) About Federated
Investors, Inc.
Item 13. Investment Objectives and
Policies.....................(1-4) Investment Objective and
Policies; (1-4) Investment
Limitations.
Item 14. Management of the Fund (1-4) Federated Total Return Series,
Inc. Management; (1-4) Directors
Compensation.
Item 15. Control Persons and Principal
Holders of Securities (1-4) Fund Ownership.
Item 16. Investment Advisory and Other
Services.....................(1-4) Investment Advisory Services;
(1-4) Distribution Plan and
Shareholder Services; (1-4) Other
Services.
Item 17. Brokerage Allocation..........(1-4) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not Applicable.
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered...(1-4) Purchasing Shares; (1-4)
Determining Net Asset Value; (1-4)
Redeeming Shares.
Item 20. Tax Status....................(1-4) Tax Status.
Item 21. Underwriters Not Applicable.
Item 22. Calculation of Performance
Data.........................(1-4) Total Return; (1-4) Yield; (1-4)
Performance Comparisons.
<PAGE>
Item 23. Financial Statements..........(1-3) Incorporated by reference to
the Fund's Annual Report dated
September 30, 1997;
(4) To be filed by amendment.
Federated Ultrashort Bond Fund
(Formerly, Federated Limited Duration Government Fund)
(A Portfolio of Federated Total Return Series, Inc.)
Institutional Service Shares
Prospectus
The Institutional Service Shares of Federated Ultrashort Bond 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 investment
grade debt securities. The shares offered by this prospectus are not
deposits or obligations of any bank, are not endorsed or guaranteed by any bank,
and are not insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other government agency. Investment in these shares
involves investment risks, including the possible loss of principal. This
prospectus contains the information you should read and know before you invest
in Institutional Service Shares of the Fund. Keep this prospectus for future
reference. The Fund has also filed a Statement of Additional Information
dated November __, 1998, 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 November __, 1998
<PAGE>
Table of Contents
(To be inserted by typesetter)
<PAGE>
31
Summary of Fund Expenses
Shareholder Transaction Expenses
Institutional Service Shares
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)....... ______%
12b-1 Fee ......................... ______%
Total Other Expenses (after expense reimbursement) ______%
Shareholder Services Fee 0.25%
Total Operating Expenses (4)........ ______%
* Total operating expenses are estimated based on average expenses expected
to be incurred during the period ending September 30, 1999. During the
course of this period, expenses may be more or less than the average amount
shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs
and expenses, see "___________" and "Corporation Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
EXAMPLE
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. The Fund charges no redemption
fees.
1 Year.............................. $______
3 Years............................. $______
The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. This
example is based on estimated data for the Fund's fiscal year ending
September 30, 1999.
<PAGE>
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 one class of shares for
the Fund, Institutional Service Shares.
Institutional Service Shares ("Shares") of the Fund are designed primarily for
investors who seek higher yields than money market funds generally offer and who
are willing to accept some modest principal fluctuation in order to achieve that
objective. Because its share price will vary, the Fund is not an appropriate
investment for those whose primary objective is absolute principal stability. 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. Calling the Fund
Call the Fund at 1-800-341-7400.
Year 2000 Statement
Like other mutual funds and business organizations worldwide, the Fund's service
providers (among them, the adviser, distributor, administrator and transfer
agent) must ensure that their computer systems are adjusted to properly process
and calculate date-related information from and after January 1, 2000. Many
software programs and, to a lesser extent, the computer hardware in use today
cannot distinguish the year 2000 from the year 1900. Such a design flaw could
have a negative impact in the handling of securities trades, pricing and
accounting services. The Fund and its service providers are actively working on
necessary changes to computer systems to deal with the Year 2000 issue and
believe that systems will be Year 2000 compliant when required. Analysis
continues regarding the financial impact of instituting a Year 2000 compliant
program on the Fund's operations.
Investment Information
Investment Objective
The investment objective of the Fund is to provide total return consistent with
current income. The investment objective cannot be changed without approval of
shareholders. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this prospectus. Investment Policies The Fund will pursue its
investment objective while seeking to minimize the Fund's share price
fluctuation. The Fund seeks to minimize its share price fluctuation by
maintaining, under normal market conditions, an average effective portfolio
duration of one year or less (an "ultra short" duration). The Fund will use
futures, options, an interest rate swaps in order to maintain the Fund's ultra
short duration. The Fund is designed for investors who seek higher yields than
money market funds generally offer and who are willing to accept some modest
price fluctuation and increased credit risk in order to achieve that goal.
Because its share price will vary, the Fund is not an appropriate for investors
whose primary objective is absolute stability of principal. Under normal market
conditions, the Fund will invest at least 65% of its assets in investment-grade
debt securities. Investment-grade debt securities are rated in the four highest
rating categories by one or more nationally recognized statistical rating
organizations ("NRSROs") (securities rated AAA, AA, A, or BBB by Standard &
Poor's ("S&P"), Fitch IBCA, Inc. ("Fitch") or Duff & Phelps Credit Rating Co.
("Duff & Phelps"), and Aaa, Aa, A or Baa by Moody's Investors Service, Inc.
("Moody's")). The Fund may invest up to 35% of assets in securities rated below
investment grade, (commonly known as "junk bonds) (securities rated below BB or
lower by S&P, Fitch, Duff & Phelps or Ba or lower by Moody's). There is no
maturity limit on the Fund's portfolio securities. Unless indicated otherwise,
the investment policies may be changed by the Directors without the approval of
shareholders. Please refer to the Appendix in this prospectus for a description
of these ratings. Acceptable Investments The Fund may invest in a wide variety
of debt and other securities including corporate, mortgage, asset-backed,
municipal, and foreign securities. The prices of fixed income securities
fluctuate inversely to the direction of interest rates. Effective 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 and current income, 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, under normal
market conditions, the Fund will maintain an average effective modified duration
of one year or less. There is no maturity limit on any individual bond in the
Fund's portfolio. Debt Obligations The interest rate paid by an outstanding debt
obligation affects its value to investors. If market rates of interest rise
after a debt obligation is issued, that outstanding debt obligation will not be
as attractive to investors as a newly issued, higher-yielding security, and an
investor may only be willing to buy the outstanding obligation if it is sold at
a discount. Conversely, if market rates of interest fall, the market price of
that outstanding debt obligation may rise. Generally, the amount of change in
the market price of debt obligations in response to changes in market rates of
interest depends on the maturity of the debt obligation: debt obligations with
the longest maturities generally experience the greatest market price changes.
Some debt securities do not pay current interest, but are sold at a discount
from their current values. These securities are generally more sensitive to
interest rate changes. Debt securities include convertible securities which can
be exchanged or converted into common stock. The Fund may invest in fixed rate
securities, including fixed rate securities with short-term characteristics.
Fixed rate securities with short-term characteristics may be long-term debt
obligations, but are treated in the market as having short maturities because of
the expectation that they will be called or redeemed within a short period of
time. A fixed rate security with short-term characteristics would include a
fixed income security priced close to the price at which it may be called by the
issuer for redemption or a fixed income security approaching maturity. Fixed
rate securities with short-term characteristics are usually not subject to the
same price volatility as fixed rate securities without such characteristics. The
Fund may invest in floating rate debt obligations, including increasing rate
securities. The interest rate paid on these securities is then reset
periodically (commonly every 90 days) by or based on a specified interest rate
index. Commonly utilized indices include the three-month Treasury bill rate, the
180-day Treasury bill rate, the one-month or three-month London Interbank
Offered Rate (LIBOR), the prime rate of a bank, the commercial paper rates, or
the longer-term rates on U.S. Treasury securities. Fixed rate securities tend to
exhibit more price volatility during times of rising or falling interest rates
than securities with floating rates of interest. This is because the rate of
interest paid by floating rate securities is subject to periodic adjustments
based on a designated interest rate index. The debt securities in which the Fund
may invest may be rated, at the time of purchase, as low as D by S&P, Fitch or
Duff & Phelps or as low as C by Moody's, or, if unrated, are of comparable
quality as determined by the adviser . Such debt securities are commonly known
as "junk bonds."
