FEDERATED TOTAL RETURN SERIES INC
485APOS, 1999-09-30
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                                                      1933 Act File No. 33-50773
                                                      1940 Act File No. 811-7115

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933                 X

        Pre-Effective Amendment No. ______....................

        Post-Effective Amendment No. 18   ...................           X

                                     and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940         X

        Amendment No. 22 ....................................           X

                       FEDERATED TOTAL RETURN SERIES, INC.

               (Exact Name of Registrant as Specified in Charter)

                            Federated Investors Funds

                              5800 Corporate Drive

                       Pittsburgh, Pennsylvania 15237-7000

                    (Address of Principal Executive Offices)
                                 (412) 288-1900

                         (Registrant's Telephone Number)

                           John W. McGonigle, Esquire,

                           Federated Investors Tower,

                       Pittsburgh, Pennsylvania 15222-3779

                     (Name and Address of Agent for Service)

It is proposed that this filing will become effective:

____ immediately upon filing pursuant to paragraph (b) __X_ on November 29,
1999, pursuant to paragraph (b) _ _ 60 days after filing pursuant to paragraph
(a) (i) ____ on _______ pursuant to paragraph (a) (i) ____ 75 days after filing
pursuant to paragraph (a)(ii) ____ on________________ pursuant to paragraph
(a)(ii) of Rule 485.

If appropriate, check the following box:

     This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Copies To:

Matthew G. Maloney, Esquire
Dickstein Shapiro  Morin & Oshinsky LLP

2101 L Street, N.W.
Washington, D.C.  20037

PROSPECTUS

FEDERATED ULTRASHORT BOND FUND

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SERVICE SHARES

A mutual fund seeking to provide total return consistent with current income by
investing primarily in a diversified portfolio of investment grade debt
securities.

As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.

CONTENTS

Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information

[Insert Main Heading from Auditor's Report Page, if applicable]

   november 30, 1999


<PAGE>



RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide total return consistent with
current income. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.

The Fund's total return will consist of two components: (1) changes in the
market value of its portfolio securities (both realized and unrealized
appreciation); and (2) income received from its portfolio securities. The Fund
expects that income will comprise the largest component of its total return.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund invests primarily in a diversified portfolio of domestic and foreign
investment grade fixed income securities consisting principally of corporate,
government and privately issued mortgage backed and asset backed securities and
other government securities. The Fund may invest up to 35% of its portfolio in
non-investment grade fixed income securities. Federated Investment Management
Company (Adviser) seeks to enhance the Fund's performance by allocating
relatively more of its portfolio to the security type that the Adviser expects
to offer the best balance between total return and risk. Although the value of
the Fund's shares will fluctuate, the Adviser will seek to manage the magnitude
of fluctuation by limiting the Fund's dollar weighted average modified duration
to one year or less. Duration measures the price sensitivity of a fixed income
security to changes in interest rates. The Fund may use futures, options and
interest rate swaps in an effort to maintain the Fund's targeted duration.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

o    INTEREST RATE RISKS. Prices of fixed income securities  generally fall when
     interest rates rise.

o    PREPAYMENT  RISKS.  When  homeowners  prepay their mortgages in response to
     lower interest rates, the Fund will be required to reinvest the proceeds at
     the lower interest  rates  available.  Also,  when interest rates fall, the
     price of mortgage  backed  securities may not rise to as great an extent as
     that of other fixed income securities.

o    CREDIT RISKS.  There is a  possibility  that issuers of securities in which
     the Fund may invest may default in the payment of interest or  principal on
     the securities when due, which would cause the Fund to lose money.

o    LIQUIDITY  RISKS. The  non-investment  grade securities and complex CMOs in
     which the Fund invests may be less readily marketable and may be subject to
     greater fluctuation in price than other securities.

o    CALL  RISKS.  The  Fund's  performance  may be  adversely  affected  by the
     possibility  that an issuer of a  security  held by the Fund may redeem the
     security prior to maturity at a price below its current market value.

o    RISKS ASSOCIATED WITH NON-INVESTMENT GRADE SECURITIES.  The Fund may invest
     a portion of its assets in securities  rated below  investment  grade which
     may be subject to greater  interest rate,  credit and liquidity  risks than
     investment grade securities.

o    RISKS OF FOREIGN  INVESTING.  Because the Fund invests in securities issued
     by  foreign  companies,  the Fund's  share  price may be more  affected  by
     foreign economic and political conditions, taxation policies and accounting
     and auditing standards than would otherwise be the case.

o    LEVERAGE  RISKS.  The  Fund  may  make  certain  investments  which  create
     leverage.  Decreases  in the value of such  investments  magnify the Fund's
     amount of loss.

The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.


<PAGE>



RISK/RETURN BAR CHART AND TABLE

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares of Fund as of the calendar
year-end for one year.

The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of __% up to __%.

The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features one distinct
vertical bar, shaded in charcoal, and visually representing by height the total
return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Fund's Institutional Service Shares
for the calendar year is stated directly at the top of the bar, for the calendar
year 1998. The percentage noted is: [insert percentage shown at the top of the
bar in the chart].

The bar chart shows the variability of the Fund's Institutional Service Shares
total returns on a calendar year-end basis.

The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.

The Fund's total return for the nine-month period from January 1, 1999 to
September 30, 1999 was ____%.

Within the period shown in the Chart, the Fund's highest quarterly return was
___% (quarter ended ______). Its lowest quarterly return was ___% (quarter ended
_________).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Institutional Service Shares Average
Annual Total Return for the calendar period ending December 31, 1998. [The table
shows the Fund's total returns averaged over a period of years relative to (name
of index), a broad-based market index (and [insert other optional indexes, as
applicable]). [Insert one-sentence definitions of broad-based index and any
optional indexes. OR, if indexes are defined in the Investment Strategy, a
cross-reference to the Investment Strategy section is sufficient and the
following language can be used: [Total returns for the indexes shown do not
reflect sales charges, expenses or other fees that the SEC requires to be
reflected in the Fund's performance.] Indexes are unmanaged, and it is not
possible to invest directly in an index.

                     [FUND]
                     [CLASS]

                     INCLUDE          BROAD-BASED    OTHER INDEX
                     COLUMNS FOR      INDEX          OR AVERAGE  OTHER INDEX OR
CALENDAR PERIOD      ALL CLASSES      (REQUIRED)     (OPTIONAL)    AVERAGE
                     OFFERED IN                                   (OPTIONAL)
                     PROSPECTUS

1 Year
[5 Years]
[10 Years]
[Start of

Performance1]

1 THE FUND'S INSTITUTIONAL SERVICE SHARES START OF PERFORMANCE DATE WAS
________________.

INSTRUCTION: IF THE BROAD BASED MARKET INDEX IS CHANGED, ADD DISCLOSURE TO THE
SENTENCE ABOVE THAT EXPLAINS THE REASON(S) FOR THE SELECTION AND PROVIDE RETURNS
FOR BOTH THE OLD AND THE NEW INDEXES. INSTRUCTION: IF THE BAR CHART SHOWS ONLY
ONE YEAR OR IF THERE IS NO BAR CHART BECAUSE THERE HAS NOT BEEN ONE FULL
CALENDAR YEAR OF PERFORMANCE, SUBSTITUTE THE FOLLOWING FOR THE TWO SENTENCES
ABOVE: Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential returns.


<PAGE>



WHAT ARE THE FUND'S FEES AND EXPENSES?

FEDERATED ULTRASHORT BOND FUND - INSTITUTIONAL SERVICE SHARES

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Service Shares.

SHAREHOLDER FEES

FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a            None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of          None
original purchase price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends       None
(and other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if            None
applicable)
Exchange Fee                                                      None

ANNUAL FUND OPERATING EXPENSES (Before
[Reimbursements/Waivers])(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee                                                    0.60%
Distribution (12b-1) Fee                                          0.25%
Shareholder Services Fee                                          0.25%
Other Expenses                                                    %
Total Annual Fund Operating Expenses                              %
1 Although not contractually obligated to do so, the [adviser will
  (waive/reimburse)] [adviser (waived/reimbursed)] [and] [distributor (will
  reimburse/reimbursed)] certain amounts. These are shown below along with the
  net expenses the Fund [ACTUALLY PAID] [EXPECTS TO PAY] for the fiscal year
  ended September 30, 1999.

   Total [Reimbursements/Waivers] of Fund Expenses                %
   Total Actual Annual Fund Operating Expenses (after             %
   [reimbursements/waivers] )

2 [Insert Applicable footnote(s) as provided by State Street Bank.

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
  Institutional Service Shares with the cost of investing in other mutual funds.
  The Example assumes that you invest $10,000 in the Fund's Institutional
  Service Shares for the time periods indicated and then redeem all of your
  Shares at the end of

those periods. Expenses assuming no redemption are also shown. The Example also
assumes that your investment has a 5% return each year and that the Fund's
Institutional Service Shares operating expenses are [BEFORE
REIMBURSEMENTS/WAIVERS] as [estimated] [shown] in the table and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be: INSTITUTIONAL SERVICE SHARE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming redemption $ $ $ $ Expenses assuming no $ $ $ $ redemption


<PAGE>



WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

The Fund invests primarily in a diversified portfolio of domestic and foreign
investment grade fixed income securities consisting principally of corporate,
government and privately issued mortgage backed and asset backed securities and
other government securities. The Fund may invest up to 35% of its portfolio in
non-investment grade fixed income securities. Investment grade securities are
those rated BBB or higher by a nationally recognized statistical rating
organization (NRSRO). A description of the various types of securities in which
the Fund invests, and their risks, immediately follows this strategy section.

The Adviser seeks to enhance the Fund's performance by allocating relatively
more of its portfolio to the security type that the Adviser expects to offer the
best balance between current income and risk and thus offers the greatest
potential for return. The allocation process is based on the Adviser's
continuing analysis of a variety of economic and market indicators in order to
arrive at the projected yield "spread" of each security type. (The spread is the
difference between the yield of a security versus the yield of a U.S. treasury
security with a comparable average life.) The security's projected spread is
weighted against the spread the security can currently be purchased for, as well
as the security's risk of prepayment (in the case of asset backed and mortgage
backed securities) and its credit risk (in the case of corporate securities and
privately issued asset backed and mortgage backed securities) in order to
complete the analysis.

Asset and mortgage backed securities tend to amortize principal on a somewhat
irregular schedule over time, since the borrower can usually prepay all or part
of the loan without penalty. These securities generally offer higher yields
versus non-mortgage backed government securities to compensate for this
prepayment risk as well as any credit risk which might be present in the
security. Similarly, corporate debt securities, which tend to pay off on a
predetermined schedule, generally offer higher yields than government securities
to compensate for credit risk. The Adviser actively manages the Fund's
portfolio, seeking the higher relative returns of asset and mortgage backed
securities and corporate debt securities, while attempting to limit the
associated prepayment or credit risk.

The Adviser attempts to manage the Fund's prepayment risk by selecting asset and
mortgage backed securities with characteristics that make prepayment
fluctuations less likely. Characteristics that the Adviser may consider in
selecting securities include the average interest rates of the underlying loans
and the federal agencies (if any) that support the loans. The Adviser attempts
to assess the relative returns and risks for mortgage backed securities by
analyzing how the timing, amount and division of cash flows might change in
response to changing economic and market conditions.

The Adviser attempts to manage the Fund's credit risk by selecting corporate
debt securities that make default in the payment of principal and interest less
likely. The Adviser analyzes a variety of factors, including macroeconomic
analysis and corporate earnings analysis to determine which business sectors and
credit ratings are most advantageous for investment by the Fund. In selecting
individual corporate fixed income securities, the Adviser analyzes the issuer's
business, competitive position, and general financial condition to assess
whether the security's credit risk is commensurate with its potential return.

In addition to managing the Fund's portfolio to seek total return consistent
with current income, while minimizing prepayment and credit risk, the Adviser
also seeks to limit the magnitude of fluctuation of the value of the Fund's
shares. The Adviser attempts to manage price fluctuation by limiting the Fund's
dollar weighted average modified duration to one year or less under normal
market conditions.

The Adviser may lengthen or shorten duration from time-to-time based on its
interest rate outlook. If the Adviser expects interest rates to decline, it will
generally lengthen the Fund's duration, and if the Adviser expects interest
rates to increase, it will generally shorten the Fund's duration. The Adviser
formulates its interest rate outlook and otherwise attempts to anticipate
changes in economic and market conditions in analyzing a variety of factors,
such as:

o .......current and expected U.S. growth;
o        current and expected interest rates and inflation;
o        the U.S. Federal Reserve Board's monetary policy; and
o        changes in the supply of or demand for U.S. government securities.

There is no assurance that the Adviser's efforts to forecast market interest
rates and assess the impact of market interest rates on particular securities
will be successful.

The Fund may use futures, options and interest rate swaps in an effort to
maintain the Fund's targeted duration. In an attempt to enhance returns, the
Adviser may sometimes purchase lower rated securities that may provide better
returns than investment grade securities, and foreign securities that may
provide better returns than domestic securities.

HEDGING

Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different derivatives
contracts, or derivatives contracts and securities. The Fund's ability to hedge
may be limited by the costs of the derivatives contracts. The Fund may attempt
to lower the cost of hedging by entering into transactions that provide only
limited protection, including transactions that (1) hedge only a portion of its
portfolio, (2) use derivatives contracts that cover a narrow range of
circumstances or (3) involve the sale of derivatives contracts with different
terms. Consequently, hedging transactions will not eliminate risk even if they
work as intended. In addition, hedging strategies are not always successful, and
could result in increased expenses and losses to the Fund.

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities. A security's yield measures the
annual income earned on a security as a percentage of its price. A security's
yield will increase or decrease depending upon whether it costs less (a
discount) or more (a premium) than the principal amount. If the issuer may
redeem the security before its scheduled maturity, the price and yield on a
discount or premium security may change based upon the probability of an early
redemption. Securities with higher risks generally have higher yields. The
following describes the principal types of fixed income securities in which the
Fund invests.

TREASURY SECURITIES

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

AGENCY SECURITIES

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a Government
Sponsored Entity, or GSE). The United States supports some GSEs with its full
faith and credit. Other GSEs receive support through federal subsidies, loans or
other benefits. A few GSEs have no explicit financial support, but are regarded
as having implied support because the federal government sponsors their
activities. Agency securities are generally regarded as having low credit risks,
but not as low as treasury securities.

  The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the interest and prepayment risks of these mortgage backed securities.


<PAGE>


CORPORATE DEBT SECURITIES

Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers. In addition, the credit risk of an issuer's debt security may vary
based on its priority for repayment. For example, higher ranking (senior) debt
securities have a higher priority than lower ranking (subordinated) securities.
This means that the issuer might not make payments on subordinated securities
while continuing to make payments on senior securities. In addition, in the
event of bankruptcy, holders of senior securities may receive amounts otherwise
payable to the holders of subordinated securities. Some subordinated securities,
such as trust preferred and capital securities notes, also permit the issuer to
defer payments under certain circumstances. For example, insurance companies
issue securities known as surplus notes that permit the insurance company to
defer any payment that would reduce its capital below regulatory requirements.

MORTGAGE BACKED SECURITIES Mortgage backed securities represent interests in
pools of mortgages. The mortgages that comprise a pool normally have similar
interest rates, maturities and other terms. Mortgages may have fixed or
adjustable interest rates. Interests in pools of adjustable rate mortgages are
known as ARMs. Mortgage backed securities come in a variety of forms. Many have
extremely complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and pre-payments from the underlying mortgages.
As a result, the holders assume all the prepayment risks of the underlying
mortgages.

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) CMOs, including interests
in real estate mortgage investment conduits (REMICs), allocate payments and
prepayments from an underlying pass-through certificate among holders of
different classes of mortgage backed securities. This creates different
prepayment and interest rate risks for each CMO class. The degree of increased
or decreased prepayment risks depends upon the structure of the CMOs. However,
the actual returns on any type of mortgage backed security depend upon the
performance of the underlying pool of mortgages, which no one can predict and
will vary among pools.

           SEQUENTIAL CMOS

           In a sequential pay CMO, one class of CMOs receives all principal
           payments and prepayments. The next class of CMOs receives all
           principal payments after the first class is paid off. This process
           repeats for each sequential class of CMO. As a result, each class of
           sequential pay CMOs reduces the prepayment risks of subsequent
           classes.

PRIVATELY ISSUED MORTGAGE BACKED SECURITIES

Privately issued mortgage securities (including privately issued CMOs) are
issued by private entities, rather than U.S. government agencies. These
securities involve credit risks and liquidity risks. The Fund may invest in
privately issued mortgage backed securities that are rated BBB or higher by a
NRSRO.

ASSET BACKED SECURITIES

Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities have prepayment
risks. Like CMOs, asset backed securities may be structured like Floaters,
Inverse Floaters, IOs and POs.


<PAGE>


BANK INSTRUMENTS

     Bank instruments are unsecured  interest bearing deposits with banks.  Bank
instruments  include bank accounts,  time deposits,  certificates of deposit and
banker's  acceptances.  Yankee  instruments are denominated in U.S.  dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are denominated
in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.

CREDIT ENHANCEMENT

Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement. Common types of credit enhancement
include guarantees, letters of credit, bond insurance and surety bonds. Credit
enhancement also includes arrangements where securities or other liquid assets
secure payment of a fixed income security. If a default occurs, these assets may
be sold and the proceeds paid to security's holders. Either form of credit
enhancement reduces credit risks by providing another source of payment for a
fixed income security.

FOREIGN SECURITIES

Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:

o    it is organized  under the laws of, or has a principal  office  located in,
     another country;

o    the principal trading market for its securities is in another country; or

o    it (or its  subsidiaries)  derived in its most current fiscal year at least
     50% of its total assets, capitalization, gross revenue or profit from goods
     produced, services performed, or sales made in another country.

Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.

    FOREIGN EXCHANGE CONTRACTS

    In order to convert U.S. dollars into the currency needed to buy a foreign
    security, or to convert foreign currency received from the sale of a foreign
    security into U.S. dollars, the Fund may enter into spot currency trades. In
    a spot trade, the Fund agrees to exchange one currency for another at the
    current exchange rate. The Fund may also enter into derivative contracts in
    which a foreign currency is an underlying asset. The exchange rate for
    currency derivative contracts may be higher or lower than the spot exchange
    rate. Use of these derivative contracts may increase or decrease the Fund's
    exposure to currency risks.

DERIVATIVE CONTRACTS

Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty. Many
derivative contracts are traded on securities or commodities exchanges. In this
case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.

The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.

Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity and leverage risks.
OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract.

The Fund may trade in the following types of derivative contracts.

    FUTURES CONTRACTS

    Futures contracts provide for the future sale by one party and purchase by
    another party of a specified amount of an underlying asset at a specified
    price, date, and time. Entering into a contract to buy an underlying asset
    is commonly referred to as buying a contract or holding a long position in
    the asset. Entering into a contract to sell an underlying asset is commonly
    referred to as selling a contract or holding a short position in the asset.
    Futures contracts are considered to be commodity contracts. Futures
    contracts traded OTC are frequently referred to as forward contracts. The
    Fund may buy and sell the following types of futures contracts: financial
    futures, foreign currency forward contracts, and futures on securities
    indices. OPTIONS

    Options are rights to buy or sell an underlying asset for a specified price
    (the exercise price) during, or at the end of, a specified period. A call
    option gives the holder (buyer) the right to buy the underlying asset from
    the seller (writer) of the option. A put option gives the holder the right
    to sell the underlying asset to the writer of the option. The writer of the
    option receives a payment, or premium, from the buyer, which the writer
    keeps regardless of whether the buyer uses (or exercises) the option.

    The Fund may:

O Buy put options on portfolio securities and futures contracts in anticipation
of a decrease in the value of the underlying asset.; and O Buy or write options
to close out existing options positions.

    The Fund may also write call options on portfolio securities and futures
    contracts to generate income from premiums, and in anticipation of a
    decrease or only limited increase in the value of the underlying asset. If a
    call written by the Fund is exercised, the Fund foregoes any possible profit
    from an increase in the market price of the underlying asset over the
    exercise price plus the premium received. The Fund may not buy or sell
    futures or related options if the margin deposits and premiums paid for
    these securities would exceed 5% of the Fund's total assets. SWAPS Swaps are
    contracts in which two parties agree to pay each other (swap) the returns
    derived from underlying assets with differing characteristics. Most swaps do
    not involve the delivery of the underlying assets by either party, and the
    parties might not own the assets underlying the swap. The payments are
    usually made on a net basis so that, on any given day, the Fund would
    receive (or pay) only the amount by which its payment under the contract is
    less than (or exceeds) the amount of the other party's payment. Swap
    agreements are sophisticated instruments that can take many different forms,
    and are known by a variety of names including caps, floors, and collars.
    Common swap agreements that the Fund may use include:

        INTEREST RATE SWAPS

        Interest rate swaps are contracts in which one party agrees to make
        regular payments equal to a fixed or floating interest rate times a
        stated principal amount of fixed income securities, in return for
        payments equal to a different fixed or floating rate times the same
        principal amount, for a specific period. For example, a $10 million
        LIBOR swap would require one party to pay the equivalent of the London
        Interbank Offer Rate of interest (which fluctuates) on $10 million
        principal amount in exchange for the right to receive the equivalent of
        a stated fixed rate of interest on $10 million principal amount.
        CURRENCY SWAPS Currency swaps are contracts which provide for interest
        payments in different currencies. The parties might agree to exchange
        the notional principal amount as well.

INVESTMENT RATINGS FOR NON-INVESTMENT GRADE SECURITIES

Non-investment grade securities (junk bonds) are rated below BBB by a NRSRO.
These bonds have greater credit risk than investment grade securities.

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

INTEREST RATE RISKS

o   Prices of fixed income securities rise and fall in response to changes in
    the interest rate paid by similar securities. Generally, when interest rates
    rise, prices of fixed income securities fall. However, market factors, such
    as the demand for particular fixed income securities, may cause the price of
    certain fixed income securities to fall while the prices of other securities
    rise or remain unchanged.

O   Interest rate changes have a greater effect on the price of fixed income
    securities with longer durations. Duration measures the price sensitivity of
    a fixed income security to changes in interest rates.

CREDIT RISKS

o    Credit risk is the possibility that an issuer will default on a security by
     failing to pay interest or principal when due. If an issuer  defaults,  the
     Fund will lose money.

o   Many fixed income securities receive credit ratings from services such as
    Standard & Poor's and Moody's Investor Services, Inc. These services assign
    ratings to securities by assessing the likelihood of issuer default. Lower
    credit ratings correspond to higher credit risk. If a security has not
    received a rating, the Fund must rely entirely upon the Adviser's credit
    assessment.

o   Fixed income securities generally compensate for greater credit risk by
    paying interest at a higher rate. The difference between the yield of a
    security and the yield of a U.S. Treasury security with a comparable
    maturity (the spread) measures the additional interest paid for risk.
    Spreads may increase generally in response to adverse economic or market
    conditions. A security's spread may also increase if the security's rating
    is lowered, or the security is perceived to have an increased credit risk.
    An increase in the spread will cause the price of the security to decline.

o   Credit risk includes the possibility that a party to a transaction involving
    the Fund will fail to meet its obligations. This could cause the Fund to
    lose the benefit of the transaction or prevent the Fund from selling or
    buying other securities to implement its investment strategy.

PREPAYMENT  AND CALL RISKS

o    Unlike  traditional  fixed  income  securities,  which pay a fixed  rate of
     interest until maturity (when the entire  principal amount is due) payments
     on mortgage backed  securities  include both interest and a partial payment
     of  principal.  Partial  payment of principal may be comprised of scheduled
     principal  payments  as well as  unscheduled  payments  from the  voluntary
     prepayment ,  refinancing,  or foreclosure of the underlying  loans.  These
     unscheduled prepayments of principal create risks that can adversely affect
     a Fund holding mortgage backed securities.

     For example,  when interest  rates decline,  the values of mortgage  backed
securities  generally rise.  However,  when interest rates decline,  unscheduled
prepayments  can be  expected to  accelerate,  and the Fund would be required to
reinvest  the  proceeds  of the  prepayments  at the lower  interest  rates then
available.  Unscheduled  prepayments  would also limit the potential for capital
appreciation  on mortgage  backed  securities.  Conversely,  when interest rates
rise, the values of mortgage  backed  securities  generally  fall.  Since rising
interest rates typically  result in decreased  prepayments,  this could lengthen
the  average  lives of  mortgage  backed  securities,  and cause  their value to
decline more than traditional fixed income securities.

o    Generally,  mortgage  backed  securities  compensate for the increased risk
     associated  with  prepayments  by  paying a higher  yield.  The  additional
     interest paid for risk is measured by the difference between the yield of a
     mortgage backed security and the yield of a U.S.  Treasury  security with a
     comparable  maturity (the spread). An increase in the spread will cause the
     price  of the  mortgage  backed  security  to  decline.  Spreads  generally
     increase in response to adverse economic or market conditions.  Spreads may
     also increase if the security is perceived to have an increased  prepayment
     risk or is perceived to have less market demand.

o   Call risk is the possibility that an issuer may redeem a fixed income
    security before maturity (a call) at a price below its current market price.
    An increase in the likelihood of a call may reduce the security's price.

o   If a fixed income security is called, the Fund may have to reinvest the
    proceeds in other fixed income securities with lower interest rates, higher
    credit risks, or other less favorable characteristics.

LIQUIDITY RISKS

o    Trading  opportunities  are more limited for fixed income  securities  that
     have  not  received  any  credit  ratings,   have  received  ratings  below
     investment grade or are not widely held.

o    Trading  opportunities are more limited for CMOs that have complex terms or
     that are not widely held. These features may make it more difficult to sell
     or buy a security at a favorable price or time. Consequently,  the Fund may
     have to accept a lower price to sell a security,  sell other  securities to
     raise cash or give up an investment opportunity,  any of which could have a
     negative effect on the Fund's performance. Infrequent trading of securities
     may also lead to an increase in their price volatility.

O    Liquidity risk also refers to the possibility that the Fund may not be able
     to sell a securitY or close out a derivative  contracT when it wants to. If
     this happens, the Fund will be required to continue to hold the security or
     keep the position open, and the Fund could incur losses.

o    OTC  derivative  contracts  generally  carry  greater  liquidity  risk than
     exchange-traded contracts.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

o   Securities rated below investment grade, also known as junk bonds, generally
    entail greater market, credit and liquidity risks than investment grade
    securities. For example, their prices are more volatile, economic downturns
    and financial setbacks may affect their prices more negatively, and their
    trading market may be more limited.

RISKS OF FOREIGN INVESTING

o   Foreign securities pose additional risks because foreign economic or
    political conditions may be less favorable than those of the United States.
    Securities in foreign markets may also be subject to taxation policies that
    reduce returns for U.S. investors.

o   Foreign companies may not provide information (including financial
    statements) as frequently or to as great an extent as companies in the
    United States. Foreign companies may also receive less coverage than United
    States companies by market analysts and the financial press. In addition,
    foreign countries may lack uniform accounting, auditing and financial
    reporting standards or regulatory requirements comparable to those
    applicable to U.S. companies. These factors may prevent the Fund and its
    Adviser from obtaining information concerning foreign companies that is as
    frequent, extensive and reliable as the information available concerning
    companies in the United States.

o   Foreign countries may have restrictions on foreign ownership of securities
    or may impose exchange controls, capital flow restrictions or repatriation
    restrictions which could adversely affect the liquidity of the Fund's
    investments.

LEVERAGE RISKS

o    Leverage risk is created when an investment  exposes the Fund to a level of
     risk that  exceeds  the  amount  invested.  Changes in the value of such an
     investment magnify the Fund's risk of loss and potential for gain.

WHAT DO SHARES COST?

You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form (as
described in the prospectus) it is processed at the next calculated net asset
value (NAV).

From time to time the Fund may purchase foreign securities that trade in foreign
markets on days the NYSE is closed. The value of the Fund's assets may change on
days you cannot purchase or redeem Shares. The Fund does not charge a front-end
sales charge. NAV is determined at the end of regular trading (normally 4:00
p.m. Eastern time) each day the NYSE is open. The Fund generally values fixed
income securities at the last sale price on a national securities exchange, if
available, otherwise, as determined by an independent pricing service.

The Fund's current NAV and public offering price may be found in the mutual
funds section of certain local newspapers under "Federated" and Institutional
Service Shares.

The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount. An account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days. An
institutional investor's minimum investment is calculated by combining all
accounts it maintains with the Fund. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep in
mind that investment professionals may charge you fees for their services in
connection with your Share transactions.

HOW IS THE FUND SOLD?

The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to institutions and individuals, directly or through
investment professionals.

When the Distributor receives marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).

RULE 12B-1 PLAN

The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Institutional Service Shares. Because these
Shares pay marketing fees on an ongoing basis, your investment cost may be
higher over time than other shares with different sales charges and marketing
fees.

HOW TO PURCHASE SHARES

You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.

THROUGH AN INVESTMENT PROFESSIONAL

o    Establish an account with the investment professional; and

o  Submit your purchase order to the investment professional before the end of
   regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
   receive the next calculated NAV if the investment professional forwards the
   order to the Fund on the same day and the Fund receives payment within one
   business day. You will become the owner of Shares and receive dividends when
   the Fund receives your payment.

Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

o    Establish  your account with the Fund by submitting a completed New Account
     Form; and

o    Send your payment to the Fund by Federal Reserve wire or check.

You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.

An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.

BY WIRE Send your wire to:

  State Street Bank and Trust Company
  Boston, MA
  Dollar Amount of Wire

  ABA Number 011000028
  Attention: EDGEWIRE

  Wire Order Number, Dealer Number or Group Number
  Nominee/Institution Name
  Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are
restricted.

BY CHECK

Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:

  Federated Shareholder Services Company
  P.O. Box 8600
  Boston, MA 02266-8600

If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:

  Federated Shareholder Services Company
  1099 Hingham Street
  Rockland, MA 02370-3317

     Payment  should be made in U.S.  dollars and drawn on a U.S. bank. The Fund
will not accept  third-party  checks (checks originally payable to someone other
than you or The Federated Funds).

BY AUTOMATED CLEARING HOUSE (ACH)

Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.

HOW TO REDEEM SHARES

You should redeem Shares:

o    through an  investment  professional  if you  purchased  Shares  through an
     investment professional; or

o    directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.

DIRECTLY FROM THE FUND

BY TELEPHONE

You may redeem Shares by calling the Fund at 1-800-341-7400 once you have
completed the appropriate authorization form for telephone transactions. If you
call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern
time) you will receive a redemption amount based on that day's NAV.

BY MAIL

You may redeem Shares by mailing a written request to the Fund.

You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.

Send requests by mail to:

  Federated Shareholder Services Company
  P.O. Box 8600
  Boston, MA 02266-8600

Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:

  Federated Shareholder Services Company
  1099 Hingham Street
  Rockland, MA 02370-3317

All requests must include:

o    Fund Name and Share Class, account number and account registration;

o    amount to be redeemed; and

o    signatures of all shareholders exactly as registered.

Call your investment professional or the Fund if you need special instructions.

SIGNATURE GUARANTEES Signatures must be guaranteed if:

o    your  redemption  will be sent to an  address  other  than the  address  of
     record;

o    your  redemption  will be sent to an  address  of record  that was  changed
     within the last 30 days; or

o    a redemption is payable to someone other than the shareholder(s) of record.

A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.

PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:

o    an electronic  transfer to your account at a financial  institution that is
     an ACH member; or

o    wire  payment  to your  account  at a  domestic  commercial  bank that is a
     Federal Reserve System member.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:

o    to allow your purchase to clear;

o    during periods of market volatility; or

o    when a shareholder's  trade activity or amount adversely impacts the Fund's
     ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

SHARE CERTIFICATES

The Fund does not issue share certificates.

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
dividends and capital gains paid.

DIVIDENDS AND CAPITAL GAINS

The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.

In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.

If you purchase Shares just before a Fund declares a capital gain distribution,
you will pay the full price for the Shares and then receive a portion of the
price back in the form of a taxable distribution, whether or not you reinvest
the distribution in Shares. Therefore, you should consider the tax implications
of purchasing Shares shortly before the Fund declares a capital gain. Contact
your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.

Fund distributions are expected to be [primarily dividends] [primarily capital
gains] [both dividends and capital gains]. Redemptions are taxable sales. Please
consult your tax adviser regarding your federal, state, and local tax liability.

WHO MANAGES THE FUND?

The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which totaled approximately $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees.

More than 4,000 investment professionals make Federated Funds available to their
customers.

THE FUND'S PORTFOLIO MANAGERS ARE:

RANDALL S. BAUER

     Randall S. Bauer has been the Fund's  portfolio  manager since October 1998
and is the overall  manager of the Fund. Mr. Bauer joined  Federated in 1989 and
has been a Portfolio  Manager and a Vice  President of the Fund's  Adviser since
1994.  Mr. Bauer is a Chartered  Financial  Analyst and  received his M.B.A.  in
Finance from Pennsylvania State University.

ROBERT E. CAULEY

     Robert E. Cauley has been the Fund's  portfolio  manager since October 1998
and manages the mortgage  backed  securities  asset  category for the Fund.  Mr.
Cauley joined Federated in 1996 as a Senior Investment  Analyst and an Assistant
Vice  President  of the Fund's  Adviser and has been a Portfolio  Manager  since
1997. Mr. Cauley has been a Vice President of the Adviser since 1999. Mr. Cauley
was a member of the Asset-Backed  Structuring  Group at Lehman Brothers Holding,
Inc. from 1994 to 1996. Mr. Cauley earned his M.S.I.A., concentrating in Finance
and Economics, from Carnegie Mellon University.

