PRESIDENT'S MESSAGE
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
Government Fund, a portfolio of Federated Total Return Series, Inc. The report
covers the six-month reporting period from October 1, 1997 through March 31,
1998, and includes commentary by the fund's portfolio manager, followed by the
fund's portfolio of investments and financial statements.
During the reporting period, the fund's diversified portfolio of U.S. government
mortgage-backed securities produced a total return of 4.24%* for Institutional
Shares and 4.09%* for Institutional Service Shares. Dividends paid by the fund
during this reporting period totaled $0.61 per share for Institutional Shares
and $0.60 per share for Institutional Service Shares. The fund's total net
assets reached $5 million on the last day of the reporting period.
We appreciate your continued confidence in Federated Government Fund. As always,
we welcome your questions and comments.
Sincerely,
[Graphic]
Glen R. Johnson
President
May 15, 1998
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
INVESTMENT REVIEW
Federated Government Fund provides shareholders with a
professionally-managed portfolio of U.S. government securities. Investments
are concentrated in U.S. government securities, including mortgage-backed
securities and non-U.S. government mortgage-backed securities, and
asset-backed securities. The fund will invest at a minimum 65% of its assets
in securities that are issued or guaranteed by the U.S. government or its
agencies.
U.S. Treasury rates moved dramatically lower over the past 12 months. The long
end of the yield curve has been the primary beneficiary as rates reached levels
in January 1998 not witnessed since the lows of October 1993. These levels
proved to be short-lived as the U.S. bond market quickly became concerned that
the Federal Reserve Board ("the Fed") may have to increase short-term rates due
to strength in a broad range of economic measures. Currently the Fed is trying
to grapple with conflicting data, tight labor market and strong domestic demand
that could increase inflation versus the Asian situation that could slow the
U.S. economy and restrain inflationary pressure. How these factors play out will
determine the performance of the U.S. bond market over the next several
quarters.
Given this environment, the mortgage market has performed reasonably well given
the gyrations in the Treasury market during this reporting period. The yield on
the 10-year Treasury ranged from 5.36% to 6.16% ending the reporting period at
5.65%. This movement in rates created concerns for mortgage investors as
homeowners were able to refinance their mortgage at the best levels in over four
years. The refinancing factor has subsequently moved to the back burner with
interest rates increasing from the lows of January 1998. Mortgage investors have
concluded that prepayment activity should slow down marginally from the torrid
pace of the past few months. We believe that the factor that will dominate the
mortgage market will be housing turnover. The housing market has shown awesome
strength due to attractive mortgage rates combined with high income growth and
consumer confidence.
Since inception, the portfolio strategy has focused on opportunities to add
inexpensive prepayment protection. These opportunities were in the form of
structured mortgage product and collateral holdings with favorable loan
characteristics. Collateral positioning focused on mortgage pools with favorable
loan characteristics in the form of lower than average loan balances. The
prepayment profile on these pools has been very favorable in comparison to
generic collateral for several reasons. The most predominant reason is that
homeowners with a lower loan balance recognize less total savings when they
refinance due to the fixed costs associated with refinancing. A secondary reason
is due to less profit for mortgage bankers who prefer to concentrate on
refinancing homeowners with larger outstanding mortgage loans.
Current portfolio strategy targets an effective duration of 2.6 years, which is
neutral to the Lehman Brothers Mortgage-Backed Securities Index.* For the
semi-annual reporting period ended March 31, 1998, the Fund produced a net total
rate of return of 4.24%** on Institutional Shares and 4.09%** on Institutional
Service Shares versus the Lehman Brothers Mortgage-Backed Securities Index total
return of 4.04% and the Lipper U.S. Mortgage Category total return of 3.65%.+
* Lehman Brothers Mortgage-Backed Securities Index is composed of all fixed
rate, securitized mortgage pools by GNMA, FNMA, and the FHLMC, including GNMA
Graduated Payment Mortgages. This index is unmanaged, and investments cannot be
made in an index.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
+ Lipper Analytical Services, Inc. ranks funds in various categories by making
comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time. From
time to time, the fund will quote its Lipper ranking in the U.S. Mortgage Funds
category in advertising and sales literature.
PORTFOLIO OF INVESTMENTS
FEDERATED GOVERNMENT FUND
MARCH 31, 1998 (UNAUDITED)
FEDERATED GOVERNMENT FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MORTGAGE BACKED SECURITIES--97.2%
FEDERAL HOME LOAN MORTGAGE CORPORATION--27.2%
$ 1,039,576 7.50%, 11/1/2025 - 6/1/2027 $ 1,068,379
296,557 8.00%, 6/1/2027 307,269
TOTAL 1,375,648
FEDERAL NATIONAL MORTGAGE ASSOCIATION--34.5%
394,957 Strip Series 293-1, (Principal Only), 12/1/2024 264,621
585,800 6.50%, 2/1/2028 579,209
876,762 8.00%, 12/1/2026 908,983
TOTAL 1,752,813
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--35.5%
400,000 (a)6.50%, 5/15/2028 395,752
993,154 7.00%, 10/15/2023 1,006,184
273,073 8.00%, 12/15/2012 283,996
332,438 GNR 97-7 (Interest Only), 8.00%, 5/16/2027 117,434
TOTAL 1,803,366
TOTAL MORTGAGE BACKED SECURITIES (IDENTIFIED COST $4,875,183) 4,931,827
(B)REPURCHASE AGREEMENTS--17.8%
105,000 BT Securities Corp., 5.97%, dated 3/31/1998, due 4/1/1998
105,000 400,000 (c)Credit Suisse First Boston, Inc., 5.52%, dated
3/13/1998, due 400,000
4/20/1998
400,000 (c)Goldman Sachs Group, LP, 5.470%, dated 3/27/1998, due
5/20/1998 400,000 TOTAL REPURCHASE AGREEMENT (AT
AMORTIZED COST) 905,000 TOTAL INVESTMENTS (IDENTIFIED
COST $5,780,183)(D) $ 5,836,827
</TABLE>
(a) This security is subject to dollar roll transactions.
(b) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in joint
accounts with other Federated funds.
(c) Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement within seven days if the creditworthiness of the issuer is
downgraded.
(d) The cost of investments for federal tax purposes amounts to $5,780,183. The
net unrealized appreciation of investments on a federal tax basis amounts to
$56,644 which is comprised of $71,488 appreciation and $14,844 depreciation
at March 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($5,073,722) at March 31, 1998.
The following acronym is used throughout this portfolio:
LP --Limited Partnership
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED GOVERNMENT FUND
MARCH 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 905,000
Investments in securities 4,931,827
Total investments in securities, at value (identified and tax cost $ 5,836,827
$5,780,183)
Income receivable 22,093
Total assets 5,858,920
LIABILITIES:
Payable for investments purchased 357,371
Income distribution payable 29,620
Payable for dollar roll transactions 398,207
Total liabilities 785,198
Net Assets for 503,762 shares outstanding $ 5,073,722
NET ASSETS CONSIST OF:
Paid in capital $ 5,039,061
Net unrealized appreciation of investments 56,644
Accumulated net realized loss on investments (29,237)
Undistributed net investment income 7,254
Total Net Assets $ 5,073,722
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$5,073,405 / 503,731 shares outstanding $10.07
INSTITUTIONAL SERVICE SHARES:
$317 / 31 shares outstanding $10.23
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED GOVERNMENT FUND
SIX MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar roll expense of $6,801) $ 325,593
EXPENSES:
Investment advisory fee $ 10,377
Administrative personnel and services fee 77,288
Custodian fees 1,313
Transfer and dividend disbursing agent fees and expenses 27,497
Auditing fees 3,260
Legal fees 3,002
Portfolio accounting fees 26,300
Shareholder services fee--Institutional Shares 6,484
Share registration costs 12,558
Printing and postage 2,548
Insurance premiums 1,364
Miscellaneous 5,007
Total expenses 176,998
Waivers and reimbursements--
Waiver of investment advisory fee $ (10,377)
Waiver of shareholder services fee--Institutional Shares (6,484)
Reimbursement of other operating expenses (154,641)
Total waivers and reimbursements (171,502)
Net expenses 5,496
Net investment income 320,097
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (13,661)
Net change in unrealized appreciation of investments (90,965)
Net realized and unrealized loss on investments (104,626)
Change in net assets resulting from operations $ 215,471
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED GOVERNMENT FUND
<TABLE>
<CAPTION>
SIX MONTHS PERIOD
ENDED ENDED
(UNAUDITED) SEPTEMBER 30,
MARCH 31, 1998 1997(A)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 320,097 $ 123,389
Net realized gain (loss) on investments ($(13,661) and $0,
respectively, as computed for federal tax purposes) (13,661) (15,576)
Net change in unrealized appreciation/depreciation (90,965) 147,609
Change in net assets resulting from operations 215,471 255,422
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (312,826) (123,380)
Institutional Service Shares (17) (9)
Change in net assets resulting from distributions to shareholders (312,843) (123,389)
SHARE TRANSACTIONS--
Proceeds from sale of shares 1,886,344 10,633,387
Net asset value of shares issued to shareholders in payment of
distributions declared 15,167 278
Cost of shares redeemed (1,880,683) (5,615,432)
Change in net assets resulting from share transactions 20,828 5,018,233
Change in net assets (76,544) 5,150,266
NET ASSETS:
Beginning of period 5,150,266 0
End of period (including undistributed net investment income
of $7,254 and $0, respectively) $ 5,073,722 $ 5,150,266
</TABLE>
(a) For the period from May 31, 1997 (start of performance) to September 30,
1997.