Risk Factors Relating To Investing In High Yield Securities. The debt
securities in which the Fund invests may not be in the four highest rating
categories of a nationally recognized statistical rating organization
(AAA, AA, A, or BBB by S&P, Fitch or Duff & Phelps, and Aaa, Aa, A, or Baa
by Moody's), but are in the lower rating categories or are unrated, but
are of comparable quality and have speculative characteristics or are
speculative. These securities are typically subject to greater market
fluctuations and greater risk of loss of income and principal due to an
issuer's default. To a greater extent than investment grade bonds,
lower-rated bonds tend to reflect short-term corporate, economic, and
market developments, as well as investor perceptions of the issuer's
credit quality. In addition, lower-rated bonds may be more difficult to
dispose of or to value than higher-rated, lower-yielding bonds.
The Fund's adviser attempt to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer as
well as by monitoring broad economic trends and corporate and legislative
developments.
The Fund may invest in the High-Yield Bond Portfolio, a portfolio of Federated
Core Trust, as an efficient means of investing in high-yield debt obligations.
Federated Core Trust is a registered investment company advised by Federated
Research Corp., an affiliate of the Fund's adviser. The High-Yield Bond
Portfolio's investment objective is to seek high current income and its primary
investment policy is to invest in lower-rated, high-yield debt securities. The
High-Yield Bond Portfolio currently is not charged an advisory fee and is sold
without any sales charge. The High-Yield Bond Portfolio may incur expenses for
administrative and accounting services. The Fund's adviser anticipates that the
High-Yield Bond Portfolio will provide the Fund broad diversity and exposure to
all aspects of the high-yield bond sector of the market while at the same time
providing greater liquidity than if high-yield debt obligations were purchased
separately for the Fund. The Fund will be deemed to own a pro rata portion of
each investment of the High-Yield Bond Portfolio.
Asset-Backed Securities
The Fund may invest in asset-backed securities. Asset-backed securities are
interests in pools of debt securities, commercial or consumer loans, or other
receivables. Payments on the securities depend predominantly upon collections of
the loans and receivables held by the issuer. The value of these securities
depends on many factors, including changing interest rates, the availability of
information concerning the pool and its structure, the credit quality of the
underlying assets, the market's perception of the servicer of the pool, and any
credit enhancement provided. In addition, these securities may be subject to
prepayment risk. Mortgage-Backed Securities The Fund may invest in
mortgage-backed securities. Mortgage-backed securities include interests in
pools of commercial or residential mortgages, and may include instruments with
complex cash flows and structures. Mortgage-backed securities are issued by
obligations of U.S. agencies or instrumentalities or private entities and are
subject to prepayment risk. Prepayment risk is attributable to an underlying
mortgage holder's ability to prepay and refinance the underlying mortgage which
may expose the Fund to a lower rate of return upon reinvestment and the loss of
any premiums paid on the security. Also, changes in interest rates may
significantly impact the value of mortgage-backed securities. The Fund may
invest in the following mortgage-backed securities:
<PAGE>
Mortgage Pass-Through Securities represent an undivided interest in a pool
of residential mortgages. These mortgage-backed securities have yield and
maturity characteristics corresponding to the underlying mortgages, which
may be fixed rate or adjustable rate. Distributions to holders of
mortgage-backed securities include a pro rata distribution of both
interest and principal payments by homeowners.
Adjustable Rate Mortgage Securities ("ARMS") are created from pools
of mortgages with adjustable rather than fixed interest rates. The
interest rates are adjusted at set intervals based upon a specified
published interest rate "index." ARMS are a less effective means of
locking in long-term rates than fixed rate mortgages since the
income from ARMS will increase during periods of rising interest
rates and decline during periods of falling rates. The market value
of adjustable rate mortgage-backed securities may be impacted by the
frequency that the interest rates of the underlying mortgages reset
and changes to the index upon which the interest rates are based.
Also, the underlying mortgages relating to ARMS will frequently have
caps and floors that limit the maximum amount by which the loan rate
to the residential borrower may change up or down.
Collateralized Mortgage Obligations ("CMOs") are a type of mortgage-backed
security issued as multiple class bonds and collateralized by pools of
real estate mortgages. CMO structures vary in complexity; some CMOs offer
fifty or more classes. Each class of a CMO has a unique structure in which
the payment of interest and principal takes place. Sequential CMO
structures pay interest to many classes but prevent payment of principal
to a lower class until each prior class is completely paid off. Other
structures provide preference to certain classes over others in payment of
interest and principal. Classes within CMOs may be more or less volatile
than conventional pass-through mortgage securities on a similar pool of
mortgages. CMOs may be issued or guaranteed as to payment of principal and
interest by corporate entities or the U.S. government or its agencies or
instrumentalities. CMOs that are issued and guaranteed by private entities
are subject to a greater risk of default. A Real Estate Mortgage
Investment Conduit ("REMIC") is a CMO that qualifies and elects treatment
as such under provisions of the Internal Revenue Code that provide for
favorable federal tax treatment.
U.S. Government Securities
The Fund may invest in U.S. government securities. U.S. government
securities generally include direct obligations of the U.S. Treasury (such as
U.S. Treasury bills, notes, and bonds) and obligations issued or guaranteed
by U.S. government agencies or instrumentalities. These securities are backed
by:
the full faith and credit of the U.S. Treasury;
the issuer's right to borrow from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
the credit of the agency or instrumentality issuing the obligations.
Bank Instruments
The Fund may invest in bank instruments. Bank instruments are securities that
represent a variety of different obligations of financial institutions.
Examples include the following:
certificates of deposit (represent a financial institution's
obligation to repay deposited funds plus interest for a stated
term),
time deposits (non-negotiable deposits with a financial institution
that earn a specified interest rate over a given period),
Eurodollar and Canadian certificates of deposit and time deposits
(dollar-denominated certificates of deposit and time deposits issued
outside the U.S. by foreign branches of U.S. financial institutions
and foreign financial institution),
Yankee certificates of deposit and time deposits
(dollar-denominated certificates of deposit and time deposits issued
in the U.S. by foreign banks), and
bankers' acceptances (negotiable obligations of a financial
institution to pay a draft that a customer and draws are usually backed
by goods in international trade).
The Fund only invests in Bank Instruments either issued by a financial
institution having capital, surplus and undivided profits over $100 million, or
insured by a fund administered by the Federal Deposit Insurance Corporation. The
Fund will treat securities credit enhanced with a bank's letter of credit as
Bank Instruments. Eurodollar and Yankee obligations are subject to foreign
market risks including potentially adverse political and economic developments,
foreign embargoes preventing funds from flowing across borders, the extent and
quality of government regulation of financial markets and institutions, foreign
withholding tax, and expropriation or nationalization of foreign issuers.
Foreign Bonds
Foreign bonds are debt securities of countries other than the United States. The
Fund's portfolio of foreign bonds will be comprised of foreign government,
foreign governmental agency, supranational institutional bonds, or debt
securities issued by established corporations located in countries other than
the United States and subject to the Fund's credit limitations for foreign
bonds.
Foreign Currency Transactions
The Fund will enter into foreign currency transactions to obtain the necessary
currencies to settle securities transactions. Currency transactions may be
conducted either on a spot or cash basis at prevailing rates or through forward
foreign currency exchange contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency transactions may be used by the Fund to protect against a
decline in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund. Further,
the Fund may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations.
Cross-hedging transactions by the Fund involve the risk of imperfect correlation
between changes in the values of the currencies to which such transactions
relate and changes in the value of the currency or other asset or liability that
is the subject of the hedge.
Forward Foreign Currency Exchange Contracts.A forward foreign currency exchange
contract ("forward contract") is an obligation to purchase or sell an amount of
a particular currency at a specific price and on a future date agreed upon by
the parties.
Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated on the Fund's records and
are maintained until the contract has been settled. The Fund will generally
enter into a forward contract to provide the proper currency to settle a
securities transaction at the time the transaction occurs ("trade date"). The
period between the trade date and settlement date will vary between twenty-four
hours and sixty days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the adviser
will consider the likelihood of changes in currency values when making
investment decisions, the adviser believe that it is important to be able to
enter into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging purposes in a
particular currency in an amount in excess of the Fund's assets denominated in
that currency at the time the contract was initiated, but as consistent with its
other investment policies and as not otherwise limited in its ability to use
this strategy.