PAIGE WILHELM

     Paige Wilhelm has been the Fund's portfolio  manager since October 1998 and
manages the money market  instruments  category for the Fund. Ms. Wilhelm joined
Federated  in 1985 and has been a Vice  President  of the Fund's  Adviser  since
January 1997.  She served as an Assistant  Vice  President of the Fund's Adviser
from July 1994 to  December  1996 and as an  Investment  Analyst  from July 1991
through June 1994. Ms. Wilhelm earned her M.B.A. from Duquesne University.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.60% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.

YEAR 2000 READINESS

The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.

While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.

The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.

Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities
will have difficulty determining the Year 2000 readiness of those entities.

The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.

FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS

The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.

This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.


<PAGE>





FEDERATED ULTRASHORT BOND FUND

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SERVICE SHARES

A Statement of Additional Information (SAI) dated November 30, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report's Management Discussion & Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, the Annual Report, Semi-Annual Report
and other information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.

You can obtain information about the Fund (including the SAI) by writing or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected]. or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying charges.

INVESTMENT COMPANY ACT FILE NO.811-7115
CUSIP 31428Q606

000000-00 (11/99)

STATEMENT OF ADDITIONAL INFORMATION

FEDERATED ULTRASHORT BOND FUND

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SERVICE SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Federated Ultrashort Bond Fund -
Institutional Service Shares (Fund), dated November 30, 1999. Obtain the
prospectus and the Annual Report's Management Discussion & Analysis without
charge by calling 1-800-341-7400.

   November 30, 1999

CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses

CUSIP 31428Q606

G01922-__ (11/99)


<PAGE>



HOW IS THE FUND ORGANIZED?

     The Fund is a diversified  portfolio of Federated Total Return Series, Inc.
(Corporation).  The Corporation is an open-end,  management  investment  company
that was  established  under the laws of the State of  Maryland  on October  11,
1993. The Corporation may offer separate series of shares representing interests
in separate  portfolios of  securities.  The  Corporation  changed its name from
Insight  Institutional  Series,  Inc. to Federated Total Return Series,  Inc. on
March 21,  1995.  The Fund  changed  its name from  Federated  Limited  Duration
Government Fund to Federated Ultrashort Bond Fund on August 20, 1998.

The Board of Directors (the Board) has established one class of shares of the
Fund, known as Institutional Service Shares (Shares). This SAI relates to this
class of Shares. The Fund's investment adviser is Federated Investment
Management Company (Adviser). Effective March 31, 1999, Federated Management,
former Adviser to the Fund, became Federated Investment Management Company
(formerly, Federated Advisers).

SECURITIES IN WHICH THE FUND INVESTS

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.

The following describes the types of fixed income securities in which the Fund
invests.

TREASURY SECURITIES

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

AGENCY SECURITIES

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.

The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the interest rate and prepayment risks of these mortgage backed
securities.

CORPORATE DEBT SECURITIES

Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers.

In addition, the credit risk of an issuer's debt security may vary based on its
priority for repayment. For example, higher ranking (senior) debt securities
have a higher priority than lower ranking (subordinated) securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event of
bankruptcy, holders of senior securities may receive amounts otherwise payable
to the holders of subordinated securities. Some subordinated securities, such as
trust preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer any
payment that would reduce its capital below regulatory requirements.

        COMMERCIAL PAPER

        Commercial paper is an issuer's obligation with a maturity of less than
        nine months. Companies typically issue commercial paper to pay for
        current expenditures. Most issuers constantly reissue their commercial
        paper and use the proceeds (or bank loans) to repay maturing paper. If
        the issuer cannot continue to obtain liquidity in this fashion, its
        commercial paper may default. The short maturity of commercial paper
        reduces both the market and credit risks as compared to other debt
        securities of the same issuer.

        DEMAND INSTRUMENTS

        Demand instruments are corporate debt securities that the issuer must
        repay upon demand. Other demand instruments require a third party, such
        as a dealer or bank, to repurchase the security for its face value upon
        demand. The Fund treats demand instruments as short-term securities,
        even though their stated maturity may extend beyond one year.

MORTGAGE BACKED SECURITIES

Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.

Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and pre-payments from the underlying mortgages.
As a result, the holders assume all the prepayment risks of the underlying
mortgages.

    COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

    CMOs, including interests in real estate mortgage investment conduits
    (REMICs), allocate payments and prepayments from an underlying pass-through
    certificate among holders of different classes of mortgage backed
    securities. This creates different prepayment and market risks for each CMO
    class. The degree of increased or decreased prepayment risks depends upon
    the structure of the CMOs. However, the actual returns on any type of
    mortgage backed security depend upon the performance of the underlying pool
    of mortgages, which no one can predict and will vary among pools.

        SEQUENTIAL CMOS

        In a sequential pay CMO, one class of CMOs receives all principal
        payments and prepayments. The next class of CMOs receives all principal
        payments after the first class is paid off. This process repeats for
        each sequential class of CMO. As a result, each class of sequential pay
        CMOs reduces the prepayment risks of subsequent classes.

        PACS, TACS AND COMPANION CLASSES

        More sophisticated CMOs include planned amortization classes (PACs) and
        targeted amortization classes (TACs). PACs and TACs are issued with
        companion classes. PACs and TACs receive principal payments and
        prepayments at a specified rate. The companion classes receive principal
        payments and prepayments in excess of the specified rate. In addition,
        PACs will receive the companion classes' share of principal payments, if
        necessary, to cover a shortfall in the prepayment rate. This helps PACs
        and TACs to control prepayment risks by increasing the risks to their
        companion classes.

        IOS AND POS

        CMOs may allocate interest payments to one class (Interest Only or IOs)
        and principal payments to another class (Principal Only or POs). POs
        increase in value when prepayment rates increase. In contrast, IOs
        decrease in value when prepayments increase, because the underlying
        mortgages generate less interest payments. However, IOs tend to increase
        in value when interest rates rise (and prepayments decrease), making IOs
        a useful hedge against market risks.

        FLOATERS AND INVERSE FLOATERS

        Another variant allocates interest payments between two classes of CMOs.
        One class (Floaters) receives a share of interest payments based upon a
        market index such as LIBOR. The other class (Inverse Floaters) receives
        any remaining interest payments from the underlying mortgages. Floater
        classes receive more interest (and Inverse Floater classes receive
        correspondingly less interest) as interest rates rise. This shifts
        prepayment and interest rate risks from the Floater to the Inverse
        Floater class, reducing the price volatility of the Floater class and
        increasing the price volatility of the Inverse Floater class.

        Z CLASSES

        CMOs must allocate all payments received from the underlying mortgages
        to some class. To capture any unallocated payments, CMOs generally have
        an accrual (Z) class. Z classes do not receive any payments from the
        underlying mortgages until all other CMO classes have been paid off.
        Once this happens, holders of Z class CMOs receive all payments and
        prepayments.

PRIVATELY ISSUED MORTGAGE BACKED SECURITIES

Privately issued mortgage securities (including privately issued CMOs) are
issued by private entities, rather than U.S. government agencies. These
securities involve credit risks and liquidity risks. The Fund may invest in
privately issued mortgage backed securities that are rated BBB or higher by a
NRSRO.

ASSET BACKED SECURITIES

Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities have prepayment
risks. Like CMOs, asset backed securities may be structured like Floaters,
Inverse Floaters, IOs and POs.

ZERO COUPON SECURITIES

Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the market and credit risks of a zero coupon security. A zero coupon
step-up security converts to a coupon security before final maturity.

There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs are
the most common forms of stripped zero coupon securities. In addition, some
securities give the issuer the option to deliver additional securities in place
of cash interest payments, thereby increasing the amount payable at maturity.
These are referred to as pay-in-kind or PIK securities.

BANK INSTRUMENTS

     Bank instruments are unsecured  interest bearing deposits with banks.  Bank
instruments  include bank accounts,  time deposits,  certificates of deposit and
banker's  acceptances.  Yankee  instruments are denominated in U.S.  dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are denominated
in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.

CREDIT ENHANCEMENT

Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.

DERIVATIVE CONTRACTS

Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.

Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.

For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.

The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.

Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity and leverage risks.
OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract.

The Fund may trade in the following types of derivative contracts.

FUTURES CONTRACTS

Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date, and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures contracts
are considered to be commodity contracts. Futures contracts traded OTC are
frequently referred to as forward contracts. The Fund may buy and sell the
following types of futures contracts: financial futures, foreign currency
forward contracts, and futures on securities indices.

OPTIONS

Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.

The Fund may:

O Buy put options on portfolio securities and futures contracts in anticipation
of a decrease in the value of the underlying asset.; and O Buy or write options
to close out existing options positions.

The Fund may also write call options on portfolio securities and futures
contracts to generate income from premiums, and in anticipation of a decrease or
only limited increase in the value of the underlying asset. If a call written by
the Fund is exercised, the Fund foregoes any possible profit from an increase in
the market price of the underlying asset over the exercise price plus the
premium received.

The Fund may not buy or sell futures or related options if the margin deposits
and premiums paid for these securities would exceed 5% of the Fund's total
assets.

SWAPS

Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party, and
the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by a
variety of names including caps, floors, and collars. Common swap agreements
that the Fund may use include:

INTEREST RATE SWAPS

Interest rate swaps are contracts in which one party agrees to make regular
payments equal to a fixed or floating interest rate times a stated principal
amount of fixed income securities, in return for payments equal to a different
fixed or floating rate times the same principal amount, for a specific period.
For example, a $10 million LIBOR swap would require one party to pay the
equivalent of the London Interbank Offer Rate of interest (which fluctuates) on
$10 million principal amount in exchange for the right to receive the equivalent
of a stated fixed rate of interest on $10 million principal amount.

CAPS AND FLOORS

Caps and Floors are contracts in which one party agrees to make payments only if
an interest rate or index goes above (Cap) or below (Floor) a certain level in
return for a fee from the other party.

TOTAL RETURN SWAPS

Total return swaps are contracts in which one party agrees to make payments of
the total return from the underlying asset during the specified period, in
return for payments equal to a fixed or floating rate of interest or the total
return from another underlying asset.

INVESTMENT RATINGS FOR NON-INVESTMENT GRADE SECURITIES

Non-investment grade securities (junk bonds) are rated below BBB by a NRSRO.
These bonds have greater credit risk than investment grade securities.

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.

The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS AND BORROWING FOR LEVERAGE

Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase. The
Fund may borrow an amount up to one-third of the Fund's net assets (exclusive of
such borrowings) for leverage purposes.

DELAYED DELIVERY TRANSACTIONS

Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.

SECURITIES LENDING

The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.

Securities lending activities are subject to interest rate and credit risks.

ASSET COVERAGE

In order to secure its obligations in connection with special transactions, the
Fund will either own the underlying assets, enter into an offsetting transaction
or set aside readily marketable securities with a value that equals or exceeds
the Fund's obligations. Unless the Fund has other readily marketable assets to
set aside, it cannot trade assets used to secure such obligations entering into
an offsetting derivative contract or terminating a special transaction. This may
cause the Fund to miss favorable trading opportunities or to realize losses on
special transactions.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.

The Fund may invest in mortgage backed and high yield securities primarily by
investing in another investment company (which is not available for general
investment by the public) that owns those securities and that is advised by an
affiliate of the Adviser. This other investment company is managed independently
of the Fund and may incur additional administrative expenses. Therefore, any
such investment by the Fund may be subject to duplicate expenses. However, the
Adviser believes that the benefits and efficiencies of this approach should
outweigh the potential additional expenses. The Fund may also invest in such
securities directly.

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in the prospectus. Additional risk factors are
outlined below.

INTEREST RATE RISKS

o   Prices of fixed income securities rise and fall in response to changes in
    the interest rate paid by similar securities. Generally, when interest rates
    rise, prices of fixed income securities fall. However, market factors, such
    as the demand for particular fixed income securities, may cause the price of
    certain fixed income securities to fall while the prices of other securities
    rise or remain unchanged.

o   Interest rate changes have a greater effect on the price of fixed income
    securities with longer durations. Duration measures the price sensitivity of
    a fixed income security to changes in interest rates.

CREDIT RISKS

o    Credit risk is the possibility that an issuer will default on a security by
     failing to pay interest or principal when due. If an issuer  defaults,  the
     Fund will lose money.

o    Many fixed income  securities  receive credit ratings from services such as
     Standard & Poor's and Moody's Investor Services, Inc. These services assign
     ratings to securities by assessing the likelihood of issuer default.  Lower
     credit  ratings  correspond  to higher  credit risk.  If a security has not
     received a rating,  the Fund must rely entirely  upon the Adviser's  credit
     assessment. Fixed income securities generally compensate for greater credit
     risk by paying interest at a higher rate. The difference  between the yield
     of a security and the yield of a U.S.  Treasury  security with a comparable
     maturity  (the spread)  measures  the  additional  interest  paid for risk.
     Spreads may increase  generally  in response to adverse  economic or market
     conditions.  A security's spread may also increase if the security's rating
     is lowered,  or the security is perceived to have an increased credit risk.
     An increase in the spread will cause the price of the  security to decline.
     Credit  risk  includes  the  possibility  that  a  party  to a  transaction
     involving the Fund will fail to meet its obligations.  This could cause the
     Fund to lose the  benefit  of the  transaction  or  prevent  the Fund  from
     selling or buying other securities to implement its investment strategy.


PREPAYMENT AND CALL RISKS

o   Unlike traditional fixed income securities, which may pay a fixed rate of
    interest until maturity, when the entire principal amount is due, payments
    on mortgage backed securities include both interest and partial payment of
    principal. This partial payment of principal may be comprised of a scheduled
    principal payment as well as an unscheduled payment from the voluntary
    prepayment, refinancing, or foreclosure of the underlying loans. These
    unscheduled payments of principal can adversely affect the price or yield of
    mortgage backed securities. For example, during periods of declining
    interest rates, prepayments can be expected to accelerate, and the Fund
    would be required to reinvest the proceeds at the lower interest rates then
    available. In addition, like other interest-bearing securities, the values
    of mortgage backed securities generally fall when interest rates rise.

o   Since rising interest rates generally result in decreased prepayments of
    mortgage backed securities, this could cause mortgage backed securities,
    this could cause mortgage securities to have greater average lives than
    expected and their value may decline more than other fixed income
    securities. Conversely, when interest rates fall, their potential for
    capital appreciation is limited due to the existence of the prepayment
    feature.

o   Generally, mortgage backed securities compensate for greater prepayment risk
    by paying a higher yield. The additional interest paid for risk is measured
    by the difference between the yield of a mortgage backed security and the
    yield of a U.S. Treasury security with a comparable weighted average life
    (the spread). An increase in the spread will cause the price of the security
    to decline. Spreads may generally increase in response to adverse economic
    or market conditions.

o   Call risk is the possibility that an issuer may redeem a fixed income
    security before maturity (a call) at a price below its current market price.
    An increase in the likelihood of a call may reduce the security's price.

o   If a fixed income security is called, the Fund may have to reinvest the
    proceeds in other fixed income securities with lower interest rates, higher
    credit risks, or other less favorable characteristics.

LIQUIDITY RISKS

o    Liquidity risk refers to the  possibility  that the Fund may not be able to
     sell a  security  when it wants  to.  If this  happens,  the  Fund  will be
     required to continue to hold the security, and the Fund could incur losses.

o   Trading opportunities are more limited for CMOs that have complex terms or
    that are not widely held. These features may make it more difficult to sell
    or buy a security at a favorable price or time. Consequently, the Fund may
    have to accept a lower price to sell a security, sell other securities to
    raise cash or give up an investment opportunity, any of which could have a
    negative effect on the Fund's performance. Infrequent trading of securities
    may also lead to an increase in their price volatility.

RISKS ASSOCIATED WITH COMPLEX CMOS

o   CMOs with complex terms, such as companion classes, IOs, POs, and Inverse
    Floaters, generally entail greater market, prepayment and liquidity risks
    than other mortgage backed securities. For example, their prices are more
    volatile and their trading market may be more limited.

LEVERAGE RISKS

o    Leverage risk is created when an investment  exposes the Fund to a level of
     risk that  exceeds  the  amount  invested.  Changes in the value of such an
     investment magnify the Fund's risk of loss and potential for gain.


RISKS OF FOREIGN INVESTING

o   Foreign securities pose additional risks because foreign economic or
    political conditions may be less favorable than those of the United States.
    Securities in foreign markets may also be subject to taxation policies that
    reduce returns for U.S. investors.

o   Foreign companies may not provide information (including financial
    statements) as frequently or to as great an extent as companies in the
    United States. Foreign companies may also receive less coverage than United
    States companies by market analysts and the financial press. In addition,
    foreign countries may lack uniform accounting, auditing and financial
    reporting standards or regulatory requirements comparable to those
    applicable to U.S. companies. These factors may prevent the Fund and its
    Adviser from obtaining information concerning foreign companies that is as
    frequent, extensive and reliable as the information available concerning
    companies in the United States.

o   Foreign countries may have restrictions on foreign ownership of securities
    or may impose exchange controls, capital flow restrictions or repatriation
    restrictions which could adversely affect the liquidity of the Fund's
    investments.

CURRENCY RISKS

o   Exchange rates for currencies fluctuate daily. The combination of currency
    risk and market risks tends to make securities traded in foreign markets
    more volatile than securities traded exclusively in the U.S.

o   The Adviser attempts to manage currency risk by limiting the amount the Fund
    invests in securities denominated in a particular currency. However,
    diversification will not protect the Fund against a general increase in the
    value of the U.S. dollar relative to other currencies.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

o   Securities rated below investment grade, also known as junk bonds, generally
    entail greater market, credit and liquidity risks than investment grade
    securities. For example, their prices are more volatile, economic downturns
    and financial setbacks may affect their prices more negatively, and their
    trading market may be more limited.

FUNDAMENTAL INVESTMENT OBJECTIVE

The Fund's investment objective is to provide total return consistent with
current income. The investment objective may not be changed by the Fund's
Directors without shareholder approval.

INVESTMENT LIMITATIONS

SELLING SHORT AND BUYING ON MARGIN

     The Fund will not sell any  securities  short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for clearance
of purchases and sales of portfolio  securities.  BORROWING  MONEY The Fund will
not  borrow  money,  except to the  extent  permitted  under the 1940 Act (which
currently  limits  borrowings to no more than 33 1/3% of the value of the Fund's
total  assets).  For  purposes of this  investment  restriction,  the entry into
options,  forward  contracts,  futures  contracts,  including  those  related to
indices,  options on futures contracts or indices,  and dollar roll transactions
shall not constitute borrowing.

DIVERSIFICATION OF INVESTMENTS

With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities issued by any one issuer (other than cash,
cash items, or securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, and repurchase agreements collateralized by such
securities) if, as a result, more than 5% of the value of its total assets would
be invested in the securities of that issuer, and will not acquire more than 10%
of the outstanding voting securities of any one issuer.

PLEDGING ASSETS

The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may mortgage, pledge, or hypothecate
assets having a market value not exceeding 10% of the value of total assets at
the time of the borrowing. LENDING CASH OR SECURITIES The Fund will not lend any
assets except portfolio securities. (This will not prevent the purchase or
holding of bonds, debentures, notes, certificates of indebtedness or other debt
securities of an issuer, repurchase agreements or other transactions which are
permitted by the Fund's investment objective and policies or Articles of

Incorporation).

ISSUING SENIOR SECURITIES

The Fund will not issue senior securities, except as permitted by its investment
objective and policies.

THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD OF
DIRECTORS (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT. THE FOLLOWING
LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL.
SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS
BECOMES EFFECTIVE.

INVESTING IN RESTRICTED AND ILLIQUID SECURITIES

The Fund will not invest more than 15% of its net assets in illiquid securities,
including certain restricted securities, including certain restricted securities
not determined to be liquid under criteria established by the Directors,
non-negotiable time deposits, and repurchase agreements providing for settlement
in more than seven days after notice.

Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.

As a matter of operating policy, the Fund will not purchase any securities while
borrowings in excess of 5% of its total assets are outstanding.

PORTFOLIO TURNOVER

INSTRUCTION: FOR ANY FUND, OTHER THAN MONEY MARKET FUNDS, EXPLAIN ANY
SIGNIFICANT VARIATION IN THE FUND'S PORTFOLIO TURNOVER RATES FOR THE LAST TWO
FISCAL YEARS OR ANY ANTICIPATED VARIATION IN THE TURNOVER RATE FROM THAT
REPORTED FOR THE LAST FISCAL YEAR. THIS SHOULD BE DRAFTED BY THE ATTORNEY AFTER
DISCUSSION WITH THE PORTFOLIO MANAGER.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

        for fixed income securities, at the last sale price on a national
securities exchange, if available, otherwise, as determined by an independent
pricing service;

o  futures contracts and options are generally valued at market values
   established by the exchanges on which they are traded at the close of trading
   on such exchanges. Options traded in the over-the-counter market are
   generally valued according to the mean between the last bid and the last
   asked price for the option as provided by an investment dealer or other
   financial institution that deals in the option. The Board may determine in
   good faith that another method of valuing such investments is necessary to
   appraise their fair market value;

        for short-term obligations, according to the mean between bid and asked
   prices as furnished by an independent pricing service, except that short-term
   obligations with remaining maturities of less than 60 days at the time of
   purchase may be valued at amortized cost or at fair market value as
   determined in good faith by the Board; and

     for all other  securities  at fair value as determined in good faith by the
Board.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.


<PAGE>



WHAT DO SHARES COST?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.

The NAV for each class of Shares may differ due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.

HOW IS THE FUND SOLD?

     Under the Distributor's  Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

RULE 12B-1 PLAN - INSTITUTIONAL SERVICE SHARES

As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.

The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.

SHAREHOLDER SERVICES

The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.

SUPPLEMENTAL PAYMENTS

Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.

Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.

SUBACCOUNTING SERVICES

Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.

Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.

Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.

Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote.

All Shares of the Corporation have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.

Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote.

     As of  November  __,  1999,  the  following  shareholders  owned of record,
beneficially,  or  both,  5% or more of  outstanding  Shares:  (TO BE  FILED  BY
AMENDMENT.)

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

TAX INFORMATION

FEDERAL INCOME TAX

The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.

The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.

INSTRUCTION:  IF THE FUND HAS A LOSS CARRY-FORWARD, ADD THE FOLLOWING SENTENCE.

The Fund is entitled to a loss carry-forward, which may reduce the taxable
income or gain that the Fund would realize, and to which the shareholder would
be subject, in the future.

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF DIRECTORS

The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of four funds and the Federated Fund Complex is
comprised of 54 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.

As of November __, 1999, the Fund's Board and Officers as a group owned less
than 1% of the Fund's outstanding Institutional and Institutional Service
Shares.


<TABLE>
<CAPTION>


NAME                                                                        AGGREGATE       TOTAL
BIRTH DATE                                                                  COMPENSATION    COMPENSATION
ADDRESS                    PRINCIPAL OCCUPATIONS                            FROM            FROM CORPORATION
POSITION WITH              FOR PAST FIVE YEARS                              CORPORATION     AND FUND COMPLEX
CORPORATION

<S>                       <C>                                              <C>             <C>

JOHN F. DONAHUE*#+         Chief Executive Officer and Director or                     $0   $0 for the
Birth Date: July 28,       Trustee of the Federated Fund Complex;                           Corporation
1924                       Chairman and Director, Federated Investors,                      and 54 other
Federated Investors        Inc.; Chairman and Trustee, Federated                            investment
Tower                      Investment Management Company; Chairman and                      companies in the
1001 Liberty Avenue        Director, Federated Investment Counseling,                       Fund Complex
Pittsburgh, PA             and Federated Global Investment Management
CHARIMAN and DIRECTOR      Corp.; Chairman, Passport Research, Ltd.

THOMAS G. BIGLEY           Director or Trustee of the Federated Fund                    $   $113,860.22 for the
Birth Date: February 3,    Complex; Director, Member of Executive                           Corporation and
1934                       Committee, Children's Hospital of Pittsburgh;                    54 other investment
15 Old Timber Trail        Director, Robroy Industries, Inc. (coated                        companies in the
Pittsburgh, PA             steel conduits/computer storage equipment);                      Fund Complex
DIRECTOR                   formerly: Senior Partner, Ernst & Young LLP;
                           Director, MED 3000 Group, Inc. (physician
                           practice management); Director, Member of
                           Executive Committee, University of Pittsburgh.

JOHN T. CONROY, JR.        Director or Trustee of the Federated Fund                    $   $125,264.48 for the
Birth Date: June 23,       Complex; President, Investment Properties                        Corporation and
1937                       Corporation; Senior Vice President,                              54 other investment
Wood/Commercial Dept.      John R. Wood and Associates, Inc., Realtors;                     companies in the
John R. Wood               Partner or Trustee in private real estate                        Fund Complex

Associates, Inc.           ventures in Southwest Florida; formerly:
Realtors                   President, Naples Property Management, Inc.
3255 Tamiami Trail         and Northgate Village Development Corporation.
North

Naples, FL

DIRECTOR

NICHOLAS CONSTANTAKIS      Director or Trustee of the Federated Fund                    $   $47,958.02 for the
Birth Date: September      Complex; formerly: Partner, Andersen                             Corporation and

3, 1939                    Worldwide SC.                                                    29 other investment
175 Woodshire Drive                                                                         companies
Pittsburgh, PA                                                                              in the Fund Complex

DIRECTOR

JOHN F. CUNNINGHAM         Director or Trustee of some of the Federated                 $   $0 for the
Birth Date: March 5,       Fund Complex; Chairman, President and Chief                      Corporation
1943                       Executive Officer, Cunningham & Co., Inc.                        and 46 other
353 El Brillo Way          (strategic business consulting) ; Trustee                        investment
Palm Beach, FL             Associate, Boston College; Director, Iperia                      companies in the
DIRECTOR                   Corp. (communications/software); formerly:                       Fund Complex
                           Director, Redgate Communications and EMC Corporation
                           (computer storage systems).

                           Previous Positions: Chairman of the Board and
                           Chief Executive Officer, Computer Consoles,
                           Inc.; President and Chief Operating Officer,
                           Wang Laboratories; Director, First National
                           Bank of Boston; Director, Apollo Computer,

                           Inc.

LAWRENCE D. ELLIS, M.D.*   Director or Trustee of the Federated Fund                    $   $113,860.22 for the
Birth Date: October 11,    Complex; Professor of Medicine, University of                    Corporation and
1932                       Pittsburgh; Medical Director, University of                      54 other investment
3471 Fifth Avenue          Pittsburgh Medical Center - Downtown;                            companies in the
Suite 1111                 Hematologist, Oncologist, and Internist,                         Fund Complex
Pittsburgh, PA             University of Pittsburgh Medical Center;
DIRECTOR                   Member, National Board of Trustees, Leukemia
                           Society of America.

PETER E. MADDEN            Director or Trustee of the Federated Fund                    $   $113,860.22 for the
Birth Date: March 16,      Complex; formerly: Representative,                               Corporation and
1942                       Commonwealth of Massachusetts General Court;                     54 other investment
One Royal Palm Way         President, State Street Bank and Trust                           companies in the
100 Royal Palm Way         Company and State Street Corporation.                            Fund Complex
Palm Beach, FL

DIRECTOR                   Previous Positions: Director, VISA USA and
                           VISA International; Chairman and Director,
                           Massachusetts Bankers Association; Director,
                           Depository Trust Corporation; Director, The
                           Boston Stock Exchange.

CHARLES F. MANSFIELD,      Director or Trustee of some of the Federated                 $   $0 for the
JR.                        Fund Complex; Management Consultant.                             Corporation and
Birth Date: April 10,                                                                       50 other investment
1945                       Previous Positions: Chief Executive Officer,                     companies in the
80 South Road              PBTC International Bank; Partner, Arthur                         Fund Complex

Westhampton Beach, NY      Young & Company (now Ernst & Young LLP);
DIRECTOR                   Chief Financial Officer of Retail Banking

                           Sector, Chase Manhattan Bank; Senior Vice
                           President, Marine Midland Bank; Vice
                           President, Citibank; Assistant Professor of
                           Banking and Finance, Frank G. Zarb School of
                           Business, Hofstra University.

JOHN E. MURRAY, JR.,       Director or Trustee of the Federated Fund                    $   $113,860.22 for the
J.D., S.J.D.#              Complex; President, Law Professor, Duquesne                      Corporation and
Birth Date: December       University; Consulting Partner, Mollica &                        54 other investment
20, 1932                   Murray; Director, Michael Baker Corp.                            companies in the
President, Duquesne        (engineering, construction, operations, and                      Fund Complex
University                 technical services).
Pittsburgh, PA

DIRECTOR                   Previous Positions: Dean and Professor of
                           Law, University of Pittsburgh School of Law;
                           Dean and Professor of Law, Villanova
                           University School of Law.

MARJORIE P. SMUTS          Director or Trustee of the Federated Fund                    $   $113,860.22 for the
Birth Date: June 21,       Complex; Public                                                  Corporation and
1935                       Relations/Marketing/Conference Planning.                         54 other investment
4905 Bayard Street                                                                          companies in the
Pittsburgh, PA             Previous Positions: National Spokesperson,                       Fund Complex
DIRECTOR                   Aluminum Company of America; television
                           producer; business owner.

JOHN S. WALSH              Director or Trustee of some of the Federated                 $   $0 for the
Birth Date: November       Fund Complex; President and Director, Heat                       Corporation and
28, 1957                   Wagon, Inc. (manufacturer of construction                        48 other investment
2007 Sherwood Drive        temporary heaters); President and Director,                      companies in the
Valparaiso, IN             Manufacturers Products, Inc. (distributor of                     Fund Complex
DIRECTOR                   portable construction heaters); President,
                           Portable Heater Parts, a division of
                           Manufacturers Products, Inc.; Director, Walsh
                           & Kelly, Inc. (heavy highway contractor);
                           formerly: Vice President, Walsh & Kelly, Inc.

GLEN R. JOHNSON            Staff member, Federated Securities Corp.                     $   $0 for the
 Birth Date: May 2, 1929                                                                    Corporation and
Federated Investors                                                                         8 other investment

Tower                                                                                       companies in the

1001 Liberty Avenue                                                                         Fund Complex
Pittsburgh, PA

PRESIDENT

J. CHRISTOPHER DONAHUE*+   President or Executive Vice President of the                $0   $0 for the
Birth Date: April 11,      Federated Fund Complex; Director or Trustee                      Corporation and
1949                       of some of the Funds in the Federated Fund                       16 other investment
Federated Investors        Complex; President, CEO and Director,                            companies in the
Tower                      Federated Investors, Inc.; President and                         Fund Complex
1001 Liberty Avenue        Trustee, Federated Investment Management
Pittsburgh, PA             Company; President and Trustee, Federated
EXECUTIVE VICE             Investment Counseling; President and
PRESIDENT and              Director, Federated Global Investment
DIRECTOR                   Management Corp.; President, Passport
                           Research, Ltd.; Trustee, Federated
                           Shareholder Services Company; Director,
                           Federated Services Company.


<PAGE>



EDWARD C. GONZALES         Trustee or Director of some of the Funds in                 $0   $0 for the
Birth Date: October 22,    the Federated Fund Complex; President,                           Corporation and 1
1930                       Executive Vice President and Treasurer of                        other investment
Federated Investors        some of the Funds in the Federated Fund                          company
Tower                      Complex; Vice Chairman, Federated Investors,                     in the Fund Complex
1001 Liberty Avenue        Inc.; Vice President, Federated Investment
Pittsburgh, PA             Management Company, Federated Investment
EXECUTIVE VICE PRESIDENT   Counseling, Federated Global Investment
                           Management Corp. and Passport Research, Ltd.;
                           Executive Vice President and Director,
                           Federated Securities Corp.; Trustee,
                           Federated Shareholder Services Company.

JOHN W. MCGONIGLE          Executive Vice President and Secretary of the               $0   $0 for the
Birth Date: October 26,    Federated Fund Complex; Executive Vice                           Corporation and
1938                       President, Secretary, and Director, Federated                    54 other investment
Federated Investors        Investors, Inc.; Trustee, Federated                              companies in the
Tower                      Investment Management Company; Trustee,                          Fund Complex
1001 Liberty Avenue Federated Investment Counseling and Director, Pittsburgh, PA
Federated Global Investment Management Corp.; EXECUTIVE VICE Director, Federated
Services Company; PRESIDENT and SECRETARY Director, Federated Securities Corp.

RICHARD J. THOMAS          Treasurer of the Federated Fund Complex; Vice               $0   $0 for the
Birth Date: June 17,       President - Funds Financial Services                             Corporation and
1954                       Division, Federated Investors, Inc.;                             54 other investment
Federated Investors        formerly: various management positions within                    companies in the
Tower                      Funds Financial Services Division of                             Fund Complex

1001 Liberty Avenue        Federated Investors, Inc.
Pittsburgh, PA

TREASURER

WILLIAM D. DAWSON, III     Chief Investment Officer of this Fund and                   $0   $0 for the
Birth Date: March 3,       various other Funds in the Federated Fund                        Corporation and
1949                       Complex; Executive Vice President, Federated                     41 other investment
Federated Investors        Investment Counseling, Federated Global                          companies in the
Tower                      Investment Management Corp., Federated                           Fund Complex
1001 Liberty Avenue        Investment Management Company and Passport
Pittsburgh, PA             Research, Ltd.; Registered Representative,
CHIEF INVESTMENT OFFICER   Federated Securities Corp.; Portfolio

                           Manager, Federated Administrative Services; Vice
                           President, Federated Investors, Inc.; formerly:
                           Executive Vice President and Senior Vice President,
                           Federated Investment Counseling Institutional
                           Portfolio Management Services Division; Senior Vice
                           President, Federated Investment Management Company
                           and Passport Research, Ltd.