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED PERIOD
(UNAUDITED) ENDED
MARCH 31, SEPTEMBER 30,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.26 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.62 0.25
Net realized and unrealized gain (loss) on investments (0.20) 0.26
Total from investment operations 0.42 0.51
LESS DISTRIBUTIONS
Distributions from net investment income (0.61) (0.25)
NET ASSET VALUE, END OF PERIOD $10.07 $10.26
TOTAL RETURN(B) 4.24% 5.12%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.21%* 0.00%*
Net investment income 12.34%* 7.37%*
Expense waiver/reimbursement(c) 6.61%* 12.25%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $5,073 $5,145
Portfolio turnover 146% 9%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 31, 1997 (start of performance)
to September 30, 1997.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED PERIOD
(UNAUDITED) ENDED
MARCH 31, SEPTEMBER 30,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.26 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 1.73 0.24
Net realized and unrealized gain (loss) on investments (1.16) 0.26
Total from investment operations 0.57 0.50
LESS DISTRIBUTIONS
Distributions from net investment income (0.60) (0.24)
NET ASSET VALUE, END OF PERIOD $10.23 $10.26
TOTAL RETURN(B) 4.09% 5.07%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.27%* 0.00%*
Net investment income 7.32%* 7.76%*
Expense waiver/reimbursement(c) 6.08%* 14.14%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $0 $5
Portfolio turnover 146% 9%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 31, 1997 (start of performance)
to September 30, 1997.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
FEDERATED GOVERNMENT FUND
MARCH 31, 1998 (UNAUDITED)
ORGANIZATION
Federated Total Return Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of four portfolios. The
financial statements included herein are only those of Federated Government Fund
(the "Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares. The investment objective of the Fund is to provide
total return.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
U.S. government securities are generally valued at the mean of the latest bid
and asked price as furnished by an independent pricing service. Short-term
securities are valued at the prices provided by an independent pricing service.
However, short-term securities with remaining maturities of sixty days or less
at the time of purchase may be valued at amortized cost, which approximates fair
market value.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
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 the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
Additionally, net capital losses of $11,653 attributable to security
transactions incurred after September 30, 1996 are treated as arising on the
first day of the Fund's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DOLLAR ROLL TRANSACTIONS
The Fund enters into dollar roll transactions, with respect to mortgage
securities issued by GNMA, FNMA and FHLMC, in which the Fund sells mortgage
securities to financial institutions and simultaneously agrees to accept
substantially similar (same type, coupon and maturity) securities at a later
date at an agreed upon price. Dollar roll transactions involve "to be announced"
securities and are treated as short-term financing arrangements which will not
exceed twelve months. The Fund will use the proceeds generated from the
transactions to invest in short-term investments, which may enhance the Fund's
current yield and total return.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At March 31, 1998, par value shares ($0.001 per share) authorized were as
follows:
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
Institutional Shares 1,000,000,000
Institutional Service Shares 1,000,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997(A)
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 184,648 $ 1,886,344 1,060,203 $ 10,628,087
Shares issued to shareholders in payment of distributions declared 1,504 15,167 27 272
Shares redeemed (183,685) (1,875,604) (558,966) (5,615,428)
Net change resulting from Institutional Share transactions 2,467 $ 25,907 501,264 $ 5,012,931
<CAPTION>
SIX MONTHS
ENDED PERIOD ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997(A)
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold -- $ -- 523 $ 5,300
Shares issued to shareholders in payment of distributions declared -- -- -- 6
Shares redeemed (492) (5,079) -- (4)
Net change resulting from Institutional Service Share transactions (492) $ (5,079) 523 $ 5,302
Net change resulting from share transactions 1,975 $ 20,828 501,787 $ 5,018,233
</TABLE>
(a) For the period from May 31, 1997 (start of performance) to September 30,
1997.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee and/or reimburse certain operating expenses of the Fund. The
Adviser can modify or terminate this voluntary waiver and/or reimburse at any
time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Service Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.25% of the average daily net assets of
Institutional Service Shares, annually, to compensate FSC. FSC may voluntarily
choose to waive any portion of its fee. FSC can modify or terminate this
voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund's Shares for the period. The fee paid to FSS is used to finance
certain services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended March 31, 1998, were as follows:
PURCHASES $7,500,785
SALES $7,287,705
YEAR 2000 ISSUE
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Glen R. Johnson
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Anthony R. Bosch
Assistant Secretary
Mutual funds are not deposits or obligations of any bank, are not guaranteed by
any bank, and are not insured or guaranteed by the U.S. government, the FDIC,
the Federal Reserve Board or any other government agency. Investment in mutual
funds involves risk, including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
NOTES
[Graphic]
Federated Government Fund
SEMI-ANNUAL REPORT TO SHAREHOLDERS MARCH 31, 1998
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 31428Q887
Cusip 31428Q804
G02367-01 (5/98)
[Graphic]
PRESIDENT'S MESSAGE
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
Limited Duration Fund, a portfolio of Federated Total Return Series, Inc. The
report covers the six-month reporting period from October 1, 1997 through March
31, 1998, and includes commentary by the fund's portfolio manager, followed by
the fund's portfolio of investments and financial statements.
During the reporting period, the fund's diversified portfolio of investment
grade, limited duration bonds produced a total return of 3.61%* for
Institutional Shares and 3.46%* for Institutional Service Shares. Dividends paid
by the fund during this reporting period totaled $0.33 per share for
Institutional Shares and $0.32 per share for Institutional Service Shares. Each
share class also paid capital gains totaling $0.02 per share for this reporting
period. The fund's total net assets reached $20.7 million on the last day of the
reporting period.
We appreciate your continued confidence in Federated Limited Duration Fund. As
always, we welcome your questions and comments.
Sincerely,
[Graphic]
Glen R. Johnson
President
May 15, 1998
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
INVESTMENT REVIEW
Federated Limited Duration Fund represents a high-quality, fixed-income
portfolio combining various fixed-income asset classes. The fund invests
primarily in U.S. Treasury, government agency, and high-quality corporate,
asset-backed and mortgage-backed debt securities. The fund may also allocate a
percentage of assets in the high-yield and international bond sectors.