Special Risk Considerations
Mortgage-Backed And Asset-Backed Securities Risks. 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. Asset-backed
securities may present certain risks that are not presented by mortgage-backed
securities. Some of 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. Foreign Securities Risks. Investing in non-U.S. securities carries
substantial risks in addition to those associated with domestic investments.
The Fund may take advantage of the unusual opportunities for higher returns
available from investing in developing countries. These investments carry
considerably more volatility and risk because they generally are associated with
less mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance of
payments position. Further, the economies of developing countries generally are
heavily dependent on international trade and, accordingly, have been, and may
continue to be, adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
certain debt securities and domestic companies may be subject to limitation.
Foreign ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
countries. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental registration or approval for such repatriation.
Any investment subject to such repatriation controls will be considered illiquid
if it appears reasonably likely that this process will take more than seven
days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the Fund's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in a court outside of the United
States.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign markets may
have different clearance and settlement procedures such as requiring payment for
securities before delivery. In certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. The inability of
the Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to dispose
of a portfolio security due to settlement problems could result either in losses
to the Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser.
Currency Risks. Because some of the securities purchased by the Fund may be
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates may affect the Fund's net asset value; the value of
interest earned; gains and losses realized on the sale of securities; and net
investment income and capital gain, if any, to be distributed to shareholders by
the Fund. If the value of a foreign currency rises against the U.S. dollar, the
value of Fund assets denominated in the currency will increase; correspondingly,
if the value of a foreign currency declines against the U.S. dollar, the value
of Fund assets denominated in that currency will decrease. Under the United
States Internal Revenue Code, as amended (the "Code"), the Fund is required to
separately account for the foreign currency component of gains or losses, which
will usually be viewed under the Code as items of ordinary and distributable
income or loss, thus affecting the Fund's distributable income.
The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although the Fund values its assets
daily in U.S. dollars, the Fund will not convert its holdings of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies.
Foreign Companies Risks. Other differences between investing in foreign and
U.S. companies include:
o less publicly available information about foreign issuers;
o credit risks associated with certain foreign governments;
o the lack of uniform accounting, auditing, and financial reporting
standards and practices or ...regulatory requirements comparable to those
applicable to U.S. companies;
o less readily available market quotations on foreign issues;
o differences in government regulation and supervision of foreign stock
exchanges, brokers, listed ...companies, and banks;
o differences in legal systems which may affect the ability to enforce
contractual obligations or ...obtain court judgments;
o the limited size of many foreign securities markets and limited trading volume
in issuers ......compared to the volume of trading in U.S. securities could
cause prices to be erratic for reasons apart from factors that affect the
quality of securities;
o the likelihood that securities of foreign issuers may be less liquid or
more volatile;
o foreign brokerage commissions may be higher;
o unreliable mail service between countries;
o political or financial changes which adversely affect investments in
some countries;
o increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio ......securities;
o certain markets may require payment for securities before delivery;
o religious and ethnic instability; and
o certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or industries
deemed sensitive to national interests.
U.S. Government Policies Risks. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as the
Fund. Investors are advised that when such policies are instituted, the Fund
will abide by them.
Warrants
The Fund may invest in warrants. Warrants are options to purchase debt
securities at a specific price (usually at a premium above the market value of
the optioned debt securities at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to twenty years or may be
perpetual. However, most warrants have expiration dates after which they are
worthless. In addition, if the market price of the debt securities does not
exceed the warrant's exercise price during the life of the warrant, the warrant
will expire as worthless. Warrants have no voting rights, pay no dividends, and
have no rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned debt securities.
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. Options
The Fund may deal in options on foreign currencies, securities, and securities
indices, and on futures contracts involving these items, which options may be
listed for trading on an international securities exchange or traded
over-the-counter. The Fund may use options to manage interest rate and currency
risks. The Fund may also write covered call options and secured put options to
seek to generate income or lock in gains.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow, and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is the risk that the Fund may
be required to take delivery of the underlying asset at a disadvantageous price.
Over-the-Counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of nonperformance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event the Fund
may experience material losses. However, in writing options, the premium is paid
in advance by the dealer. OTC options, which may not be continuously liquid, are
available for a greater variety of assets, and with a wider range of expiration
dates and exercise prices, than are exchange traded options.
It is not certain that a secondary market for positions in options, or futures
contracts (see below), will exist at all times. Although the adviser will
consider liquidity before entering into these 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.
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 readily marketable securities, 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.
Temporary Investments
For temporary defensive purposes, when the adviser determines that market
conditions warrant (up to 100% of total assets) and to maintain liquidity, the
Fund may invest in U.S. and foreign debt instruments as well as cash or cash
equivalents, including, but not limited to foreign and domestic money market
instruments, short-term government and corporate obligations, and repurchase
agreements.
Forward Commitments
Forward commitments are contracts to purchase securities for a fixed price at a
date beyond customary settlement time. The Fund may enter into these contracts
if liquid securities in amounts sufficient to meet the purchase price are
segregated on the Fund's records at the trade date and maintained until the
transaction has been settled. Risk is involved if the value of the security
declines before settlement. Although the Fund enters into forward commitments
with the intention of acquiring the security, it may dispose of the commitment
prior to settlement and realize short-term profit or loss.
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.
<PAGE>
Lending Of Portfolio Securities
In order to generate additional income, the Fund may lend portfolio securities
on a short-term or long-term basis, to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy and will receive collateral
in the form of cash or U.S. government securities equal to at least 100% of the
value of the securities loaned. When-Issued And Delayed Delivery Transactions
The Fund may purchase U.S. government 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.
Investing In Institutional Service Shares
Share Purchases
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received on days on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or mail.
To purchase shares of the Fund, open an account by calling Federated Securities
Corp. Information needed to establish the account will be taken over the
telephone. The Fund reserves the right to reject any purchase request. By
Wire. To purchase Shares of the Fund by Federal Reserve wire, call the Fund
before 4:00 p.m. (Eastern time) to place an order. The order is considered
received immediately. Payment by federal funds must be received before 3:00 p.m.
(Eastern time) on the next business day following the order. Federal funds
should be wired as follows: Federated Shareholder Services Company, c/o State
Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For
Credit to: Federated Ultrashort Bond 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 Ultrashort Bond Fund--Institutional Service Shares to:
Federated Shareholder Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. Orders by mail are considered received when payment by check is
converted by State Street Bank & Trust Company ("State Street Bank") into
federal funds. This is normally the next business day after State Street Bank
receives the check. Minimum Investment Required The minimum initial
investment in the Fund is $25,000 plus any non-affiliated bank or broker's fee.
However, an account may be opened with a smaller amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum
investment will be calculated by combining all accounts it maintains with the
Fund. Accounts established through a non-affiliated bank or broker may be
subject to a smaller minimum investment. What Shares Cost Shares are sold at
their net asset value next determined after an order is received. There is no
sales charge imposed by the Fund. Investors who purchase Shares through a
financial intermediary may be charged a service fee by that financial
intermediary. The net asset value is determined as of the close of trading
(normally 4:00 p.m., Eastern time), on the New York Stock Exchange, Monday
through Friday, except on: (i) days on which there are not sufficient changes in
the value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; or (iii) the following
holidays: New Year's Day, Martin Luther King, Jr., Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. Certificates And Confirmations Shareholders will receive detailed
confirmations of transactions. In addition, shareholders will receive periodic
statements reporting all account activity, including dividends paid. The Fund
will not issue share certificates.
<PAGE>
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. Share Redemptions 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. By Telephone. 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. By Mail. Shares may be redeemed in any amount
by mailing a written request to: Federated Shareholder Services Company, P.O.