JOSEPH M. BALESTRINO       Joseph M. Balestrino is Vice President of the               $0   $0 for the
Birth Date: November 3,    Corporation.  Mr. Balestrino joined Federated                    Corporation
1954                       in 1986 and has been a Senior Portfolio                          and 3 other
Federated Investors        Manager and Senior Vice President of the                         investment
Tower                      Fund's Adviser since 1998. He was a Portfolio                    companies in the
1001 Liberty Avenue        Manager and a Vice President of the Fund's                       Fund Complex
Pittsburgh, PA             Adviser from 1995 to 1998. Mr. Balestrino
VICE PRESIDENT             served as a Portfolio Manager and an
                           Assistant Vice President of the Adviser from
                           1993 to 1995. Mr. Balestrino is a Chartered
                           Financial Analyst and received his Master's
                           Degree in Urban and Regional Planning from
                           the University of Pittsburgh.
</TABLE>

* AN ASTERISK DENOTES A DIRECTOR WHO IS DEEMED TO BE AN INTERESTED PERSON AS
DEFINED IN THE INVESTMENT COMPANY ACT OF 1940.

# A POUND SIGN DENOTES A MEMBER OF THE BOARD'S EXECUTIVE COMMITTEE, WHICH
HANDLES THE BOARD'S RESPONSIBILITIES BETWEEN ITS MEETINGS.

     + MR.  DONAHUE  IS THE FATHER OF J.  CHRISTOPHER  DONAHUE,  EXECUTIVE  VICE
PRESIDENT AND DIRECTOR OF THE CORPORATION.

++MESSR. CUNNINGHAM, MANSFIELD AND WALSH BECAME MEMBERS OF THE BOARD OF
DIRECTORS ON ___________.THEY DID NOT EARN ANY FEES FOR SERVING THE FUND COMPLEX
SINCE THESE FEES ARE REPORTED AS OF THE END OF THE LAST CALENDAR YEAR. THEY DID
NOT RECEIVE ANY FEES AS OF THE FISCAL YEAR END OF THE COMPANY.

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly owned subsidiary of Federated.

The Adviser shall not be liable to the Corporation or any Fund shareholder for
any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Corporation.

OTHER RELATED SERVICES

Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms which have sold or
are selling Shares of the Fund and other funds distributed by the Distributor
and its affiliates. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Fund's Board.

For the fiscal year ended, September 30, 1999, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $_______ for which the Fund
paid $_______ in brokerage commissions.

On September 30, 1999, the Fund owned securities of the following regular
broker/dealers: [identify issuer name and aggregate dollar amount of debt and
equity securities held by Fund].

Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.

ADMINISTRATOR

Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:

MAXIMUM ADMINISTRATIVE      AVERAGE AGGREGATE DAILY NET ASSETS OF THE FEDERATED
FEE                             FUNDS
0.150 of 1%                     on the first $250 million
0.125 of 1%                     on the next $250 million
0.100 of 1%                     on the next $250 million
0.075 of 1%                     on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN

State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.

INDEPENDENT AUDITORS

The independent auditor for the Fund, Ernst & Young LLP, plans and performs its
audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.

FEES PAID BY THE FUND FOR SERVICES

FOR THE YEAR ENDED SEPTEMBER 30,           1999                     1998
 Advisory Fee Earned                         $                     $17,399
Advisory Fee Reduction                       $                     $17,399
Brokerage Commissions                        $                       $0
Administrative Fee                           $                    $143,535
12b-1 Fee
  Institutional Service Shares               $                     $3,322
Shareholder Services Fee
  Institutional Service Shares               $                       --

Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.

HOW DOES THE FUND MEASURE PERFORMANCE?

The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.

The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns given for the one-year and Start of Performance periods ended
September 30, 1999.

Yield given for the 30-day period ended September 30, 1999.

<TABLE>
<CAPTION>
<S>                        <C>                 <C>        <C>        <C>        <C>
                           30-DAY PERIOD       1 Year     5 Years    10 Years    Start of Performance
                                                                                    on ____________
INSTITUTIONAL
SERVICE SHARES

Total Return                     NA                          NA         NA
Yield                                            NA          NA         NA                NA
</TABLE>


TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.

When Shares of a Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.

YIELD

The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.

To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

o    references  to  ratings,   rankings,   and  financial  publications  and/or
     performance comparisons of Shares to certain indices;

o    charts,  graphs and illustrations  using the Fund's returns,  or returns in
     general,   that  demonstrate   investment  concepts  such  as  tax-deferred
     compounding, dollar-cost averaging and systematic investment;

o    discussions  of economic,  financial and political  developments  and their
     impact on the securities market, including the portfolio manager's views on
     how such developments could impact the Funds; and

o    information  about  the  mutual  fund  industry  from  sources  such as the
     Investment Company Institute.

The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:

LIPPER ULTRASHORT BOND FUND AVERAGE ranks funds that invest 65% of their assets
in investment grade debt issues and maintain a portfolio dollar-weighted average
maturity between 91 and 365 days.

SALOMON SMITH BARNEY U.S. TREASURY BENCHMARK (ON-THE-RUN) INDEXES is composed of
total returns for the current 1-year, 2-year, 3-year, 5-year, 10-year and
30-year on-the-run Treasury that has been in existence for the entire month.

WHO IS FEDERATED INVESTORS, INC.?

Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.

EQUITY FUNDS

In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.

CORPORATE BOND FUNDS

In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.

GOVERNMENT FUNDS

In the government sector, as of December 31, 1998, Federated manages 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.

MONEY MARKET FUNDS

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.

     The Chief  Investment  Officers  responsible  for  oversight of the various
investment  sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A.  Frantzen.  The Chief  Investment  Officers are Executive Vice
Presidents of the Federated advisory companies.

MUTUAL FUND MARKET

Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.

FEDERATED CLIENTS OVERVIEW

Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

INSTITUTIONAL CLIENTS

Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.

BANK MARKETING

Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.


<PAGE>



INVESTMENT RATINGS

STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS

AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher-rated issues only in small degree.

A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.

BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.

BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.

B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.

CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B rating.

CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.

C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS

AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.

A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

BAA--Bonds which are rated BAA are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

BA--Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA--Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C--Bonds which are rated C are the lowest-rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS

AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.

A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.

B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C--Bonds are imminent default in payment of interest or principal.

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS

PRIME-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:

o    Leading market positions in well-established industries;

o    High rates of return on funds employed;

o    Conservative  capitalization  structure with moderate  reliance on debt and
     ample asset protection;

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

o    Well-established access to a range of financial markets and assured sources
     of alternate liquidity.

PRIME-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS

FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.

FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.


Latest Update:  August 11, 1999

ADDRESSES

FEDERATED ULTRASHORT BOND FUND

Institutional Service Shares

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

INVESTMENT ADVISER

Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue

Pittsburgh, PA 15222-3779

CUSTODIAN

State Street Bank and Trust Company
P.O. Box 8600

Boston, MA 02266-8600

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

INDEPENDENT AUDITORS

Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072

PROSPECTUS

FEDERATED MORTGAGE FUND

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SHARES

A mutual fund seeking to provide total return by investing at least 65% of its
assets in a diversified portfolio of mortgage backed securities.

As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.

CONTENTS

Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information

   November 30, 1999


<PAGE>



RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide total return. The Fund's total
return will consist of two components: 1) changes in the market value of its
portfolio of securities (both realized and unrealized appreciation); and 2)
income received from its portfolio of securities. The Fund expects that income
will comprise the largest component of its total return. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing at least 65% of its
assets in governmental and investment grade, non-governmental, mortgage backed
securities.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

o    INTEREST RATE RISK.  Prices of the fixed income  securities  generally fall
     when interest rates rise.

o   PREPAYMENT RISK. When homeowners prepay their mortgages in response to lower
    interest rates, the Fund will be required to reinvest the proceeds at the
    lower interest rates available. Also, when interest rates fall, the price of
    mortgage backed securities may not rise to as great an extent as that of
    other fixed income securities.

o   CREDIT RISK. It is possible that issuers of non- governmental mortgage
    backed securities in which the Fund invests will fail to pay interest or
    principal on these securities when due, which would result in the Fund
    losing money.

o    LIQUIDITY RISK. The non-governmental mortgage backed securities and complex
     CMOs in which the Fund  invests may be less readily  marketable  and may be
     subject to greater fluctuation in price than other securities.

o   RISKS ASSOCIATED WITH COMPLEX CMOS. The Fund invests in a form of mortgage
    backed securities known as collateral mortgage obligations (CMOs), some of
    which have complex terms which make them subject to greater interest rate,
    prepayment and liquidity risks than other mortgage backed securities.

The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency.


<PAGE>



RISK/RETURN BAR CHART AND TABLE

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of the Fund's Institutional Shares as of the calendar
year-end for one year.

The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of __% up to __% .

The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features one distinct
vertical bar, shaded in charcoal, and visually representing by height the total
return percentage for the calendar year stated directly at its base. The
calculated total return percentage for the Fund's Institutional Shares for the
calendar year is stated directly at the top of the bar. For the calendar year
1998, the percentage noted is ___%.

The bar chart shows the variability of the Fund's Institutional Shares' total
returns on a calendar year-end basis.

The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.

The Fund's total return for the nine-month period from January 1, 1999 to
September 30, 1999 was ____%.

Within the period shown in the Chart, the Fund's highest quarterly return was
___% (quarter ended ______). Its lowest quarterly return was ___% (quarter ended
_________).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Institutional Shares' and
Institutional Service Shares' Average Annual Total Returns for the calendar
period ended 1998. The table shows the Fund's total returns averaged over a
period of years relative to (name of index), a broad-based market index. Indexes
are unmanaged, and it is not possible to invest directly in an index.

                     INSTITUTIONAL    INSTITUTIONAL   BROAD-BASED    OTHER INDEX

CALENDAR PERIOD      SHARES           SERVICE         INDEX          OR AVERAGE
                                      SHARES          (REQUIRED)     (OPTIONAL)

1 Year
Start of

Performance1

1 THE FUND'S INSTITUTIONAL SHARES' AND INSTITUTIONAL SERVICE SHARES' START OF
PERFORMANCE DATE WAS MAY 31, 1997.

     The Fund's  Institutional  Shares'  7-Day Net Yield as of _______  was __%.
Investors  may call the Fund at  1-800-____  to acquire  the  current  7-Day Net
Yield.

Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.


<PAGE>



 WHAT ARE THE FUND'S FEES AND EXPENSES?

FEDERATED MORTGAGE FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Shares.

SHAREHOLDER FEES

FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a            None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable)    None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and
other Distributions) (as a percentage of offering price)          None
Redemption Fee (as a percentage of amount redeemed, if            None
applicable)
Exchange Fee                                                      None

ANNUAL FUND OPERATING EXPENSES (Before [Reimbursements/Waivers])(1) EXPENSES
THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee 0.40% Distribution (12b-1) Fee None Shareholder Services Fee
0.25% Other Expenses % Total Annual Fund Operating Expenses % 1 Although not
contractually obligated to do so, the [adviser will

   (waive/reimburse)] [adviser (waived/reimbursed)] [and] [distributor (will
   reimburse/reimbursed)] certain amounts. These are shown below along with
   the net expenses the Fund  [ACTUALLY PAID] [EXPECTS TO PAY] for the
   fiscal year ended [Insert FYE].
   Total[Reimbursements/Waivers] of Fund Expenses                 %
   Total Actual Annual Fund Operating Expenses (after             %
   [reimbursements/waivers])

2 [Insert Applicable footnote as provided by State Street Bank. Please note that
  funds with sliding scale management fees should footnote the details of that
  sliding scale in the management fee footnote since it puts the actual fee in
  appropriate context.]

3 [Insert Applicable footnote as provided by State Street Bank.]

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Institutional Shares with the cost of investing in other mutual funds. The
Example assumes that you invest $10,000 in the Fund's Institutional Shares for
the time periods indicated and then redeem all of your Shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's Insitutional Shares operating expenses are [BEFORE
REIMBURSEMENTS/WAIVERS] as [estimated] [shown] in the table and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

1 YEAR     3 YEARS     5 YEARS    10 YEARS
     $           $           $           $



<PAGE>



WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

The Fund invests primarily in a portfolio of U.S. government mortgage backed
securities, and investment grade, non-governmental mortgage backed securities. A
description of the various types of securities in which the Fund invests, and
their risks, immediately follows this strategy section.

Mortgage backed securities generally offer higher relative yields versus
comparable U.S. Treasury securities to compensate for prepayment risk.
Prepayment risk is the unscheduled partial or complete payment of the principal
outstanding on a mortgage loan (or asset backed loan) by the homeowner (or
borrower). One important reason for prepayments is changes in market interest
rates from the time of loan origination. The Adviser actively manages the Fund's
portfolio, seeking the higher relative returns of mortgage and asset backed
securities while attempting to limit the prepayment risk.

The Adviser attempts to manage the Fund's prepayment risk by selecting mortgage
backed securities with characteristics that make prepayments less likely.
Characteristics that the Adviser may consider in selecting securities include
the average interest rates of the underlying loans, the prior prepayment history
of the loans and the federal agencies or private entities that back the loans.
The Adviser attempts to assess the relative returns and risks of mortgage backed
securities by analyzing how the timing, amount and division of cash flows from
the pool of loans underlying the security might change in response to changing
economic and market conditions.

The Adviser selects securities with longer or shorter duration based on its
interest rate outlook. The Adviser generally shortens the portfolio's average
duration when it expects interest rates to rise, and extends duration when it
expects interest rates to fall. Duration measures the price sensitivity of a
portfolio of fixed income securities to changes in interest rates. The Adviser
formulates its interest rate outlook and otherwise attempts to anticipate
changes in economic and market conditions by analyzing a variety of factors such
as:

o .......current and expected U.S. economic growth;

o        current and expected interest rates and inflation;

o        the Federal Reserve's monetary policy; and

o        changes in the supply of or demand for U.S. government securities.

The Adviser may use options and futures as a hedge to attempt to protect
securities in its portfolio against decreases in value resulting from changes in
interest rates. There is no assurance that the Adviser's efforts to forecast
market interest rates, assess the impact of market interest rates on particular
securities or hedge its portfolio through the use of options and futures will be
successful.

The Adviser may use collateralized mortgage obligations (CMOs) to reduce
prepayment risk. In addition, the Adviser may use combinations of CMOs and other
mortgage backed securities to attempt to provide a higher yielding investment
with lower sensitivity to fluctuations in interest rates. The Adviser may also
attempt to take advantage of current and potential yield differentials existing
from time to time between various mortgage and asset backed securities in order
to increase the Fund's return, and may engage in dollar roll transactions for
their potential to enhance income.

TEMPORARY DEFENSIVE INVESTMENTS

The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash and shorter-term debt securities and similar
obligations. It may do this to minimize potential losses and maintain liquidity
to meet shareholder redemptions during adverse market conditions. This may cause
the Fund to give up greater investment returns to maintain the safety of
principal, that is, the original amount invested by shareholders.

PORTFOLIO TURNOVER

Prepayments of mortgage backed securities will cause the Fund to have an
increased portfolio turnover rate. Portfolio turnover increases the Fund's
trading costs and may have an adverse impact on the Fund's performance.

HEDGING

Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different derivatives
contracts, or derivatives contracts and securities. The Fund's ability to hedge
may be limited by the costs of the derivatives contracts. The Fund may attempt
to lower the cost of hedging by entering into transactions that provide only
limited protection, including transactions that (1) hedge only a portion of its
portfolio, (2) use derivatives contracts that cover a narrow range of
circumstances or (3) involve the sale of derivatives contracts with different
terms. Consequently, hedging transactions will not eliminate risk even if they
work as intended. In addition, hedging strategies are not always successful, and
could result in increased expenses and losses to the Fund.

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
fixed rate. The rate may be a fixed percentage of principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security normally within a specified time.

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.

The following describes the principal types of fixed income securities in which
the Fund invests:

AGENCY SECURITIES

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as Treasury
securities.

The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the interest rate and prepayment risks of these mortgage backed
securities.

MORTGAGE BACKED SECURITIES

Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.

Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and prepayments from the underlying mortgages. As
a result, the holders assume all the prepayment risks of the underlying
mortgages.

    COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

    CMOs, including interests in real estate mortgage investment conduits
    (REMICs), allocate payments and prepayments from an underlying pass-through
    certificate among holders of different classes of mortgage backed
    securities. This creates different prepayment and interest rate risks for
    each CMO class. The degree of increased or decreased prepayment risk depends
    upon the structure of the CMOs. However, the actual returns on any type of
    mortgage security depend upon the performance of the underlying pool of
    mortgages, which no one can predict and which will vary among pools. The
    Fund will invest only in CMOs that are rated A or better by a nationally
    recognized rating service.

        SEQUENTIAL CMOS

        In a sequential pay CMO, one class of CMOs receives all principal
        payments and prepayments. The next class of CMOs receives all principal
        payments after the first class is paid off. This process repeats for
        each sequential class of CMO. As a result, each class of sequential pay
        CMOs reduces the prepayment risks of subsequent classes.

        PACS, TACS AND COMPANION CLASSES

        More sophisticated CMOs include planned amortization classes (PACs) and
        targeted amortization classes (TACs). PACs and TACs are issued with
        companion classes. PACs and TACs receive principal payments and
        prepayments at a specified rate. The companion classes receive principal
        payments and prepayments in excess of the specified rate. In addition,
        PACs will receive the companion classes' share of principal payments, if
        necessary, to cover a shortfall in the prepayment rate. This helps PACs
        and TACs to control prepayment risks by increasing the risks to their
        companion classes.

        IOS AND POS

        CMOs may allocate interest payments to one class (Interest Only or IOs)
        and principal payments to another class (Principal Only or POs). POs
        increase in value when prepayment rates increase. In contrast, IOs
        decrease in value when prepayments increase, because the underlying
        mortgages generate less interest payments. However, IOs tend to increase
        in value when interest rates rise (and prepayments decrease), making IOs
        a useful hedge against interest rate risks.

        FLOATERS AND INVERSE FLOATERS

        Another variant allocates interest payments between two classes of CMOs.
        One class (Floaters) receives a share of interest payments based upon a
        market index such as LIBOR. The other class (Inverse Floaters) receives
        any remaining interest payments from the underlying mortgages. Floater
        classes receive more interest (and Inverse Floater classes receive
        correspondingly less interest) as interest rates rise. This shifts
        prepayment and interest rate risks from the Floater to the Inverse
        Floater class, reducing the price volatility of the Floater class and
        increasing the price volatility of the Inverse Floater class.

NON-GOVERNMENTAL MORTGAGE BACKED SECURITIES

Non-governmental mortgage backed securities (including non-governmental CMOs)
are issued by private entities, rather than by U.S. government agencies. These
securities involve credit risks and liquidity risks. The Fund may invest in
non-governmental mortgage backed securities that are rated BBB or higher by a
nationally recognized statistical rating agency.

MORTGAGE RELATED ASSET BACKED SECURITIES

Asset backed securities are payable from pools of obligations other than first
mortgages. Most asset backed securities involve consumer or commercial debts.
The Fund will purchase only mortgage related asset backed securities such as
home equity loans, secured mortgages and manufactured housing obligations. Asset
backed securities may take the form of commercial paper, notes, or pass through
certificates. Asset backed securities have prepayment risks. Like CMOs, asset
backed securities may be structured like Floaters, Inverse Floaters, IOs and
POs. Also, asset backed securities may be issued by a private entity and,
although these securities must be rated investment grade, they present credit
risks.

CREDIT ENHANCEMENT

Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.

DERIVATIVE CONTRACTS

Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.

Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.

For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.

The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.

Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to interest
rate risks, and may also expose the Fund to liquidity and leverage risks. OTC
contracts also expose the Fund to credit risks in the event that a counterparty
defaults on the contract.

The Fund may trade in the following types of derivative contracts:

FUTURES CONTRACTS

Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date, and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures contracts
are considered to be commodity contracts. Futures contracts traded OTC are
frequently referred to as forward contracts.

     The Fund may buy/sell the following  type of futures  contracts:  financial
futures contracts.

OPTIONS

Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.

 The Fund may:

o    Buy put options on portfolio  securities and financial futures contracts in
     anticipation of a decrease in the value of the underlying asset;

o    Buy or write options to close out existing options positions; and

o    The Fund may also write call options on portfolio  securities and financial
     futures contracts to generate income from premiums,  and in anticipation of
     a decrease or only limited  increase in the value of the underlying  asset.
     If a call written by the Fund is exercised,  the Fund foregoes any possible
     profit from an increase in the market  price of the  underlying  asset over
     the exercise price plus the premium received.

SWAPS

Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party, and
the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by a
variety of names including caps, floors, and collars. Common swap agreement[s]
that the Fund may use include:

    INTEREST RATE SWAPS

    Interest rate swaps are contracts in which one party agrees to make regular
    payments equal to a fixed or floating interest rate times a stated principal
    amount of fixed income securities, in return for payments equal to a
    different fixed or floating rate times the same principal amount, for a
    specific period. For example, a $10 million LIBOR swap would require one
    party to pay the equivalent of the London Interbank Offer Rate of interest
    (which fluctuates) on $10 million principal amount in exchange for the right
    to receive the equivalent of a stated fixed rate of interest on $10 million
    principal amount.

SPECIAL TRANSACTIONS

DELAYED DELIVERY TRANSACTIONS

Delayed delivery transactions, including when-issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.

    TO BE ANNOUNCED SECURITIES (TBAS)

    As with other delayed delivery transactions, a seller agrees to issue a TBA
    security at a future date. However, the seller does not specify the
    particular securities to be delivered. Instead, the Fund agrees to accept
    any security that meets specified terms. For example, in a TBA mortgage
    backed transaction, the Fund and the seller would agree upon the issuer,
    interest rate and terms of the underlying mortgages. The seller would not
    identify the specific underlying mortgages until it issues the security. TBA
    mortgage backed securities increase interest rate risks because the
    underlying mortgages may be less favorable than anticipated by the Fund.

    DOLLAR ROLLS

    Dollar rolls are transactions where the Fund sells mortgage backed
    securities with a commitment to buy similar, but not identical, mortgage
    backed securities on a future date at a lower price. Normally, one or both
    securities involved are TBA mortgage backed securities. Dollar rolls are
    subject to interest rate and credit risks.

REPURCHASE AGREEMENTS

Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.

ASSET COVERAGE

In order to secure its obligations in connection with special transactions, the
Fund will either own the underlying assets, enter into an offsetting transaction
or set aside readily marketable securities with a value that equals or exceeds
the Fund's obligations. Unless the Fund has other readily marketable assets to
set aside, it cannot trade assets used to secure such obligations without
entering into an offsetting derivative contract or terminating a special
transaction. This may cause the Fund to miss favorable trading opportunities or
to realize losses on special transactions.

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.

If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

INTEREST RATE RISKS

Prices of fixed income securities rise and fall in response to interest rate
changes in the interest paid by similar securities. Generally, when interest
rates rise, prices of fixed income securities fall. However, market factors,
such as the demand for particular fixed income securities, may cause the price
of certain fixed income securities to fall while the prices of other securities
rise or remain unchanged.

Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.

CREDIT RISKS

Credit risk is the possibility that an issuer will default (fail to pay interest
and principal when due). If an issuer defaults, the Fund may lose money.

Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk.

PREPAYMENT RISKS

Unlike traditional fixed income securities, which may pay a fixed rate of
interest until maturity, when the entire principal amount is due, payments on
mortgage backed securities include both interest and partial payment of
principal. This partial payment of principal may be comprised of a scheduled
principal payment as well as an unscheduled payment from the voluntary
prepayment, refinancing or foreclosure of the underlying loans. These
unscheduled payments of principal can adversely affect the price or yield of
mortgage backed securities. For example, during periods of declining interest
rates, prepayments can be expected to accelerate, and the Fund would be required
to reinvest the proceeds at the lower interest rates then available. In
addition, like other interest-bearing securities, the values of mortgage backed
securities generally fall when interest rates rise.

Since rising interest rates generally result in decreased prepayments of
mortgage backed securities, this could cause mortgage securities to have greater
average lives than expected and their value may decline more than other fixed
income securities. Conversely, when interest rates fall, their potential for
capital appreciation is limited due to the existence of the prepayment feature.

Generally, mortgage backed securities compensate for greater prepayment risk by
paying a higher yield. The additional interest paid for risk is measured by the
difference between the yield of a mortgage backed security and the yield of a
U.S. Treasury security with a comparable weighted average life (the spread). An
increase in the spread will cause the price of the security to decline. Spreads
may generally increase in response to adverse economic or market conditions.

LIQUIDITY RISKS

Liquidity risk refers to the possibility that the Fund may not be able to sell a
security when it wants to. If this happens, the Fund will be required to
continue to hold the security, and the Fund could incur losses.

Trading opportunities are more limited for CMOs that have complex terms or that
are not widely held. These features may make it more difficult to sell or buy a
security at a favorable price or time. Consequently, the Fund may have to accept
a lower price to sell a security, sell other securities to raise cash or give up
an investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.

RISKS ASSOCIATED WITH COMPLEX CMOS

CMOs with complex or highly variable prepayment terms, such as companion
classes, IOs, POs and Inverse Floaters, generally entail greater market,
prepayment and liquidity risks than other mortgage backed securities. For
example, their prices are more volatile and their trading market may be more
limited.

WHAT DO SHARES COST?

You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form (as
described in the prospectus) it is processed at the next calculated net asset
value (NAV). The Fund does not charge a front-end sales charge. NAV is
determined at the end of regular trading (normally 4:00 p.m. Eastern time) each
day the NYSE is open. The Fund generally values fixed income securities at the
last sale price on a national securities exchange, if available, otherwise, as
determined by an independent pricing service. Futures contracts and options are
generally valued at market values established by the exchanges on which they are
traded at the close of trading on such exchanges. Options traded in the
over-the-counter market are generally valued according to the mean between the
last bid and the last asked price for the option as provided by an investment
dealer or other financial institution that deals in the option. The Fund values
short-term obligations according to the mean between bid and asked prices as
furnished by an independent pricing service, except that short-term obligations
with remaining maturities of less than 60 days at the time of purchase may be
valued at amortized cost or at fair market value as determined by the Board.

The required minimum initial investment for Fund Shares is $100,000. An account
may be opened with a smaller amount as long as the $100,000 minimum is reached
within 90 days. An institutional investor's minimum investment is calculated by
combining all accounts it maintains with the Fund. Accounts established through
investment professionals may be subject to a smaller minimum investment amount.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.

HOW IS THE FUND SOLD?

The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different sales charges and other expenses, which affect their performance.
Contact your investment professional or call 1-800-341-7400 for more information
concerning the other class.

The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to accounts for which financial institutions act in a
fiduciary or agency capacity or individuals, directly or through investment
professionals.

When the Distributor receives marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).

HOW TO PURCHASE SHARES

You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.

THROUGH AN INVESTMENT PROFESSIONAL

o    Establish an account with the investment professional; and

o    Submit your purchase order to the investment professional before the end of
     regular  trading on the NYSE  (normally 4:00 p.m.  Eastern time).  You will
     receive the next calculated NAV if the investment professional forwards the
     order to the Fund on the same day and the Fund receives  payment within one
     business  day.  You will become the owner of Shares and  receive  dividends
     when the Fund receives your payment.

Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

o    Establish  your account with the Fund by submitting a completed New Account
     Form; and

o    Send your payment to the Fund by Federal Reserve wire or check.

You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.

An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.

BY WIRE Send your wire to:

  State Street Bank and Trust Company
  Boston, MA
  Dollar Amount of Wire

  ABA Number 011000028
  Attention: EDGEWIRE

  Wire Order Number, Dealer Number or Group Number
  Nominee/Institution Name
  Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are
restricted.

BY CHECK

Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:

  Federated Shareholder Services Company
  P.O. Box 8600

  Boston, MA 02266-8600

If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:

  Federated Shareholder Services Company
  1099 Hingham Street
  Rockland, MA 02370-3317

     Payment  should be made in U.S.  dollars and drawn on a U.S. bank. The Fund
will not accept  third-party  checks (checks originally payable to someone other
than you or The Federated Funds).

BY AUTOMATED CLEARING HOUSE (ACH)

Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.

HOW TO REDEEM SHARES

You should redeem Shares:

o    through an  investment  professional  if you  purchased  Shares  through an
     investment professional; or

o    directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.

DIRECTLY FROM THE FUND

BY TELEPHONE

You may redeem Shares by calling the Fund at 1-800-341-7400 once you have
completed the appropriate authorization form for telephone transactions.

If you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.

BY MAIL

You may redeem Shares by mailing a written request to the Fund.

You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.


<PAGE>


Send requests by mail to:

  Federated Shareholder Services Company
  P.O. Box 8600

  Boston, MA 02266-8600

Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:

  Federated Shareholder Services Company
  1099 Hingham Street

  Rockland, MA 02370-3317 All requests must include:

o        Fund Name and Share Class, account number and account registration;

o        amount to be redeemed; and

o        signatures of all shareholders exactly as registered.

Call your investment professional or the Fund if you need special instructions.

SIGNATURE GUARANTEES Signatures must be guaranteed if:

o    your  redemption  will be sent to an  address  other  than the  address  of
     record;

o    your  redemption  will be sent to an  address  of record  that was  changed
     within the last 30 days;

o    a redemption is payable to someone other than the shareholder(s) of record;
     or

o    IF EXCHANGING (TRANSFERRING) into another fund with a different shareholder
     registration.

A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.

PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:

o    an electronic  transfer to your account at a financial  institution that is
     an ACH member; or

o    wire  payment  to your  account  at a  domestic  commercial  bank that is a
     Federal Reserve System member.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:

o    to allow your purchase to clear;

o    during periods of market volatility; or

o    when a shareholder's  trade activity or amount adversely impacts the Fund's
     ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

SHARE CERTIFICATES

The Fund does not issue share certificates.

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
dividends and capital gains paid.

DIVIDENDS AND CAPITAL GAINS

The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.

In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.

If you purchase Shares just before a Fund declares a capital gain distribution,
you will pay the full price for the Shares and then receive a portion of the
price back in the form of a taxable distribution, whether or not you reinvest
the distribution in Shares. Therefore, you should consider the tax implications
of purchasing Shares shortly before the Fund declares a capital gain. Contact
your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.

Fund distributions are expected to be both dividends and capital gains.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.


<PAGE>



WHO MANAGES THE FUND?

The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which totaled approximately $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees.

More than 4,000 investment professionals make Federated Funds available to their
customers.

The Fund's portfolio managers are:

KATHLEEN M. FOODY-MALUS

     Kathleen  M.  Foody-Malus  has  been the  Fund's  portfolio  manager  since
inception.  Ms.  Foody-Malus  joined  Federated  in 1983  and has  been a Senior
Portfolio  Manager since 1996 and a Vice  President of the Fund's  Adviser since
1993.  She was a Portfolio  Manager and a Vice  President of the Fund's  Adviser
from 1993 to 1996. Ms.  Foody-Malus  received her M.B.A.  in  Accounting/Finance
from the University of Pittsburgh.

EDWARD J. TIEDGE

     Edward J. Tiedge has been the Fund's portfolio manager since inception. Mr.
Tiedge  joined  Federated  in 1993 as a Senior  Analyst and has been a Portfolio
Manager and a Vice  President  of the Fund's  Adviser  since 1996.  He served as
Portfolio Manager and an Assistant Vice President of the Fund's Adviser in 1995,
and an  Investment  Analyst  during  1993 and 1994.  Mr.  Tiedge is a  Chartered
Financial  Analyst and  received  his M.S.  in  Industrial  Administration  from
Carnegie Mellon University.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.

YEAR 2000 READINESS

The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.

While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.

The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.

Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.

FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS

The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.

This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in the Annual Report.


<PAGE>






79

Latest Update:  August 11, 1999

FEDERATED MORTGAGE FUND

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SHARES

A Statement of Additional Information (SAI) dated November 30, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report's Management Discussion & Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, the Annual Report, Semi-Annual Report
and other information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.

You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected]. or by writing to the SEC's Public
Reference Section, Washington, D.C 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.

INVESTMENT COMPANY ACT FILE NO. 811-7115
CUSIP 31428Q887

G01922-01 (11/99)

PROSPECTUS

FEDERATED MORTGAGE FUND

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SERVICE SHARES

A mutual fund seeking to provide total return by investing at least 65% of its
assets in a diversified portfolio of mortgage backed securities.

As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.

CONTENTS

Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information

   November 30, 1999


<PAGE>



RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide total return. The Fund's total
return will consist of two components: 1) changes in the market value of its
portfolio of securities (both realized and unrealized appreciation); and 2)
income received from its portfolio of securities. The Fund expects that income
will comprise the largest component of its total return. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing at least 65% of its
assets in governmental and investment grade, non-governmental, mortgage backed
securities.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

o    INTEREST RATE RISK.  Prices of the fixed income  securities  generally fall
     when interest rates rise.

o   PREPAYMENT RISK. When homeowners prepay their mortgages in response to lower
    interest rates, the Fund will be required to reinvest the proceeds at the
    lower interest rates available. Also, when interest rates fall, the price of
    mortgage backed securities may not rise to as great an extent as that of
    other fixed income securities.

o   CREDIT RISK. It is possible that issuers of non- governmental mortgage
    backed securities in which the Fund invests will fail to pay interest or
    principal on these securities when due, which would result in the Fund
    losing money.

o    LIQUIDITY RISK. The non-governmental mortgage backed securities and complex
     CMOs in which the Fund  invests may be less readily  marketable  and may be
     subject to greater fluctuation in price than other securities.

o   RISKS ASSOCIATED WITH COMPLEX CMOS. The Fund invests in a form of mortgage
    backed securities known as collateral mortgage obligations (CMOs), some of
    which have complex terms which make them subject to greater interest rate,
    prepayment and liquidity risks than other mortgage backed securities.