The U.S. Treasury yield curve delivered a mildly positive result for the first
half of the reporting period. Yields in the part of the Treasury yield curve,
where the fund generally invests, declined by anywhere from 5% to 25%. This,
along with other positive factors, made for a reasonable overall outcome for the
fund. As the first quarter of 1998 drew to a close, the outlook for a continued
slow decline in short-term interest rates over the intermediate term remained
intact. Inflation is at its lowest level in a generation, and the U.S. economy,
while still in very reasonable shape, appears to be slowing just a bit. That
being said, it is not inconceivable that the Federal Reserve Board (the "Fed")
could raise short-term interest rates to offset a robust labor market. Even if
this event occurs, any negative effect on the short end of the U.S. yield curve
would probably be short-lived. In fact, yields at the long end of the curve
might even decline given the prospect of even lower inflation brought on by a
slowing economy.
With regard to sector performance, investors were generally compensated for
exposure to the "spread" products in the latter half of the reporting period
under review, after a flight to quality brought on by the "Asian contagion" in
the latter part of 1997 had made such product less attractive. Overall,
asset-backed and investment grade corporate bonds ended up outperforming
comparable maturity Treasury securities, while mortgage-backed securities
underperformed slightly. During the reporting period, the fund generally
maintained its largest exposure in asset-backed securities, attempting within
that sector to obtain outperformance on a security specific basis.
Mortgage-backed securities received the smallest weighting of the three "spread"
sectors, and more treasury exposure was added in the fourth quarter at the
further expense of mortgage- backed debt securities. Conventional Treasury and
agency securities however, continued to comprise the smallest overall portion of
the fund at the end of the reporting period. The fund's duration posture over
the reporting period was maintained within a tight range around its duration
benchmark, the Merrill Lynch 1-3 Year U.S.
Treasury Index.*
For the six months ended March 31, 1998, the fund's Institutional Share class
produced a 3.61%** total return and the Institutional Service Shares class
produced a 3.46%** total return, compared to a 3.17% total return for the
Merrill Lynch 1-3 Year U.S. Treasury Index and a 3.20% total return for the
Merrill Lynch 1-3 Year Corporate Bond Index.+ Value-added relative to the
indices was achieved through a combination of specific security selection as
well as an allocation to certain portions of the asset-backed debt securities
sector which outperformed corporates (e.g., credit card asset-backed
securities). No significant strategy changes are anticipated in the near term
aside from a general portfolio upgrading should the current seven-year economic
expansion show further signs of waning.
* The Merrill Lynch 1-3 Year U.S. Treasury Index is an unmanaged index
tracking short-term U.S. government securities with maturities between 1 and
2.99 years. The index is produced by Merrill Lynch, Pierce, Fenner & Smith,
Inc. Investments cannot be made in an index.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. + The Merrill Lynch 1-3 Year Corporate Bond Index is an unmanaged index.
The index is produced by Merrill Lynch, Pierce, Fenner & Smith, Inc. Investments
cannot be made in an index.
PORTFOLIO OF INVESTMENTS
FEDERATED LIMITED DURATION FUND
MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)ASSET-BACKED SECURITIES--45.2%
AUTOMOBILE--17.3%
$ 212,954 AFG Receivables Trust 1997-A, Class C, 7.20%, 10/15/2002 $ 216,318
162,102 AFG Receivables Trust 1997-B, Class C, 7.00%, 2/15/2003 164,332
580,626 CIT RV Trust 1994-A, Class A, 4.90%, 7/15/2009 579,128
50,000 Chase Manhattan Auto Owner Trust 1997-A, Class A5, 6.50%, 50,678
12/17/2001
85,162 Daimler-Benz Auto Grantor Trust 1995-A, Class A, 5.85%, 85,234
5/15/2002
210,856 Honda Auto Receivables Grantor Trust 1995-A, Class A, 6.20%, 211,301
12/15/2000
87,309 Nationsbank Auto Grantor Trust, Class A, 5.85%, 6/15/2002
87,403 347,522 Olympic Automobile Receivables Trust 1994-A, Class
CTF, 5.70%, 347,827
1/15/2001
50,000 Team Fleet Financing Corp. Series 1997-1, Class B, 7.80%, 51,828
5/15/2003
786,175 Toyota Auto Receivables Grantor Trust 1997-A, Class A, 6.45%, 791,262
4/15/2002
196,017 World Omni Automobile Lease Securitization Trust 1996-A, Class 196,930
A2, 6.55%, 6/25/2002
650,000 World Omni Automobile Lease Securitization Trust 1997-A, Class 658,450
A3, 6.85%, 6/25/2003
150,000 Yamaha Motor Master Trust 1995-1, Class A, 6.20%, 5/15/2003 151,016
Total 3,591,707
CREDIT CARD--14.6%
150,000 Banco Nacional de Mexico S.A., Credit Card Merchant Voucher 149,877
Receivables Master Trust Series 1996-A, Class A1, 6.25%,
12/1/2003
250,000 Circuit City Credit Card Master Trust 1995-1, Class A, 6.375%, 251,740
8/15/2005
250,000 Citibank Credit Card Master Trust 1998-1, Class A, 5.75%, 248,642
1/15/2003
250,000 Dayton Hudson Credit Card Master Trust 1995-1, Class A, 6.10%, 250,550
2/25/2002
246,000 Discover Card Master Trust 1993-1, Class B, 5.30%,
10/16/2001 244,472 215,000 Discover Card Master Trust I 1995-2,
Class A, 6.55%, 2/18/2003 217,638
65,000 Discover Card Trust 1993-A, Class B, 6.80%, 8/16/2000 65,106
220,000 Discover Credit Card Trust 1992-B, Class B, 7.50%, 6/16/2000 220,286
260,000 First USA Credit Card Master Trust 1997-6, Class A, 6.42%, 264,209
3/15/2005
298,724 Fleetwood Credit Corp. Grantor Trust 1996-B, Class A, 6.90%, 303,483
3/15/2012
200,000 Household Affinity Credit Card Master Trust 1993-1, Class B, 198,908
5.30%, 9/15/2000
285,000 Prime Credit Card Master Trust 1996-1, Class A, 6.70%, 290,498
7/15/2004
300,000 Spiegel Master Trust 1994-B, Class A, 8.15%, 6/15/2004 311,400
Total 3,016,809
</TABLE>
FEDERATED LIMITED DURATION FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)ASSET-BACKED SECURITIES--CONTINUED
HOME EQUITY LOAN--5.9%
$ 174,157 Advanta Home Equity Loan Trust 1992-1, Class A, 7.875%, $ 179,716