Box 8600, Boston, Massachusetts 02266-8600. If share certificates have been
issued, they should be sent unendorsed with the written request by registered or
certified mail to the address noted above. The written request should state: the
Fund name and the class designation; the account name as registered with the
Fund; the account number; and the number of Shares to be redeemed or the dollar
amount requested. All owners of the account must sign the request exactly as the
Shares are registered. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after the receipt of a
proper written redemption request. Dividends are paid up to and including the
day that a redemption request is processed. Shareholders requesting a redemption
of any amount to be sent to an address other than that on record with the Fund,
or a redemption payable other than to the shareholder of record must have their
signatures guaranteed by a commercial or savings bank, trust company or savings
association whose deposits are insured by an organization which is administered
by the Federal Deposit Insurance Corporation; a member firm of a domestic stock
exchange; or any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed
by a notary public. Accounts With Low Balances Due to the high cost of
maintaining accounts with low balances, the Fund may redeem Shares in any
account, and pay the proceeds to the shareholder, if the account balance falls
below a required minimum value of $25,000 due to shareholder redemptions. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Fund's net asset value. Before Shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement. Fund Information
Management Of The Fund
Board of Directors. The Fund is managed by a Board of Directors. The Directors
are responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. The Executive Committee of the Board of Directors handles the
Directors' responsibilities between meetings of the Directors. Investment
Adviser. Investment decisions for the Fund are made by Federated Management, the
Fund's investment adviser, subject to direction by the Directors. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
Advisory Fees. The Fund's adviser receives an annual investment advisory
fee equal to .60% 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, Inc. All of the Class A (voting) shares of Federated
Investors, Inc. are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Director of Federated Investors, Mr. Donahue's
wife, and Mr. Donahue's son, J. Christopher Donahue, who is President
and Director of Federated Investors, Inc.
Federated Management and other subsidiaries of Federated Investors,
Inc. 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
$120 billion invested across over 300 funds under management and/or
administration by its subsidiaries, as of December 31, 1997, Federated
Investors, Inc. 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 4,000 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.
Randall S. Bauer has been the Fund's portfolio manager since November
1998, and is the overall manager of the Fund. Mr. Bauer joined
Federated Investors, Inc. or its predecessor in 1989 and has been a
Vice President of the Fund's investment adviser since 1994. Mr. Bauer
was an Assistant Vice President of the Fund's investment adviser from
1989 to 1993. Mr. Bauer is a Chartered Financial Analyst and received
his M.B.A. in Finance from Pennsylvania State University.
Robert E. Cauley has been the Fund's portfolio manager since November
1998, and manages the mortgage-backed securities asset category for the
Fund. Mr. Cauley joined Federated Investors, Inc. or its predecessor
in 1996 as an Assistant Vice President of the Fund's adviser. Mr.
Cauley served as an Associate in the Asset-Backed Securities Group at
Lehman Brothers Holding, Inc. from 1994 to 1996. From 1992 to 1994,
Mr. Cauley served as a Senior Associate/Corporate Finance at Barclays
Bank, PLC. Mr. Cauley earned his M.S.I.A., concentrating in Finance
and Economics, from Carnegie Mellon University.
Paige Wilhelm has been the Fund's portfolio manager since November
1998, and manages the money market instruments category for the Fund.
Ms. Wilhelm joined Federated Investors, Inc. or its predecessor in 1985
and has been a Vice President of the Fund's investment adviser since
January 1997. She served as an Assistant Vice President of the Fund's
investment adviser from July 1994 to December 1996 and as an Investment
Analyst from July 1991 through June 1994. Ms. Wilhelm earned her M.B.A.
from Duquesne University.
Distribution Of Institutional Service Shares
Federated Securities Corp. is the principal distributor for Institutional
Service Shares. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors, Inc.
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 0.25% 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
0.25% 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. The Fund has no present intention of paying or accruing 12b-1 fees
during the coming fiscal year.
<PAGE>
Supplemental Payments To Financial Institutions
In addition to payments made pursuant to the Plan and Shareholder Services
Agreement, Federated Securities Corp. and Federated Shareholder Services, from
their own assets, may pay financial institutions supplemental fees for the
performance of substantial sales services, distribution-related support
services, or shareholder services. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund' s investment
adviser or its affiliates. Administration Of The Fund
Administrative Services
Federated Services Company, a subsidiary of Federated Investors, Inc.,
provides administrative personnel and services (including certain legal and
financial reporting services) necessary to operate the Fund. Federated
Services Company provides these at an annual rate which relates to the
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors as specified below:
Maximum.............................Average Aggregate
Fee ..............................Daily Net Assets
0.15% ..............................on the first $250 million
0.125%.............................. on the next $250 million
0.10% ..............................on the next $250 million
0.075%.............................. on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose to voluntarily waive a portion of its
fee.
Expenses Of The Fund And Institutional Service Shares
Holders of Institutional Service Shares pay their allocable portion of
Corporation and Fund expenses. The Corporation expenses for which holders of
Shares pay their allocable portion include, but are not limited to the cost of:
organizing the Corporation and continuing its existence; registering the
Corporation with federal and state securities authorities; Directors' fees;
auditors' fees; meetings of Directors and shareholders and proxy solicitations
therefor; legal fees of the Corporation; association membership dues; and such
non-recurring and extraordinary items as may arise from time to time. The Fund
expenses for which holders of Shares pay their allocable portion include, but
are not limited to: registering the portfolio and Shares of the portfolio;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise from time to time. At present, the only expenses which are allocated
specifically to Shares as a class are expenses under the Corporation's
Distribution Plan and Shareholder Services Agreement. However, the Directors
reserve the right to allocate certain other expenses to holders of Shares as
they deem appropriate ("Class Expenses"). In any case, Class Expenses would be
limited to: transfer agent fees as identified by the transfer agent as
attributable to holders of Shares; printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders; registration fees paid to the Securities
and Exchange Commission and to state securities commissions; expenses related to
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 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. 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.
<PAGE>
Appendix
Standard and Poor's Long Term Debt Rating Definitions
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's Ratings
Group. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's Ratings Group
believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
Moody's Investors Service, Inc. Long Term Bond Rating Definitions
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well assured. Of ten the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Fitch IBCA, Inc. Long-Term Debt Rating Definitions
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Duff & Phelps Credit Rating Co. Long-Term Debt Ratings AAA--Highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt. AA+, AA, AA- --High credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions. A+, A, A- --Protection factors are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress. BBB+, BBB, BBB- --Below-average protection factors but still
considered sufficient for prudent investment. Considerable variability in risk
during economic cycles. CCC --Well below investment grade securities.
Considerable uncertainty exists as to timely payment of principal, interest or
preferred dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable company
developments. D - Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments. Moody's Investors Service, Inc. Commercial
Paper Ratings
Prime-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
o Well established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2--Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
<PAGE>
Standard and Poor's Commercial Paper Ratings
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Fitch IBCA, Inc. Commercial Paper Rating Definitions
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Duff & Phelps Credit Rating Co. Commercial Paper Rating Definitions The two
highest rating categories of Duff & Phelps for investment grade commercial paper
are "D-1" and "D-2." Duff & Phelps employs three designations, "D-1+," "D-1" and
"D-1-," within the highest rating category. The following summarizes the two
highest rating categories used by Duff & Phelps for commercial paper: "D-1+" -
Debt possesses highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations. "D-1" - Debt possesses very high certainty of timely
payment. Liquidity factors are excellent and supported by good fundamental
protection factors. Risk factors are minor. "D-1-" - Debt possesses high
certainty of timely payment. Liquidity factors are strong and supported by good
fundamental protection factors. Risk factors are very small. "D-2" - Debt
possesses good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
<PAGE>
Addresses
Federated Ultrashort Bond Fund ..... Federated Investors Funds
.................. 5800 Corporate Drive
.................. Pittsburgh, Pennsylvania 15237-7000
Distributor
Federated Securities Corp........... Federated Investors Tower
.................. 1001 Liberty Avenue
.................. Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
Federated Management................ Federated Investors Tower
.................. 1001 Liberty Avenue
.................. Pittsburgh, Pennsylvania 15222-3779
Custodian
State Street Bank and............... c/o Federated Services Company
Trust Company .................. P.O. Box 8600
.................. Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
.................. Boston, Massachusetts 02266-8600
Independent Auditors
Ernst & Young LLP .................. One Oxford Centre
.................. Pittsburgh, Pennsylvania 15219
<PAGE>
FEDERATED ULTRASHORT BOND FUND
(Formerly, 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 November __, 1998
LOGO
G01923-__-SS (11/98)
Federated Ultrashort Bond Fund
(Formerly, Federated Limited Duration Government Fund)
(A Portfolio of Federated Total Return Series, Inc.)