The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency.


<PAGE>



RISK/RETURN BAR CHART AND TABLE

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of the Fund's Institutional Service Shares as of the
calendar year-end for one year.

The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of __% up to __% .

The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features one distinct
vertical bar, shaded in charcoal, and visually representing by height the total
return percentage for the calendar year stated directly at its base. The
calculated total return percentage for the Fund's Institutional Service Shares
for the calendar year is stated directly at the top of the bar. For the calendar
year 1998, the percentage noted is ___%.

The bar chart shows the variability of the Fund's Institutional Service Shares'
total returns on a calendar year-end basis.

The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.

The Fund's total return for the nine-month period from January 1, 1999 to
September 30, 1999 was ____%.

Within the period shown in the Chart, the Fund's highest quarterly return was
___% (quarter ended ______). Its lowest quarterly return was ___% (quarter ended
_________).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Institutional Service Shares' and
Institutional Shares' Average Annual Total Returns for the calendar period ended
1998. The table shows the Fund's total returns averaged over a period of years
relative to (name of index), a broad-based market index. Indexes are unmanaged,
and it is not possible to invest directly in an index.

                     INSTITUTIONAL    INSTITUTIONAL   BROAD-BASED   OTHER INDEX

CALENDAR PERIOD      SERVICE          SHARES          INDEX         OR AVERAGE
                     SHARES                           (REQUIRED)    (OPTIONAL)

1 Year
Start of

Performance1

1 THE FUND'S INSTITUTIONAL SHARES' AND INSTITUTIONAL SERVICE SHARES' START OF
PERFORMANCE DATE WAS MAY 31, 1997.

     The Fund's Institutional  Service Shares' 7-Day Net Yield as of _______ was
__%.  Investors may call the Fund at 1-800-____ to acquire the current 7-Day Net
Yield.

Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.


<PAGE>



WHAT ARE THE FUND'S FEES AND EXPENSES?

FEDERATED MORTGAGE FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Service Shares.

SHAREHOLDER FEES

FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a            None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, as applicable)    None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and
other Distributions) (as a percentage of offering price)          None
Redemption Fee (as a percentage of amount redeemed, if            None
applicable)
Exchange Fee                                                      None

ANNUAL FUND OPERATING EXPENSES (Before [Reimbursements/Waivers])(1) EXPENSES
THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee 0.40% Distribution (12b-1) Fee 0.25% Shareholder Services Fee
0.25% Other Expenses % Total Annual Fund Operating Expenses % 1 Although not
contractually obligated to do so, the [adviser will

   (waive/reimburse)] [adviser (waived/reimbursed)] [and] [distributor (will
   reimburse/reimbursed)] certain amounts. These are shown below along with
   the net expenses the Fund  [ACTUALLY PAID] [EXPECTS TO PAY] for the
   fiscal year ended [Insert FYE].
   Total[Reimbursements/Waivers] of Fund Expenses                 %
   Total Actual Annual Fund Operating Expenses (after             %
   [reimbursements/waivers])

2 [Insert Applicable footnote as provided by State Street Bank. Please note that
  funds with sliding scale management fees should footnote the details of that
  sliding scale in the management fee footnote since it puts the actual fee in
  appropriate context.]

3 [Insert Applicable footnote as provided by State Street Bank.]

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Institutional Service Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Service
Shares for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's Insitutional Shares operating expenses are
[BEFORE REIMBURSEMENTS/WAIVERS] as [estimated] [shown] in the table and remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

1 YEAR     3 YEARS     5 YEARS    10 YEARS
     $           $           $           $



<PAGE>



WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

The Fund invests primarily in a portfolio of U.S. government mortgage backed
securities, and investment grade, non-governmental mortgage backed securities. A
description of the various types of securities in which the Fund invests, and
their risks, immediately follows this strategy section.

Mortgage backed securities generally offer higher relative yields versus
comparable U.S. Treasury securities to compensate for prepayment risk.
Prepayment risk is the unscheduled partial or complete payment of the principal
outstanding on a mortgage loan (or asset backed loan) by the homeowner (or
borrower). One important reason for prepayments is changes in market interest
rates from the time of loan origination. The Adviser actively manages the Fund's
portfolio, seeking the higher relative returns of mortgage and asset backed
securities while attempting to limit the prepayment risk.

The Adviser attempts to manage the Fund's prepayment risk by selecting mortgage
backed securities with characteristics that make prepayments less likely.
Characteristics that the Adviser may consider in selecting securities include
the average interest rates of the underlying loans, the prior prepayment history
of the loans and the federal agencies or private entities that back the loans.
The Adviser attempts to assess the relative returns and risks of mortgage backed
securities by analyzing how the timing, amount and division of cash flows from
the pool of loans underlying the security might change in response to changing
economic and market conditions.

The Adviser selects securities with longer or shorter duration based on its
interest rate outlook. The Adviser generally shortens the portfolio's average
duration when it expects interest rates to rise, and extends duration when it
expects interest rates to fall. Duration measures the price sensitivity of a
portfolio of fixed income securities to changes in interest rates. The Adviser
formulates its interest rate outlook and otherwise attempts to anticipate
changes in economic and market conditions by analyzing a variety of factors such
as:

o .......current and expected U.S. economic growth;

o        current and expected interest rates and inflation;

o        the Federal Reserve's monetary policy; and

o        changes in the supply of or demand for U.S. government securities.

The Adviser may use options and futures as a hedge to attempt to protect
securities in its portfolio against decreases in value resulting from changes in
interest rates. There is no assurance that the Adviser's efforts to forecast
market interest rates, assess the impact of market interest rates on particular
securities or hedge its portfolio through the use of options and futures will be
successful.

The Adviser may use collateralized mortgage obligations (CMOs) to reduce
prepayment risk. In addition, the Adviser may use combinations of CMOs and other
mortgage backed securities to attempt to provide a higher yielding investment
with lower sensitivity to fluctuations in interest rates. The Adviser may also
attempt to take advantage of current and potential yield differentials existing
from time to time between various mortgage and asset backed securities in order
to increase the Fund's return, and may engage in dollar roll transactions for
their potential to enhance income.

TEMPORARY DEFENSIVE INVESTMENTS

The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash and shorter-term debt securities and similar
obligations. It may do this to minimize potential losses and maintain liquidity
to meet shareholder redemptions during adverse market conditions. This may cause
the Fund to give up greater investment returns to maintain the safety of
principal, that is, the original amount invested by shareholders.

PORTFOLIO TURNOVER

Prepayments of mortgage backed securities will cause the Fund to have an
increased portfolio turnover rate. Portfolio turnover increases the Fund's
trading costs and may have an adverse impact on the Fund's performance.

HEDGING

Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different derivatives
contracts, or derivatives contracts and securities. The Fund's ability to hedge
may be limited by the costs of the derivatives contracts. The Fund may attempt
to lower the cost of hedging by entering into transactions that provide only
limited protection, including transactions that (1) hedge only a portion of its
portfolio, (2) use derivatives contracts that cover a narrow range of
circumstances or (3) involve the sale of derivatives contracts with different
terms. Consequently, hedging transactions will not eliminate risk even if they
work as intended. In addition, hedging strategies are not always successful, and
could result in increased expenses and losses to the Fund.

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
fixed rate. The rate may be a fixed percentage of principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security normally within a specified time.

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.

The following describes the principal types of fixed income securities in which
the Fund invests:

AGENCY SECURITIES

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as Treasury
securities.

The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the interest rate and prepayment risks of these mortgage backed
securities.

MORTGAGE BACKED SECURITIES

Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.

Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and prepayments from the underlying mortgages. As
a result, the holders assume all the prepayment risks of the underlying
mortgages.

    COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

    CMOs, including interests in real estate mortgage investment conduits
    (REMICs), allocate payments and prepayments from an underlying pass-through
    certificate among holders of different classes of mortgage backed
    securities. This creates different prepayment and interest rate risks for
    each CMO class. The degree of increased or decreased prepayment risk depends
    upon the structure of the CMOs. However, the actual returns on any type of
    mortgage security depend upon the performance of the underlying pool of
    mortgages, which no one can predict and which will vary among pools. The
    Fund will invest only in CMOs that are rated A or better by a nationally
    recognized rating service.

        SEQUENTIAL CMOS

        In a sequential pay CMO, one class of CMOs receives all principal
        payments and prepayments. The next class of CMOs receives all principal
        payments after the first class is paid off. This process repeats for
        each sequential class of CMO. As a result, each class of sequential pay
        CMOs reduces the prepayment risks of subsequent classes.

        PACS, TACS AND COMPANION CLASSES

        More sophisticated CMOs include planned amortization classes (PACs) and
        targeted amortization classes (TACs). PACs and TACs are issued with
        companion classes. PACs and TACs receive principal payments and
        prepayments at a specified rate. The companion classes receive principal
        payments and prepayments in excess of the specified rate. In addition,
        PACs will receive the companion classes' share of principal payments, if
        necessary, to cover a shortfall in the prepayment rate. This helps PACs
        and TACs to control prepayment risks by increasing the risks to their
        companion classes.

        IOS AND POS

        CMOs may allocate interest payments to one class (Interest Only or IOs)
        and principal payments to another class (Principal Only or POs). POs
        increase in value when prepayment rates increase. In contrast, IOs
        decrease in value when prepayments increase, because the underlying
        mortgages generate less interest payments. However, IOs tend to increase
        in value when interest rates rise (and prepayments decrease), making IOs
        a useful hedge against interest rate risks.

        FLOATERS AND INVERSE FLOATERS

        Another variant allocates interest payments between two classes of CMOs.
        One class (Floaters) receives a share of interest payments based upon a
        market index such as LIBOR. The other class (Inverse Floaters) receives
        any remaining interest payments from the underlying mortgages. Floater
        classes receive more interest (and Inverse Floater classes receive
        correspondingly less interest) as interest rates rise. This shifts
        prepayment and interest rate risks from the Floater to the Inverse
        Floater class, reducing the price volatility of the Floater class and
        increasing the price volatility of the Inverse Floater class.

NON-GOVERNMENTAL MORTGAGE BACKED SECURITIES

Non-governmental mortgage backed securities (including non-governmental CMOs)
are issued by private entities, rather than by U.S. government agencies. These
securities involve credit risks and liquidity risks. The Fund may invest in
non-governmental mortgage backed securities that are rated BBB or higher by a
nationally recognized statistical rating agency.

MORTGAGE RELATED ASSET BACKED SECURITIES

Asset backed securities are payable from pools of obligations other than first
mortgages. Most asset backed securities involve consumer or commercial debts.
The Fund will purchase only mortgage related asset backed securities such as
home equity loans, secured mortgages and manufactured housing obligations. Asset
backed securities may take the form of commercial paper, notes, or pass through
certificates. Asset backed securities have prepayment risks. Like CMOs, asset
backed securities may be structured like Floaters, Inverse Floaters, IOs and
POs. Also, asset backed securities may be issued by a private entity and,
although these securities must be rated investment grade, they present credit
risks.

CREDIT ENHANCEMENT

Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.

DERIVATIVE CONTRACTS

Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.

Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.

For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.

The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.

Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to interest
rate risks, and may also expose the Fund to liquidity and leverage risks. OTC
contracts also expose the Fund to credit risks in the event that a counterparty
defaults on the contract.

The Fund may trade in the following types of derivative contracts:

FUTURES CONTRACTS

Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date, and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures contracts
are considered to be commodity contracts. Futures contracts traded OTC are
frequently referred to as forward contracts.

     The Fund may buy/sell the following  type of futures  contracts:  financial
futures contracts.

OPTIONS

Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.

 The Fund may:

o    Buy put options on portfolio  securities and financial futures contracts in
     anticipation of a decrease in the value of the underlying asset;

o    Buy or write options to close out existing options positions; and

o    The Fund may also write call options on portfolio  securities and financial
     futures contracts to generate income from premiums,  and in anticipation of
     a decrease or only limited  increase in the value of the underlying  asset.
     If a call written by the Fund is exercised,  the Fund foregoes any possible
     profit from an increase in the market  price of the  underlying  asset over
     the exercise price plus the premium received.

SWAPS

Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party, and
the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by a
variety of names including caps, floors, and collars. Common swap agreement[s]
that the Fund may use include:

    INTEREST RATE SWAPS

    Interest rate swaps are contracts in which one party agrees to make regular
    payments equal to a fixed or floating interest rate times a stated principal
    amount of fixed income securities, in return for payments equal to a
    different fixed or floating rate times the same principal amount, for a
    specific period. For example, a $10 million LIBOR swap would require one
    party to pay the equivalent of the London Interbank Offer Rate of interest
    (which fluctuates) on $10 million principal amount in exchange for the right
    to receive the equivalent of a stated fixed rate of interest on $10 million
    principal amount.

SPECIAL TRANSACTIONS

DELAYED DELIVERY TRANSACTIONS

Delayed delivery transactions, including when-issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.

    TO BE ANNOUNCED SECURITIES (TBAS)

    As with other delayed delivery transactions, a seller agrees to issue a TBA
    security at a future date. However, the seller does not specify the
    particular securities to be delivered. Instead, the Fund agrees to accept
    any security that meets specified terms. For example, in a TBA mortgage
    backed transaction, the Fund and the seller would agree upon the issuer,
    interest rate and terms of the underlying mortgages. The seller would not
    identify the specific underlying mortgages until it issues the security. TBA
    mortgage backed securities increase interest rate risks because the
    underlying mortgages may be less favorable than anticipated by the Fund.

    DOLLAR ROLLS

    Dollar rolls are transactions where the Fund sells mortgage backed
    securities with a commitment to buy similar, but not identical, mortgage
    backed securities on a future date at a lower price. Normally, one or both
    securities involved are TBA mortgage backed securities. Dollar rolls are
    subject to interest rate and credit risks.

REPURCHASE AGREEMENTS

Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.

ASSET COVERAGE

In order to secure its obligations in connection with special transactions, the
Fund will either own the underlying assets, enter into an offsetting transaction
or set aside readily marketable securities with a value that equals or exceeds
the Fund's obligations. Unless the Fund has other readily marketable assets to
set aside, it cannot trade assets used to secure such obligations without
entering into an offsetting derivative contract or terminating a special
transaction. This may cause the Fund to miss favorable trading opportunities or
to realize losses on special transactions.

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.

If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

INTEREST RATE RISKS

Prices of fixed income securities rise and fall in response to interest rate
changes in the interest paid by similar securities. Generally, when interest
rates rise, prices of fixed income securities fall. However, market factors,
such as the demand for particular fixed income securities, may cause the price
of certain fixed income securities to fall while the prices of other securities
rise or remain unchanged.

Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.

CREDIT RISKS

Credit risk is the possibility that an issuer will default (fail to pay interest
and principal when due). If an issuer defaults, the Fund may lose money.

Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk.

PREPAYMENT RISKS

Unlike traditional fixed income securities, which may pay a fixed rate of
interest until maturity, when the entire principal amount is due, payments on
mortgage backed securities include both interest and partial payment of
principal. This partial payment of principal may be comprised of a scheduled
principal payment as well as an unscheduled payment from the voluntary
prepayment, refinancing or foreclosure of the underlying loans. These
unscheduled payments of principal can adversely affect the price or yield of
mortgage backed securities. For example, during periods of declining interest
rates, prepayments can be expected to accelerate, and the Fund would be required
to reinvest the proceeds at the lower interest rates then available. In
addition, like other interest-bearing securities, the values of mortgage backed
securities generally fall when interest rates rise.

Since rising interest rates generally result in decreased prepayments of
mortgage backed securities, this could cause mortgage securities to have greater
average lives than expected and their value may decline more than other fixed
income securities. Conversely, when interest rates fall, their potential for
capital appreciation is limited due to the existence of the prepayment feature.

Generally, mortgage backed securities compensate for greater prepayment risk by
paying a higher yield. The additional interest paid for risk is measured by the
difference between the yield of a mortgage backed security and the yield of a
U.S. Treasury security with a comparable weighted average life (the spread). An
increase in the spread will cause the price of the security to decline. Spreads
may generally increase in response to adverse economic or market conditions.

LIQUIDITY RISKS

Liquidity risk refers to the possibility that the Fund may not be able to sell a
security when it wants to. If this happens, the Fund will be required to
continue to hold the security, and the Fund could incur losses.

Trading opportunities are more limited for CMOs that have complex terms or that
are not widely held. These features may make it more difficult to sell or buy a
security at a favorable price or time. Consequently, the Fund may have to accept
a lower price to sell a security, sell other securities to raise cash or give up
an investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.

RISKS ASSOCIATED WITH COMPLEX CMOS

CMOs with complex or highly variable prepayment terms, such as companion
classes, IOs, POs and Inverse Floaters, generally entail greater market,
prepayment and liquidity risks than other mortgage backed securities. For
example, their prices are more volatile and their trading market may be more
limited.

WHAT DO SHARES COST?

You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form (as
described in the prospectus) it is processed at the next calculated net asset
value (NAV). The Fund does not charge a front-end sales charge. NAV is
determined at the end of regular trading (normally 4:00 p.m. Eastern time) each
day the NYSE is open. The Fund generally values fixed income securities at the
last sale price on a national securities exchange, if available, otherwise, as
determined by an independent pricing service. Futures contracts and options are
generally valued at market values established by the exchanges on which they are
traded at the close of trading on such exchanges. Options traded in the
over-the-counter market are generally valued according to the mean between the
last bid and the last asked price for the option as provided by an investment
dealer or other financial institution that deals in the option. The Fund values
short-term obligations according to the mean between bid and asked prices as
furnished by an independent pricing service, except that short-term obligations
with remaining maturities of less than 60 days at the time of purchase may be
valued at amortized cost or at fair market value as determined by the Board.

The required minimum initial investment for Fund Shares is $25,000. An account
may be opened with a smaller amount as long as the $25,000 minimum is reached
within 90 days. An institutional investor's minimum investment is calculated by
combining all accounts it maintains with the Fund. Accounts established through
investment professionals may be subject to a smaller minimum investment amount.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.

HOW IS THE FUND SOLD?

The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share class
has different sales charges and other expenses, which affect their performance.
Contact your investment professional or call 1-800-341-7400 for more information
concerning the other class.

The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to accounts for which financial institutions act in a
fiduciary or agency capacity or individuals, directly or through investment
professionals.

     The  Distributor  and its  affiliates  may pay out of  their  assets  other
amounts  (including  items of material  value) to investment  professionals  for
marketing and servicing  Shares.  The  Distributor  is a subsidiary of Federated
Investors, Inc. (Federated).

RULE 12B-1 PLAN

The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Institutional Service Shares. Because these
Shares pay marketing fees on an ongoing basis, your investment cost may be
higher over time than other shares with different sales charges and marketing
fees.

HOW TO PURCHASE SHARES

You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.

THROUGH AN INVESTMENT PROFESSIONAL

o        Establish an account with the investment professional; and

o  Submit your purchase order to the investment professional before the end of
   regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
   receive the next calculated NAV if the investment professional forwards the
   order to the Fund on the same day and the Fund receives payment within one
   business day. You will become the owner of Shares and receive dividends when
   the Fund receives your payment.

Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

o    Establish  your account with the Fund by submitting a completed New Account
     Form; and

o    Send your payment to the Fund by Federal Reserve wire or check.

You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.

An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.

BY WIRE Send your wire to:

  State Street Bank and Trust Company
  Boston, MA
  Dollar Amount of Wire

  ABA Number 011000028
  Attention: EDGEWIRE

  Wire Order Number, Dealer Number or Group Number
  Nominee/Institution Name
  Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are
restricted.

BY CHECK

Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:

  Federated Shareholder Services Company
  P.O. Box 8600

  Boston, MA 02266-8600

If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:

  Federated Shareholder Services Company
  1099 Hingham Street
  Rockland, MA 02370-3317

     Payment  should be made in U.S.  dollars and drawn on a U.S. bank. The Fund
will not accept  third-party  checks (checks originally payable to someone other
than you or The Federated Funds).

BY AUTOMATED CLEARING HOUSE (ACH)

Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.

HOW TO REDEEM SHARES

You should redeem Shares:

o    through an  investment  professional  if you  purchased  Shares  through an
     investment professional; or

o    directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.

DIRECTLY FROM THE FUND

BY TELEPHONE

You may redeem Shares by calling the Fund at 1-800-341-7400 once you have
completed the appropriate authorization form for telephone transactions.

If you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.

BY MAIL

You may redeem Shares by mailing a written request to the Fund.

You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.

Send requests by mail to:

  Federated Shareholder Services Company
  P.O. Box 8600
  Boston, MA 02266-8600

Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:

  Federated Shareholder Services Company
  1099 Hingham Street
  Rockland, MA 02370-3317

All requests must include:

o        Fund Name and Share Class, account number and account registration;

o        amount to be redeemed; and

o        signatures of all shareholders exactly as registered.

Call your investment professional or the Fund if you need special instructions.

SIGNATURE GUARANTEES Signatures must be guaranteed if:

o    your  redemption  will be sent to an  address  other  than the  address  of
     record;

o    your  redemption  will be sent to an  address  of record  that was  changed
     within the last 30 days;

o    a redemption is payable to someone other than the shareholder(s) of record;
     or

o    IF EXCHANGING (TRANSFERRING) into another fund with a different shareholder
     registration.

A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.

PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:

o    an electronic  transfer to your account at a financial  institution that is
     an ACH member; or

o    wire  payment  to your  account  at a  domestic  commercial  bank that is a
     Federal Reserve System member.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:

o    to allow your purchase to clear;

o    during periods of market volatility; or

o    when a shareholder's  trade activity or amount adversely impacts the Fund's
     ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

SHARE CERTIFICATES

The Fund does not issue share certificates.


<PAGE>



ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
dividends and capital gains paid.

DIVIDENDS AND CAPITAL GAINS

The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.

In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.

If you purchase Shares just before a Fund declares a capital gain distribution,
you will pay the full price for the Shares and then receive a portion of the
price back in the form of a taxable distribution, whether or not you reinvest
the distribution in Shares. Therefore, you should consider the tax implications
of purchasing Shares shortly before the Fund declares a capital gain. Contact
your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.

Fund distributions are expected to be both dividends and capital gains.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.


<PAGE>



WHO MANAGES THE FUND?

The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which totaled approximately $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees.

More than 4,000 investment professionals make Federated Funds available to their
customers.

The Fund's portfolio managers are:

KATHLEEN M. FOODY-MALUS

     Kathleen  M.  Foody-Malus  has  been the  Fund's  portfolio  manager  since
inception.  Ms.  Foody-Malus  joined  Federated  in 1983  and has  been a Senior
Portfolio  Manager since 1996 and a Vice  President of the Fund's  Adviser since
1993.  She was a Portfolio  Manager and a Vice  President of the Fund's  Adviser
from 1993 to 1996. Ms.  Foody-Malus  received her M.B.A.  in  Accounting/Finance
from the University of Pittsburgh.

EDWARD J. TIEDGE

     Edward J. Tiedge has been the Fund's portfolio manager since inception. Mr.
Tiedge  joined  Federated  in 1993 as a Senior  Analyst and has been a Portfolio
Manager and a Vice  President  of the Fund's  Adviser  since 1996.  He served as
Portfolio Manager and an Assistant Vice President of the Fund's Adviser in 1995,
and an  Investment  Analyst  during  1993 and 1994.  Mr.  Tiedge is a  Chartered
Financial  Analyst and  received  his M.S.  in  Industrial  Administration  from
Carnegie Mellon University.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.

YEAR 2000 READINESS

The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.

While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.

The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.

Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.

FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS

The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.

This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in the Annual Report.


<PAGE>






Latest Update: August 16, 1999

FEDERATED MORTGAGE FUND

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SERVICE SHARES

A Statement of Additional Information (SAI) dated November 30, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report's Management Discussion & Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, the Annual Report, Semi-Annual Report
and other information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.

You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected]. or by writing to the SEC's Public
Reference Section, Washington, D.C 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.

INVESTMENT COMPANY ACT FILE NO. 811-7115
CUSIP 31428Q804

G01922-02-SS (11/99)

STATEMENT OF ADDITIONAL INFORMATION

FEDERATED MORTGAGE FUND

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Federated Mortgage Fund (Fund),
dated November 30, 1999. Obtain the prospectuses and the Annual Report's
Management Discussion & Analysis without charge by calling 1-800-341-7400.

   November 30, 1999

CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Addresses

CUSIP 31428Q887
CUSIP 31428Q804

G01922-03 (11/99)


<PAGE>



HOW IS THE FUND ORGANIZED?

     The Fund is a diversified  portfolio of Federated Total Return Series, Inc.
(Corporation).  The Corporation is an open-end,  management  investment  company
that was  established  under the laws of the State of  Maryland  on October  11,
1993. The Corporation may offer separate series of shares representing interests
in separate  portfolios of  securities.  The  Corporation  changed its name from
Insight  Institutional  Series,  Inc. to Federated Total Return Series,  Inc. on
March 21, 1995.  The Fund  changed its name from  Federated  Government  Fund to
Federated Mortgage Fund on June 30, 1998.

The Board of Directors (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Institutional Service Shares (Shares).
This SAI relates to both classes of Shares. The Fund's investment adviser is
Federated Investment Management Company (Adviser). Effective March 31, 1999,
Federated Management, former Adviser to the Fund, became Federated Investment
Management Company (formerly, Federated Advisers).

SECURITIES IN WHICH THE FUND INVESTS

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.

The following describes the types of fixed income securities in which the Fund
invests.

TREASURY SECURITIES

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

AGENCY SECURITIES

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.

The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the interest rate and prepayment risks of these mortgage backed
securities.

MORTGAGE BACKED SECURITIES

Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.

Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and pre-payments from the underlying mortgages.
As a result, the holders assume all the prepayment risks of the underlying
mortgages.

    COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

    CMOs, including interests in real estate mortgage investment conduits
    (REMICs), allocate payments and prepayments from an underlying pass-through
    certificate among holders of different classes of mortgage backed
    securities. This creates different prepayment and market risks for each CMO
    class. The degree of increased or decreased prepayment risks depends upon
    the structure of the CMOs. However, the actual returns on any type of
    mortgage backed security depend upon the performance of the underlying pool
    of mortgages, which no one can predict and will vary among pools.

        SEQUENTIAL CMOS

        In a sequential pay CMO, one class of CMOs receives all principal
        payments and prepayments. The next class of CMOs receives all principal
        payments after the first class is paid off. This process repeats for
        each sequential class of CMO. As a result, each class of sequential pay
        CMOs reduces the prepayment risks of subsequent classes.

        PACS, TACS AND COMPANION CLASSES

        More sophisticated CMOs include planned amortization classes (PACs) and
        targeted amortization classes (TACs). PACs and TACs are issued with
        companion classes. PACs and TACs receive principal payments and
        prepayments at a specified rate. The companion classes receive principal
        payments and prepayments in excess of the specified rate. In addition,
        PACs will receive the companion classes' share of principal payments, if
        necessary, to cover a shortfall in the prepayment rate. This helps PACs
        and TACs to control prepayment risks by increasing the risks to their
        companion classes.

        IOS AND POS

        CMOs may allocate interest payments to one class (Interest Only or IOs)
        and principal payments to another class (Principal Only or POs). POs
        increase in value when prepayment rates increase. In contrast, IOs
        decrease in value when prepayments increase, because the underlying
        mortgages generate less interest payments. However, IOs tend to increase
        in value when interest rates rise (and prepayments decrease), making IOs
        a useful hedge against market risks.

        FLOATERS AND INVERSE FLOATERS

        Another variant allocates interest payments between two classes of CMOs.
        One class (Floaters) receives a share of interest payments based upon a
        market index such as LIBOR. The other class (Inverse Floaters) receives
        any remaining interest payments from the underlying mortgages. Floater
        classes receive more interest (and Inverse Floater classes receive
        correspondingly less interest) as interest rates rise. This shifts
        prepayment and interest rate risks from the Floater to the Inverse
        Floater class, reducing the price volatility of the Floater class and
        increasing the price volatility of the Inverse Floater class.

        Z CLASSES

        CMOs must allocate all payments received from the underlying mortgages
        to some class. To capture any unallocated payments, CMOs generally have
        an accrual (Z) class. Z classes do not receive any payments from the
        underlying mortgages until all other CMO classes have been paid off.
        Once this happens, holders of Z class CMOs receive all payments and
        prepayments.

    NON-GOVERNMENTAL MORTGAGE BACKED SECURITIES

    Non-governmental mortgage backed securities (including non- governmental
    CMOs) are issued by private entities, rather than by U. S. government
    agencies. The Fund may invest in non- governmental mortgage backed
    securities that are rated BBB or higher by a nationally recognized
    statistical rating agency. These securities involve credit risks and
    liquidity risks.

ZERO COUPON SECURITIES

Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the market and credit risks of a zero coupon security.

There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs are
the most common forms of stripped zero coupon securities. In addition, some
securities give the issuer the option to deliver additional securities in place
of cash interest payments, thereby increasing the amount payable at maturity.
These are referred to as pay-in-kind or PIK securities.

MORTGAGE RELATED ASSET BACKED SECURITIES

Asset backed securities are payable from pools of obligations other than first
mortgages. Most asset backed securities involve consumer or commercial debts.
The Fund will purchase only mortgage related asset backed securities such as
home equity loans, secured mortgages and manufactured housing obligations.
However, almost any type of fixed income assets (including other fixed income
securities) may be used to create an asset backed security. Asset backed
securities may take the form of commercial paper, notes, or pass through
certificates. Asset backed securities have prepayment risks. Like CMOs, asset
backed securities may be structured like Floaters, Inverse Floaters, IOs and
POs. Also, asset backed securities may be issued by a private entity and,
although these securities must be rated investment grade, they present credit
risks.

CREDIT ENHANCEMENT

Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.

DERIVATIVE CONTRACTS

Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.

Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.

For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.

The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.

Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity and leverage risks.
OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract.

The Fund may trade in the following types of derivative contracts.

FUTURES CONTRACTS

Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date, and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures contracts
are considered to be commodity contracts. Futures contracts traded OTC are
frequently referred to as forward contracts.

     The Fund may buy/sell the following  type of futures  contracts:  financial
futures contracts.

OPTIONS

Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.

The Fund may:

o    Buy put options on portfolio  securities and financial futures contracts in
     anticipation of a decrease in the value of the underlying asset;

o    Buy or write options to close out existing options positions; and

o    The Fund may also write call  options on portfolio  securities  to generate
     income from  premiums,  and in  anticipation  of a decrease or only limited
     increase in the value of the  underlying  asset.  If a call  written by the
     Fund is exercised,  the Fund foregoes any possible  profit from an increase
     in the market price of the  underlying  asset over the exercise  price plus
     the premium received.

The Fund may not buy or sell futures or related options if the margin deposits
and premiums paid for these securities would exceed 5% of the Fund's total
assets.

SWAPS

Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party, and
the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by a
variety of names including caps, floors, and collars. Common swap agreement[s]
that the Fund may use include:

    INTEREST RATE SWAPS

    Interest rate swaps are contracts in which one party agrees to make regular
    payments equal to a fixed or floating interest rate times a stated principal
    amount of fixed income securities, in return for payments equal to a
    different fixed or floating rate times the same principal amount, for a
    specific period. For example, a $10 million LIBOR swap would require one
    party to pay the equivalent of the London Interbank Offer Rate of interest
    (which fluctuates) on $10 million principal amount in exchange for the right
    to receive the equivalent of a stated fixed rate of interest on $10 million
    principal amount.

    CAPS AND FLOORS

    Caps and Floors are contracts in which one party agrees to make payments
    only if an interest rate or index goes above (Cap) or below (Floor) a
    certain level in return for a fee from the other party.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.

The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS AND BORROWING FOR LEVERAGE

Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase. The
Fund may borrow an amount up to one-third of the Fund's net assets (exclusive of
such borrowings) for leverage purposes.

DELAYED DELIVERY TRANSACTIONS

Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.

    TO BE ANNOUNCED SECURITIES (TBAS)

    As with other delayed delivery transactions, a seller agrees to issue a TBA
    security at a future date. However, the seller does not specify the
    particular securities to be delivered. Instead, the Fund agrees to accept
    any security that meets specified terms. For example, in a TBA mortgage
    backed transaction, the Fund and the seller would agree upon the issuer,
    interest rate and terms of the underlying mortgages. The seller would not
    identify the specific underlying mortgages until it issues the security. TBA
    mortgage backed securities increase interest rate risks because the
    underlying mortgages may be less favorable than anticipated by the Fund.

    DOLLAR ROLLS

    Dollar rolls are transactions where the Fund sells mortgage backed
    securities with a commitment to buy similar, but not identical, mortgage
    backed securities on a future date at a lower price. Normally, one or both
    securities involved are TBA mortgage backed securities. Dollar rolls are
    subject to interest rate and credit risks.

SECURITIES LENDING

The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.

Securities lending activities are subject to interest rate and credit risks.

ASSET COVERAGE

In order to secure its obligations in connection with special transactions, the
Fund will either own the underlying assets, enter into an offsetting transaction
or set aside readily marketable securities with a value that equals or exceeds
the Fund's obligations. Unless the Fund has other readily marketable assets to
set aside, it cannot trade assets used to secure such obligations entering into
an offsetting derivative contract or terminating a special transaction. This may
cause the Fund to miss favorable trading opportunities or to realize losses on
special transactions.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.

If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are outlined below.