9/25/2008
270,000 Cityscape Home Equity Loan Trust 1996-2, Class A2, 7.20%, 273,149
4/25/2011
120,000 ContiMortgage Home Equity Loan Trust 1997-3, Class A5, 7.01%, 121,678
8/15/2013
250,000 ContiMortgage Home Equity Loan Trust 1997-5, Class B, 7.62%, 249,845
1/15/2029
250,000 (b)Saxon Asset Securities Trust 1998-1, Class BF2, 8.00%, 218,325
6/25/2006
95,000 TMS Home Equity Trust 1996-B, Class A7, 7.55%, 2/15/2020 98,036
80,300 UCFC Home Equity Loan 1995-A1, Class A5, 8.55%, 1/10/2020 84,940
Total 1,225,689
MANUFACTURED HOUSING--5.4%
200,000 Associates Manufactured Housing Certificates 1996-2, Class A-2, 201,570
6.05%, 6/15/2027
150,000 Green Tree Financial Corp. 1994-1, Class A3, 6.90%, 4/15/2019 151,854
250,000 Green Tree Financial Corp. 1996-2, Class B-1, 7.55%, 4/15/2027 259,503
200,000 Green Tree Financial Corp. 1996-4, Class A-4, 6.80%, 6/15/2027 201,984
300,000 Green Tree Home Improvement Loan Trust 1997-A, Class HEA6, 306,123
7.16%, 3/15/2028
Total 1,121,034
OTHER--2.0%
200,000 Centerior Energy Receivables Master Trust 1996-1, Class A, 206,836
7.20%, 4/15/2002
200,000 Copelco Capital Funding Corp. X 1997-A, Class A4, 6.47%, 202,353
4/20/2005
Total 409,189
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $9,487,025) 9,364,428
CORPORATE BONDS--19.2%
AEROSPACE & DEFENSE--1.0%
200,000 Raytheon Co., Note, 6.45%, 8/15/2002 202,252
AUTOMOBILE--1.0%
200,000 Arvin Industries, Inc., Note, 6.875%, 2/15/2001 202,916
CABLE TELEVISION--1.1%
200,000 TKR Cable, Inc., 10.50%, 10/30/2007 222,250
FINANCE - RETAIL--0.7%
150,000 Advanta Corp., Medium Term Note, 6.90%, 8/4/1999 145,107
FINANCIAL INTERMEDIARIES--2.5%
250,000 Green Tree Financial Corp., Sr. Sub. Note, 10.25%, 6/1/2002 274,293
250,000 Lehman Brothers Holdings, Inc., Bond, 6.20%, 1/15/2002 248,778
Total 523,071
</TABLE>
FEDERATED LIMITED DURATION FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
FOREST PRODUCTS--1.1%
$ 200,000 Quno Corp., Sr. Note, 9.125%, 5/15/2005 $ 218,698
HOTELS, MOTELS, INNS & CASINOS--0.5%
100,000 La Quinta Inns, Inc., Sr. Sub. Note, 9.25%, 5/15/2003 104,250
INDUSTRIAL PRODUCTS & EQUIPMENT--0.5%
100,000 Figgie International Holdings, Inc., Sr. Note, 9.875%, 103,918
10/1/1999
INSURANCE--3.6%
250,000 Conseco, Inc., Note, 6.40%, 2/10/2003 249,025
250,000 HSB Group, Inc., Company Guarantee, 6.50%, 7/15/2027 246,530
250,000 SunAmerica, Inc., Sr. Note, 6.20%, 10/31/1999 250,618
Total 746,173
PRINTING & PUBLISHING--0.4%
75,000 Valassis Communication, Inc., Sr. Note, 9.55%, 12/1/2003 84,059
RETAILERS--1.5%
100,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 106,500
150,000 Riggs National Corp., Sub. Note, 8.50%, 2/1/2006 157,968
50,000 Shopko Stores, Inc., 8.50%, 3/15/2002 53,516
Total 317,984
SOVEREIGN--1.5%
175,000 Brazil IDU, Deb., 6.8125%, 1/1/2001 171,500
150,000 Export-Import Bank Korea, 7.10%, 3/15/2007 139,506
Total 311,006
UTILITIES--3.8%
250,000 Camuzzi Gas, 9.25%, 12/15/2001 258,125
200,000 (b)Hidroelectrica Alicura, Deb., 8.375%, 3/15/1999 200,500
200,000 Long Island Lighting Co., Deb., 9.00%, 11/1/2022 229,544
100,000 Pennsylvania Power & Light Co., 9.25%, 10/1/2019 106,727
Total 794,896
TOTAL CORPORATE BONDS (IDENTIFIED COST $3,779,232) 3,976,580
(A)COLLATERALIZED MORTGAGE OBLIGATIONS--14.0%
217,660 (b)C-BASS ABS, LLC, (Series 1997-1), Class A-1, 7.05%,
2/1/2017 218,341 500,000 Countrywide Home Loans, (Series 1997-5),
Class A-3, 7.50%, 509,016
9/25/2027
405,000 Federal National Mortgage Association, (Series 1993-32), Class 388,889
H, 6.00%, 3/25/2023
95,884 (b)GE Capital Mortgage Services, Inc., (Series 1994-3), Class 69,217
B4, 6.50%, 1/25/2024
</TABLE>
FEDERATED LIMITED DURATION FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)COLLATERALIZED MORTGAGE OBLIGATIONS--CONTINUED
$ 380,054 (b)Greenwich Capital Acceptance, Inc. Subordinate Mortgage $ 366,870
Securities Trust, (Series 1996-A), Class B, 7.5916%, 6/15/2019
100,000 (b)KMart CMBS Financing, Inc, (Series 1997-1), Class D, 6.475%, 100,094
3/1/2007
500,000 (b)Nomura Depositor Trust Commercial Mortgage Pass-Thru, 500,000
(Series 1998-STI), Class A-5, 6.848%, 2/15/2034
252,471 Residential Accredit Loans, Inc., (Series 1996-QS8), Class A3, 253,952
7.05%, 12/25/2026
250,000 Residential Accredit Loans, Inc., (Series 1997-QS2), Class A3, 252,076
7.25%, 3/31/2027
4,190,607 Vendee Mortgage Trust, (Series 1995-1C), Class 3IO, 0.2925%, 60,261
2/15/2025
199,235 SMFC Trust Asset-Backed Certificates, Series 1997-A, Class 4, 182,426
7.7191%, 1/28/2025
TOTAL COLLATERALIZED MORTGAGE $ 2,901,142
OBLIGATIONS (IDENTIFIED COST $2,726,970)
GOVERNMENTS/AGENCIES--9.4%
500,000 Federal National Mortgage Association, 6.34%, 7/28/2000 501,775
445,052 Government National Mortgage Association, ARM, 7.00%, 1/20/2022 457,082
392,786 Government National Mortgage Association, 8.50%, 8/15/2026 414,758
508,122 Government National Mortgage Association, 11.00%, 9/15/2015 574,021
TOTAL GOVERNMENTS/AGENCIES (IDENTIFIED COST $2,101,299) 1,947,636
U.S. TREASURY--7.6%
200,000 U.S. Treasury Note, 5.50%, 3/31/2003 198,892
450,000 U.S. Treasury Note, 5.75%, 11/15/2000 451,359
650,000 U.S. Treasury Note, 5.875%, 9/30/2002 655,161
245,000 U.S. Treasury Note, 6.625%, 5/15/2007 259,962
TOTAL U.S. TREASURY (IDENTIFIED COST $1,569,764) 1,565,374
(C)REPURCHASE AGREEMENT--5.1%
1,045,000 BT Securities Corp., 5.97%, dated 3/31/1998, due 4/1/1998 (at 1,045,000
amortized cost)
TOTAL INVESTMENTS (IDENTIFIED COST $20,709,290)(D) $ 20,800,160
</TABLE>
(a) Because of monthly principal payments, the average lives of the Asset-Backed
Securitties, Collateralized Mortgage Obligations and certain Government Agency
Securities are less than the indicated periods.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At March 31, 1998, these securities amounted to
$1,673,347 which represents 8.1% of net assets.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $20,709,290. The
net unrealized appreciation of investments on a federal tax basis amounts to
$90,870 which is comprised of $127,648 appreciation and $36,778 depreciation at
March 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($20,699,215) at March 31, 1998.