Institutional Service Shares
Statement of Additional Information
This Statement of Additional Information should be read with the prospectus
of Federated Ultrashort Bond Fund (the "Fund"), a portfolio of Federated
Total Return Series, Inc. (the "Corporation") dated November __, 1998. 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 Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
Statement dated November __, 1998
[GRAPHIC OMITTED]
Cusip 31428Q___
G01923-__(11/98)
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
I
Table of Contents
<PAGE>
TO BE UPDATED WHEN DOCUMENT IS COMPLETE
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 5
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 7
Investing in Securities of Other Investment Companies 7
Portfolio Turnover 7
Investment Limitations 7
Federated Total Return Series, Inc. Management 8
Fund Ownership 12
Directors' Compensation 13
Director Liability 13
Investment Advisory Services 14
Adviser to the Fund 14
Advisory Fees 14
Brokerage Transactions 14
Other Services 14
Fund Administration 14
Custodian and Portfolio Accountant 15
Transfer Agent 15
Independent Auditors 15
Purchasing Shares 15
Distribution Plan (Institutional Service Shares only) and Shareholder
Services 15
Determining Net Asset Value 16
Determining Market Value of Securities16
Use of Amortized Cost 16
Redeeming Shares 16
Redemption in Kind 16
Tax Status 17
The Fund's Tax Status 17
Shareholders' Tax Status 17
Total Return 17
Yield 17
Performance Comparisons 18
Economic and Market Information 18
About Federated Investors, Inc. 18
Mutual Fund Market 19
Financial Statements
<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." On August 20, 1998, the Board of Directors approved changing the
name of the Fund from "Federated Limited Duration Government Fund" to "Federated
Ultrashort Bond Fund." The Articles of Incorporation permit the Corporation to
offer separate portfolios and classes of shares. Shares of the Fund are offered
in one class, known as Institutional Service Shares (referred to as "Shares").
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 investment grade debt securities. Under normal
market conditions, the Fund's average effective portfolio duration will be one
year 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;
<PAGE>
(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. 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. 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 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.
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 redily
marketable securities with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that futures
contract initial margin does not involve the borrowing of funds by the
Fund to finance the transactions. Initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned
to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. A futures contract held by
the Fund is valued daily at the official settlement price of the exchange
on which it is traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the futures
contract. This process is known as "marking to market." Variation margin
does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe the
other if the futures contract expired. In computing its daily net asset
value, the Fund will mark-to-market its open futures positions. The Fund
is also required to deposit and maintain margin when it writes call
options on futures contracts.
Purchasing Put Options on Portfolio Securities
The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put
option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during the
term of the option.
Writing Covered Call Options on Portfolio Securities
The Fund may also write covered call options to generate income. As writer
of a call option, the Fund has the obligation upon exercise of the option
during the option period to deliver the underlying security upon payment
of the exercise price. The Fund may only sell call options either on
securities held in its portfolio or on securities which it has the right
to obtain without payment of further consideration (or has segregated cash
in the amount of any additional consideration).
Leveraging
Leveraging exaggerates the effect on the net asset value of any increase or
decrease in the market value of the portfolio. Money borrowed for leveraging
will be limited to 33 1/3% of the value of the Fund's total assets. These
borrowings will be subject to interest costs which may or may not be recovered
by appreciation of the securities purchased; in certain cases, interest costs
may exceed the return received on the securities purchased. Leverage Through
Borrowing
For the borrowings for investment purposes, the Investment Company Act of 1940
requires the Fund to maintain continuous asset coverage (i.e., total assets
including borrowings, less liabilities exclusive of borrowings) of 300% of the
amount borrowed. If the required coverage should decline as a result of market
fluctuations or other reason, the Fund may be required to sell some of its
portfolio holdings within 3 days to reduce the debt and restore the 300%
coverage, even though it may be disadvantageous from an investment standpoint to
sell at that time. The Fund also may be required to maintain minimum average
balances in connection with such borrowings or to pay a commitment fee to
maintain a line of credit; either of those requirements would increase the cost
of borrowings over the stated rate. To the extent the Fund enters into a reverse
repurchase agreement, the Fund will maintain in a segregated custodial account
cash or U.S. governement securities or other high quality liquid debt securities
at least equal to the aggregate amount of its reverse repurchase obligations,
plus accrued interest in certain cases, in accordance with releases promulgated
by the SEC. The SEC views reverse repurchase 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. 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. Restricted and Illiquid Securities
The ability of the Directors to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933. The Directors consider the following criteria in determining the
liquidity of certain restricted securities: o the frequency of trades and quotes
for the security; o the number of dealers willing to purchase or sell the
security and the number of other potential buyers; o dealer undertakings to make
a market in the security; and o the nature of the security and the nature of the
marketplace trades.
Investing in Securities of Other Investment Companies
The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash. Portfolio Turnover
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. Portfolio securities will be sold when the
adviser believes it is appropriate, regardless of how long those securities have
been held. The Fund's portfolio turnover rate for the fiscal year ended
September 30, 1998 was _____%.
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, including certain restricted securities
not determined to be liquid under criteria 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
Chief Executive Officer and Director or Trustee of the Funds; Chairman and
Director, Federated Investors, Inc.; Chairman and Trustee, Federated Advisers,
Federated Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport Research,
Ltd. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President and Director of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director or Trustee of the Funds; Director, Member of Executive Committee,
Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP;
Director, MED 3000 Group, Inc.; Director, Member of Executive Committee,,
University of Pittsburgh.
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
Director or Trustee of the Funds; President, Investment Properties Corporation;
Senior Vice-President, John R. Wood and Associates, Inc., Realtors; Partner or
Trustee in private real estate ventures in Southwest Florida; formerly,
President, Naples Property Management, Inc. and Northgate Village Development
Corporation.
Nicholas P. Constantakis
175 Woodshire Drive
Pittsburgh, PA
Birthdate: September 3, 1939
Director
Director or Trustee of the Funds; formerly, Partner, Anderson Worldwide SC.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director or Trustee of the Funds; Director and Member of the Executive
Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank,
N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director, United Refinery;
Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman, Civic Light
Opera.
J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President and Director
President or Executive Vice President of the Funds; Director or Trustee of some
of the Funds; President and Director, Federated Investors, Inc.; President and
Trustee, 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. Mr. Donahue is the son of John F. Donahue, Chairman and
Director of the Company.
<PAGE>
James E. Dowd, Esq.
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Director or Trustee of the Funds; Attorney-at-law; Director, The Emerging
Germany Fund, Inc.; formerly, President, Boston Stock Exchange, Inc.; Regional
Administrator, United States Securities and Exchange Commission.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Director or Trustee of the Funds; Professor of Medicine, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; formerly, Member, National Board of Trustees, Leukemia Society of
America.
Edward L. Flaherty, Jr., Esq.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Director or Trustee of the Funds; Attorney Of Counsel, Miller, Ament, Henny &
Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon
Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Director or Trustee of the Funds; formerly, Representative, Commonwealth of
Massachusetts General Court; President, State Street Bank and Trust Company and
State Street Corporation; Director, VISA USA and VISA International; Chairman
and Director, Massachusetts Banker Association; Director, Depository Trust
Corporation.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
Director or Trustee of the Funds; President, Law Professor, Duquesne University;
Consulting Partner, Mollica & Murray; formerly, Dean and Professor of Law,
University of Pittsburgh School of Law; Dean and Professor of Law, Villanova
University School of Law.