INTEREST RATE RISKS

o   Prices of fixed income securities rise and fall in response to changes in
    the interest rate paid by similar securities. Generally, when interest rates
    rise, prices of fixed income securities fall. However, market factors, such
    as the demand for particular fixed income securities, may cause the price of
    certain fixed income securities to fall while the prices of other securities
    rise or remain unchanged.

o   Interest rate changes have a greater effect on the price of fixed income
    securities with longer durations. Duration measures the price sensitivity of
    a fixed income security to changes in interest rates.

CREDIT RISKS

o    Credit risk is the possibility that an issuer will default on a security by
     failing to pay interest or principal when due. If an issuer  defaults,  the
     Fund will lose money.

o    Many fixed income  securities  receive credit ratings from services such as
     Standard & Poor's and Moody's Investor Services, Inc. These services assign
     ratings to securities by assessing the likelihood of issuer default.  Lower
     credit  ratings  correspond  to higher  credit risk.  If a security has not
     received a rating,  the Fund must rely entirely  upon the Adviser's  credit
     assessment. Fixed income securities generally compensate for greater credit
     risk by paying interest at a higher rate. The difference  between the yield
     of a security and the yield of a U.S.  Treasury  security with a comparable
     maturity  (the spread)  measures  the  additional  interest  paid for risk.
     Spreads may increase  generally  in response to adverse  economic or market
     conditions.  A security's spread may also increase if the security's rating
     is lowered,  or the security is perceived to have an increased credit risk.
     An increase in the spread will cause the price of the  security to decline.
     Credit  risk  includes  the  possibility  that  a  party  to a  transaction
     involving the Fund will fail to meet its obligations.  This could cause the
     Fund to lose the  benefit  of the  transaction  or  prevent  the Fund  from
     selling or buying other securities to implement its investment strategy.




<PAGE>



PREPAYMENT RISKS

o   Unlike traditional fixed income securities, which may pay a fixed rate of
    interest until maturity, when the entire principal amount is due, payments
    on mortgage backed securities include both interest and partial payment of
    principal. This partial payment of principal may be comprised of a scheduled
    principal payment as well as an unscheduled payment from the voluntary
    prepayment, refinancing, or foreclosure of the underlying loans. These
    unscheduled payments of principal can adversely affect the price or yield of
    mortgage backed securities. For example, during periods of declining
    interest rates, prepayments can be expected to accelerate, and the Fund
    would be required to reinvest the proceeds at the lower interest rates then
    available. In addition, like other interest-bearing securities, the values
    of mortgage backed securities generally fall when interest rates rise.

o   Since rising interest rates generally result in decreased prepayments of
    mortgage backed securities, this could cause mortgage backed securities,
    this could cause mortgage securities to have greater average lives than
    expected and their value may decline more than other fixed income
    securities. Conversely, when interest rates fall, their potential for
    capital appreciation is limited due to the existence of the prepayment
    feature.

o   Generally, mortgage backed securities compensate for greater prepayment risk
    by paying a higher yield. The additional interest paid for risk is measured
    by the difference between the yield of a mortgage backed security and the
    yield of a U.S. Treasury security with a comparable weighted average life
    (the spread). An increase in the spread will cause the price of the security
    to decline. Spreads may generally increase in response to adverse economic
    or market conditions.

LIQUIDITY RISKS

o    Liquidity risk refers to the  possibility  that the Fund may not be able to
     sell a  security  when it wants  to.  If this  happens,  the  Fund  will be
     required to continue to hold the security, and the Fund could incur losses.

o    Trading  opportunities are more limited for CMOs that have complex terms or
     that are not widely held. These features may make it more difficult to sell
     or buy a security at a favorable price or time. Consequently,  the Fund may
     have to accept a lower price to sell a security,  sell other  securities to
     raise cash or give up an investment opportunity,  any of which could have a
     negative effect on the Fund's performance. Infrequent trading of securities
     may also lead to an increase in their price volatility.

RISKS ASSOCIATED WITH COMPLEX CMOS

o    CMOs with complex terms, such as companion  classes,  IOs, POs, and Inverse
     Floaters,  generally entail greater market,  prepayment and liquidity risks
     than other mortgage backed securities.  For example,  their prices are more
     volatile and their trading market may be more limited.

LEVERAGE RISKS

o    Leverage risk is created when an investment  exposes the Fund to a level of
     risk that  exceeds  the  amount  invested.  Changes in the value of such an
     investment magnify the Fund's risk of loss and potential for gain.


FUNDAMENTAL INVESTMENT OBJECTIVE

The Fund's investment objective is to provide total return. The investment
objective may not be changed by the Fund's Directors without shareholder
approval.


<PAGE>



INVESTMENT LIMITATIONS

SELLING SHORT AND BUYING ON MARGIN

The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for clearance
of purchases and sales of portfolio securities.

BORROWING MONEY

The Fund will not borrow money, except to the extent permitted under the 1940
Act (which currently limits borrowings to no more than 33 1/3% of the value of
the Fund's total assets). For purposes of this investment restriction, the entry
into options, forward contracts, futures contracts, including those related to
indices, options on futures contracts or indices, and dollar roll transactions
shall not constitute borrowing.

CONCENTRATION OF INVESTMENTS

The Fund will not invest more than 25% of its total assets in securities of
issuers having their principal business activities in the same industry.

DIVERSIFICATION OF INVESTMENTS

With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities issued by any one issuer (other than cash,
cash items, or securities issued or guaranteed by the U.S. government, its
agencies, or instrumentalities, and repurchase agreements collateralized by such
securities) if, as a result, more than 5% of the value of its total assets would
be invested in the securities of that issuer, and will not acquire more than 10%
of the outstanding voting securities of any one issuer.

PLEDGING ASSETS

The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may mortgage, pledge, or hypothecate
assets having a market value not exceeding 10% of the value of total assets at
the time of the borrowing.

LENDING CASH OR SECURITIES

The Fund will not lend any assets except portfolio securities. (This will not
prevent the purchase or holding of bonds, debentures, notes, certificates of
indebtedness, or other debt securities of an issuer, repurchase agreements, or
other transactions which are permitted by the Fund's investment objective and
policies or Articles of Incorporation).

ISSUING SENIOR SECURITIES

The Fund will not issue senior securities, except as permitted by its investment
objective and policies.

THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD OF
DIRECTORS (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT. THE FOLLOWING LIMITATION,
HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL. SHAREHOLDERS
WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THIS LIMITATION BECOMES
EFFECTIVE.

INVESTING IN RESTRICTED AND ILLIQUID SECURITIES

The Fund will not invest more than 15% of its net assets in illiquid securities,
including certain restricted securities (except for Section 4(2) commercial
paper and certain other restricted securities which meet the criteria for
liquidity as established by the Directors), non-negotiable time deposits, and
repurchase agreements providing for settlement in more than seven days after
notice.

Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

        for fixed income securities, at the last sale price on a national
securities exchange, if available, otherwise, as determined by an independent
pricing service;

o  futures contracts and options are generally valued at market values
   established by the exchanges on which they are traded at the close of trading
   on such exchanges. Options traded in the over-the-counter market are
   generally valued according to the mean between the last bid and the last
   asked price for the option as provided by an investment dealer or other
   financial institution that deals in the option. The Board may determine in
   good faith that another method of valuing such investments is necessary to
   appraise their fair market value;

        for short-term obligations, according to the mean between bid and asked
   prices as furnished by an independent pricing service, except that short-term
   obligations with remaining maturities of less than 60 days at the time of
   purchase may be valued at amortized cost or at fair market value as
   determined in good faith by the Board; and

     for all other  securities  at fair value as determined in good faith by the
Board.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.

WHAT DO SHARES COST?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.

The NAV for each class of Shares may differ due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.

HOW IS THE FUND SOLD?

     Under the Distributor's  Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

RULE 12B-1 PLAN - INSTITUTIONAL SERVICE SHARES

As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.

The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.


<PAGE>



SHAREHOLDER SERVICES

The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.

SUPPLEMENTAL PAYMENTS

Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.

Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.

SUBACCOUNTING SERVICES

Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.

Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.

Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.

Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.


<PAGE>



ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote.

All Shares of the Corporation have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.

Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote.

     As of _____, the following shareholders owned of record,  beneficially,  or
both, 5% or more of outstanding Shares: (To be filed by amendment.)

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

TAX INFORMATION

FEDERAL INCOME TAX

The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.

The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF DIRECTORS

The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of four funds and the Federated Fund Complex is
comprised of 54 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.

As of ______, the Fund's Board and Officers as a group owned less than 1% of the
Fund's outstanding Institutional and Institutional Service Shares.


<TABLE>
<CAPTION>

NAME                                                                        AGGREGATE       TOTAL
BIRTH DATE                                                                  COMPENSATION    COMPENSATION
ADDRESS                    PRINCIPAL OCCUPATIONS                            FROM            FROM CORPORATION
POSITION WITH              FOR PAST FIVE YEARS                              CORPORATION     AND FUND COMPLEX
CORPORATION

<S>                       <C>                                              <C>             <C>

JOHN F. DONAHUE*#+         Chief Executive Officer and Director or                     $0   $0 for the
Birth Date: July 28,       Trustee of the Federated Fund Complex;                           Corporation
1924                       Chairman and Director, Federated Investors,                      and 54 other
Federated Investors        Inc.; Chairman and Trustee, Federated                            investment
Tower                      Investment Management Company; Chairman and                      companies in the
1001 Liberty Avenue        Director, Federated Investment Counseling,                       Fund Complex
Pittsburgh, PA             and Federated Global Investment Management
CHARIMAN and DIRECTOR      Corp.; Chairman, Passport Research, Ltd.

THOMAS G. BIGLEY           Director or Trustee of the Federated Fund                    $   $113,860.22 for the
Birth Date: February 3,    Complex; Director, Member of Executive                           Corporation and
1934                       Committee, Children's Hospital of Pittsburgh;                    54 other investment
15 Old Timber Trail        Director, Robroy Industries, Inc. (coated                        companies in the
Pittsburgh, PA             steel conduits/computer storage equipment);                      Fund Complex
DIRECTOR                   formerly: Senior Partner, Ernst & Young LLP;
                           Director, MED 3000 Group, Inc. (physician
                           practice management); Director, Member of
                           Executive Committee, University of Pittsburgh.

JOHN T. CONROY, JR.        Director or Trustee of the Federated Fund                    $   $125,264.48 for the
Birth Date: June 23,       Complex; President, Investment Properties                        Corporation and
1937                       Corporation; Senior Vice President,                              54 other investment
Wood/Commercial Dept.      John R. Wood and Associates, Inc., Realtors;                     companies in the
John R. Wood               Partner or Trustee in private real estate                        Fund Complex

Associates, Inc.           ventures in Southwest Florida; formerly:
Realtors                   President, Naples Property Management, Inc.
3255 Tamiami Trail         and Northgate Village Development Corporation.
North

Naples, FL

DIRECTOR

NICHOLAS CONSTANTAKIS      Director or Trustee of the Federated Fund                    $   $47,958.02 for the
Birth Date: September      Complex; formerly: Partner, Andersen                             Corporation and

3, 1939                    Worldwide SC.                                                    29 other investment
175 Woodshire Drive                                                                         companies
Pittsburgh, PA                                                                              in the Fund Complex

DIRECTOR

JOHN F. CUNNINGHAM         Director or Trustee of some of the Federated                 $   $0 for the
Birth Date: March 5,       Fund Complex; Chairman, President and Chief                      Corporation
1943                       Executive Officer, Cunningham & Co., Inc.                        and 46  other
353 El Brillo Way          (strategic business consulting) ; Trustee                        investment
Palm Beach, FL             Associate, Boston College; Director, Iperia                      companies in the
DIRECTOR                   Corp (communications/software); formerly:                        Fund Complex
                           Director, Redgate Communications and EMC Corporation
                           (computer storage systems).

                           Previous Positions: Chairman of the Board and
                           Chief Executive Officer, Computer Consoles,
                           Inc.; President and Chief Operating Officer,
                           Wang Laboratories; Director, First National
                           Bank of Boston; Director, Apollo Computer,

                           Inc.

LAWRENCE D. ELLIS, M.D.*   Director or Trustee of the Federated Fund                    $   $113,860.22 for the
Birth Date: October 11,    Complex; Professor of Medicine, University of                    Corporation and
1932                       Pittsburgh; Medical Director, University of                      54 other investment
3471 Fifth Avenue          Pittsburgh Medical Center - Downtown;                            companies in the
Suite 1111                 Hematologist, Oncologist, and Internist,                         Fund Complex
Pittsburgh, PA             University of Pittsburgh Medical Center;
DIRECTOR                   Member, National Board of Trustees, Leukemia
                           Society of America.

PETER E. MADDEN            Director or Trustee of the Federated Fund                    $   $113,860.22 for the
Birth Date: March 16,      Complex; formerly: Representative,                               Corporation and
1942                       Commonwealth of Massachusetts General Court;                     54 other investment
One Royal Palm Way         President, State Street Bank and Trust                           companies in the
100 Royal Palm Way         Company and State Street Corporation.                            Fund Complex
Palm Beach, FL

DIRECTOR                   Previous Positions: Director, VISA USA and
                           VISA International; Chairman and Director,
                           Massachusetts Bankers Association; Director,
                           Depository Trust Corporation; Director, The
                           Boston Stock Exchange.

CHARLES F. MANSFIELD,      Director or Trustee of some of the Federated                 $   $0 for the
JR.                        Fund Complex; Management Consultant.                             Corporation and
Birth Date: April 10,                                                                       [  ]  other
1945                       Previous Positions: Chief Executive Officer,                     investment
80 South Road              PBTC International Bank; Partner, Arthur                         companies in the
Westhampton Beach, NY      Young & Company (now Ernst & Young LLP);                         Fund Complex
DIRECTOR                   Chief Financial Officer of Retail Banking
                           Sector, Chase Manhattan Bank; Senior Vice
                           President, Marine Midland Bank; Vice
                           President, Citibank; Assistant Professor of
                           Banking and Finance, Frank G. Zarb School of
                           Business, Hofstra University.

JOHN E. MURRAY, JR.,       Director or Trustee of the Federated Fund                    $   $113,860.22 for the
J.D., S.J.D.#              Complex; President, Law Professor, Duquesne                      Corporation and
Birth Date: December       University; Consulting Partner, Mollica &                        54 other investment
20, 1932                   Murray; Director, Michael Baker Corp.                            companies in the
President, Duquesne        (engineering, construction, operations, and                      Fund Complex
University                 technical services).
Pittsburgh, PA

DIRECTOR                   Previous Positions: Dean and Professor of
                           Law, University of Pittsburgh School of Law;
                           Dean and Professor of Law, Villanova
                           University School of Law.

MARJORIE P. SMUTS          Director or Trustee of the Federated Fund                    $   $113,860.22 for the
Birth Date: June 21,       Complex; Public                                                  Corporation and
1935                       Relations/Marketing/Conference Planning.                         54 other investment
4905 Bayard Street                                                                          companies in the
Pittsburgh, PA             Previous Positions: National Spokesperson,                       Fund Complex
DIRECTOR                   Aluminum Company of America; television
                           producer; business owner.

JOHN S. WALSH              Director or Trustee of some of the Federated                 $   $0 for the
Birth Date: November       Fund Complex; President and Director, Heat                       Corporation and
28, 1957                   Wagon, Inc. (manufacturer of construction                        [  ]   other
2007 Sherwood Drive        temporary heaters); President and Director,                      investment
Valparaiso, IN             Manufacturers Products, Inc. (distributor of                     companies in the
DIRECTOR                   portable construction heaters); President,                       Fund Complex
                           Portable Heater Parts, a division of
                           Manufacturers Products, Inc.; Director, Walsh
                           & Kelly, Inc. (heavy highway contractor);
                           formerly: Vice President, Walsh & Kelly, Inc.

GLEN R. JOHNSON            Staff member, Federated Securities Corp.                     $   $0 for the
Birth Date: May 2, 1929                                                                     Corporation and
Federated Investors                                                                         8 other investment

Tower                                                                                       companies in the

1001 Liberty Avenue                                                                         Fund Complex
Pittsburgh, PA

PRESIDENT

J. CHRISTOPHER DONAHUE*+   President or Executive Vice President of the                $0   $0 for the
Birth Date: April 11,      Federated Fund Complex; Director or Trustee                      Corporation and
1949                       of some of the Funds in the Federated Fund                       16 other investment
Federated Investors        Complex; President, CEO and Director,                            companies in the
Tower                      Federated Investors, Inc.; President and                         Fund Complex
1001 Liberty Avenue        Trustee, Federated Investment Management
Pittsburgh, PA             Company; President and Trustee, Federated
EXECUTIVE VICE             Investment Counseling, President and
PRESIDENT and              Director, Federated Global Investment
DIRECTOR                   Management Corp.; President, Passport
                           Research, Ltd.; Trustee, Federated
                           Shareholder Services Company; Director,
                           Federated Services Company..


<PAGE>



EDWARD C. GONZALES         Trustee or Director of some of the Funds in                 $0   $0 for the
Birth Date: October 22,    the Federated Fund Complex; President,                           Corporation and 1
1930                       Executive Vice President and Treasurer of                        other investment
Federated Investors        some of the Funds in the Federated Fund                          company
Tower                      Complex; Vice Chairman, Federated Investors,                     in the Fund Complex
1001 Liberty Avenue        Inc.; Vice President, Federated Investment
Pittsburgh, PA             Management Company  and Federated Investment
EXECUTIVE VICE PRESIDENT   Counseling, Federated Global Investment
                           Management Corp. and Passport Research, Ltd.;
                           Executive Vice President and Director,
                           Federated Securities Corp.; Trustee,
                           Federated Shareholder Services Company.

JOHN W. MCGONIGLE          Executive Vice President and Secretary of the               $0   $0 for the
Birth Date: October 26,    Federated Fund Complex; Executive Vice                           Corporation and
1938                       President, Secretary, and Director, Federated                    54 other investment
Federated Investors        Investors, Inc.; Trustee, Federated                              companies in the
Tower                      Investment Management Company; Trustee,                          Fund Complex
1001 Liberty Avenue Federated Investment Counseling and Director, Pittsburgh, PA
Federated Global Investment Management Corp.; EXECUTIVE VICE Director, Federated
Services Company; PRESIDENT and SECRETARY Director, Federated Securities Corp..

RICHARD J. THOMAS          Treasurer of the Federated Fund Complex; Vice               $0   $0 for the
Birth Date: June 17,       President - Funds Financial Services                             Corporation and
1954                       Division, Federated Investors, Inc.;                             54 other investment
Federated Investors        formerly: various management positions within                    companies in the
Tower                      Funds Financial Services Division of                             Fund Complex

1001 Liberty Avenue        Federated Investors, Inc.
Pittsburgh, PA

TREASURER

WILLIAM D. DAWSON, III     Chief Investment Officer of this Fund and                   $0   $0 for the
Birth Date: March 3,       various other Funds in the Federated Fund                        Corporation and
1949                       Complex; Executive Vice President, Federated                     41 other investment
Federated Investors        Investment Counseling, Federated Global                          companies in the
Tower                      Investment Management Corp., Federated                           Fund Complex
1001 Liberty Avenue        Investment Management Company and Passport
Pittsburgh, PA             Research, Ltd.; Registered Representative,
CHIEF INVESTMENT OFFICER   Federated Securities Corp.; Portfolio

                           Manager, Federated Administrative Services; Vice
                           President, Federated Investors, Inc.; formerly:
                           Executive Vice President and Senior Vice President,
                           Federated Investment Counseling Institutional
                           Portfolio Management Services Division; Senior Vice
                           President, Federated Investment Management Company
                           and Passport Research, Ltd.

JOSEPH M. BALESTRINO       Joseph M. Balestrino is Vice President of the               $0   $0 for the
Birth Date: November 3,    Corporation.  Mr. Balestrino joined Federated                    Corporation
1954                       in 1986 and has been a Senior Portfolio                          and 3 other
Federated Investors        Manager and Senior Vice President of the                         investment
Tower                      Fund's Adviser since 1998. He was a Portfolio                    companies in the
1001 Liberty Avenue        Manager and a Vice President of the Fund's                       Fund Complex
Pittsburgh, PA             Adviser from 1995 to 1998. Mr. Balestrino
VICE PRESIDENT             served as a Portfolio Manager and an
                           Assistant Vice President of the Adviser from
                           1993 to 1995. Mr. Balestrino is a Chartered
                           Financial Analyst and received his Master's
                           Degree in Urban and Regional Planning from
                           the University of Pittsburgh.
</TABLE>

* AN ASTERISK DENOTES A DIRECTOR WHO IS DEEMED TO BE AN INTERESTED PERSON AS
DEFINED IN THE INVESTMENT COMPANY ACT OF 1940. # A POUND SIGN DENOTES A MEMBER
OF THE BOARD'S EXECUTIVE COMMITTEE, WHICH HANDLES THE BOARD'S RESPONSIBILITIES
BETWEEN ITS MEETINGS. +MR. DONAHUE IS THE FATHER OF J. CHRISTOPHER DONAHUE,
EXECUTIVE VICE PRESIDENT AND DIRECTOR OF THE CORPORATION. ++ MESSRS. CUNNINGHAM,
MANSFIELD AND WALSH BECAME MEMBERS OF THE BOARD OF DIRECTORS ON APRIL 4, 1999.
THEY DID NOT EARN ANY FEES FOR SERVING THE FUND COMPLEX SINCE THESE FEES ARE
REPORTED AS OF THE END OF THE LAST CALENDAR YEAR.

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly owned subsidiary of Federated.

The Adviser shall not be liable to the Corporation or any Fund shareholder for
any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Corporation.

OTHER RELATED SERVICES

Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms which have sold or
are selling Shares of the Fund and other funds distributed by the Distributor
and its affiliates. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Fund's Board.

Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.

ADMINISTRATOR

Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:

MAXIMUM ADMINISTRATIVE      AVERAGE AGGREGATE DAILY NET ASSETS OF THE FEDERATED
FEE                             FUNDS
0.150 of 1%                     on the first $250 million
0.125 of 1%                     on the next $250 million
0.100 of 1%                     on the next $250 million
0.075 of 1%                     on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN

State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.

INDEPENDENT AUDITORS

The independent auditor for the Fund, Ernst & Young LLP, plans and performs its
audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.


<PAGE>



FEES PAID BY THE FUND FOR SERVICES

FOR THE YEAR ENDED SEPTEMBER 30,           1999       1998               1997
Advisory Fee Earned                          $       $20,745            $6,692
Advisory Fee Reduction                       $       $20,745            $6,692
Brokerage Commissions                        $         $0                 $0
Administrative Fee                           $       $51,000           $155,001
12b-1 Fee
  Institutional Service Shares               $         --                 --
Shareholder Services Fee
  Institutional Shares                       $         --                 --
  Institutional Service Shares               $         --                 --

Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.

HOW DOES THE FUND MEASURE PERFORMANCE?

The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.

The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns given for the one-year and Start of Performance periods ended
September 30, 1999.

Yield given for the 30-day period ended September 30, 1999.

<TABLE>
<CAPTION>

<S>                       <C>                 <C>        <C>         <C>        <C>
                                                                                 Start of Performance
                           30-DAY PERIOD       1 Year     5 Years    10 Years       on May 31, 1997
INSTITUTIONAL SHARES

Total Return                     NA                          NA         NA
Yield                                            NA          NA         NA                NA

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


                                                                                 Start of Performance

                           30-DAY PERIOD       1 Year     5 Years    10 Years       on May 31, 1997
INSTITUTIONAL
SERVICE SHARES

Total Return                     NA                          NA         NA
Yield                                            NA          NA         NA                NA

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

</TABLE>

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.

YIELD

The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.

To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

o    references  to  ratings,   rankings,   and  financial  publications  and/or
     performance comparisons of Shares to certain indices;

o    charts,  graphs and illustrations  using the Fund's returns,  or returns in
     general,   that  demonstrate   investment  concepts  such  as  tax-deferred
     compounding, dollar-cost averaging and systematic investment;

o    discussions  of economic,  financial and political  developments  and their
     impact on the securities market, including the portfolio manager's views on
     how such developments could impact the Funds; and

o    information  about  the  mutual  fund  industry  from  sources  such as the
     Investment Company Institute.

The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:

o   LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
    making comparative calculations using total return. Total return assumes the
    reinvestment of all capital gains distributions and income dividends and
    takes into account any change in offering price over a specific period of
    time. From time to time, the Fund will quote its Lipper ranking in the "U.S.
    mortgage " category in advertising and sales literature.

o   LEHMAN BROTHERS MORTGAGE BACKED SECURITIES INDEx is composed of all fixed
    rate, securitized mortgage pools by Federal Home Loan Mortgage Corp.
    (Freddie Mac), Federal National Mortgage Association (Fannie Mae), and
    Government National Mortgage Association (GNMA), including GNMA Graduated
    Payment Mortgages. The minimum principal amount required for inclusion is
    $50 million. Total return comprises price appreciation/depreciation and
    income as a percentage of the original investment.

    Indexes are unmanaged and rebalanced monthly by market capitalization.
Investments cannot be made in an index.

WHO IS FEDERATED INVESTORS, INC.?

Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.

EQUITY FUNDS

In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.

CORPORATE BOND FUNDS

In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.

GOVERNMENT FUNDS

In the government sector, as of December 31, 1998, Federated manages 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.

MONEY MARKET FUNDS

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.

     The Chief  Investment  Officers  responsible  for  oversight of the various
investment  sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A.  Frantzen.  The Chief  Investment  Officers are Executive Vice
Presidents of the Federated advisory companies.

MUTUAL FUND MARKET

Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.

FEDERATED CLIENTS OVERVIEW

Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

INSTITUTIONAL CLIENTS

Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.

BANK MARKETING

Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.


<PAGE>






14

ADDRESSES

FEDERATED MORTGAGE FUND

Institutional Shares
institutional Service Shares

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

INVESTMENT ADVISER

Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue

Pittsburgh, PA 15222-3779

CUSTODIAN

State Street Bank and Trust Company
P.O. Box 8600

Boston, MA 02266-8600

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

INDEPENDENT AUDITORS

Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072

PROSPECTUS

FEDERATED TOTAL RETURN BOND FUND

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SHARES

A mutual fund seeking to provide total return by investing primarily in a
diversified portfolio of investment grade fixed income securities.

As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.

CONTENTS

Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information

   november 30, 1999


<PAGE>



RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide total return. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the strategies and policies described in this prospectus. The
Fund's total return will consist of two components: (1) changes in the market
value of its portfolio securities (both realized and unrealized appreciation),
and (2) income received from its portfolio securities. The Fund expects that
income will comprise the largest component of its total return.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund invests primarily in a diversified portfolio of investment grade fixed
income securities, including mortgage backed securities, corporate debt
securities and U.S. government obligations. The Adviser seeks to enhance the
Fund's performance by allocating relatively more of its portfolio to the
security type that the Adviser expects to offer the best balance between total
return and risk.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

o    INTEREST RATE RISK. Prices of fixed income  securities  generally fall when
     interest rates rise.

o   PREPAYMENT RISK. When homeowners prepay their mortgages in response to lower
    interest rates, the Fund will be required to reinvest the proceeds at the
    lower interest rates available. Also, when interest rates fall, the price of
    mortgage backed securities may not rise to as great an extent as that of
    other fixed income securities.

o   CREDIT RISKS. There is a possibility that issuers of securities in which the
    Fund may invest may default in the payment of interest or principal on the
    securities when due, which would cause the Fund to lose money.

o    LIQUIDITY RISKS. The fixed income  securities in which the Fund invests may
     be less readily  marketable  and may be subject to greater  fluctuation  in
     price than other securities.

o   RISKS ASSOCIATED WITH NON-INVESTMENT GRADE SECURITIES. The Fund may invest a
    portion of its assets in securities rated below investment grade which may
    be subject to greater interest rate, credit and liquidity risks than
    investment grade securities.

The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.


<PAGE>



RISK/RETURN BAR CHART AND TABLE

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares of Fund as of the calendar year-end
for ___ years.

The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of __% up to __%.

The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features ____ distinct
vertical bars, shaded in charcoal, and each visually representing by height the
total return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Fund's Institutional Shares for the
calendar year is stated directly at the top of the bar, for the calendar year
1998. The percentages noted are:

The bar chart shows the variability of the Fund's Institutional Shares total
returns on a calendar year-end basis.

The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.

The Fund's total return for the nine-month period from January 1, 1999 to
September 30, 1999 was ____%.

Within the period shown in the Chart, the Fund's highest quarterly return was
___% (quarter ended ______). Its lowest quarterly return was ___% (quarter ended
_________).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Institutional Shares Average Annual
Total Return for the calendar period ending December 31, 1998. The table shows
the Fund's total returns averaged over a period of years relative to (name of
index), a broad-based market index. Indexes are unmanaged, and it is not
possible to invest directly in an index.

<TABLE>
<CAPTION>
<S>                 <C>             <C>            <C>           <C>            <C>
                    INSTITUTIONAL   INSTITUTIONAL  BROAD-BASED    OTHER INDEX    OTHER INDEX
CALENDAR PERIOD       SHARES        SERVICE        INDEX           OR              OR

                                    SHARES                       AVERAGE        AVERAGE

1 Year
[5 Years]
[10 Years]
[Start of

Performance1]
</TABLE>

1 THE FUND'S INSTITUTIONAL SHARES START OF PERFORMANCE DATE WAS
________________.

     The Fund's  (insert class name,  or model share class name, as  applicable)
7-Day Net Yield as of _______ was __%. Investors may call the Fund at 1-800-____
to acquire the current 7-Day Net Yield.

Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.


<PAGE>



WHAT ARE THE FUND'S FEES AND EXPENSES?

FEDERATED TOTAL RETURN BOND FUND - INSTITUTIONAL SHARES

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Shares.

SHAREHOLDER FEES

FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a            None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of          None
original purchase price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends       None
(and other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if            None
applicable)
Exchange Fee                                                      None

ANNUAL FUND OPERATING EXPENSES (Before
[Reimbursements/Waivers])(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee                                                    0.40%
Distribution (12b-1) Fee                                          None
Shareholder Services Fee                                          0.25%
Other Expenses                                                    %
Total Annual Fund Operating Expenses                              %
1 Although not contractually obligated to do so, the [adviser will
  (waive/reimburse)] [adviser (waived/reimbursed)] [and] [distributor (will
  reimburse/reimbursed)] certain amounts. These are shown below along with the
  net expenses the Fund [ACTUALLY PAID] [EXPECTS TO PAY] for the fiscal year
  ended September 30, 1999

   Total [Reimbursements/Waivers] of Fund Expenses                %
   Total Actual Annual Fund Operating Expenses (after             %
   [reimbursements/waivers] )

2 [Insert Applicable footnote(s) as provided by State Street Bank.

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
  Institutional Shares with the cost of investing in other mutual funds. The
  Example assumes that you invest $10,000 in the Fund's Institutional Shares for
  the time periods indicated and then redeem all of your Shares at the end of
  those

periods. Expenses assuming no redemption are also shown. The Example also
assumes that your investment has a 5% return each year and that the Fund's
Institutional Shares operating expenses are [BEFORE REIMBURSEMENTS/WAIVERS] as
[estimated] [shown] in the table and remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
INSTITUTIONAL SHARES 1 YEAR 3 YEARS 5 YEARS 10 YEARS Expenses assuming
redemption $ $ $ $ Expenses assuming no $ $ $ $ redemption


<PAGE>



WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

Under normal market conditions, the Fund invests at least 65% of the value of
its total assets in a diversified portfolio of domestic investment grade debt
securities, including corporate debt securities, U.S. government obligations,
and mortgage backed securities. Investment grade debt securities are rated in
one of the four highest categories (BBB or higher) by a nationally recognized
statistical rating organization (NRSRO), or if unrated, of comparable quality as
determined by the Adviser. A description of the various types of securities in
which the Fund principally invests, and their risks, immediately follows this
strategy section.

The Adviser seeks to enhance the Fund's performance by allocating relatively
more of its portfolio to the security type that the Adviser expects to offer the
best balance between total return and risk and thus offer the greatest potential
for return. The allocation process is based on the Adviser's continuing analysis
of a variety of economic and market indicators in order to arrive at the
projected yield "spread" of each security type. (The spread is the difference
between the yield of a security versus the yield of a U.S. treasury security
with a comparable average life.) The security's projected spread is weighed
against the spread the security can currently be purchased for, as well as the
security's credit risk (in the case of corporate securities and privately issued
mortgage backed securities) and its risk of prepayment (in the case of mortgage
backed securities) in order to complete the analysis.

Mortgage backed securities tend to amortize principal on a somewhat irregular
schedule over time, since the borrower can usually prepay all or part of the
loan without penalty. These securities generally offer higher yields versus U.S.
treasury securities and non-mortgage backed agency securities to compensate for
this prepayment risk as well as any credit risk which might also be present in
the security. Similarly, corporate debt securities, which tend to pay off on a
predetermined schedule, generally offer higher yields than U.S. government
securities to compensate for credit risk. The Adviser invests the Fund's
portfolio, seeking the higher relative returns of mortgage backed securities and
corporate debt securities, when available, while attempting to limit the
associated credit or prepayment risks.

The Adviser attempts to manage the Fund's prepayment risk by selecting mortgage
backed securities with characteristics that make prepayment fluctuations less
likely. Characteristics that the Adviser may consider in selecting securities
include the average interest rates of the underlying mortgages and the federal
agencies (if any) that support the mortgages. The Adviser attempts to assess the
relative returns and risks for mortgage backed securities by analyzing how the
timing, amount and division of cash flows might change in response to changing
economic and market conditions.