The following acronyms are used throughout this portfolio:
ARM -- Adjustable Rate Mortgage
LLC -- Limited Liability Corporation
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED LIMITED DURATION FUND
MARCH 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 20,800,160
$20,709,290)
Income receivable 206,561
Receivable for investments sold 2,165,638
Receivable for shares sold 520
Total assets 23,172,879
LIABILITIES:
Payable for investments purchased $ 196,660
Income distribution payable 101,375
Payable to Bank 2,027,922
Accrued expenses 147,707
Total liabilities 2,473,664
Net Assets for 2,040,770 shares outstanding $ 20,699,215
NET ASSETS CONSIST OF:
Paid in capital $ 20,592,369
Net unrealized appreciation of investments and translation of 90,870
assets and liabilities in foreign currency
Accumulated net realized gain on investments and foreign currency 1,826
transactions
Undistributed net investment income 14,150
Total Net Assets $ 20,699,215
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$15,413,623 / 1,519,650 shares outstanding $10.14
INSTITUTIONAL SERVICE SHARES:
$5,285,592 / 521,120 shares outstanding $10.14
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED LIMITED DURATION FUND
SIX MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 468,350
EXPENSES:
Investment advisory fee $ 27,670
Administrative personnel and services fee 77,288
Custodian fees 1,629
Transfer and dividend disbursing agent fees and expenses 20,748
Directors'/Trustees' fees 1,274
Auditing fees 2,912
Legal fees 910
Portfolio accounting fees 31,737
Distribution services fee--Institutional Service Shares 4,699
Shareholder services fee--Institutional Shares 12,595
Shareholder services fee--Institutional Service Shares 4,699
Share registration costs 11,648
Printing and postage 4,914
Insurance premiums 2,002
Taxes 910
Miscellaneous 4,914
Total expenses 210,549
Waivers and reimbursements--
Waiver of investment advisory fee $ (27,670)
Waiver of distribution services fee--Institutional Service (3,759)
Shares
Waiver of shareholder services fee--Institutional Shares (12,595)
Reimbursement of other operating expenses (148,678)
Total waivers and reimbursements (192,702)
Net expenses 17,847
Net investment income 450,503
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY:
Net realized gain on investments and foreign currency 1,790
transactions
Net change in unrealized appreciation of investments and 29,622
translation of assets and liabilities in foreign currency
Net realized and unrealized gain on investments and 31,412
foreign currency
Change in net assets resulting from operations $ 481,915
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED LIMITED DURATION FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
(UNAUDITED) SEPTEMBER 30,
MARCH 31, 1998 1997(A)
<S> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS--
Net investment income $ 450,503 $ 396,602
Net realized gain on
investments and foreign
currency transactions
($1,790 and $28,563, net
gains, respectively, as
computed for federal
tax purposes 1,790 41,450
Net change in unrealized
appreciation of investments
and translation of assets
and liabilities in foreign
currency 29,622 61,248
Change in net assets
resulting from operations 481,915 499,300
DISTRIBUTIONS TO
SHAREHOLDERS--
Distributions from net
investment income
Institutional Shares (281,676) (351,005)
Institutional
Service Shares (167,755) (45,407)
Distributions from net
realized gains on
investments and
foreign currency
transactions
Institutional Shares (13,500) (10,211)
Institutional
Service Shares (4,804) (11)
Change in net assets
resulting from
distributions to
shareholders (467,735) (406,634)
SHARE TRANSACTIONS--
Proceeds from sale of
shares 11,503,568 21,728,448
Net asset value of
shares issued to
shareholders in payment
of distributions declared 21,272 4,418
Cost of shares redeemed (1,153,187) (11,512,650)
Change in net assets
resulting from share
transactions 10,371,653 10,220,216
Change in net assets 10,385,833 10,312,882
NET ASSETS:
Beginning of period 10,313,382 500
End of period
(including undistributed
net investment income of
$14,150 and $13,078,
respectively) $ 20,699,215 $ 10,313,382
</TABLE>
(a) For the period from October 1, 1996 (start of performance) to September 30,
1997. (See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MARCH 31, SEPTEMBER 30,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF $10.13 $10.00
PERIOD
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.32(b) 0.63
Net realized and unrealized 0.03 0.15
gain (loss) on investments and
foreign currency
Total from investment 0.35 0.78
operations
LESS DISTRIBUTIONS
Distributions from net (0.32) (0.63)
investment income
Distributions from net realized (0.02) (0.02)
gain on investments and foreign
currency transactions
Total distributions (0.34) (0.65)
NET ASSET VALUE, END OF PERIOD $10.14 $10.13
TOTAL RETURN(C) 3.46% 8.10%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.49%* 0.29%
Net investment income 6.29%* 6.31%
Expense waiver/reimbursement(d) 2.72%* 14.52%
SUPPLEMENTAL DATA
Net assets, end of period (000 $5,286 $2,724
omitted)
Portfolio turnover 42% 109%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period
from October 1, 1996 (start of performance) to September 30, 1997. (b) Per share
information presented is based upon the monthly average number of shares
outstanding. (c) Based on net asset value, which does not reflect the sales
charge or contingent deferred sales charge, if applicable. (d) This voluntary
expense decrease is reflected in both the expense and net investment income
ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MARCH 31, SEPTEMBER 30,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF $10.13 $10.00
PERIOD
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.33(b) 0.66
Net realized and unrealized 0.03 0.14
gain (loss) on investments and
foreign currency
Total from investment 0.36 0.80
operations
LESS DISTRIBUTIONS
Distributions from net (0.33) (0.65)
investment income
Distributions from net realized (0.02) (0.02)
gain on investments and foreign
currency transactions
Total distributions (0.35) (0.67)
NET ASSET VALUE, END OF PERIOD $10.14 $10.13
TOTAL RETURN(C) 3.61% 8.27%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.17%* 0.00%
Net investment income 6.59%* 6.47%
Expense waiver/reimbursement(d) 2.81%* 8.74%
SUPPLEMENTAL DATA
Net assets, end of period (000 $15,414 $7,589
omitted)
Portfolio turnover 42% 109%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from October 1, 1996 (start of
performance) to September 30, 1997. (b) Per share information presented is based
upon the monthly average number of shares outstanding. (c) Based on net asset
value, which does not reflect the sales charge or contingent deferred sales
charge, if applicable. (d) This voluntary expense decrease is reflected in both
the expense and net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
FEDERATED LIMITED DURATION FUND
MARCH 31, 1998 (UNAUDITED)
ORGANIZATION
Federated Total Return Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the"Act") as an open-end, management
investment company. The Corporation consists of four portfolios. The financial
statements included herein are only those of Federated Limited Duration Fund
(the "Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares. The investment objective of the Fund is to provide
total return.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements. These policies are in conformity with generally accepted
accounting principles.
INVESTMENT VALUATIONS
U.S. government securities, listed corporate bonds,
other fixed income securities, asset-backed securities, unlisted securities and
private placement securities are generally valued at the mean of the latest bid
and asked price as furnished by an independent pricing service. Short-term
securities are valued at the prices provided by an independent pricing service.
However, short-term securities with remaining maturities of sixty days or less
at the time of purchase may be valued at amortized cost, which approximates fair
market value. With respect to valuation of foreign securities, trading in
foreign cities may be completed at times which vary from the closing of the New
York Stock Exchange. Therefore, foreign securities are valued at the latest
closing price on the exchange on which they are traded prior to the closing of
the New York Stock Exchange. Foreign securities quoted in foreign currencies are
translated into U.S. Dollars at the foreign exchange rate in effect at noon,
eastern time, on the day the value of the foreign security is determined.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
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 the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
Withholding taxes on foreign interest and dividends have been provided for in
accordance with the Fund's understanding of the applicable country's tax rules
and rates.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
FOREIGN EXCHANGE CONTRACTS
The Fund may enter into foreign currency commitments for the delayed delivery of
securities or foreign currency exchange transactions. The Fund may enter into
foreign currency contract transactions to protect assets against adverse changes
in foreign currency exchange rates or exchange control regulations. Purchased
contracts are used to acquire exposure to foreign currencies; whereas, contracts
to sell are used to hedge the Fund's securities against currency fluctuations.
Risks may arise upon entering these transactions from the potential inability of
counterparts to meet the terms of their commitments and from unanticipated
movements in security prices or foreign exchange rates. The foreign currency
transactions are adjusted by the daily exchange rate of the underlying currency
and any gains or losses are recorded for financial statement purpose as
unrealized until the settlement date. As of March 31, 1998, the Fund had no
outstanding foreign exchange contracts.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Funds are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies ("FC") are translated into
U.S. dollars based on the rate of exchange of such currencies against U.S.
dollars on the date of valuation. Purchases and sales of securities, income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. Differences between income and expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank. The Funds do not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Funds' books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Board of Directors. The Fund will not
incur any registration costs upon such resales. The Fund's restricted securities
are valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.