<PAGE>
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Director or Trustee of the Funds; President, World Society for Ekistics, Athens;
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation ; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center; formerly, Professor, United States Military
Academy; Professor, United States Air Force Academy.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Director or Trustee of the Funds; Public Relations/Marketing/Conference
Planning; formerly, National Spokesperson, Aluminum Company of America; business
owner.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
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
Trustee or Director of some of the Funds; President, Executive Vice President
and Treasurer of some of the Funds; Vice Chairman, Federated Investors, Inc.;
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.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President and Secretary of the Funds; Treasurer of some of the
Funds; Executive Vice President, Secretary, and Director, Federated Investors,
Inc.; 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.
* This Director 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 Directors 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; 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; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; 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; WCT Funds; and World Investment Series,
Inc.
Fund Ownership
Officers and Directors as a group own less than 1% of the Fund`s outstanding
shares. As of November __, 1998, the following shareholders of record owned
5% or more of the outstanding Institutional Service Shares of the Fund:
Federated Services Company, Pittsburgh, PA, acting in numerous capacities for
various accounts, owned ______ (_____%); and Federated Management, Pittsburgh,
PA owned ____ (_____%).
Directors' Compensation
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
CORPORATION CORPORATION* FROM FUND COMPLEX +
John F. Donahue, $0 $-0- for the Corporation and
Chairman and Director 56 other investment companies
Thomas G. Bigley $_____ $111,222 for the Corporation and
Director 56 other investment companies
John T. Conroy, Jr., $_____ $122,362 for the Corporation and
Director 56 other investment companies
Nicholas P. Constantakis $0 $0 for the Corporation and
Director 34 other investment companies
William J. Copeland, $_____ $122,362 for the Corporation and
Director 56 other investment companies
J. Christopher Donahue, $0 $-0- for the Corporation and
Executive Vice President and Director 18 investment companies
James E. Dowd, Esq. $_____ $122,362 for the Corporation and
Director 56 other investment companies
Lawrence D. Ellis, M.D.,$_____ $111,222 for the Corporation and
Director 56 other investment companies
Edward L. Flaherty, Jr., Esq.$_____ $122,362 for the Corporation and
Director 56 other investment companies
Peter E. Madden, $_____ $111,222 for the Corporation and
Director 56 other investment companies
John E. Murray, Jr., J.D., S.J.D., $_____ $111,222 for the Corporation and
Director 56 other investment companies Complex
Wesley W. Posvar, $_____ $111,222 for the Corporation and
Director 56 other investment companies
Marjorie P. Smuts, $_____ $111,222 for the Corporation and
Director 56 other investment companies
*Information is furnished for the fiscal year ended September 30, 1998 and the
Corporation was comprised of four portfolios.
+The information is provided for the last calendar year.
Director Liability
The Corporation's Articles of Incorporation provide that the Directors will not
be liable for errors of judgment or mistakes of fact or law. However, they are
not protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office. Investment
Advisory Services
Adviser to the Fund
The Fund's investment adviser is Federated Management (the "Adviser"). It is a
subsidiary of Federated Investors. All of the voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue, his
wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund or any shareholder for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Fund. Advisory Fees
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. For the fiscal year ended September
30, 1998, the Fund paid the Adviser $_____ of which $______ was voluntarily
waived.
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. For the fiscal
year endedSeptember 30, 1998, the Fund paid $_____ in commissions on brokerage
transactions. Other Services
Fund Administration
Federated Services Company, a subsidiary of Federated Investors, Inc., provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. For the fiscal year ended September 30, 1998, the Fund incurred
costs for administrative services of $_____ of which $______ was voluntarily
waived.
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 the
prospectus under "Investing in Institutional Service Shares." Distribution Plan
and Shareholder Services
As explained in the prospectus, with respect to Shares of the Fund, the Fund has
adopted a Shareholder Services Agreement and 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. For the
fiscal year ended September 30, 1998, the Fund paid $_____ in 12b-1 fees.
<PAGE>
Exchanging Securities for Fund Shares
Investors may exchange certain securities or a combination of securities and
cash for Shares. The securities and any cash must have a market value of at
least $25,000. Any securities to be exchanged must meet the investment objective
and policies of the Fund, must have a readily ascertainable market value, and
must not be subject to restrictions on resale. The Fund reserves the right to
determine the acceptability of securities to be exchanged. Securities accepted
by the Fund are valued in the same manner as the Fund values its assets.
Investors wishing to exchange securities should first contact Federated
Securities Corp. Share purchased by exchange of U.S. government securities
cannot be redeemed by telephone for fifteen business days to allow time for the
transfer to settle. An investor should forward the securities in negotiable form
with an authorized letter of transmittal to Federated Securities Corp. The Fund
will notify the investor of its acceptance and valuation of the securities
within five business days of their receipt by State Street Bank. The basis of
the exchange will depend upon the net asset value of Shares on the day the
securities are valued. One Share of the Fund will be issued for each equivalent
amount of securities accepted. Any interest earned on the securities prior to
the exchange will be considered in valuing the securities. All interest,
dividend, subscription, conversion, or other rights attached to the securities
become the property of the Fund, along with the securities. Exercise of this
exchange privilege is 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. Determining Net Asset Value
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.
Determining Market Value of Securities
Market values of the Fund's securities, other than options, are determined as
follows:
o as provided by an independent pricing service;
o for short-term obligations, according to the mean bid and asked prices, as
furnished by an independent pricing service, or for short-term obligations
with remaining maturities of 60 days or less at the time of purchase, at
amortized cost unless the Directors determine this is not fair value; or
o at fair value as determined in good faith by the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider: yield,
quality, coupon rate, maturity, type of issue, trading characteristics, and
other market data. The Fund will value futures contracts, options and put
options on financial futures at their market values established by the exchanges
at the close of option trading on such exchanges unless the Directors determine
in good faith that another method of valuing option positions is necessary. Use
of Amortized Cost
The Directors have decided that the fair value of debt securities authorized to
be purchased by the Fund with remaining maturities of 60 days or less at the
time of purchase shall be their amortized cost value, unless the particular
circumstances of the security indicate otherwise. Under this method, portfolio
instruments and assets are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. The Executive Committee continually assesses this method of
valuation and recommends changes where necessary to assure that the Fund's
portfolio instruments are valued at their fair value as determined in good faith
by the Directors. Redeeming Shares
The Fund redeems Shares at the next computed net asset value after the Fund
Instituional Shares" or "Redeeming Institutional Service Shares." Although State
Street Bank does not charge for telephone redemptions, it reserves the right to
charge a fee for the cost of wire-transferred redemptions of less than $5,000.
<PAGE>
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 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 Fund's average annual total returns for the one-year period ended September
30, 1998, and for the period from __________________, 199__ (date of initial
public investment) to September 30, 1998, were ____% and ____%, respectively.
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 Fund's average annual total returns for the 30 day period ended September
30, 1998,was ___%.
The yield of the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the offering price per share of the Fund on the last
day of the period. This value is annualized using semi-annual compounding. This
means that the amount of income generated during the thirty-day period is
assumed to be generated each month over a 12-month period and is reinvested
every six months. The yield does not necessarily reflect income actually earned
by the Fund because of certain adjustments required by the Securities and
Exchange Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent that financial institutions
and broker/dealers charge fees in connection with services provided in
conjunction with an investment in the Fund, performance will be reduced for
those shareholders paying those fees. Performance Comparisons
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and offering
price per share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o Lipper Ultrashort Bond Fund Average ranks funds that invest 65% of their
assets in investment grade debt issues and maintain a portfolio
dollar-weighted average maturity between 91 and 365 days..
o Salomon Smith Barney U.S. Treasury Benchmark (On-The-Run) Indexes.
Total returns for the current 1-year, 2-year, 3-year, 5-year, 10-year
and 30-year on-the-run Treasury that has been in existence for the
entire month.
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, Inc.