The Adviser attempts to manage the Fund's credit risk by selecting corporate
debt securities that make default in the payment of principal and interest less
likely. The Adviser looks at a variety of factors, including macroeconomic
analysis and corporate earnings analysis, among others, to determine which
business sectors and credit ratings are most advantageous for investment by the
Fund. In selecting individual corporate fixed income securities, the Adviser
analyzes a company's business, competitive position, and general financial
condition to assess whether the security's credit risk is commensurate with its
potential return. The Fund may invest a portion of its portfolio in
non-investment grade fixed income securities, which are rated BB or lower by an
NRSRO. The non-investment grade securities in which the Fund invests generally
pay higher interest rates as compensation for the greater default risk attached
to the securities.

The Adviser may lengthen or shorten duration from time-to-time based on its
interest rate outlook. Duration measures the price sensitivity of a fixed income
security to changes in interest rates. If the Adviser expects interest rates to
decline, it will generally lengthen the Fund's duration, and if the Adviser
expects interest rates to increase, it will generally shorten the Fund's
duration. The Adviser formulates its interest rate outlook and otherwise
attempts to anticipate changes in economic and market conditions by analyzing a
variety of factors, such as:

o .......current and expected U.S. growth;

o        current and expected interest rates and inflation;

o        the U.S. Federal Reserve Board's monetary policy; and

o        changes in the supply of or demand for U.S. government securities.

There is no assurance that the Adviser's efforts to forecast market interest
rates, and assess relative risks and the impact of market interest rates on
particular securities, will be successful.

TEMPORARY DEFENSIVE INVESTMENTS

The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash and shorter-term debt securities and similar
obligations. It may do this to minimize potential losses and maintain liquidity
to meet shareholder redemptions during adverse market conditions. This may cause
the Fund to give up greater investment returns to maintain the safety of
principal, that is, the original amount invested by shareholders.

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.

The following describes the types of fixed income securities in which the Fund
primarily invests.

    MORTGAGE BACKED SECURITIES

    Mortgage backed securities represent interests in pools of mortgages. The
    mortgages that comprise a pool normally have similar interest rates,
    maturities and other terms. Mortgages may have fixed or adjustable interest
    rates. Interests in pools of adjustable rate mortgages are known as ARMs.

    Mortgage backed securities come in a variety of forms. Many have extremely
    complicated terms. The simplest form of mortgage backed securities are
    pass-through certificates. An issuer of pass-through certificates gathers
    monthly payments from an underlying pool of mortgages. Then, the issuer
    deducts its fees and expenses and passes the balance of the payments onto
    the certificate holders once a month. Holders of pass-through certificates
    receive a pro rata share of all payments and pre-payments from the
    underlying mortgages. As a result, the holders assume all the prepayment
    risks of the underlying mortgages.

           COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

           CMOs, including interests in real estate mortgage investment conduits
           (REMICs), allocate payments and prepayments from an underlying
           pass-through certificate among holders of different classes of
           mortgage backed securities. This creates different prepayment and
           interest rate risks for each CMO class. The degree of increased or
           decreased prepayment risks depends upon the structure of the CMOs.
           However, the actual returns on any type of mortgage backed security
           depend upon the performance of the underlying pool of mortgages,
           which no one can predict and will vary among pools.

    TREASURY SECURITIES

    Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

    AGENCY SECURITIES

    Agency securities are issued or guaranteed by a federal agency or other
    government sponsored entity acting under federal authority (a Government
    Sponsored Entity, or GSE). The United States supports some GSEs with its
    full faith and credit. Other GSEs receive support through federal subsidies,
    loans or other benefits. A few GSEs have no explicit financial support, but
    are regarded as having implied support because the federal government
    sponsors their activities. Agency securities are generally regarded as
    having low credit risks, but not as low as treasury securities.

    The Fund treats mortgage backed securities guaranteed by GSEs as agency
    securities. Although a GSE guarantee protects against credit risks, it does
    not reduce the interest rate and prepayment risks of these mortgage backed
    securities.

    CORPORATE DEBT SECURITIES

    Corporate debt securities are fixed income securities issued by businesses.
    Notes, bonds, debentures and commercial paper are the most prevalent types
    of corporate debt securities. The Fund may also purchase interests in bank
    loans to companies. The credit risks of corporate debt securities vary
    widely among issuers.

    In addition, the credit risk of an issuer's debt security may vary based on
    its priority for repayment. For example, higher ranking (senior) debt
    securities have a higher priority than lower ranking (subordinated)
    securities. This means that the issuer might not make payments on
    subordinated securities while continuing to make payments on senior
    securities. In addition, in the event of bankruptcy, holders of senior
    securities may receive amounts otherwise payable to the holders of
    subordinated securities. Some subordinated securities, such as trust
    preferred and capital securities notes, also permit the issuer to defer
    payments under certain circumstances. For example, insurance companies issue
    securities known as surplus notes that permit the insurance company to defer
    any payment that would reduce its capital below regulatory requirements.

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.

If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

INTEREST RATE RISKS

o   Prices of fixed income securities rise and fall in response to changes in
    the interest rate paid by similar securities. Generally, when interest rates
    rise, prices of fixed income securities fall. However, market factors, such
    as the demand for particular fixed income securities, may cause the price of
    certain fixed income securities to fall while the prices of other securities
    rise or remain unchanged.

O   Interest rate changes have a greater effect on the price of fixed income
    securities with longer durations. Duration measures the price sensitivity of
    a fixed income security to changes in interest rates.

PREPAYMENT RISKS

o   Generally, homeowners have the option to prepay their mortgages at any time
    without penalty. Homeowners frequently refinance high interest rate
    mortgages when mortgage rates fall. This results in the prepayment of
    mortgage backed securities with higher interest rates. Conversely,
    prepayments due to refinancings decrease when mortgage rates increase. This
    extends the life of mortgage backed securities with lower interest rates.
    Other economic factors can also lead to increases or decreases in
    prepayments. Increases in prepayments of high interest rate mortgage backed
    securities, or decreases in prepayments of lower interest rate mortgage
    backed securities, may reduce their yield and price. These factors,
    particularly the relationship between interest rates and mortgage
    prepayments makes the price of mortgage backed securities more volatile than
    many other types of fixed income securities with comparable credit risks.

o   Mortgage backed securities generally compensate for greater prepayment risk
    by paying a higher yield. The difference between the yield of a mortgage
    backed security and the yield of a U.S. Treasury security with a comparable
    maturity (the spread) measures the additional interest paid for risk.
    Spreads may increase generally in response to adverse economic or market
    conditions. A security's spread may also increase if the security is
    perceived to have an increased prepayment risk or perceived to have less
    market demand. An increase in the spread will cause the price of the
    security to decline.

o   The Fund may have to reinvest the proceeds of mortgage prepayments in other
    fixed income securities with lower interest rates, higher prepayment risks,
    or other less favorable characteristics.

CREDIT RISKS

o    Credit risk is the possibility that an issuer will default on a security by
     failing to pay interest or principal when due. If an issuer  defaults,  the
     Fund will lose money.

o   Many fixed income securities receive credit ratings from services such as
    Standard & Poor's and Moody's Investor Services, Inc. These services assign
    ratings to securities by assessing the likelihood of issuer default. Lower
    credit ratings correspond to higher credit risk. If a security has not
    received a rating, the Fund must rely entirely upon the Adviser's credit
    assessment.

o   Fixed income securities generally compensate for greater credit risk by
    paying interest at a higher rate. The difference between the yield of a
    security and the yield of a U.S. Treasury security with a comparable
    maturity (the spread) measures the additional interest paid for risk.
    Spreads may increase generally in response to adverse economic or market
    conditions. A security's spread may also increase if the security's rating
    is lowered, or the security is perceived to have an increased credit risk.
    An increase in the spread will cause the price of the security to decline.

o   Credit risk includes the possibility that a party to a transaction involving
    the Fund will fail to meet its obligations. This could cause the Fund to
    lose the benefit of the transaction or prevent the Fund from selling or
    buying other securities to implement its investment strategy.

LIQUIDITY RISKS

o    Trading  opportunities  are more limited for fixed income  securities  that
     have  not  received  any  credit  ratings,   have  received  ratings  below
     investment grade or are not widely held.

o   These features may make it more difficult to sell or buy a security at a
    favorable price or time. Consequently, the Fund may have to accept a lower
    price to sell a security, sell other securities to raise cash or give up an
    investment opportunity, any of which could have a negative effect on the
    Fund's performance. Infrequent trading of securities may also lead to an
    increase in their price volatility.

o   Liquidity risk also refers to the possibility that the Fund may not be able
    to sell a security or close out a derivative contract when it wants to. If
    this happens, the Fund will be required to continue to hold the security or
    keep the position open, and the Fund could incur losses.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

o   Securities rated below investment grade, also known as junk bonds, generally
    entail greater market, credit and liquidity risks than investment grade
    securities. For example, their prices are more volatile, economic downturns
    and financial setbacks may affect their prices more negatively, and their
    trading market may be more limited.

WHAT DO SHARES COST?

You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form (as
described in the prospectus) it is processed at the next calculated net asset
value (NAV). From time to time the Fund may purchase foreign securities that
trade in foreign markets on days the NYSE is closed. The value of the Fund's
assets may change on days you cannot purchase or redeem Shares. The Fund does
not charge a front-end sales charge. NAV is determined at the end of regular
trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund
generally values fixed income securities at the last sale price on a national
securities exchange, if available, otherwise, as determined by an independent
pricing service. Futures contracts and options are generally valued at market
values established by the exchanges on which they are traded at the close of
trading on such exchanges. Options traded in the over-the-counter market are
generally valued according to the mean between the last bid and the last asked
price for the option as provided by an investment dealer or other financial
institution that deals in the option. The Fund values short-term obligations
according to the mean between bid and asked prices as furnished by an
independent pricing service, except that short-term obligations with remaining
maturities of less than 60 days at the time of purchase may be valued at
amortized cost or at fair market value as determined by the Board.

The required minimum initial investment for Fund Shares is $100,000. There is no
required minimum subsequent investment amount. An account may be opened with a
smaller amount as long as the $100,000 minimum is reached within 90 days. An
institutional investor's minimum investment is calculated by combining all
accounts it maintains with the Fund. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep in
mind that investment professionals may charge you fees for their services in
connection with your Share transactions.

HOW IS THE FUND SOLD?

The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.

The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to retail and private banking customers of financial
institutions.

When the Distributor receives marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).

HOW TO PURCHASE SHARES

You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.

THROUGH AN INVESTMENT PROFESSIONAL

o    Establish an account with the investment professional; and

o    Submit your purchase order to the investment professional before the end of
     regular  trading on the NYSE  (normally 4:00 p.m.  Eastern time).  You will
     receive the next calculated NAV if the investment professional forwards the
     order to the Fund on the same day and the Fund receives  payment within one
     business  day.  You will become the owner of Shares and  receive  dividends
     when the Fund receives your payment.

Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

o    Establish  your account with the Fund by submitting a completed New Account
     Form; and

o    Send your payment to the Fund by Federal Reserve wire or check.

You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.

An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.

BY WIRE Send your wire to:

  State Street Bank and Trust Company
  Boston, MA
  Dollar Amount of Wire

  ABA Number 011000028
  Attention: EDGEWIRE

  Wire Order Number, Dealer Number or Group Number
  Nominee/Institution Name
  Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are
restricted.

BY CHECK

Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:

  Federated Shareholder Services Company
  P.O. Box 8600

  Boston, MA 02266-8600

If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:

  Federated Shareholder Services Company
  1099 Hingham Street
  Rockland, MA 02370-3317

     Payment  should be made in U.S.  dollars and drawn on a U.S. bank. The Fund
will not accept  third-party  checks (checks originally payable to someone other
than you or The Federated Funds).

BY AUTOMATED CLEARING HOUSE (ACH)

Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.

HOW TO REDEEM SHARES

You should redeem Shares:

o    through an  investment  professional  if you  purchased  Shares  through an
     investment professional; or

o    directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.

DIRECTLY FROM THE FUND

BY TELEPHONE

You may redeem Shares by calling the Fund at 1-800-341-7400 once you have
completed the appropriate authorization form for telephone transactions. If you
call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern
time) you will receive a redemption amount based on that day's NAV.

BY MAIL

You may redeem Shares by mailing a written request to the Fund.

You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.

Send requests by mail to:

  Federated Shareholder Services Company
  P.O. Box 8600

  Boston, MA 02266-8600

Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:

  Federated Shareholder Services Company
  1099 Hingham Street
  Rockland, MA 02370-3317 All requests must include:

o    Fund Name and Share Class, account number and account registration;

o    amount to be redeemed; and

o    signatures of all shareholders exactly as registered.

Call your investment professional or the Fund if you need special instructions.

SIGNATURE GUARANTEES Signatures must be guaranteed if:

o    your  redemption  will be sent to an  address  other  than the  address  of
     record;

o    your  redemption  will be sent to an  address  of record  that was  changed
     within the last 30 days; or

o    a redemption is payable to someone other than the shareholder(s) of record.

A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.

PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:

o    an electronic  transfer to your account at a financial  institution that is
     an ACH member; or

o    wire  payment  to your  account  at a  domestic  commercial  bank that is a
     Federal Reserve System member.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:

o    to allow your purchase to clear;

o    during periods of market volatility; or

o    when a shareholder's  trade activity or amount adversely impacts the Fund's
     ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

SHARE CERTIFICATES

The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
dividends and capital gains paid.

DIVIDENDS AND CAPITAL GAINS

The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.

In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.

If you purchase Shares just before a Fund declares a capital gain distribution,
you will pay the full price for the Shares and then receive a portion of the
price back in the form of a taxable distribution, whether or not you reinvest
the distribution in Shares. Therefore, you should consider the tax implications
of purchasing Shares shortly before the Fund declares a capital gain. Contact
your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.

Fund distributions are expected to be both dividends and capital gains.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.

WHO MANAGES THE FUND?

The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which totaled approximately $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees.

More than 4,000 investment professionals make Federated Funds available to their
customers.

THE FUND'S PORTFOLIO MANAGERS ARE:

JOSEPH M. BALESTRINO

     Joseph M. Balestrino has been the Fund's portfolio  manager since September
1996. He is Vice President of the Corporation.  Mr.  Balestrino joined Federated
in 1986 and has been a Senior Portfolio Manager and Senior Vice President of the
Fund's  Adviser since 1998. He was a Portfolio  Manager and a Vice  President of
the Fund's  Adviser  from 1995 to 1998.  Mr.  Balestrino  served as a  Portfolio
Manager and an Assistant  Vice  President of the Adviser from 1993 to 1995.  Mr.
Balestrino is a Chartered  Financial Analyst and received his Master's Degree in
Urban and Regional Planning from the University of Pittsburgh.

MARK E. DURBIANO

     Mark E. Durbiano has been the Fund's portfolio manager since inception. Mr.
Durbiano joined Federated in 1982 and has been a Senior Portfolio  Manager and a
Senior Vice President of the Fund's Adviser since 1996.  From 1988 through 1995,
Mr. Durbiano was a Portfolio Manager and a Vice President of the Fund's Adviser.
Mr. Durbiano is a Chartered Financial Analyst and received his M.B.A. in Finance
from the University of Pittsburgh.

DONALD T. ELLENBERGER

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

JOHN T. GENTRY

     John T. Gentry has been the Fund's  portfolio  manager since November 1997.
Mr.  Gentry  joined  Federated in 1995 as an  Investment  Analyst and has been a
Senior Investment  Analyst and an Assistant Vice President of the Fund's Adviser
since 1997. Mr. Gentry served as a Senior Treasury Analyst at Sun Company,  Inc.
from 1991 to 1995.  Mr. Gentry is a Chartered  Financial  Analyst and earned his
M.B.A., with concentrations in Finance and Accounting, from Cornell University.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.


<PAGE>



YEAR 2000 READINESS

The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.

While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.

The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.

Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities
will have difficulty determining the Year 2000 readiness of those entities.

The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.

FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS

The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.

This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.


<PAGE>






45

FEDERATED TOTAL RETURN BOND FUND

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SHARES

A Statement of Additional Information (SAI) dated November 30, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report's Management Discussion & Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, the Annual Report, Semi-Annual Report
and other information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.

You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected]. or by writing to the SEC's Public
Reference Section, Washington, D.C 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.

INVESTMENT COMPANY ACT FILE NO.811-7115
CUSIP 31428Q101

G01721-01-IS (11/99)

PROSPECTUS

FEDERATED TOTAL RETURN BOND FUND

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SERVICE SHARES

A mutual fund seeking to provide total return by investing primarily in a
diversified portfolio of investment grade fixed income securities.

As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.

CONTENTS

Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information

   november 30, 1999


<PAGE>



RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide total return. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the strategies and policies described in this prospectus. The
Fund's total return will consist of two components: (1) changes in the market
value of its portfolio securities (both realized and unrealized appreciation),
and (2) income received from its portfolio securities. The Fund expects that
income will comprise the largest component of its total return.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund invests primarily in a diversified portfolio of investment grade fixed
income securities, including mortgage backed securities, corporate debt
securities and U.S. government obligations. The Adviser seeks to enhance the
Fund's performance by allocating relatively more of its portfolio to the
security type that the Adviser expects to offer the best balance between total
return and risk.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

o    INTEREST RATE RISK. Prices of fixed income  securities  generally fall when
     interest rates rise.

o   PREPAYMENT RISK. When homeowners prepay their mortgages in response to lower
    interest rates, the Fund will be required to reinvest the proceeds at the
    lower interest rates available. Also, when interest rates fall, the price of
    mortgage backed securities may not rise to as great an extent as that of
    other fixed income securities.

o   CREDIT RISKS. There is a possibility that issuers of securities in which the
    Fund may invest may default in the payment of interest or principal on the
    securities when due, which would cause the Fund to lose money.

o    LIQUIDITY RISKS. The fixed income  securities in which the Fund invests may
     be less readily  marketable  and may be subject to greater  fluctuation  in
     price than other securities.

o   RISKS ASSOCIATED WITH NON-INVESTMENT GRADE SECURITIES. The Fund may invest a
    portion of its assets in securities rated below investment grade which may
    be subject to greater interest rate, credit and liquidity risks than
    investment grade securities.

The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.


<PAGE>



RISK/RETURN BAR CHART AND TABLE

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares of Fund as of the calendar
year-end for ____ years.

The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of __% up to __%.

The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features ____ distinct
vertical bars, shaded in charcoal, and each visually representing by height the
total return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Fund's Institutional Service Shares
for the calendar year is stated directly at the top of the bar, for the calendar
year 1998. The percentages noted are:

The bar chart shows the variability of the Fund's Institutional Service Shares
total returns on a calendar year-end basis.

The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.

The Fund's total return for the nine-month period from January 1, 1999 to
September 30, 1999 was ____%.

Within the period shown in the Chart, the Fund's highest quarterly return was
___% (quarter ended ______). Its lowest quarterly return was ___% (quarter ended
_________).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Institutional Service Shares Average
Annual Total Return for the calendar period ending December 31, 1998. The table
shows the Fund's total returns averaged over a period of years relative to (name
of index), a broad-based market index. Indexes are unmanaged, and it is not
possible to invest directly in an index.

<TABLE>
<CAPTION>
<S>                 <C>            <C>            <C>            <C>            <C>
                    INSTITUTIONAL  INSTITUTIONAL  BROAD-BASED    OTHER INDEX    OTHER INDEX
CALENDAR PERIOD        SERVICE       SHARES        INDEX           OR              OR

                       SHARES                                    AVERAGE        AVERAGE

1 Year
[5 Years]
[10 Years]
[Start of

Performance1]
</TABLE>

1 THE FUND'S INSTITUTIONAL SERVICE SHARES START OF PERFORMANCE DATE WAS
________________.

     The Fund's  (insert class name,  or model share class name, as  applicable)
7-Day Net Yield as of _______ was __%. Investors may call the Fund at 1-800-____
to acquire the current 7-Day Net Yield.

Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.


<PAGE>



WHAT ARE THE FUND'S FEES AND EXPENSES?

FEDERATED TOTAL RETURN BOND FUND - INSTITUTIONAL SERVICE SHARES

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Service Shares.

SHAREHOLDER FEES

FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a            None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of          None
original purchase price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends       None
(and other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if            None
applicable)
Exchange Fee                                                      None

ANNUAL FUND OPERATING EXPENSES (Before
[Reimbursements/Waivers])(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee                                                    0.40%
Distribution (12b-1) Fee                                          0.25%
Shareholder Services Fee                                          0.25%
Other Expenses                                                    %
Total Annual Fund Operating Expenses                              %
1 Although not contractually obligated to do so, the [adviser will
  (waive/reimburse)] [adviser (waived/reimbursed)] [and] [distributor (will
  reimburse/reimbursed)] certain amounts. These are shown below along with the
  net expenses the Fund [ACTUALLY PAID] [EXPECTS TO PAY] for the fiscal year
  ended September 30, 1999

   Total [Reimbursements/Waivers] of Fund Expenses                %
   Total Actual Annual Fund Operating Expenses (after             %
   [reimbursements/waivers] )

2 [Insert Applicable footnote(s) as provided by State Street Bank.

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
  Institutional Service Shares with the cost of investing in other mutual funds.
  The Example assumes that you invest $10,000 in the Fund's Institutional
  Service Shares for the time periods indicated and then redeem all of your
  Shares at the end of

those periods. Expenses assuming no redemption are also shown. The Example also
assumes that your investment has a 5% return each year and that the Fund's
Institutional Service Shares operating expenses are [BEFORE
REIMBURSEMENTS/WAIVERS] as [estimated] [shown] in the table and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be: INSTITUTIONAL SERVICE SHARE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming redemption $ $ $ $ Expenses assuming no $ $ $ $ redemption


<PAGE>



WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

Under normal market conditions, the Fund invests at least 65% of the value of
its total assets in a diversified portfolio of domestic investment grade debt
securities, including corporate debt securities, U.S. government obligations,
and mortgage backed securities. Investment grade debt securities are rated in
one of the four highest categories (BBB or higher) by a nationally recognized
statistical rating organization (NRSRO), or if unrated, of comparable quality as
determined by the Adviser. A description of the various types of securities in
which the Fund principally invests, and their risks, immediately follows this
strategy section.

The Adviser seeks to enhance the Fund's performance by allocating relatively
more of its portfolio to the security type that the Adviser expects to offer the
best balance between total return and risk and thus offer the greatest potential
for return. The allocation process is based on the Adviser's continuing analysis
of a variety of economic and market indicators in order to arrive at the
projected yield "spread" of each security type. (The spread is the difference
between the yield of a security versus the yield of a U.S. treasury security
with a comparable average life.) The security's projected spread is weighed
against the spread the security can currently be purchased for, as well as the
security's credit risk (in the case of corporate securities and privately issued
mortgage backed securities) and its risk of prepayment (in the case of mortgage
backed securities) in order to complete the analysis.

Mortgage backed securities tend to amortize principal on a somewhat irregular
schedule over time, since the borrower can usually prepay all or part of the
loan without penalty. These securities generally offer higher yields versus U.S.
treasury securities and non-mortgage backed agency securities to compensate for
this prepayment risk as well as any credit risk which might also be present in
the security. Similarly, corporate debt securities, which tend to pay off on a
predetermined schedule, generally offer higher yields than U.S. government
securities to compensate for credit risk. The Adviser invests the Fund's
portfolio, seeking the higher relative returns of mortgage backed securities and
corporate debt securities, when available, while attempting to limit the
associated credit or prepayment risks.

The Adviser attempts to manage the Fund's prepayment risk by selecting mortgage
backed securities with characteristics that make prepayment fluctuations less
likely. Characteristics that the Adviser may consider in selecting securities
include the average interest rates of the underlying mortgages and the federal
agencies (if any) that support the mortgages. The Adviser attempts to assess the
relative returns and risks for mortgage backed securities by analyzing how the
timing, amount and division of cash flows might change in response to changing
economic and market conditions.

The Adviser attempts to manage the Fund's credit risk by selecting corporate
debt securities that make default in the payment of principal and interest less
likely. The Adviser looks at a variety of factors, including macroeconomic
analysis and corporate earnings analysis, among others, to determine which
business sectors and credit ratings are most advantageous for investment by the
Fund. In selecting individual corporate fixed income securities, the Adviser
analyzes a company's business, competitive position, and general financial
condition to assess whether the security's credit risk is commensurate with its
potential return. The Fund may invest a portion of its portfolio in
non-investment grade fixed income securities, which are rated BB or lower by an
NRSRO. The non-investment grade securities in which the Fund invests generally
pay higher interest rates as compensation for the greater default risk attached
to the securities.

The Adviser may lengthen or shorten duration from time-to-time based on its
interest rate outlook. Duration measures the price sensitivity of a fixed income
security to changes in interest rates. If the Adviser expects interest rates to
decline, it will generally lengthen the Fund's duration, and if the Adviser
expects interest rates to increase, it will generally shorten the Fund's
duration. The Adviser formulates its interest rate outlook and otherwise
attempts to anticipate changes in economic and market conditions by analyzing a
variety of factors, such as:

o .......current and expected U.S. growth;

o        current and expected interest rates and inflation;

o        the U.S. Federal Reserve Board's monetary policy; and

o        changes in the supply of or demand for U.S. government securities.

There is no assurance that the Adviser's efforts to forecast market interest
rates, and assess relative risks and the impact of market interest rates on
particular securities, will be successful.

TEMPORARY DEFENSIVE INVESTMENTS

The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash and shorter-term debt securities and similar
obligations. It may do this to minimize potential losses and maintain liquidity
to meet shareholder redemptions during adverse market conditions. This may cause
the Fund to give up greater investment returns to maintain the safety of
principal, that is, the original amount invested by shareholders.

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.

The following describes the types of fixed income securities in which the Fund
primarily invests.

    MORTGAGE BACKED SECURITIES

    Mortgage backed securities represent interests in pools of mortgages. The
    mortgages that comprise a pool normally have similar interest rates,
    maturities and other terms. Mortgages may have fixed or adjustable interest
    rates. Interests in pools of adjustable rate mortgages are known as ARMs.

    Mortgage backed securities come in a variety of forms. Many have extremely
    complicated terms. The simplest form of mortgage backed securities are
    pass-through certificates. An issuer of pass-through certificates gathers
    monthly payments from an underlying pool of mortgages. Then, the issuer
    deducts its fees and expenses and passes the balance of the payments onto
    the certificate holders once a month. Holders of pass-through certificates
    receive a pro rata share of all payments and pre-payments from the
    underlying mortgages. As a result, the holders assume all the prepayment
    risks of the underlying mortgages.

           COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

           CMOs, including interests in real estate mortgage investment conduits
           (REMICs), allocate payments and prepayments from an underlying
           pass-through certificate among holders of different classes of
           mortgage backed securities. This creates different prepayment and
           interest rate risks for each CMO class. The degree of increased or
           decreased prepayment risks depends upon the structure of the CMOs.
           However, the actual returns on any type of mortgage backed security
           depend upon the performance of the underlying pool of mortgages,
           which no one can predict and will vary among pools.

    TREASURY SECURITIES

    Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

    AGENCY SECURITIES

    Agency securities are issued or guaranteed by a federal agency or other
    government sponsored entity acting under federal authority (a Government
    Sponsored Entity, or GSE). The United States supports some GSEs with its
    full faith and credit. Other GSEs receive support through federal subsidies,
    loans or other benefits. A few GSEs have no explicit financial support, but
    are regarded as having implied support because the federal government
    sponsors their activities. Agency securities are generally regarded as
    having low credit risks, but not as low as treasury securities.

    The Fund treats mortgage backed securities guaranteed by GSEs as agency
    securities. Although a GSE guarantee protects against credit risks, it does
    not reduce the interest rate and prepayment risks of these mortgage backed
    securities.

    CORPORATE DEBT SECURITIES

    Corporate debt securities are fixed income securities issued by businesses.
    Notes, bonds, debentures and commercial paper are the most prevalent types
    of corporate debt securities. The Fund may also purchase interests in bank
    loans to companies. The credit risks of corporate debt securities vary
    widely among issuers.

    In addition, the credit risk of an issuer's debt security may vary based on
    its priority for repayment. For example, higher ranking (senior) debt
    securities have a higher priority than lower ranking (subordinated)
    securities. This means that the issuer might not make payments on
    subordinated securities while continuing to make payments on senior
    securities. In addition, in the event of bankruptcy, holders of senior
    securities may receive amounts otherwise payable to the holders of
    subordinated securities. Some subordinated securities, such as trust
    preferred and capital securities notes, also permit the issuer to defer
    payments under certain circumstances. For example, insurance companies issue
    securities known as surplus notes that permit the insurance company to defer
    any payment that would reduce its capital below regulatory requirements.

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.

If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

INTEREST RATE RISKS

o   Prices of fixed income securities rise and fall in response to changes in
    the interest rate paid by similar securities. Generally, when interest rates
    rise, prices of fixed income securities fall. However, market factors, such
    as the demand for particular fixed income securities, may cause the price of
    certain fixed income securities to fall while the prices of other securities
    rise or remain unchanged.

O   Interest rate changes have a greater effect on the price of fixed income
    securities with longer durations. Duration measures the price sensitivity of
    a fixed income security to changes in interest rates.

PREPAYMENT RISKS

o   Generally, homeowners have the option to prepay their mortgages at any time
    without penalty. Homeowners frequently refinance high interest rate
    mortgages when mortgage rates fall. This results in the prepayment of
    mortgage backed securities with higher interest rates. Conversely,
    prepayments due to refinancings decrease when mortgage rates increase. This
    extends the life of mortgage backed securities with lower interest rates.
    Other economic factors can also lead to increases or decreases in
    prepayments. Increases in prepayments of high interest rate mortgage backed
    securities, or decreases in prepayments of lower interest rate mortgage
    backed securities, may reduce their yield and price. These factors,
    particularly the relationship between interest rates and mortgage
    prepayments makes the price of mortgage backed securities more volatile than
    many other types of fixed income securities with comparable credit risks.

o   Mortgage backed securities generally compensate for greater prepayment risk
    by paying a higher yield. The difference between the yield of a mortgage
    backed security and the yield of a U.S. Treasury security with a comparable
    maturity (the spread) measures the additional interest paid for risk.
    Spreads may increase generally in response to adverse economic or market
    conditions. A security's spread may also increase if the security is
    perceived to have an increased prepayment risk or perceived to have less
    market demand. An increase in the spread will cause the price of the
    security to decline.

o   The Fund may have to reinvest the proceeds of mortgage prepayments in other
    fixed income securities with lower interest rates, higher prepayment risks,
    or other less favorable characteristics.

CREDIT RISKS

o    Credit risk is the possibility that an issuer will default on a security by
     failing to pay interest or principal when due. If an issuer  defaults,  the
     Fund will lose money.

o   Many fixed income securities receive credit ratings from services such as
    Standard & Poor's and Moody's Investor Services, Inc. These services assign
    ratings to securities by assessing the likelihood of issuer default. Lower
    credit ratings correspond to higher credit risk. If a security has not
    received a rating, the Fund must rely entirely upon the Adviser's credit
    assessment.

o   Fixed income securities generally compensate for greater credit risk by
    paying interest at a higher rate. The difference between the yield of a
    security and the yield of a U.S. Treasury security with a comparable
    maturity (the spread) measures the additional interest paid for risk.
    Spreads may increase generally in response to adverse economic or market
    conditions. A security's spread may also increase if the security's rating
    is lowered, or the security is perceived to have an increased credit risk.
    An increase in the spread will cause the price of the security to decline.

o   Credit risk includes the possibility that a party to a transaction involving
    the Fund will fail to meet its obligations. This could cause the Fund to
    lose the benefit of the transaction or prevent the Fund from selling or
    buying other securities to implement its investment strategy.

LIQUIDITY RISKS

o    Trading  opportunities  are more limited for fixed income  securities  that
     have  not  received  any  credit  ratings,   have  received  ratings  below
     investment grade or are not widely held.

o   These features may make it more difficult to sell or buy a security at a
    favorable price or time. Consequently, the Fund may have to accept a lower
    price to sell a security, sell other securities to raise cash or give up an
    investment opportunity, any of which could have a negative effect on the
    Fund's performance. Infrequent trading of securities may also lead to an
    increase in their price volatility.

o   Liquidity risk also refers to the possibility that the Fund may not be able
    to sell a security or close out a derivative contract when it wants to. If
    this happens, the Fund will be required to continue to hold the security or
    keep the position open, and the Fund could incur losses.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

o   Securities rated below investment grade, also known as junk bonds, generally
    entail greater market, credit and liquidity risks than investment grade
    securities. For example, their prices are more volatile, economic downturns
    and financial setbacks may affect their prices more negatively, and their
    trading market may be more limited.

WHAT DO SHARES COST?

You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form (as
described in the prospectus) it is processed at the next calculated net asset
value (NAV). From time to time the Fund may purchase foreign securities that
trade in foreign markets on days the NYSE is closed. The value of the Fund's
assets may change on days you cannot purchase or redeem Shares. The Fund does
not charge a front-end sales charge. NAV is determined at the end of regular
trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund
generally values fixed income securities at the last sale price on a national
securities exchange, if available, otherwise, as determined by an independent
pricing service. Futures contracts and options are generally valued at market
values established by the exchanges on which they are traded at the close of
trading on such exchanges. Options traded in the over-the-counter market are
generally valued according to the mean between the last bid and the last asked
price for the option as provided by an investment dealer or other financial
institution that deals in the option. The Fund values short-term obligations
according to the mean between bid and asked prices as furnished by an
independent pricing service, except that short-term obligations with remaining
maturities of less than 60 days at the time of purchase may be valued at
amortized cost or at fair market value as determined by the Board.

The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount. An account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days. An
institutional investor's minimum investment is calculated by combining all
accounts it maintains with the Fund. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep in
mind that investment professionals may charge you fees for their services in
connection with your Share transactions.

HOW IS THE FUND SOLD?