Additional information on each restricted security held at March 31, 1998 is as
follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
C-BASS ABS, LLC 2/25/1997 $ 218,544
GE Capital Mortgage Services, Inc. 7/10/1997 67,119
Greenwich Capital Acceptance, Inc. 7/30/1997 369,603
Hidroelectrica Alicura, Deb 2/20/1998 199,600
KMart CMBS Financing Inc. 2/27/1997 100,000
Nomura Depositor Trust
Commercial Mortgage Pass-Thru 2/4/1998 500,000
Saxon Asset Securities Trust 1998-1 3/6/1998 218,225
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At March 31, 1998, par value shares ($0.001 per share) authorized were as
follows:
NUMBER OF
PAR VALUE
CAPITAL STOCK
CLASS NAME AUTHORIZED
Institutional Shares 1,000,000,000
Institutional Service Shares 1,000,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997(A)
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 867,775 $ 8,798,198 1,888,493 $ 18,917,589
Shares issued to shareholders in payment
of distributions declared 1,455 14,733 380 3,834
Shares redeemed (98,667) (1,000,339) (1,139,806) (11,407,045)
Net change resulting from Institutional
Share transactions 770,563 $ 7,812,592 749,067 $ 7,514,378
</TABLE>
FEDERATED LIMITED DURATION FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997(A)
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 266,697 $ 2,705,370 279,256 $ 2,810,859
Shares issued to shareholders in
payment of distributions declared 645 6,539 58 584
Shares redeemed (15,093) (152,848) (10,473) (105,605)
Net change resulting from Institutional
Service Share transactions 252,249 $ 2,559,061 268,841 $2,705,838
Net change resulting from
share transactions 1,022,812 $10,371,653 1,017,908 $ 10,220,216
</TABLE>
(a) For the period from October 1, 1996 (start of performance) to September 30,
1997.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee and/or reimburse certain operating expenses of the Fund. The
Adviser can modify or terminate this voluntary waiver and/or reimbursement at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp., ("FSC"), the principal distributor, from the net assets of the
Institutional Service Shares to finance activities intended to result in the
sale of the Fund's Institutional Service Shares. The Plan provides that the Fund
may incur distribution expenses up to 0.25% of the average daily net assets of
the Institutional Service Shares, to compensate FSC. The distributor may
voluntarily choose to waive any portion of its fee. The distributor can modify
or terminate this voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services, the Fund will pay Federated Shareholder Services ("FSS") up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
YEAR 2000 ISSUE
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended March 31, 1998, were as follows:
PURCHASES $ 15,872,244
SALES $ 6,043,670
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Glen R. Johnson
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Anthony R. Bosch
Assistant Secretary
Mutual funds are not deposits or obligations of any bank, are not guaranteed by
any bank, and are not insured or guaranteed by the U.S. government, the FDIC,
the Federal Reserve Board or any other government agency. Investment in mutual
funds involves risk, including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
FEDERATED LIMITED DURATION FUND
Semi-Annual Report
to Shareholders
March 31, 1998
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Cusip 31428Q408
Cusip 31428Q309
G01998-06 (5/98)
PRESIDENT'S MESSAGE
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
Total Return Bond Fund, a portfolio of Federated Total Return Series, Inc. The
report covers the six-month reporting period from October 1, 1997 through March
31, 1998, and includes commentary by the fund's portfolio manager, followed by
the fund's portfolio of investments and financial statements.
During the reporting period, the fund's diversified portfolio of high-quality,
investment grade bonds produced a total return of 4.66%* for Institutional
Shares and 4.51%* for Institutional Service Shares. Dividends paid by the fund
during this reporting period totaled $0.33 per share for Institutional Shares
and $0.31 per share for Institutional Service Shares. Net asset value for both
share classes increased by $0.15 to end the reporting period at $10.47. The
fund's total net assets reached $45 million on the last day of the reporting
period.
We appreciate your continued confidence in Federated Total Return Bond Fund. As
always, we welcome your questions and comments.
Sincerely,
[Graphic]
Glen R. Johnson
President
May 15, 1998
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
INVESTMENT REVIEW
Federated Total Return Bond Fund represents a high quality, fixed income
portfolio combining the various fixed income asset classes. Investments are
concentrated in U.S. Treasury, government agency, and high quality, corporate
debt securities. The fund may also allocate a small percentage of assets, 15
percent combined, in either or both of the high yield corporate and
international bond sectors.
The high quality, fixed income environment was positive over the six month
reporting period in that interest rates fell across the entire maturity spectrum
from one-year out to 30-year securities. This reporting period was largely
influenced by events which unfolded in Southeast Asia, primarily starting in
October 1997. The currency and financial market crises in Asia created an
immense "flight to quality" in U.S. government debt securities. Thus, for the
six-month reporting period, the best performing debt investment was U.S.
Treasury bonds.
Much of the interest rate decline for the entire reporting period occurred
during the initial three months, the fourth quarter of 1997. As rates fell hard
and fast, U.S. Treasuries outperformed all other high quality bond sectors. The
latter half of the six-month reporting period (first quarter of 1998) saw
overall interest rates fall slightly with "spread" product--mortgages and
corporates--outperforming treasuries. Generally speaking, Asia and the emerging
debt markets did rebound early in 1998 as markets attempted to stabilize
worldwide.
For much of the reporting period, the fund was generally neutral in treasuries,
with a slight overweight and underweight in corporates and mortgages,
respectively. All the while, duration was held very close to the benchmark
index, the Lehman Brothers Aggregate Bond Index.* For the entire six-month
reporting period, the fund had a 4.66%** total return for Institutional Shares
and a 4.51%** total return for Institutional Service Shares relative to a 4.54%
return for the Lehman Brothers Aggregate Bond Index. Thus, the fund continues to
provide shareholders with a return in excess of the unmanaged index. Given
continued domestic economic strength, fund management does not anticipate any
significant sector or duration changes over the near term.
* The Lehman Brothers Aggregate Bond Index is an unmanaged index measuring both
the capital price changes and income provided by the underlying universe of
securities, comprised of U.S. Treasury obligations, U.S. agency obligations,
foreign obligations, U.S. investment-grade corporate debt and mortgage-backed
obligations. Investments cannot be made in an index.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
PORTFOLIO OF INVESTMENTS