Federated Investors, Inc. 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 corporate bond sector, as of December 31, 1997, Federated Investors, Inc.
managed 11 money market funds and 16 bond funds with assets approximating $17.1
billion and $5.6 billion, respectively. Federated's corporate bond decision
making--based on intensive, diligent credit analysis--is backed by over 22 years
of experience in the corporate bond sector. In 1972, Federated introduced one of
the first high-yield bond funds in the industry. In 1983, Federated was one of
the first fund managers to participate in the asset-backed securities market, a
market totaling more than $200 billion.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated Investors, Inc. are: U.S. equity and high
yield - J. Thomas Madden; U.S. fixed income - William D. Dawson, II; and global
equities and fixed income - Henry A. Frantzen. The Chief Investment Officers are
Executive Presidents of the Federated advisory companies.
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 $4.4 trillion to the more than 6,700 funds available.*
Federated Investors, Inc., through its subsidiaries, distributes mutual funds
for a variety of investment applications. Specific markets include:
Institutional Clients
Federated Investors, Inc. meets the needs of approximately 900 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.
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 Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 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 ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.
* source: Investment Company Institute
Financial Statements
The financial statements for the fiscal year ended September 30, 1998 are
incorporated herein by reference to the Fund's Annual Report dated September 30,
1998 (File Nos. 33-50773 and 811-7115). A copy of the Annual Report may be
obtained without charge by contacting the Fund at the address located on the
back cover of the prospectus or by calling the Funds at 1-800-341-7400.
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements: (1-3) Incorporated by reference to
the Fund's Annual Report dated
September 30, 1997;(4) To be filed by
amendment.
(b) Exhibits:
(1)(i) Conformed copy of Articles of Incorporation; (ii)
Conformed copy of Articles of Amendment of Articles of
Incorporation; (2)
(2) Copy of By-Laws; (1)
(3) Not Applicable;
(4) Copy of Specimen Certificate for Shares of Capital
Stock of the Registrant; (10)
(5) (i) Copy of Investment Advisory Contract and conformed
copies of Exhibits A and B of Investment Advisory
Contract; (7)
(ii) Conformed copies of Exhibits D and E of Investment
Advisory Contract; (11)
(6) (i) Copy of Distributor's Contract and Conformed copies
of Exhibits A, B, C, and D to Distributor's Contract;
(4)
(ii) Copy of Distributor's Contract and Conformed copies of
Exhibits E and F to Distributor's Contract; (10)
(iii) Conformed copies of Exhibits G and H to Distributor's
Contract; (11)
(iv) The Registrant hereby incorporates the conformed copy
of the specimen Mutual Funds Sales and Service
Agreement; Mutual Funds Service Agreement; and Plan
Trustee/Mutual Funds Service Agreement from Item 24 (b)
(6) of the Cash Trust Series II Registration Statement
on Form N-1A, filed with the Commission on July 24,
1995. (File Numbers 33-38550 and 811-6269);
(7) Not Applicable;
(8) (i) Conformed copy of the Custodian Agreement of the
Registrant; (4)
(ii) Conformed Copy of Fee Schedule to the Custodian
Agreement of the Registrant; (13)
- -------------------------------------------------
+ All exhibits have been filed electronically.
(1) Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed October 25, 1993. (File Nos. 33-50773 and
811-7115)
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed December 21, 1993. (File Nos. 33-50773
and 811-7115)
(4) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed May 27, 1994. (File Nos. 33-50773 and
811-7115)
(7) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 on Form N-1A filed June 6, 1995. (File Nos. 33-50773 and
811-7115)
(10) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed November 27, 1996. (File Nos. 33-50773
and 811-7115)
(11) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed March 31, 1997. (File Nos. 33-50773 and
811-7115)
(13) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed November 26, 1997. (File Nos. 33-50773
and 811-7115)
<PAGE>
(9) (i) Conformed copy of Fund Accounting Services, Administrative Services,
Transfer Agency Services, and Custody Services Procurement
Agreement of the Registrant; (13)
(ii) Conformed copy of Administrative Services Agreement; (4) (iii)
Conformed copy of Exhibit B of Funds Participating in Services Agreement;+
(iv) The responses described in Item 24(b)(6) are hereby incorporated by
reference;
(v) Conformed Copy of Amended and Restated Shareholder Services Agreement
of the Registrant; (13)
(10) Conformed copy of Opinion and Consent of Counsel as to legality of
shares being registered; (2)
(11) Conformed copy of Consent of Independent Auditors; (13)
(12) Not Applicable;
(13) Conformed copy of Initial Capital Understanding; (3)
(14) Not Applicable;
- ----------------------------------
+ All exhibits have been filed electronically.
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed December 21, 1993. (File Nos. 33-50773
and 811-7115)
(3) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 on Form N-1A filed January 13, 1994. (File Nos. 33-50773
and 811-7115)
(4) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed May 27, 1994. (File Nos. 33-50773 and
811-7115)
(13) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed November 26, 1997. (File Nos. 33-50773
and 811-7115)
<PAGE>
(15)(i) Conformed copy of Distribution Plan including Exhibits A and B; (11)
(ii) Conformed copy of Exhibits C to Distribution Plan; (10) (iii)
Conformed
copy of Exhibit D and E to Distribution Plan; (11) (iv) The responses
described in Item 24(b)(6) are hereby incorporated by
reference;
(16)(i) Copy of Schedules for Computation of Fund Performance Data for the
Federated Limited Duration; (12)
(ii) Copy of Schedules of Computation of Fund Performance Data for
Federated Total Return Bond Fund and Federated Government
Fund; (13)
(iii) Copy of Schedules of Computation of Fund
Performance Data for Federated Limited Duration
Government Fund; (14)
(17) Copies of Financial Data Schedules; (14)
(18) The Registrant hereby incorporates the conformed copy of the specimen
Multiple Class Plan from Item 24(b)(18) of the World Investment Series,
Inc. Registration Statement on Form N-1A, filed with the Commission on
January 26, 1996. (File Nos. 33-52149 and 811-07141);
(19)(i) Conformed copy of Power of Attorney; (14) (ii) Conformed copy of
Limited Power of Attorney; (10)
+ All exhibits have been filed electronically.
(1) Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed October 25, 1993. (File
Nos. 33-50773 and 811-7115)
(10) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed November 27, 1996. (File Nos. 33-50773
and 811-7115)
(14) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed April 30, 1998. (File Nos. 33-50773
and 811-7115)
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of August 19, 1998
Shares of capital stock
($0.001 per Share par value)
Federated Government Fund
Institutional Shares 1,086
Institutional Service Shares 1,008
Federated Total Return Bond Fund
Institutional Shares 1,131
Institutional Service Shares 1,085
Federated Limited Duration Fund
Institutional Shares 1,099
Institutional Service Shares 1,037
Federated Ultrashort Bond Fund (formerly,
Federated Limited Duration Government Fund)
Institutional Shares 41
Institutional Service Shares 11
Item 27. Indemnification: (1)
Item 28. Business and Other Connections of Investment Adviser:
(a) For a description of the other
business of the investment
adviser, see the section
entitled "MANAGEMENT OF THE
FUND"in Part A. The
affiliations with the
Registrant of four of the
Trustees and one of the
Officers of the investment
adviser are included in Part B
of this Registration Statement
under "INVESTMENT ADVISORY
SERVICES." The remaining
Trustee of the investment
adviser, his position with the
investment adviser, and, in
parentheses, his principal
occupation is: Mark D. Olson
(Partner, Wilson, Halbrook &
Bayard), 107 W. Market Street,
Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Joseph M. Balestrino
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Sandra L. McInerney
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
Randall S. Bauer
David A. Briggs
Micheal W. Casey
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Richard J. Lazarchic
Steven Lehman
Marian R. Marinack
Charles A. Ritter
Keith J. Sabol
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
Tracy P. Stouffer
Gregg S. Tenser
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
<PAGE>
Assistant Vice Presidents: Nancy J. Belz
Robert E. Cauley
Lee R. Cunningham, II
B. Anthony Delserone, Jr.
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
John C. Kerber
Grant K. McKay
Natalie F. Metz
Joseph M. Natoli
John Sheehy
Michael W. Sirianni
Gregg S. Tenser
Leonardo A. Vila
Lori A. Wolff
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment adviser
is Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
These individuals are also officers of a majority of the investment
advisers to the Funds listed in Part B of this Registration Statement.