The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share class
has different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.

The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to retail and private banking customers of financial
institutions or individuals, directly or through investment professionals.

When the Distributor receives marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).

RULE 12B-1 PLAN

The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Institutional Service Shares. Because these
Shares pay marketing fees on an ongoing basis, your investment cost may be
higher over time than other shares with different sales charges and marketing
fees.

HOW TO PURCHASE SHARES

You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.


<PAGE>



THROUGH AN INVESTMENT PROFESSIONAL

o        Establish an account with the investment professional; and

o  Submit your purchase order to the investment professional before the end of
   regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
   receive the next calculated NAV if the investment professional forwards the
   order to the Fund on the same day and the Fund receives payment within one
   business day. You will become the owner of Shares and receive dividends when
   the Fund receives your payment.

Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

o    Establish  your account with the Fund by submitting a completed New Account
     Form; and

o    Send your payment to the Fund by Federal Reserve wire or check.

You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.

An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.

BY WIRE Send your wire to:

  State Street Bank and Trust Company
  Boston, MA
  Dollar Amount of Wire

  ABA Number 011000028
  Attention: EDGEWIRE

  Wire Order Number, Dealer Number or Group Number
  Nominee/Institution Name
  Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are
restricted.

BY CHECK

Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:

  Federated Shareholder Services Company
  P.O. Box 8600

  Boston, MA 02266-8600

If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:

  Federated Shareholder Services Company
  1099 Hingham Street
  Rockland, MA 02370-3317

     Payment  should be made in U.S.  dollars and drawn on a U.S. bank. The Fund
will not accept  third-party  checks (checks originally payable to someone other
than you or The Federated Funds).

BY AUTOMATED CLEARING HOUSE (ACH)

Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.

HOW TO REDEEM SHARES

You should redeem Shares:

o    through an  investment  professional  if you  purchased  Shares  through an
     investment professional; or

o    directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.

DIRECTLY FROM THE FUND

BY TELEPHONE

You may redeem Shares by calling the Fund at 1-800-341-7400 once you have
completed the appropriate authorization form for telephone transactions. If you
call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern
time) you will receive a redemption amount based on that day's NAV.

BY MAIL

You may redeem Shares by mailing a written request to the Fund.

You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.

Send requests by mail to:

  Federated Shareholder Services Company
  P.O. Box 8600

  Boston, MA 02266-8600

Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:

  Federated Shareholder Services Company
  1099 Hingham Street

  Rockland, MA 02370-3317 All requests must include:

o    Fund Name and Share Class, account number and account registration;

o    amount to be redeemed; and

o    signatures of all shareholders exactly as registered.

Call your investment professional or the Fund if you need special instructions.

SIGNATURE GUARANTEES Signatures must be guaranteed if:

o    your  redemption  will be sent to an  address  other  than the  address  of
     record;

o    your  redemption  will be sent to an  address  of record  that was  changed
     within the last 30 days; or

o    a redemption is payable to someone other than the shareholder(s) of record.

A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.

PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:

o    an electronic  transfer to your account at a financial  institution that is
     an ACH member; or

o    wire  payment  to your  account  at a  domestic  commercial  bank that is a
     Federal Reserve System member.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:

o    to allow your purchase to clear;

o    during periods of market volatility; or

o    when a shareholder's  trade activity or amount adversely impacts the Fund's
     ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

SHARE CERTIFICATES

The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
dividends and capital gains paid.

DIVIDENDS AND CAPITAL GAINS

The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.

In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.

If you purchase Shares just before a Fund declares a capital gain distribution,
you will pay the full price for the Shares and then receive a portion of the
price back in the form of a taxable distribution, whether or not you reinvest
the distribution in Shares. Therefore, you should consider the tax implications
of purchasing Shares shortly before the Fund declares a capital gain. Contact
your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.

Fund distributions are expected to be both dividends and capital gains.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.

WHO MANAGES THE FUND?

The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which totaled approximately $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees.

More than 4,000 investment professionals make Federated Funds available to their
customers.

THE FUND'S PORTFOLIO MANAGERS ARE:

JOSEPH M. BALESTRINO

     Joseph M. Balestrino has been the Fund's portfolio  manager since September
1996. He is Vice President of the Corporation.  Mr.  Balestrino joined Federated
in 1986 and has been a Senior Portfolio Manager and Senior Vice President of the
Fund's  Adviser since 1998. He was a Portfolio  Manager and a Vice  President of
the Fund's  Adviser  from 1995 to 1998.  Mr.  Balestrino  served as a  Portfolio
Manager and an Assistant  Vice  President of the Adviser from 1993 to 1995.  Mr.
Balestrino is a Chartered  Financial Analyst and received his Master's Degree in
Urban and Regional Planning from the University of Pittsburgh.

MARK E. DURBIANO

     Mark E. Durbiano has been the Fund's portfolio manager since inception. Mr.
Durbiano joined Federated in 1982 and has been a Senior Portfolio  Manager and a
Senior Vice President of the Fund's Adviser since 1996.  From 1988 through 1995,
Mr. Durbiano was a Portfolio Manager and a Vice President of the Fund's Adviser.
Mr. Durbiano is a Chartered Financial Analyst and received his M.B.A. in Finance
from the University of Pittsburgh.

DONALD T. ELLENBERGER

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

JOHN T. GENTRY

     John T. Gentry has been the Fund's  portfolio  manager since November 1997.
Mr.  Gentry  joined  Federated in 1995 as an  Investment  Analyst and has been a
Senior Investment  Analyst and an Assistant Vice President of the Fund's Adviser
since 1997. Mr. Gentry served as a Senior Treasury Analyst at Sun Company,  Inc.
from 1991 to 1995.  Mr. Gentry is a Chartered  Financial  Analyst and earned his
M.B.A., with concentrations in Finance and Accounting, from Cornell University.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.

YEAR 2000 READINESS

The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.

While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.

The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.

Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities
will have difficulty determining the Year 2000 readiness of those entities.

The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.

FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS

The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.

This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.


<PAGE>





FEDERATED TOTAL RETURN BOND FUND

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SERVICE SHARES

A Statement of Additional Information (SAI) dated November 30, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report's Management Discussion & Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, the Annual Report, Semi-Annual Report
and other information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.

You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected]. or by writing to the SEC's Public
Reference Section, Washington, D.C 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.

INVESTMENT COMPANY ACT FILE NO.811-7115
CUSIP 31428Q507

G01721-03-SS (11/99)

STATEMENT OF ADDITIONAL INFORMATION

FEDERATED TOTAL RETURN BOND FUND

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Federated Total Return Bond Fund
(Fund), dated November 30, 1999. Obtain the prospectuses and the Annual Report's
Management Discussion & Analysis without charge by calling 1-800-341-7400.

   November 30, 1999

CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Investment Ratings
Addresses

CUSIP 31428Q101

CUSIP 31428Q507

G01722-02 (11/99)


<PAGE>



HOW IS THE FUND ORGANIZED?

     The Fund is a diversified  portfolio of Federated Total Return Series, Inc.
(Corporation).  The Corporation is an open-end,  management  investment  company
that was  established  under the laws of the State of  Maryland  on October  11,
1993. The Corporation may offer separate series of shares representing interests
in separate  portfolios of  securities.  The  Corporation  changed its name from
Insight  Institutional  Series,  Inc. to Federated Total Return Series,  Inc. on
March 21, 1995. The Fund changed its name from Insight U.S.  Government  Fund to
Federated  Government  Total Return Fund on March 21, 1995,  and from  Federated
Government  Total  Return Fund to  Federated  Total  Return Bond Fund on May 15,
1996.

The Board of Directors (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Institutional Service Shares (Shares).
This SAI relates to both classes of Shares. The Fund's investment adviser is
Federated Investment Management Company (Adviser). Effective March 31, 1999,
Federated Management, former Adviser to the Fund, became Federated Investment
Management Company (formerly, Federated Advisers).

SECURITIES IN WHICH THE FUND INVESTS

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.

The following describes the types of fixed income securities in which the Fund
invests.

    TREASURY SECURITIES

    Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

    AGENCY SECURITIES

    Agency securities are issued or guaranteed by a federal agency or other
    government sponsored entity acting under federal authority (a GSE). The
    United States supports some GSEs with its full faith and credit. Other GSEs
    receive support through federal subsidies, loans or other benefits. A few
    GSEs have no explicit financial support, but are regarded as having implied
    support because the federal government sponsors their activities. Agency
    securities are generally regarded as having low credit risks, but not as low
    as treasury securities.

    The Fund treats mortgage backed securities guaranteed by GSEs as agency
    securities. Although a GSE guarantee protects against credit risks, it does
    not reduce the interest rate and prepayment risks of these mortgage backed
    securities.

    CORPORATE DEBT SECURITIES

    Corporate debt securities are fixed income securities issued by businesses.
    Notes, bonds, debentures and commercial paper are the most prevalent types
    of corporate debt securities. The Fund may also purchase interests in bank
    loans to companies. The credit risks of corporate debt securities vary
    widely among issuers.

    In addition, the credit risk of an issuer's debt security may vary based on
    its priority for repayment. For example, higher ranking (senior) debt
    securities have a higher priority than lower ranking (subordinated)
    securities. This means that the issuer might not make payments on
    subordinated securities while continuing to make payments on senior
    securities. In addition, in the event of bankruptcy, holders of senior
    securities may receive amounts otherwise payable to the holders of
    subordinated securities. Some subordinated securities, such as trust
    preferred and capital securities notes, also permit the issuer to defer
    payments under certain circumstances. For example, insurance companies issue
    securities known as surplus notes that permit the insurance company to defer
    any payment that would reduce its capital below regulatory requirements.

        COMMERCIAL PAPER

        Commercial paper is an issuer's obligation with a maturity of less than
        nine months. Companies typically issue commercial paper to pay for
        current expenditures. Most issuers constantly reissue their commercial
        paper and use the proceeds (or bank loans) to repay maturing paper. If
        the issuer cannot continue to obtain liquidity in this fashion, its
        commercial paper may default. The short maturity of commercial paper
        reduces both the market and credit risks as compared to other debt
        securities of the same issuer.

        DEMAND INSTRUMENTS

        Demand instruments are corporate debt securities that the issuer must
        repay upon demand. Other demand instruments require a third party, such
        as a dealer or bank, to repurchase the security for its face value upon
        demand. The Fund treats demand instruments as short-term securities,
        even though their stated maturity may extend beyond one year.

    MUNICIPAL SECURITIES

    Municipal securities are issued by states, counties, cities and other
    political subdivisions and authorities. Although many municipal securities
    are exempt from federal income tax, the Fund may invest in taxable municipal
    securities.

    MORTGAGE BACKED SECURITIES

    Mortgage backed securities represent interests in pools of mortgages. The
    mortgages that comprise a pool normally have similar interest rates,
    maturities and other terms. Mortgages may have fixed or adjustable interest
    rates. Interests in pools of adjustable rate mortgages are known as ARMs.

    Mortgage backed securities come in a variety of forms. Many have extremely
    complicated terms. The simplest form of mortgage backed securities are
    pass-through certificates. An issuer of pass-through certificates gathers
    monthly payments from an underlying pool of mortgages. Then, the issuer
    deducts its fees and expenses and passes the balance of the payments onto
    the certificate holders once a month. Holders of pass-through certificates
    receive a pro rata share of all payments and pre-payments from the
    underlying mortgages. As a result, the holders assume all the prepayment
    risks of the underlying mortgages.

    The Fund may invest in mortgage backed securities primarily by investing in
    another investment company (which is not available for general investment by
    the public) that owns those securities and that is advised by an affiliate
    of the Adviser. This other investment company is managed independently of
    the Fund and may incur additional administrative expenses. Therefore, any
    such investment by the Fund may be subject to duplicate expenses. However,
    the Adviser believes that the benefits and efficiencies of this approach
    should outweigh the potential additional expenses. The Fund may also invest
    in such securities directly.

        COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

        CMOs, including interests in real estate mortgage investment conduits
        (REMICs), allocate payments and prepayments from an underlying
        pass-through certificate among holders of different classes of mortgage
        backed securities. This creates different prepayment and interest rate
        risks for each CMO class.

           SEQUENTIAL CMOS

           In a sequential pay CMO, one class of CMOs receives all principal
           payments and prepayments. The next class of CMOs receives all
           principal payments after the first class is paid off. This process
           repeats for each sequential class of CMO. As a result, each class of
           sequential pay CMOs reduces the prepayment risks of subsequent
           classes.

           PACS, TACS AND COMPANION CLASSES

           More sophisticated CMOs include planned amortization classes (PACs)
           and targeted amortization classes (TACs). PACs and TACs are issued
           with companion classes. PACs and TACs receive principal payments and
           prepayments at a specified rate. The companion classes receive
           principal payments and prepayments in excess of the specified rate.
           In addition, PACs will receive the companion classes' share of
           principal payments, if necessary, to cover a shortfall in the
           prepayment rate.

           This helps PACs and TACs to control prepayment risks by increasing
the risks to their companion classes.

           IOS AND POS

           CMOs may allocate interest payments to one class (Interest Only or
           IOs) and principal payments to another class (Principal Only or POs).
           POs increase in value when prepayment rates increase. In contrast,
           IOs decrease in value when prepayments increase, because the
           underlying mortgages generate less interest payments. However, IOs
           tend to increase in value when interest rates rise (and prepayments
           decrease), making IOs a useful hedge against interest rate risks.

           FLOATERS AND INVERSE FLOATERS

           Another variant allocates interest payments between two classes of
           CMOs. One class (Floaters) receives a share of interest payments
           based upon a market index such as LIBOR. The other class (Inverse
           Floaters) receives any remaining interest payments from the
           underlying mortgages. Floater classes receive more interest (and
           Inverse Floater classes receive correspondingly less interest) as
           interest rates rise. This shifts prepayment and interest rate risks
           from the Floater to the Inverse Floater class, reducing the price
           volatility of the Floater class and increasing the price volatility
           of the Inverse Floater class.

           Z CLASSES AND RESIDUAL CLASSES

           CMOs must allocate all payments received from the underlying
           mortgages to some class. To capture any unallocated payments, CMOs
           generally have an accrual (Z) class. Z classes do not receive any
           payments from the underlying mortgages until all other CMO classes
           have been paid off. Once this happens, holders of Z class CMOs
           receive all payments and prepayments. Similarly, REMICs have residual
           interests that receive any mortgage payments not allocated to another
           REMIC class.

           The degree of increased or decreased prepayment risks depends upon
           the structure of the CMOs. However, the actual returns on any type of
           mortgage backed security depend upon the performance of the
           underlying pool of mortgages, which no one can predict and will vary
           among pools.

    ASSET BACKED SECURITIES

    Asset backed securities are payable from pools of obligations other than
    mortgages. Most asset backed securities involve consumer or commercial debts
    with maturities of less than ten years. However, almost any type of fixed
    income assets (including other fixed income securities) may be used to
    create an asset backed security. Asset backed securities may take the form
    of pass through instruments or asset-backed bonds. Asset backed securities
    have prepayment risks. Like CMOs, asset backed securities may be structured
    like Floaters, Inverse Floaters, IOs and POs.

    BANK INSTRUMENTS

     Bank instruments are unsecured  interest bearing deposits with banks.  Bank
instruments  include bank accounts,  time deposits,  certificates of deposit and
banker's  acceptances.  Yankee  instruments are denominated in U.S.  dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are denominated
in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.

    ZERO COUPON SECURITIES

    Zero coupon securities do not pay interest or principal until final maturity
    unlike debt securities that provide periodic payments of interest (referred
    to as a coupon payment). Investors buy zero coupon securities at a price
    below the amount payable at maturity. The difference between the purchase
    price and the amount paid at maturity represents interest on the zero coupon
    security. Investors must wait until maturity to receive interest and
    principal, which increases the interest rate and credit risks of a zero
    coupon security.

    There are many forms of zero coupon securities. Some are issued at a
    discount and are referred to as zero coupon or capital appreciation bonds.
    Others are created from interest bearing bonds by separating the right to
    receive the bond's coupon payments from the right to receive the bond's
    principal due at maturity, a process known as coupon stripping. Treasury
    STRIPs, IOs and POs are the most common forms of stripped zero coupon
    securities. In addition, some securities give the issuer the option to
    deliver additional securities in place of cash interest payments, thereby
    increasing the amount payable at maturity. These are referred to as
    pay-in-kind or PIK securities.

    CREDIT ENHANCEMENT

    Credit enhancement consists of an arrangement in which a company agrees to
    pay amounts due on a fixed income security if the issuer defaults. In some
    cases the company providing credit enhancement makes all payments directly
    to the security holders and receives reimbursement from the issuer.
    Normally, the credit enhancer has greater financial resources and liquidity
    than the issuer. For this reason, the Adviser usually evaluates the credit
    risk of a fixed income security based solely upon its credit enhancement.

    Common types of credit enhancement include guarantees, letters of credit,
    bond insurance and surety bonds. Credit enhancement also includes
    arrangements where securities or other liquid assets secure payment of a
    fixed income security. If a default occurs, these assets may be sold and the
    proceeds paid to security's holders. Either form of credit enhancement
    reduces credit risks by providing another source of payment for a fixed
    income security.

CONVERTIBLE SECURITIES

Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.

Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.

The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.

FOREIGN SECURITIES

Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:

o    it is organized  under the laws of, or has a principal  office  located in,
     another country;

o    the principal trading market for its securities is in another country; or

o    it (or its  subsidiaries)  derived in its most current fiscal year at least
     50% of its total assets, capitalization, gross revenue or profit from goods
     produced, services performed, or sales made in another country.

Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks. The Fund may
invest more than 10% in foreign securities.

    FOREIGN EXCHANGE CONTRACTS

    In order to convert U.S. dollars into the currency needed to buy a foreign
    security, or to convert foreign currency received from the sale of a foreign
    security into U.S. dollars, the Fund may enter into spot currency trades. In
    a spot trade, the Fund agrees to exchange one currency for another at the
    current exchange rate. The Fund may also enter into derivative contracts in
    which a foreign currency is an underlying asset. The exchange rate for
    currency derivative contracts may be higher or lower than the spot exchange
    rate. Use of these derivative contracts may increase or decrease the Fund's
    exposure to currency risks.

HEDGING

Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different derivatives
contracts, or derivatives contracts and securities. The Fund's ability to hedge
may be limited by the costs of the derivatives contracts. The Fund may attempt
to lower the cost of hedging by entering into transactions that provide only
limited protection, including transactions that (1) hedge only a portion of its
portfolio, (2) use derivatives contracts that cover a narrow range of
circumstances or (3) involve the sale of derivatives contracts with different
terms. Consequently, hedging transactions will not eliminate risk even if they
work as intended. In addition, hedging strategies are not always successful, and
could result in increased expenses and losses to the Fund.

DERIVATIVE CONTRACTS

Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.

Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.

For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.

Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to interest
rate and currency risks, and may also expose the Fund to liquidity risks.

The Fund may trade in the following types of derivative contracts.

    FUTURES CONTRACTS

    Futures contracts provide for the future sale by one party and purchase by
    another party of a specified amount of an underlying asset at a specified
    price, date, and time. Entering into a contract to buy an underlying asset
    is commonly referred to as buying a contract or holding a long position in
    the asset. Entering into a contract to sell an underlying asset is commonly
    referred to as selling a contract or holding a short position in the asset.
    Futures contracts are considered to be commodity contracts. Futures
    contracts traded OTC are frequently referred to as forward contracts. The
    Fund may buy and sell financial and foreign currency futures contracts

    OPTIONS

    Options are rights to buy or sell an underlying asset for a specified price
    (the exercise price) during, or at the end of, a specified period. A call
    option gives the holder (buyer) the right to buy the underlying asset from
    the seller (writer) of the option. A put option gives the holder the right
    to sell the underlying asset to the writer of the option. The writer of the
    option receives a payment, or premium, from the buyer, which the writer
    keeps regardless of whether the buyer uses (or exercises) the option.


<PAGE>


    The Fund may:

o    Buy call options on financial  and foreign  currency  futures  contracts in
     anticipation of an increase in the value of the underlying asset;

o    Buy put options on portfolio  securities,  financial  and foreign  currency
     futures  contracts  in  anticipation  of a  decrease  in the  value  of the
     underlying asset; and

o    Buy or write options to close out existing options positions.

    The Fund may also write call options on portfolio securities, financial and
    foreign currency futures contracts to generate income from premiums, and in
    anticipation of a decrease or only limited increase in the value of the
    underlying asset. If a call written by the Fund is exercised, the Fund
    foregoes any possible profit from an increase in the market price of the
    underlying asset over the exercise price plus the premium received.

    The Fund may also write put options on financial and foreign currency
    futures contracts to generate income from premiums, and in anticipation of
    an increase or only limited decrease in the value of the underlying asset.
    In writing puts, there is a risk that the Fund may be required to take
    delivery of the underlying asset when its current market price is lower than
    the exercise price.

    When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.

    The Fund may not purchase or sell futures contracts or related options if
    immediately thereafter the sum of the amount of margin deposits on the
    Fund's existing futures positions and premiums paid for related options
    would exceed 5% of the market value of the Fund's total assets.

    SWAPS

    Swaps are contracts in which two parties agree to pay each other (swap) the
    returns derived from underlying assets with differing characteristics. Most
    swaps do not involve the delivery of the underlying assets by either party,
    and the parties might not own the assets underlying the swap. The payments
    are usually made on a net basis so that, on any given day, the Fund would
    receive (or pay) only the amount by which its payment under the contract is
    less than (or exceeds) the amount of the other party's payment. Swap
    agreements are sophisticated instruments that can take many different forms,
    and are known by a variety of names including caps, floors, and collars.
    Common swap agreements that the Fund may use include:

        INTEREST RATE SWAPS

        Interest rate swaps are contracts in which one party agrees to make
        regular payments equal to a fixed or floating interest rate times a
        stated principal amount of fixed income securities, in return for
        payments equal to a different fixed or floating rate times the same
        principal amount, for a specific period. For example, a $10 million
        LIBOR swap would require one party to pay the equivalent of the London
        Interbank Offer Rate of interest (which fluctuates) on $10 million
        principal amount in exchange for the right to receive the equivalent of
        a stated fixed rate of interest on $10 million principal amount.

SPECIAL TRANSACTIONS

    REPURCHASE AGREEMENTS

    Repurchase agreements are transactions in which the Fund buys a security
    from a dealer or bank and agrees to sell the security back at a mutually
    agreed upon time and price. The repurchase price exceeds the sale price,
    reflecting the Fund's return on the transaction. This return is unrelated to
    the interest rate on the underlying security. The Fund will enter into
    repurchase agreements only with banks and other recognized financial
    institutions, such as securities dealers, deemed creditworthy by the
    Adviser.

    The Fund's custodian or subcustodian will take possession of the securities
    subject to repurchase agreements. The Adviser or subcustodian will monitor
    the value of the underlying security each day to ensure that the value of
    the security always equals or exceeds the repurchase price.

    Repurchase agreements are subject to credit risks.

    REVERSE REPURCHASE AGREEMENTS

    Reverse repurchase agreements are repurchase agreements in which the Fund is
    the seller (rather than the buyer) of the securities, and agrees to
    repurchase them at an agreed upon time and price. A reverse repurchase
    agreement may be viewed as a type of borrowing by the Fund. Reverse
    repurchase agreements are subject to credit risks. In addition, reverse
    repurchase agreements create leverage risks because the Fund must repurchase
    the underlying security at a higher price, regardless of the market value of
    the security at the time of repurchase.

    DELAYED DELIVERY TRANSACTIONS

    Delayed delivery transactions, including when issued transactions, are
    arrangements in which the Fund buys securities for a set price, with payment
    and delivery of the securities scheduled for a future time. During the
    period between purchase and settlement, no payment is made by the Fund to
    the issuer and no interest accrues to the Fund. The Fund records the
    transaction when it agrees to buy the securities and reflects their value in
    determining the price of its shares. Settlement dates may be a month or more
    after entering into these transactions so that the market values of the
    securities bought may vary from the purchase prices. Therefore, delayed
    delivery transactions create interest rate risks for the Fund. Delayed
    delivery transactions also involve credit risks in the event of a
    counterparty default. The Fund does not intend to engage in when-issued and
    delayed delivery transactions to an extent that would cause the segregation
    of more than 20% of the total value of its assets.

    SECURITIES LENDING

    The Fund may lend portfolio securities to borrowers that the Adviser deems
    creditworthy. In return, the Fund receives cash or liquid securities from
    the borrower as collateral. The borrower must furnish additional collateral
    if the market value of the loaned securities increases. Also, the borrower
    must pay the Fund the equivalent of any dividends or interest received on
    the loaned securities.

     The Fund will  reinvest cash  collateral  in securities  that qualify as an
acceptable  investment for the Fund. However,  the Fund must pay interest to the
borrower for the use of cash collateral.

    Loans are subject to termination at the option of the Fund or the borrower.
    The Fund will not have the right to vote on securities while they are on
    loan, but it will terminate a loan in anticipation of any important vote.
    The Fund may pay administrative and custodial fees in connection with a loan
    and may pay a negotiated portion of the interest earned on the cash
    collateral to a securities lending agent or broker.

    Securities lending activities are subject to interest rate risks and credit
risks.

    ASSET COVERAGE

    In order to secure its obligations in connection with derivatives contracts
    or special transactions, the Fund will either own the underlying assets,
    enter into an offsetting transaction or set aside readily marketable
    securities with a value that equals or exceeds the Fund's obligations.
    Unless the Fund has other readily marketable assets to set aside, it cannot
    trade assets used to secure such obligations without entering into an
    offsetting derivative contract or terminating a special transaction. This
    may cause the Fund to miss favorable trading opportunities or to realize
    losses on derivative contracts or special transactions.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.

The Fund may invest in mortgage backed and high yield securities primarily by
investing in another investment company (which is not available for general
investment by the public) that owns those securities and that is advised by an
affiliate of the Adviser. This other investment company is managed independently
of the Fund and may incur additional administrative expenses. Therefore, any
such investment by the Fund may be subject to duplicate expenses. However, the
Adviser believes that the benefits and efficiencies of this approach should
outweigh the potential additional expenses. The Fund may also invest in such
securities directly.

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.

If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.

INVESTMENT RISKS

There are many factors that may affect an investment in the Fund. The Fund's
principal risks are described in the prospectus. Additional risk factors are
outlined below.

INTEREST RATE RISKS

o   Prices of fixed income securities rise and fall in response to changes in
    the interest rate paid by similar securities. Generally, when interest rates
    rise, prices of fixed income securities fall. However, market factors, such
    as the demand for particular fixed income securities, may cause the price of
    certain fixed income securities to fall while the prices of other securities
    rise or remain unchanged.

O   Interest rate changes have a greater effect on the price of fixed income
    securities with longer durations. Duration measures the price sensitivity of
    a fixed income security to changes in interest rates.

CREDIT RISKS

o    Credit risk is the possibility that an issuer will default on a security by
     failing to pay interest or principal when due. If an issuer  defaults,  the
     Fund will lose money.

o   Many fixed income securities receive credit ratings from services such as
    Standard & Poor's and Moody's Investor Services, Inc. These services assign
    ratings to securities by assessing the likelihood of issuer default. Lower
    credit ratings correspond to higher credit risk. If a security has not
    received a rating, the Fund must rely entirely upon the Adviser's credit
    assessment.

o   Fixed income securities generally compensate for greater credit risk by
    paying interest at a higher rate. The difference between the yield of a
    security and the yield of a U.S. Treasury security with a comparable
    maturity (the spread) measures the additional interest paid for risk.
    Spreads may increase generally in response to adverse economic or market
    conditions. A security's spread may also increase if the security's rating
    is lowered, or the security is perceived to have an increased credit risk.
    An increase in the spread will cause the price of the security to decline.

o   Credit risk includes the possibility that a party to a transaction involving
    the Fund will fail to meet its obligations. This could cause the Fund to
    lose the benefit of the transaction or prevent the Fund from selling or
    buying other securities to implement its investment strategy.

CALL AND PREPAYMENT RISKS

o   Call risk is the possibility that an issuer may redeem a fixed income
    security before maturity (a call) at a price below its current market price.
    An increase in the likelihood of a call may reduce the security's price.

o   If a fixed income security is called, the Fund may have to reinvest the
    proceeds in other fixed income securities with lower interest rates, higher
    credit risks, or other less favorable characteristics.

o   Generally, homeowners have the option to prepay their mortgages at any time
    without penalty. Homeowners frequently refinance high interest rate
    mortgages when mortgage rates fall. This results in the prepayment of
    mortgage backed securities with higher interest rates. Conversely,
    prepayments due to refinancings decrease when mortgage rates increase. This
    extends the life of mortgage backed securities with lower interest rates.
    Other economic factors can also lead to increases or decreases in
    prepayments. Increases in prepayments of high interest rate mortgage backed
    securities, or decreases in prepayments of lower interest rate mortgage
    backed securities, may reduce their yield and price. These factors,
    particularly the relationship between interest rates and mortgage
    prepayments makes the price of mortgage backed securities more volatile than
    many other types of fixed income securities with comparable credit risks.

o   Mortgage backed securities generally compensate for greater prepayment risk
    by paying a higher yield. The difference between the yield of a mortgage
    backed security and the yield of a U.S. Treasury security with a comparable
    maturity (the spread) measures the additional interest paid for risk.
    Spreads may increase generally in response to adverse economic or market
    conditions. A security's spread may also increase if the security is
    perceived to have an increased prepayment risk or perceived to have less
    market demand. An increase in the spread will cause the price of the
    security to decline.

o   The Fund may have to reinvest the proceeds of mortgage prepayments in other
    fixed income securities with lower interest rates, higher prepayment risks,
    or other less favorable characteristics.

LIQUIDITY RISKS

o   Trading opportunities are more limited for CMOs that have complex terms or
    that are not widely held. These features may make it more difficult to sell
    or buy a security at a favorable price or time. Consequently, the Fund may
    have to accept a lower price to sell a security, sell other securities to
    raise cash or give up an investment opportunity, any of which could have a
    negative effect on the Fund's performance. Infrequent trading of securities
    may also lead to an increase in their price volatility.

o   Liquidity risk also refers to the possibility that the Fund may not be able
    to sell a security or close out a derivative contract when it wants to. If
    this happens, the Fund will be required to continue to hold the security or
    keep the position open, and the Fund could incur losses.

o    OTC  derivative  contracts  generally  carry  greater  liquidity  risk than
     exchange-traded contracts.

RISKS ASSOCIATED WITH COMPLEX CMOS

o   CMOs with complex or highly variable prepayment terms, such as companion
    classes, IOs, POs, Inverse Floaters and residuals, generally entail greater
    market, prepayment and liquidity risks than other mortgage backed
    securities. For example, their prices are more volatile and their trading
    market may be more limited.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

o   Securities rated below investment grade, also known as junk bonds, generally
    entail greater market, credit and liquidity risks than investment grade
    securities. For example, their prices are more volatile, economic downturns
    and financial setbacks may affect their prices more negatively, and their
    trading market may be more limited.

CURRENCY RISKS

o   Exchange rates for currencies fluctuate daily. The combination of currency
    risk and market risks tends to make securities traded in foreign markets
    more volatile than securities traded exclusively in the U.S.

o   The Adviser attempts to manage currency risk by limiting the amount the Fund
    invests in securities denominated in a particular currency. However,
    diversification will not protect the Fund against a general increase in the
    value of the U.S. dollar relative to other currencies.

EURO RISKS

o   The Fund may make significant investments in securities denominated in the
    Euro, the new single currency of the European Monetary Union (EMU).
    Therefore, the exchange rate between the Euro and the U.S. dollar will have
    a significant impact on the value of the Fund's investments.

o   With the advent of the Euro, the participating countries in the EMU can no
    longer follow independent monetary policies. This may limit these countries'
    ability to respond to economic downturns or political upheavals, and
    consequently reduce the value of their foreign government securities.


<PAGE>



RISKS OF FOREIGN INVESTING

o   Foreign securities pose additional risks because foreign economic or
    political conditions may be less favorable than those of the United States.
    Securities in foreign markets may also be subject to taxation policies that
    reduce returns for U.S. investors.

o   Foreign companies may not provide information (including financial
    statements) as frequently or to as great an extent as companies in the
    United States. Foreign companies may also receive less coverage than United
    States companies by market analysts and the financial press. In addition,
    foreign countries may lack uniform accounting, auditing and financial
    reporting standards or regulatory requirements comparable to those
    applicable to U.S. companies. These factors may prevent the Fund and its
    Adviser from obtaining information concerning foreign companies that is as
    frequent, extensive and reliable as the information available concerning
    companies in the United States.

o   Foreign countries may have restrictions on foreign ownership of securities
    or may impose exchange controls, capital flow restrictions or repatriation
    restrictions which could adversely affect the liquidity of the Fund's
    investments.

LEVERAGE RISKS

o    Leverage risk is created when an investment  exposes the Fund to a level of
     risk that  exceeds  the  amount  invested.  Changes in the value of such an
     investment magnify the Fund's risk of loss and potential for gain.

o    Investments  can have these same  results if their  returns  are based on a
     multiple of a specified index, security, or other benchmark.

FUNDAMENTAL INVESTMENT OBJECTIVE

The Fund's investment objective is to provide total return. The investment
objective may not be changed by the Fund's Directors without shareholder
approval.

INVESTMENT LIMITATIONS

SELLING SHORT OR BUYING ON MARGIN

The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for clearance
of purchases and sales of portfolio securities.

BORROWING MONEY

The Fund will not borrow money, except to the extent permitted under the 1940
Act (which currently limits borrowings to no more than 33 1/3% of the value of
the Fund's total assets). For purposes of this investment restriction, the entry
into options, forward contracts, futures contracts, including those related to
indices, and options on futures contracts or indices shall not constitute
borrowing.