FEDERATED TOTAL RETURN BOND FUND
MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--29.4%
BANKING--1.7%
$ 400,000 (a)CIBC Capital Funding LP, Bank Guarantee, 6.40%, 12/17/2004 $ 403,200
260,000 FirstBank Puerto Rico, Sub. Note, 7.625%, 12/20/2005 267,402
100,000 National Bank of Canada, Montreal, Sub. Note, 8.125%, 8/15/2004 108,157
TOTAL 778,759
BEVERAGE & TOBACCO--0.8%
260,000 Philip Morris Cos., Inc., Deb., 6.00%, 11/15/1999 258,521
105,000 Philip Morris Cos., Inc., Deb., 8.625%, 3/1/1999 107,487
TOTAL 366,008
BROADCAST RADIO & TV--0.3%
125,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 128,335
CABLE TELEVISION--1.2%
200,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 234,030
300,000 TKR Cable, Inc., 10.50%, 10/30/2007 333,375
TOTAL 567,405
ECOLOGICAL SERVICES & EQUIPMENT--1.2%
500,000 WMX Technologies, Inc., Deb., 8.75%, 5/1/2018 562,115
ELECTRONICS--1.3%
250,000 Anixter International, Inc., Company Guarantee, 8.00%, 261,547
9/15/2003
300,000 Harris Corp., Deb., 10.375%, 12/1/2018 323,115
TOTAL 584,662
FINANCE - AUTOMOTIVE--2.3%
485,000 Chrysler Financial Corp., Deb., 13.25%, 10/15/1999 538,830
500,000 Ford Motor Credit Corp., Unsub., 6.875%, 6/5/2001 507,813
TOTAL 1,046,643
FINANCIAL INTERMEDIARIES--0.7%
250,000 Green Tree Financial Corp., Sr. Sub. Note, 10.25%, 6/1/2002 274,292
25,000 Norwest Financial, Inc., Note, 6.23%, 9/1/1998 25,079
TOTAL 299,371
FINANCIAL SERVICES--0.1%
50,000 Associates Corp. of North America, Sr. Note, 6.25%, 3/15/1999 50,273
</TABLE>
FEDERATED TOTAL RETURN BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
FOREST PRODUCTS--2.6%
$ 300,000 Container Corp. of America, Sr. Note, 11.25%, 5/1/2004 $ 328,500
25,000 Pope & Talbot, Inc., 8.375%, 6/1/2013 24,769
750,000 Quno Corp., Sr. Note, 9.125%, 5/15/2005 820,118
TOTAL 1,173,387
INDUSTRIAL PRODUCTS & EQUIPMENT--2.8%
500,000 Dana Corp., Note, 7.00%, 3/15/2028 500,480
350,000 Figgie International Holdings, Inc., Sr. Note, 9.875%, 363,713
10/1/1999
350,000 Southdown, Inc., Sr. Sub. Note, 10.00%, 3/1/2006 390,250
TOTAL 1,254,443
INSURANCE--3.6%
250,000 Conseco, Inc., Note, 6.40%, 2/10/2003 249,025
250,000 Conseco, Inc., Sr. Note, 10.50%, 12/15/2004 300,490
150,000 Delphi Financial Group, Inc., 9.31%, 3/25/2027 165,450
300,000 (a)Equitable Life, Note, 7.70%, 12/1/2015 321,111
110,000 (a)Life Re Capital Trust I, 8.72%, 6/15/2027 117,559
250,000 SunAmerica, Inc., Sr. Note, 6.20%, 10/31/1999 250,618
250,000 SunAmerica, Inc., Sr. Note, 9.00%, 1/15/1999 256,078
TOTAL 1,660,331
LEISURE & ENTERTAINMENT--0.3%
150,000 Paramount Communications, Inc., Sr. Deb., 8.25%, 8/1/2022 154,845
MACHINERY & EQUIPMENT--1.7%
500,000 Caterpillar, Inc., Deb., 9.75%, 6/1/2019 542,495
250,000 Continental Airlines, Inc., Pass Thru Cert., Series 1997-4 B, 253,537
6.90%, 7/2/2019
TOTAL 796,032
METALS & MINING--1.4%
200,000 Barrick Gold Corp., Deb., 7.50%, 5/1/2007 208,110
150,000 Inco Ltd., Note, 9.60%, 6/15/2022 167,410
225,000 Santa Fe Pacific Gold, Note, 8.375%, 7/1/2005 243,167
TOTAL 618,687
OIL & GAS--1.2%
250,000 Husky Oil Ltd., Sr. Note, 7.125%, 11/15/2006 253,915
250,000 Phillips Petroleum Co., Deb., 9.18%, 9/15/2021 281,563
TOTAL 535,478
</TABLE>
FEDERATED TOTAL RETURN BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
PRINTING & PUBLISHING--2.5%
$ 300,000 News America Holdings, Inc., Company Guarantee, 8.00%, $ 325,719
10/17/2016
275,000 News America Holdings, Inc., Sr. Note, 7.50%, 3/1/2000 281,930
500,000 Valassis Communication, Inc., Sr. Sub. Note, 9.375%, 3/15/1999 516,500
TOTAL 1,124,149
RETAILERS--2.1%
100,000 Eckerd Corp., Sr. Sub. Note, 9.25%, 2/15/2004 107,065
245,772 K Mart Corp., Pass Thru Cert., 8.54%, 1/2/2015 252,833
250,000 Penney (J.C.) Co., Inc., Deb., 7.65%, 8/15/2016 269,623
250,000 Shopko Stores, Inc., 9.25%, 3/15/2022 303,973
TOTAL 933,494
SURFACE TRANSPORTATION--1.0%
400,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 455,140
UTILITIES--0.6%
250,000 California Energy Co., Inc., Sr. Note, 10.25%, 1/15/2004 270,312
TOTAL CORPORATE BONDS (IDENTIFIED COST $13,240,565) 13,359,869
ASSET-BACKED SECURITIES--0.9%
448,280 (a)SMFC Trust Asset-Backed Certificates, Series 1997-A, Class 410,458
4, 7.7191%, 1/28/2025 (identified cost $410,036)
GOVERNMENT AGENCIES--2.7%
350,000 Federal National Mortgage Association, Medium Term Note, 6.71%, 359,828
7/24/2001
663,000 Tennessee Valley Authority, 0/8.625%, 11/15/2029 626,867
256,000 Tennessee Valley Authority, Note, 0/8.625%, 11/15/2029 242,048
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $1,237,857) 1,228,743
MORTGAGE BACKED SECURITIES--23.9%
GOVERNMENT AGENCY--23.9%
655,199 (b)Federal Home Loan Mortgage Corp., Pool D28594, 7.50%, 675,674
12/1/2022
476,733 (b)Federal Home Loan Mortgage Corp., Pool E00484, 6.50%, 478,821
5/1/2012
229,686 (b)Federal Home Loan Mortgage Corp., Pool E66587, 6.50%, 230,692
3/1/2012
470,891 (b)Federal Home Loan Mortgage Corp., Pool E66943, 6.50%, 472,953
5/1/2012
575,350 (b)Federal Home Loan Mortgage Corp., Pool E68191, 6.50%, 577,686
11/1/2012
2,889,105 (b)Federal National Mortgage Association, Pool 267905, 7.00%, 2,943,276
2/1/2024
479,677 (b)Federal National Mortgage Association, Pool 313687, 7.00%, 484,862
9/1/2027
586,149 (b)Federal National Mortgage Association, Pool 351720, 7.00%, 592,485
2/1/2027
936,323 (b)Federal National Mortgage Association, Pool 406030, 7.00%, 945,686
12/1/2027
</TABLE>
FEDERATED TOTAL RETURN BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MORTGAGE BACKED SECURITIES--CONTINUED
GOVERNMENT AGENCY--CONTINUED
$ 2,000,000 (b)Federal National Mortgage Association, Pool TBA, 6.50%, $ 1,977,500
4/1/2099
952,646 (b)Government National Mortgage Association, Pool 452179, 977,653
7.50%, 6/15/2027
489,568 (b)Government National Mortgage Association, Pool 468686, 502,111
7.50%, 2/15/2028
TOTAL MORTGAGE BACKED SECURITIES (IDENTIFIED COST 10,859,399
$10,737,784)
MUNICIPALS--0.3%
EDUCATION--0.3%
125,000 Harvard University, Revenue Bonds, 8.125% Bonds, 4/15/2007 142,514
(identified cost $133,450)
U.S. TREASURY--39.2%
1,400,000 U.S. Treasury Bond, 11.625%, 11/15/2004 1,848,490
3,000,000 U.S. Treasury Bond, 6.00%, 2/15/2026 2,996,760
800,000 U.S. Treasury Bond, 6.125%, 11/15/2027 820,472
4,300,000 U.S. Treasury Bond, 7.25%, 5/15/2004 4,641,635
1,500,000 U.S. Treasury Note, 5.50%, 2/15/2008 1,481,505
1,300,000 U.S. Treasury Note, 5.50%, 2/28/2003 1,297,991
4,625,000 U.S. Treasury Note, 6.25%, 2/15/2003 4,738,266
TOTAL U.S. TREASURY (IDENTIFIED COST $17,504,979) 17,825,119
REPURCHASE AGREEMENT--7.0%
3,180,000 (c)BT Securities Corp., 5.97%, dated 3/31/1998, due 4/1/1998 3,180,000
(at amortized cost)
TOTAL INVESTMENTS (IDENTIFIED COST $46,444,671)(D) $ 47,006,102
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At March 31, 1998, these securities amounted
to $1,252,328 which represents 2.8% of net assets.
(b) Because of monthly principal payments, the average lives of the Mortgage
Backed Securities are less than the indicated periods.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
accounts with other Federated Funds.
(d) The cost of investments for federal tax purposes amounts to $46,444,671. The
net unrealized appreciation of investments on a federal tax basis amounts to
$561,431 which is comprised of $595,467 appreciation and $34,036
depreciation at March 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($45,491,372) at March 31, 1998.