Item 29. Principal Underwriters:
(a) Federated Securities Corp. the
Distributor for shares of the
Registrant, acts as principal
underwriter for the following open-end
investment companies, including the
Registrant:
Automated Government Money Trust; Blanchard Funds; Blanchard Precious Metals
Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; CCB Funds; 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 Core Trust; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Master Trust; Federated 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.; Fixed Income Securities, Inc.; High Yield
Cash Trust; Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment Series
Trust; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed
Series Trust; Marshall Funds, Inc.; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; Regions
Funds; RIGGS Funds; SouthTrust Funds; Star Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; The Planters Funds; The Virtus Funds; The Wachovia
Funds; The Wachovia Municipal Funds; Tower Mutual Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts
as principal underwriter for the
following closed-end investment
company: Liberty Term Trust, Inc.-
1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard B. Fisher Director, Chairman, Chief Executive Vice
Federated Investors Tower Executive Officer, Chief President
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice
Federated Investors Tower President, Federated,
Pittsburgh, PA 15222-3779 Securities Corp.
Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following
locations:
Registrant Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Federated Services Company Federated Investors Tower
Transfer Agent, Dividend 1001 Liberty Avenue
Disbursing Agent and Pittsburgh, PA 15222-3779
Portfolio Recordkeeper
Federated Administrative Federated Investors Tower
Services 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Management..........Federated Investors Tower
Investment Adviser............1001 Liberty Avenue
..............................Pittsburgh, PA 15222-3779
State Street Bank and.........P.O. Box 8600
Trust Company Boston, Massachusetts 02266
Custodian
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of Section 16(c)
of the 1940 Act with respect to the removal of Directors and the calling of
special shareholder meetings by shareholders.
Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered, a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED TOTAL RETURN SERIES,
INC. certifies that has duly caused this Amendment to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Pittsburgh and Commonwealth of Pennsylvania, on the 28th day of
August, 1998.
FEDERATED TOTAL RETURN SERIES, INC.
BY: /s/ Anthony R. Bosch
Anthony R. Bosch, Assistant Secretary
Attorney in Fact for John F. Donahue
August 28, 1998
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Anthony R. Bosch Attorney In Fact August 28, 1998
Anthony R. Bosch For the Persons
ASSISTANT SECRETARY Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
Glen R. Johnson* President
J. Christopher Donahue* Executive Vice President
and Director
Edward C. Gonzales Executive Vice President
John W. McGonigle* Executive Vice President,
Treasurer and Secretary (Principal
Financial and Accounting Officer)
Thomas G. Bigley* Director
John T. Conroy, Jr.* Director
Nicholas P. Constantakis* Director
William J. Copeland* Director
James E. Dowd* Director
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr.* Director
Peter E. Madden* Director
John E. Murray, Jr.* Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
* By Power of Attorney
Exhibit 9(ii) under From N-1A
Exhibit 10 under Item 601/Reg. S-K
EXHIBIT B
FUNDS PARTICIPATING IN SERVICES AGREEMENT
as of June 1, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fund Name Trading
CUSIP Symbol Date
Federated Adjustable Rate U.S. Government Fund, Inc. 314072109 Nov., 1996
Federated High Yield Trust 314197104 FHYTX May 2,1994
Federated Intermediate Municipal Trust 458810108 Nov., 1996
Federated Mid-Cap Fund 31420E205 August, 1995
Federated Mini-Cap Fund 31420E304 August, 1995
Federated Ohio Intermediate Municipal Trust 458810405 Nov., 1995
Federated Pennsylvania Intermediate Municipal Trust 458810306 Nov., 1995
Federated Stock Trust 313900102 FSTKX Nov. 14, 1994
Federated US Government Bond Fund 314284100 FEDBX Nov 14, 1994
Institutional Service Shares of:
Federated ARMs Fund 314082207 FASSX. May 2,1994
Federated GNMA Trust 314184201 FGSSX May 2,1994
Federated Government Fund 31428Q804 May, 1998
Federated Income Trust 314199209 FITSX May 2,1994
Federated Intermediate Income Fund 314199209 May 2, 1994
Federated Limited Duration Fund 31428Q309 May, 1998
Federated Limited Duration Government Fund 31428Q606 May, 1998
Federated Max-Cap Fund 31420E403 N/A Nov. 14,1994
Federated Short-Term Income Fund 31420C308 May 2, 1994
Federated Short-Term Municipal Trust 825253206 FSHSX May 2,1994
Federated Total Return Bond Fund 31428Q507 May, 1998
Federated U.S. Government Securities Fund: 1-3 Years 313901209 FSGIX May 2, 1994
Federated U.S. Government Securities Fund: 2-5 Years 314200205 FIGIX
May 2,1994
Federated U.S. Government Securities Fund: 5-10 Years 31428S206 Feb.,
1996
Prime Obligations Fund 60934N708 Nov., 1996
Class A Shares of:
Federated Aggressive Growth Fund 314172875 Feb., 1997
Federated American Leaders Fund, Inc. 313914103 Nov., 1996
Federated Asia Pacific Growth Fund 981487507 May, 1996
Federated Bond Fund 461444507 Nov., 1996
Federated Emerging Markets Fund 981487804 May, 1996
Federated Equity Income Fund, Inc. 530461102 LEIFX Nov. 14,1994
Federated European Growth Fund 981487861 May, 1996
Federated Fund for U.S. Government Securities, Inc. 314182106 Nov., 1995
Federated Government Income Securities, Inc. 313912206 Aug. 1996
Federated Growth Strategies Fund 314172107 Nov. 14, 1994
Federated High Income Bond Fund, Inc. 314195108 Aug., 1996
Federated International Equity Fund 46031P308 FTITX Nov. 14,1994
Federated International High Income Fund 981487762 Feb., 1997
Federated International Income Fund 46031P100 FTIIX Nov. 14,1994
Federated International Small Company Fund 981487838 May, 1996
Federated Latin American Growth Fund 981487796 May, 1996
Federated Limited Term Municipal Fund 338319403 Aug., 1996
Federated Municipal Opportunities Fund, Inc. 313910200 Nov., 1996
Federated Municipal Securities Fund, Inc. 530900109 LMSFX Nov. 14,1994
Federated Pennsylvania Municipal Income Fund 625922505 Nov., 1995
Federated Small Cap Strategies Fund 314172404 Dec., 1997
Federated Stock and Bond Fund, Inc. 86101A104 FSTBX Nov. 14, 1994
Federated Strategic Income Fund 338319700 N/A Nov. 14,1994
Federated Utility Fund, Inc. 314286105 Aug., 1996
Federated World Utility Fund 981487101 N/A Nov. 14,1994
Class B Shares of:
Federated Aggressive Growth Fund 314172867 Feb., 1997
Federated Government Income Securities, Inc. 313912305 May, 1996
Federated High Income Bond Fund 314195207 Aug., 1996
Federated International High Income Fund 981487754 Feb., 1997
Federated Utility Fund, Inc. 314286204 Aug., 1996
Class C Shares of:
Federated Aggressive Growth Fund 314172305 Feb., 1997
Federated Government Income Securities, Inc. 313912404 May, 1996
Federated High Income Bond Fund 314195306 Aug., 1996
Federated International High Income Fund 981487747 Feb., 1997
Federated Utility Fund, Inc. 314286303 Aug., 1996
Select Shares of:
Federated Managed Aggressive Growth Fund 56166K800 N/A Nov. 14,1994
Federated Managed Growth Fund 56166K602 N/A Nov. 14, 1994
Federated Managed Growth & Income Fund 56166K404 N/A Nov. 14,1994
Federated Managed Income Fund 56166K206 N/A Nov. 14,1994
F Shares of:
Federated California Municipal Income Fund 625922109 N/A Nov. 14,1994
Federated Government Income Securities, Inc. 313912107 May, 1996
Federated Limited Term Municpal Fund 338319502 Aug., 1996
Federated New York Municipal Income Fund 625922208 NYIFX Nov. 14,1994
Federated Ohio Municipal Income Fund 625922307 Aug., 1996
Federated Utility Fund, Inc. 314286402 Aug., 1996
</TABLE>