The following acronyms are used throughout this portfolio:
LP --Limited Partnership
TBA --To Be Announced
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED TOTAL RETURN BOND FUND
MARCH 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 47,006,102
$46,444,671)
Cash 3,468
Income receivable 666,898
Receivable for investments sold 1,306,181
Receivable for shares sold 85,184
Prepaid expenses 18,383
Deferred organizational costs 8,551
Total assets 49,094,767
LIABILITIES:
Payable for investments purchased $ 3,390,225
Income distribution payable 213,170
Total liabilities 3,603,395
Net Assets for 4,346,564 shares outstanding $ 45,491,372
NET ASSETS CONSIST OF:
Paid in capital $ 44,964,723
Net unrealized appreciation of investments 561,431
Accumulated net realized loss on investments (34,782)
Total Net Assets $ 45,491,372
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$36,435,875 / 3,481,352 shares outstanding $10.47
INSTITUTIONAL SERVICE SHARES:
$9,055,497 / 865,212 shares outstanding $10.47
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED TOTAL RETURN BOND FUND
SIX MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 8,154
Interest 998,187
Total income 1,006,341
EXPENSES:
Investment advisory fee $ 61,731
Administrative personnel and services fee 77,288
Custodian fees 1,636
Transfer and dividend disbursing agent fees and expenses 18,751
Directors'/Trustees' fees 4,383
Legal fees 3,333
Portfolio accounting fees 29,014
Distribution services fee--Institutional Service Shares 7,498
Shareholder services fee--Institutional Shares 31,084
Shareholder services fee--Institutional Service Shares 7,498
Share registration costs 13,658
Printing and postage 4,167
Insurance premiums 1,250
Miscellaneous 3,446
Total expenses 264,737
Waivers and reimbursements--
Waiver of investment advisory fee $ (61,731)
Waiver of distribution services fee--Institutional (5,998)
Service Shares
Waiver of shareholder services fee--Institutional Shares (31,084)
Reimbursement of other operating expenses (116,571)
Total waivers and reimbursements (215,384)
Net expenses 49,353
Net investment income 956,988
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 37,791
Net change in unrealized appreciation of investments 295,195
Net realized and unrealized gain on investments 332,986
Change in net assets resulting from operations $ 1,289,974
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED TOTAL RETURN BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
(UNAUDITED) SEPTEMBER 30,
MARCH 31, 1998 1997(A)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 956,988 $ 597,146
Net realized gain (loss) on investments ($37,791 net gain and 37,791 53,760
$72,573 net loss, respectively, as computed for federal tax
purposes)
Net change in unrealized appreciation 295,195 266,236
Change in net assets resulting from operations 1,289,974 917,142
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (780,491) (573,166)
Institutional Service Shares (176,436) (24,041)
Change in net assets resulting from distributions to (956,927) (597,207)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 34,060,426 27,197,758
Net asset value of shares issued to shareholders in payment of 135,105 15,827
distributions declared
Cost of shares redeemed (8,025,975) (13,645,266)
Change in net assets resulting from share transactions 26,169,556 13,568,319
Change in net assets 26,502,603 13,888,254
NET ASSETS:
Beginning of period 18,988,769 5,100,515
End of period $ 45,491,372 $ 18,988,769
</TABLE>
(a) For the period from October 1, 1996 (start of performance) to September 30,
1997.
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MARCH 31, SEPTEMBER 30,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.32 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.33 0.72
Net realized and unrealized gain (loss) on investments 0.15 0.32
Total from investment operations 0.48 1.04
LESS DISTRIBUTIONS
Distributions from net investment income (0.33) (0.72)
NET ASSET VALUE, END OF PERIOD $10.47 $10.32
TOTAL RETURN(B) 4.66% 10.52%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.25%* 0.01%
Net investment income 6.28%* 7.15%
Expense waiver/reimbursement(c) 1.42%* 4.39%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $36,436 $16,700
Portfolio turnover 27% 101%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from October 1, 1996 (start of
performance) to September 30, 1997.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MARCH 31, SEPTEMBER 30,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.32 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.31 0.69
Net realized and unrealized gain (loss) on investments 0.15 0.32
Total from investment operations 0.46 1.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.31) (0.69)
NET ASSET VALUE, END OF PERIOD $10.47 $10.32
TOTAL RETURN(B) 4.51% 10.22%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.59%* 0.31%
Net investment income 5.89%* 6.71%
Expense waiver/reimbursement(c) 1.28%* 4.59%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $9,055 $2,289
Portfolio turnover 27% 101%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from October 1, 1996 (start of
performance) to September 30, 1997.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
FEDERATED TOTAL RETURN BOND FUND
MARCH 31, 1998 (UNAUDITED)
ORGANIZATION
Federated Total Return Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of four portfolios. The
financial statements included herein are only those of Federated Total Return
Bond Fund (the "Fund"), a diversified portfolio. The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares. The investment objective of the Fund is to provide
total return.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
Municipal bonds are valued by an independent pricing service, taking into
consideration yield, liquidity, risk, credit quality, coupon, maturity, type of
issue, and any other factors or market data the pricing service deems relevant.
U.S. government securities, listed corporate bonds, other fixed-income
securities, asset-backed securities, unlisted securities and private placement
securities are generally valued at the mean of the latest bid and asked price as
furnished by an independent pricing service. Short-term securities are valued at
the prices provided by an independent pricing service. However, short-term
securities with remaining maturities of 60 days or less at the time of purchase
may be valued at amortized cost, which approximates fair market value.
Investments in other open-end regulated investment companies are valued at net
asset value.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
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 the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
At September 30, 1997, the Fund, for federal tax purposes, had a capital loss
carryforward of $72,573, which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire in
2005 ($72,573).
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES
The costs incurred by the Fund with respect to registration of its shares in its
first fiscal year, excluding the initial expense of registering its shares, have
been deferred and are being amortized over a period not to exceed five years
from the Fund's commencement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined by the Fund's pricing
committee. Additional information on each restricted security held at March 31,
1998, is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST
CIBC Capital Funding LP 12/16/1997 $399,664
Equitable Life 12/1/1997 320,136
Life Re Capital Trust 6/6/1997 112,578
SMFS Trust 2/4/1998 410,664
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At March 31, 1998, par value shares ($0.000 per share) authorized were as
follows:
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
Institutional Shares 1,000,000,000
Institutional Service Shares 1,000,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX-MONTH YEAR ENDED
ENDED SEPTEMBER 30,
MARCH 31, 1998 1997(A)
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,431,689 $ 25,415,149 2,441,867 $ 24,817,916
Shares issued to shareholders in payment
of distributions declared 5,052 52,848 1,355 13,891
Shares redeemed (572,895) (5,978,552) (1,335,737) (13,538,732)
Net change resulting from
Institutional Share transactions 1,863,846 $ 19,489,445 1,107,485 $ 11,293,075
<CAPTION>
SIX-MONTH YEAR ENDED
ENDED SEPTEMBER 30,
MARCH 31, 1998 1997(A)
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 830,231 $ 8,645,277 231,935 $ 2,379,842
Shares issued to shareholders in
payment of distributions declared 7,840 82,257 189 1,936
Shares redeemed (194,593) (2,047,423) (10,420) (106,534)
Net change resulting from
Institutional Service Share transactions 643,478 $ 6,680,111 221,704 $ 2,275,244
Net change resulting from share transactions 2,507,324 $ 26,169,556 1,329,189 $ 13,568,319
</TABLE>
(a) For the period from October 1, 1996 (start of performance) to September 30,
1997.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee and/or reimburse certain operating expenses of the Fund. The
Adviser can modify or terminate this voluntary waiver and/or reimbursement at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Institutional Service Shares to finance activities intended to result in the
sale of the Fund's Institutional Service Shares. The Plan provides that the Fund
may incur distribution expenses up to 0.25% of the average daily net assets of
the Institutional Service Shares annually, to compensate FSC.
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended March 31, 1998, were as follows:
Purchases $31,383,178
Sales $ 6,073,932
YEAR 2000 ISSUE
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Glen R. Johnson
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Anthony R. Bosch
Assistant Secretary
Mutual funds are not deposits or obligations of any bank, are not guaranteed by
any bank, and are not insured or guaranteed by the U.S. government, the FDIC,
the Federal Reserve Board, or any other government agency. Investment in mutual
funds involves risk, including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other
information.NOTESNOTESFederated Total Return Bond Fund
SEMI-ANNUAL REPORT TO SHAREHOLDERS MARCH 31, 1998
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 31428Q101
Cusip 31428Q507
G01664-01 (5/98)
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