DIVERSIFICATION OF INVESTMENTS

With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities issued by any one issuer (other than cash,
cash items, or securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, and repurchase agreements collateralized by such
securities) if, as a result, more than 5% of the value of its total assets would
be invested in the securities of that issuer, and will not acquire more than 10%
of the outstanding voting securities of any one issuer.

PLEDGING ASSETS

The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may mortgage, pledge, or hypothecate
assets having a market value not exceeding 10% of the value of total assets at
the time of the borrowing.

LENDING CASH OR SECURITIES

The Fund will not lend any assets except portfolio securities. (This will not
prevent the purchase or holding of bonds, debentures, notes, certificates of
indebtedness or other debt securities of an issuer, repurchase agreements or
other transactions which are permitted by the Fund's respective investment
objective and policies or the Corporation's Articles of Incorporation).


<PAGE>



ISSUING SENIOR SECURITIES

The Fund will not issue senior securities, except as permitted by its respective
investment objective and policies.

THE ABOVE LIMITATIONS CANNOT BE CHANGED BY THE BOARD OF DIRECTORS (BOARD) UNLESS
AUTHORIZED BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING SECURITIES," AS
DEFINED BY THE INVESTMENT COMPANY ACT. THE FOLLOWING LIMITATION, HOWEVER, MAY BE
CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL. SHAREHOLDERS WILL BE NOTIFIED
BEFORE ANY MATERIAL CHANGE IN THIS LIMITATION BECOMES EFFECTIVE.

INVESTING IN ILLIQUID SECURITIES

The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for settlement in
more than seven days after notice, interest rate swaps, non-negotiable
fixed-time deposits with maturities over seven days, and certain restricted
securities not determined by the Directors to be liquid.

Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of the investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction.

The Fund does not expect to borrow money, pledge securities or engage in reverse
repurchase agreements during the coming fiscal year.

For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings associations having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

        for fixed income securities, at the last sale price on a national
securities exchange, if available, otherwise, as determined by an independent
pricing service;

o  futures contracts and options are generally valued at market values
   established by the exchanges on which they are traded at the close of trading
   on such exchanges. Options traded in the over-the-counter market are
   generally valued according to the mean between the last bid and the last
   asked price for the option as provided by an investment dealer or other
   financial institution that deals in the option. The Board may determine in
   good faith that another method of valuing such investments is necessary to
   appraise their fair market value;

        for short-term obligations, according to the mean between bid and asked
   prices as furnished by an independent pricing service, except that short-term
   obligations with remaining maturities of less than 60 days at the time of
   purchase may be valued at amortized cost or at fair market value as
   determined in good faith by the Board; and

     for all other  securities  at fair value as determined in good faith by the
Board.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.

TRADING IN FOREIGN SECURITIES

Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.

WHAT DO SHARES COST?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.

The NAV for each class of Shares may differ due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.

HOW IS THE FUND SOLD?

     Under the Distributor's  Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

RULE 12B-1 PLAN - INSTITUTIONAL SERVICE SHARES

As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.

The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.

SHAREHOLDER SERVICES

The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.

SUPPLEMENTAL PAYMENTS

Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.

Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.

SUBACCOUNTING SERVICES

Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.

Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.

Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.

Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote.

All Shares of the Corporation have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.

Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote.

     As of _____, the following shareholders owned of record,  beneficially,  or
both, 5% or more of outstanding Shares: (To be filed by amendment.)

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

TAX INFORMATION

FEDERAL INCOME TAX

The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.

The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.

FOREIGN INVESTMENTS

If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.

Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax-basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of
fixed-income securities denominated in foreign currencies, it is difficult to
project currency effects on an interim basis. Therefore, to the extent that
currency fluctuations cannot be anticipated, a portion of distributions to
shareholders could later be designated as a return of capital, rather than
income, for income tax purposes, which may be of particular concern to simple
trusts.

If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.

If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF DIRECTORS

The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of four funds and the Federated Fund Complex is
comprised of 54 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.

As of ______, the Fund's Board and Officers as a group owned less than 1% of the
Fund's outstanding Institutional and Institutional Service Shares.


<PAGE>


<TABLE>
<CAPTION>

NAME                                                                        AGGREGATE       TOTAL
BIRTH DATE                                                                  COMPENSATION    COMPENSATION
ADDRESS                    PRINCIPAL OCCUPATIONS                            FROM            FROM CORPORATION
POSITION WITH              FOR PAST FIVE YEARS                              CORPORATION     AND FUND COMPLEX
CORPORATION

<S>                       <C>                                              <C>              <C>

JOHN F. DONAHUE*#+         Chief Executive Officer and Director or                     $0   $0 for the
Birth Date: July 28,       Trustee of the Federated Fund Complex;                           Corporation
1924                       Chairman and Director, Federated Investors,                      and 54 other
Federated Investors        Inc.; Chairman and Trustee, Federated                            investment
Tower                      Investment Management Company; Chairman and                      companies in the
1001 Liberty Avenue        Director, Federated Investment Counseling,                       Fund Complex
Pittsburgh, PA             and Federated Global Investment Management
CHARIMAN and DIRECTOR      Corp.; Chairman, Passport Research, Ltd.

THOMAS G. BIGLEY           Director or Trustee of the Federated Fund                    $   $113,860.22 for the
Birth Date: February 3,    Complex; Director, Member of Executive                           Corporation and
1934                       Committee, Children's Hospital of Pittsburgh;                    54 other investment
15 Old Timber Trail        Director, Robroy Industries, Inc. (coated                        companies in the
Pittsburgh, PA             steel conduits/computer storage equipment);                      Fund Complex
DIRECTOR                   formerly: Senior Partner, Ernst & Young LLP;
                           Director, MED 3000 Group, Inc. (physician
                           practice management); Director, Member of
                           Executive Committee, University of Pittsburgh.

JOHN T. CONROY, JR.        Director or Trustee of the Federated Fund                    $   $125,264.48 for the
Birth Date: June 23,       Complex; President, Investment Properties                        Corporation and
1937                       Corporation; Senior Vice President,                              54 other investment
Wood/Commercial Dept.      John R. Wood and Associates, Inc., Realtors;                     companies in the
John R. Wood               Partner or Trustee in private real estate                        Fund Complex

Associates, Inc.           ventures in Southwest Florida; formerly:
Realtors                   President, Naples Property Management, Inc.
3255 Tamiami Trail         and Northgate Village Development Corporation.
North

Naples, FL

DIRECTOR

NICHOLAS CONSTANTAKIS      Director or Trustee of the Federated Fund                    $   $47,958.02 for the
Birth Date: September      Complex; formerly: Partner, Andersen                             Corporation and

3, 1939                    Worldwide SC.                                                    29 other investment
175 Woodshire Drive                                                                         companies
Pittsburgh, PA                                                                              in the Fund Complex

DIRECTOR

JOHN F. CUNNINGHAM         Director or Trustee of some of the Federated                 $   $0 for the
Birth Date: March 5,       Fund Complex; Chairman, President and Chief                      Corporation
1943                       Executive Officer, Cunningham & Co., Inc.                        and 46  other
353 El Brillo Way          (strategic business consulting) ; Trustee                        investment
Palm Beach, FL             Associate, Boston College; Director, Iperia                      companies in the
DIRECTOR                   Corp (communications/software); formerly:                        Fund Complex
                           Director, Redgate Communications and EMC Corporation
                           (computer storage systems).

                           Previous Positions: Chairman of the Board and
                           Chief Executive Officer, Computer Consoles,
                           Inc.; President and Chief Operating Officer,
                           Wang Laboratories; Director, First National
                           Bank of Boston; Director, Apollo Computer,

                           Inc.

LAWRENCE D. ELLIS, M.D.*   Director or Trustee of the Federated Fund                    $   $113,860.22 for the
Birth Date: October 11,    Complex; Professor of Medicine, University of                    Corporation and
1932                       Pittsburgh; Medical Director, University of                      54 other investment
3471 Fifth Avenue          Pittsburgh Medical Center - Downtown;                            companies in the
Suite 1111                 Hematologist, Oncologist, and Internist,                         Fund Complex
Pittsburgh, PA             University of Pittsburgh Medical Center;
DIRECTOR                   Member, National Board of Trustees, Leukemia
                           Society of America.

PETER E. MADDEN            Director or Trustee of the Federated Fund                    $   $113,860.22 for the
Birth Date: March 16,      Complex; formerly: Representative,                               Corporation and
1942                       Commonwealth of Massachusetts General Court;                     54 other investment
One Royal Palm Way         President, State Street Bank and Trust                           companies in the
100 Royal Palm Way         Company and State Street Corporation.                            Fund Complex
Palm Beach, FL

DIRECTOR                   Previous Positions: Director, VISA USA and
                           VISA International; Chairman and Director,
                           Massachusetts Bankers Association; Director,
                           Depository Trust Corporation; Director, The
                           Boston Stock Exchange.

CHARLES F. MANSFIELD,      Director or Trustee of some of the Federated                 $   $0 for the
JR.                        Fund Complex; Management Consultant.                             Corporation and
Birth Date: April 10,                                                                       [  ]  other
1945                       Previous Positions: Chief Executive Officer,                     investment
80 South Road              PBTC International Bank; Partner, Arthur                         companies in the
Westhampton Beach, NY      Young & Company (now Ernst & Young LLP);                         Fund Complex
DIRECTOR                   Chief Financial Officer of Retail Banking
                           Sector, Chase Manhattan Bank; Senior Vice
                           President, Marine Midland Bank; Vice
                           President, Citibank; Assistant Professor of
                           Banking and Finance, Frank G. Zarb School of
                           Business, Hofstra University.

JOHN E. MURRAY, JR.,       Director or Trustee of the Federated Fund                    $   $113,860.22 for the
J.D., S.J.D.#              Complex; President, Law Professor, Duquesne                      Corporation and
Birth Date: December       University; Consulting Partner, Mollica &                        54 other investment
20, 1932                   Murray; Director, Michael Baker Corp.                            companies in the
President, Duquesne        (engineering, construction, operations, and                      Fund Complex
University                 technical services).
Pittsburgh, PA

DIRECTOR                   Previous Positions: Dean and Professor of
                           Law, University of Pittsburgh School of Law;
                           Dean and Professor of Law, Villanova
                           University School of Law.

MARJORIE P. SMUTS          Director or Trustee of the Federated Fund                    $   $113,860.22 for the
Birth Date: June 21,       Complex; Public                                                  Corporation and
1935                       Relations/Marketing/Conference Planning.                         54 other investment
4905 Bayard Street                                                                          companies in the
Pittsburgh, PA             Previous Positions: National Spokesperson,                       Fund Complex
DIRECTOR                   Aluminum Company of America; television
                           producer; business owner.

JOHN S. WALSH              Director or Trustee of some of the Federated                 $   $0 for the
Birth Date: November       Fund Complex; President and Director, Heat                       Corporation and
28, 1957                   Wagon, Inc. (manufacturer of construction                        48  other
2007 Sherwood Drive        temporary heaters); President and Director,                      investment
Valparaiso, IN             Manufacturers Products, Inc. (distributor of                     companies in the
DIRECTOR                   portable construction heaters); President,                       Fund Complex
                           Portable Heater Parts, a division of
                           Manufacturers Products, Inc.; Director, Walsh
                           & Kelly, Inc. (heavy highway contractor);
                           formerly: Vice President, Walsh & Kelly, Inc.

GLEN R. JOHNSON            Staff member, Federated Securities Corp.                     $   $0 for the
Birth Date: May 2, 1929                                                                     Corporation and
Federated Investors                                                                         8 other investment

Tower                                                                                       companies in the

1001 Liberty Avenue                                                                         Fund Complex
Pittsburgh, PA

PRESIDENT

J. CHRISTOPHER DONAHUE*+   President or Executive Vice President of the                $0   $0 for the
Birth Date: April 11,      Federated Fund Complex; Director or Trustee                      Corporation and
1949                       of some of the Funds in the Federated Fund                       16 other investment
Federated Investors        Complex; President, CEO and Director,                            companies in the
Tower                      Federated Investors, Inc.; President and                         Fund Complex
1001 Liberty Avenue        Trustee, Federated Investment Management
Pittsburgh, PA             Company; President and Trustee, Federated
EXECUTIVE VICE             Investment Counseling, President and
PRESIDENT and              Director, Federated Global Investment
DIRECTOR                   Management Corp.; President, Passport
                           Research, Ltd.; Trustee, Federated
                           Shareholder Services Company; Director,
                           Federated Services Company.

EDWARD C. GONZALES         Trustee or Director of some of the Funds in                 $0   $0 for the
Birth Date: October 22,    the Federated Fund Complex; President,                           Corporation and
1930                       Executive Vice President and Treasurer of                        1 other investment
Federated Investors        some of the Funds in the Federated Fund                          company in the Fund
Tower                      Complex; Vice Chairman, Federated Investors,                     Complex
1001 Liberty Avenue        Inc.; Vice President, Federated Investment
Pittsburgh, PA             Management Company  and Federated Investment
EXECUTIVE VICE             Counseling, Federated Global Investment
PRESIDENT                  Management Corp. and Passport Research, Ltd.;
                           Executive Vice President and Director,
                           Federated Securities Corp.; Trustee,
                           Federated Shareholder Services Company.

JOHN W. MCGONIGLE          Executive Vice President and Secretary of the               $0   $0 for the
Birth Date: October 26,    Federated Fund Complex; Executive Vice                           Corporation and
1938                       President, Secretary, and Director, Federated                    54 other investment
Federated Investors        Investors, Inc.; Trustee, Federated                              companies in the
Tower                      Investment Management Company; Trustee,                          Fund Complex
1001 Liberty Avenue Federated Investment Counseling and Director, Pittsburgh, PA
Federated Global Investment Management Corp.; EXECUTIVE VICE Director, Federated
Services Company; PRESIDENT and SECRETARY Director, Federated Securities Corp.

RICHARD J. THOMAS          Treasurer of the Federated Fund Complex; Vice               $0   $0 for the
Birth Date: June 17,       President - Funds Financial Services                             Corporation and
1954                       Division, Federated Investors, Inc.;                             54 other investment
Federated Investors        formerly: various management positions within                    companies in the
Tower                      Funds Financial Services Division of                             Fund Complex

1001 Liberty Avenue        Federated Investors, Inc.
Pittsburgh, PA

TREASURER

WILLIAM D. DAWSON, III     Chief Investment Officer of this Fund and                   $0   $0 for the
Birth Date: March 3,       various other Funds in the Federated Fund                        Corporation and
1949                       Complex; Executive Vice President, Federated                     41 other investment
Federated Investors        Investment Counseling, Federated Global                          companies in the
Tower                      Investment Management Corp., Federated                           Fund Complex
1001 Liberty Avenue        Investment Management Company and Passport
Pittsburgh, PA             Research, Ltd.; Registered Representative,
CHIEF INVESTMENT OFFICER   Federated Securities Corp.; Portfolio

                           Manager, Federated Administrative Services; Vice
                           President, Federated Investors, Inc.; formerly:
                           Executive Vice President and Senior Vice President,
                           Federated Investment Counseling Institutional
                           Portfolio Management Services Division; Senior Vice
                           President, Federated Investment Management Company
                           and Passport Research, Ltd.

JOSEPH M. BALESTRINO       Joseph M. Balestrino is Vice President of the               $0   $0 for the
Birth Date: November 3,    Corporation.  Mr. Balestrino joined Federated                    Corporation
1954                       in 1986 and has been a Senior Portfolio                          and 3 other
Federated Investors        Manager and Senior Vice President of the                         investment
Tower                      Fund's Adviser since 1998. He was a Portfolio                    companies in the
1001 Liberty Avenue        Manager and a Vice President of the Fund's                       Fund Complex
Pittsburgh, PA             Adviser from 1995 to 1998. Mr. Balestrino
VICE PRESIDENT             served as a Portfolio Manager and an
                           Assistant Vice President of the Adviser from
                           1993 to 1995. Mr. Balestrino is a Chartered
                           Financial Analyst and received his Master's
                           Degree in Urban and Regional Planning from
                           the University of Pittsburgh.
</TABLE>

* AN ASTERISK DENOTES A DIRECTOR WHO IS DEEMED TO BE AN INTERESTED PERSON AS
DEFINED IN THE INVESTMENT COMPANY ACT OF 1940. # A POUND SIGN DENOTES A MEMBER
OF THE BOARD'S EXECUTIVE COMMITTEE, WHICH HANDLES THE BOARD'S RESPONSIBILITIES
BETWEEN ITS MEETINGS. + MR. DONAHUE IS THE FATHER OF J. CHRISTOPHER DONAHUE,
EXECUTIVE VICE PRESIDENT AND DIRECTOR OF THE CORPORATION. ++ MESSRS. CUNNINGHAM,
MANSFIELD AND WALSH BECAME MEMBERS OF THE BOARD OF DIRECTORS ON APRIL 4, 1999.
THEY DID NOT EARN ANY FEES FOR SERVING THE FUND COMPLEX SINCE THESE FEES ARE
REPORTED AS OF THE END OF THE LAST CALENDAR YEAR.

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly owned subsidiary of Federated.

The Adviser shall not be liable to the Corporation or any Fund shareholder for
any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Corporation.

OTHER RELATED SERVICES

Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms which have sold or
are selling Shares of the Fund and other funds distributed by the Distributor
and its affiliates. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Fund's Board.

Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.

ADMINISTRATOR

Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:

MAXIMUM ADMINISTRATIVE    AVERAGE AGGREGATE DAILY NET ASSETS OF THE FEDERATED
FEE                             FUNDS
0.150 of 1%                     on the first $250 million
0.125 of 1%                     on the next $250 million
0.100 of 1%                     on the next $250 million
0.075 of 1%                     on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN

State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.

INDEPENDENT AUDITORS

The independent auditor for the Fund, Ernst & Young LLP, plans and performs its
audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.


<PAGE>



FEES PAID BY THE FUND FOR SERVICES

FOR THE YEAR ENDED SEPTEMBER 30,           1999    1998               1997
Advisory Fee Earned                          $   $187,800           $33,489
Advisory Fee Reduction                       $   $187,800           $33,489
Brokerage Commissions                        $      $0                 $0
Administrative Fee                           $   $155,001           $154,935
12b-1 Fee
  Institutional Service Shares               $      --                 --
Shareholder Services Fee
  Institutional Shares                       $      --                 --
  Institutional Service Shares               $      --                 --

Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.

HOW DOES THE FUND MEASURE PERFORMANCE?

The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.

The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns given for the one-year and Start of Performance periods ended
September 30, 1999.

Yield given for the 30-day period ended September 30, 1999.
<TABLE>
<CAPTION>
<S>                      <C>                 <C>       <C>         <C>          <C>
                                                                                 Start of Performance

                           30-DAY PERIOD       1 Year     5 Years    10 Years       on May 31, 1997
INSTITUTIONAL SHARES

Total Return                     NA                          NA         NA
Yield                                            NA          NA         NA                NA

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


                                                                                 Start of Performance

                           30-DAY PERIOD       1 Year     5 Years    10 Years       on May 31, 1997
INSTITUTIONAL
SERVICE SHARES

Total Return                     NA                          NA         NA
Yield                                            NA          NA         NA                NA

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

</TABLE>




<PAGE>



TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.

YIELD

The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.

To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

o    references  to  ratings,   rankings,   and  financial  publications  and/or
     performance comparisons of Shares to certain indices;

o    charts,  graphs and illustrations  using the Fund's returns,  or returns in
     general,   that  demonstrate   investment  concepts  such  as  tax-deferred
     compounding, dollar-cost averaging and systematic investment;

o    discussions  of economic,  financial and political  developments  and their
     impact on the securities market, including the portfolio manager's views on
     how such developments could impact the Funds; and

o    information  about  the  mutual  fund  industry  from  sources  such as the
     Investment Company Institute.

The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:

o   RUSSELL ACTIVE SECTOR ROTATION ACCOUNTS UNIVERSe includes portfolios that
    change interest rate exposure relative to the Lehman Brothers Aggregate Bond
    Index or other broad market indexes, with changes in portfolio interest rate
    sensitivity limited to approximately plus or minus 20% index duration.
    Durations have typically been 3.5 to 6 years. Primary emphasis is on
    selecting undervalued sectors or issues. Includes separate accounts, pooled
    funds, or mutual funds managed by investment advisors, banks or insurance
    companies.

o   LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
    making comparative calculations using total return. Total return assumes the
    reinvestment of all capital gains distributions and income dividends and
    takes into account any change in offering price over a specific period of
    time. From time to time, the Fund will quote its Lipper ranking in the
    "Intermediate Investment Grade Debt" category in advertising and sales
    literature.

o   LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) INDEx is comprised of
    approximately 5,000 issues, which include: non-convertible bonds publicly
    issued by the U.S. government or its agencies; corporate bonds guaranteed by
    the U.S. government and quasi-federal corporations; and publicly issued,
    fixed-rate, non-convertible domestic bonds of companies in industry, public
    utilities, and finance. The average maturity of these bonds approximates
    nine years. Tracked by Lehman Brothers, Inc., the index calculates total
    returns for one-month, three-month, twelve-month, and ten-year periods and
    year-to-date.

o   LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX is an unmanaged
    index comprised of all the bonds issued by the Lehman Brothers
    Government/Corporate Bond Index with maturities between 1 and 9.99 years.
    Total return is based on price appreciation/depreciation and income as a
    percentage of the original investment.

    Indices are rebalanced monthly by market capitalization.

o   LEHMAN BROTHERS AGGREGATE BOND INDEX is composed of securities from Lehman
    Brothers Government/ Corporate Bond Index, Mortgage-Backed Securities Index,
    and the Asset-Backed Securities Index. Total return comprises price
    appreciation/depreciation and income as a percentage of the original
    investment. Indices are rebalanced monthly by market capitalization.

WHO IS FEDERATED INVESTORS, INC.?

Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.

EQUITY FUNDS

In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.

CORPORATE BOND FUNDS

In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.

GOVERNMENT FUNDS

In the government sector, as of December 31, 1998, Federated manages 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.

MONEY MARKET FUNDS

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.

     The Chief  Investment  Officers  responsible  for  oversight of the various
investment  sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A.  Frantzen.  The Chief  Investment  Officers are Executive Vice
Presidents of the Federated advisory companies.

MUTUAL FUND MARKET

Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.

FEDERATED CLIENTS OVERVIEW

Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

INSTITUTIONAL CLIENTS

Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.

BANK MARKETING

Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.


<PAGE>


INVESTMENT RATINGS

STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS

AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher-rated issues only in small degree.

A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.

BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.

BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.

B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.

CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B rating.

CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.

C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS

AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.

A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

BAA--Bonds which are rated BAA are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

BA--Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA--Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C--Bonds which are rated C are the lowest-rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS

AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.

A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.

B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C--Bonds are imminent default in payment of interest or principal.

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS

PRIME-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:

o    Leading market positions in well-established industries;

o    High rates of return on funds employed;

o    Conservative  capitalization  structure with moderate  reliance on debt and
     ample asset protection;

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

o    Well-established access to a range of financial markets and assured sources
     of alternate liquidity.

PRIME-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS

FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.

FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.


<PAGE>






13

ADDRESSES

FEDERATED TOTAL RETURN BOND FUND

Institutional Shares
institutional Service Shares

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

INVESTMENT ADVISER

Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue

Pittsburgh, PA 15222-3779

CUSTODIAN

State Street Bank and Trust Company
P.O. Box 8600

Boston, MA 02266-8600

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

INDEPENDENT AUDITORS

Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072

PROSPECTUS

FEDERATED LIMITED DURATION FUND

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SHARES

A mutual fund seeking to provide total return by investing primarily in a
diversified portfolio of fixed income securities having a duration of three
years or less.

As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.

CONTENTS

Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information

[Insert Main Heading from Auditor's Report Page, if applicable]

   november 30, 1999


<PAGE>



RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide total return. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the strategies and policies described in this prospectus. The
Fund's total return will consist of two components: (1) changes in the market
value of its portfolio securities (both realized and unrealized appreciation),
and (2) income received from its portfolio securities. The Fund expects that
income will comprise the largest component of its total return.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund invests primarily in a diversified portfolio of domestic fixed income
securities, including corporate debt securities, U.S. government obligations and
mortgage backed and asset backed securities. Under normal market conditions, the
Fund invests at least 65% of its assets in domestic investment grade debt
securities. The Adviser seeks to enhance the Fund's performance by allocating
relatively more of its portfolio to the security type that the Adviser expects
to offer the best balance between total return and risk.

Although the value of the Fund's shares will fluctuate, the Adviser will seek to
manage the magnitude of fluctuation by limiting the Fund's dollar weighted
average duration to three years or less. Duration measures the price sensitivity
of a fixed income security to changes in interest rates.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

o    INTEREST RATE RISK. Prices of fixed income  securities  generally fall when
     interest rates rise.

o   PREPAYMENT RISK. When homeowners prepay their mortgages in response to lower
    interest rates, the Fund will be required to reinvest the proceeds at the
    lower interest rates available. Also, when interest rates fall, the price of
    mortgage backed securities may not rise to as great an extent as that of
    other fixed income securities.

o   CREDIT RISKS. There is a possibility that issuers of securities in which the
    Fund may invest may default in the payment of interest or principal on the
    securities when due, which would cause the Fund to lose money.

o    LIQUIDITY RISKS. The fixed income  securities in which the Fund invests may
     be less readily  marketable  and may be subject to greater  fluctuation  in
     price than other securities.

o   RISKS ASSOCIATED WITH NON-INVESTMENT GRADE SECURITIES. The Fund may invest a
    portion of its assets in securities rated below investment grade which may
    be subject to greater interest rate, credit and liquidity risks than
    investment grade securities.

The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.


<PAGE>



RISK/RETURN BAR CHART AND TABLE

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares of Fund as of the calendar year-end
for one year.

The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of __% up to __%.

The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features one distinct
vertical bar, shaded in charcoal, and visually representing by height the total
return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Fund's Institutional Shares for the
calendar year is stated directly at the top of the bar, for the calendar year
1998. The percentage noted is: [insert percentage shown at the top of the bar in
the chart].

The bar chart shows the variability of the Fund's Institutional Shares total
returns on a calendar year-end basis.

The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.

The Fund's total return for the nine-month period from January 1, 1999 to
September 30, 1999 was ____%.

Within the period shown in the Chart, the Fund's highest quarterly return was
___% (quarter ended ______). Its lowest quarterly return was ___% (quarter ended
_________).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Institutional Shares Average Annual
Total Return for the calendar period ending December 31, 1998. [The table shows
the Fund's total returns averaged over a period of years relative to (name of
index), a broad-based market index (and [insert other optional indexes, as
applicable]). [Insert one-sentence definitions of broad-based index and any
optional indexes. OR, if indexes are defined in the Investment Strategy, a
cross-reference to the Investment Strategy section is sufficient and the
following language can be used: [Total returns for the indexes shown do not
reflect sales charges, expenses or other fees that the SEC requires to be
reflected in the Fund's performance.] Indexes are unmanaged, and it is not
possible to invest directly in an index.

                     [FUND]
                     [CLASS]

                     INCLUDE          BROAD-BASED    OTHER INDEX
                     COLUMNS FOR      INDEX          OR AVERAGE  OTHER INDEX OR
CALENDAR PERIOD      ALL CLASSES      (REQUIRED)     (OPTIONAL)  AVERAGE
                     OFFERED IN                                  (OPTIONAL)

                     PROSPECTUS

1 Year
[5 Years]
[10 Years]
[Start of

Performance1]

1 THE FUND'S INSTITUTIONAL SHARES START OF PERFORMANCE DATE WAS
________________.

INSTRUCTION: IF THE BROAD BASED MARKET INDEX IS CHANGED, ADD DISCLOSURE TO THE
SENTENCE ABOVE THAT EXPLAINS THE REASON(S) FOR THE SELECTION AND PROVIDE RETURNS
FOR BOTH THE OLD AND THE NEW INDEXES. INSTRUCTION: IF THE BAR CHART SHOWS ONLY
ONE YEAR OR IF THERE IS NO BAR CHART BECAUSE THERE HAS NOT BEEN ONE FULL
CALENDAR YEAR OF PERFORMANCE, SUBSTITUTE THE FOLLOWING FOR THE TWO SENTENCES
ABOVE: [The Fund's (insert class name, or model share class name, as applicable)
7-Day Net Yield as of _______ was __%. Investors may call the Fund at 1-800-____
to acquire the current 7-Day Net Yield.]

Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential returns.


<PAGE>



WHAT ARE THE FUND'S FEES AND EXPENSES?

FEDERATED LIMITED DURATION FUND - INSTITUTIONAL SHARES

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Shares.

SHAREHOLDER FEES

FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a            None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of          None
original purchase price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends       None
(and other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if            None
applicable)
Exchange Fee                                                      None

ANNUAL FUND OPERATING EXPENSES (Before
[Reimbursements/Waivers])(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee                                                    0.40%
Distribution (12b-1) Fee                                          None
Shareholder Services Fee                                          0.25%
Other Expenses                                                    %
Total Annual Fund Operating Expenses                              %
1 Although not contractually obligated to do so, the [adviser will
  (waive/reimburse)] [adviser (waived/reimbursed)] [and] [distributor (will
  reimburse/reimbursed)] certain amounts. These are shown below along with the
  net expenses the Fund [ACTUALLY PAID] [EXPECTS TO PAY] for the fiscal year
  ended September 30, 1999

   Total [Reimbursements/Waivers] of Fund Expenses                %
   Total Actual Annual Fund Operating Expenses (after             %
   [reimbursements/waivers] )

2 [Insert Applicable footnote(s) as provided by State Street Bank.

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
  Institutional Shares with the cost of investing in other mutual funds. The
  Example assumes that you invest $10,000 in the Fund's Institutional Shares for
  the time periods indicated and then redeem all of your Shares at the end of
  those

periods. Expenses assuming no redemption are also shown. The Example also
assumes that your investment has a 5% return each year and that the Fund's
Institutional Shares operating expenses are [BEFORE REIMBURSEMENTS/WAIVERS] as
[estimated] [shown] in the table and remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
INSTITUTIONAL SERVICE SHARE 1 YEAR 3 YEARS 5 YEARS 10 YEARS Expenses assuming
redemption $ $ $ $ Expenses assuming no $ $ $ $ redemption


<PAGE>



WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

Under normal market conditions, the Fund invests at least 65% of the value of
its total assets in a diversified portfolio of domestic investment grade debt
securities, including corporate debt securities, U.S. government obligations,
and mortgage backed and asset backed securities. Investment grade debt
securities are rated in one of the four highest categories (BBB or higher) by a
nationally recognized statistical rating organization (NRSRO), or if unrated, of
comparable quality as determined by the Adviser. A description of the various
types of securities in which the Fund principally invests, and their risks,
immediately follows this strategy section.

The Adviser seeks to enhance the Fund's performance by allocating relatively
more of its portfolio to the security type that the Adviser expects to offer the
best balance between total return and risk and thus offer the greatest potential
for return. The allocation process is based on the Adviser's continuing analysis
of a variety of economic and market indicators in order to arrive at the
projected yield "spread" of each security type. (The spread is the difference
between the yield of a security versus the yield of a U.S. treasury security
with a comparable average life.) The security's projected spread is weighed
against the spread the security can currently be purchased for, as well as the
security's credit risk (in the case of corporate securities and privately issued
asset backed and mortgage backed securities) and its risk of prepayment (in the
case of asset backed and mortgage backed securities) in order to complete the
analysis. Asset and mortgaged backed securities tend to amortize principal on a
somewhat irregular schedule over time, since the borrower can usually prepay all
or part of the loan without penalty. These securities generally offer higher
yields versus U.S. treasury securities and non-mortgage backed agency securities
to compensate for this prepayment risk as well as any credit risk which might
also be present in the security. Similarly, corporate debt securities, which
tend to pay off on a predetermined schedule, generally offer higher yields than
U.S. government securities to compensate for credit risk. The Adviser invests
the Fund's portfolio, seeking the higher relative returns of asset and mortgage
backed securities and corporate debt securities, when available, while
attempting to limit the associated credit or prepayment risks. The Adviser
attempts to manage the Fund's prepayment risk by selecting asset and mortgage
backed securities with characteristics that make prepayment fluctuations less
likely. Characteristics that the Adviser may consider in selecting securities
include the average interest rates of the underlying mortgages and the federal
agencies (if any) that support the mortgages. The Adviser attempts to assess the
relative returns and risks for mortgage backed securities by analyzing how the
timing, amount and division of cash flows might change in response to changing
economic and market conditions. The Adviser attempts to manage the Fund's credit
risk by selecting corporate debt securities that make default in the payment of
principal and interest less likely. The Adviser looks at a variety of factors,
including macroeconomic analysis and corporate earnings analysis, among others,
to determine which business sectors and credit ratings are most advantageous for
investment by the Fund. In selecting individual corporate fixed income
securities, the Adviser analyzes a company's business, competitive position, and
general financial condition to assess whether the security's credit risk is
commensurate with its potential return. The Fund may invest a portion of its
portfolio in non-investment grade fixed income securities, which are rated BB or
lower by an NRSRO. The non-investment grade securities in which the Fund invests
generally pay higher interest rates as compensation for the greater default risk
attached to the securities. The Fund's share price volatility attributable to
interest rate risk is managed by maintaining, at all times, a dollar-weighted
average portfolio duration of three years or less. The Adviser may lengthen or
shorten duration from time-to-time based on its interest rate outlook. If the
Adviser expects interest rates to decline, it will generally lengthen the Fund's
duration, and if the Adviser expects interest rates to increase, it will
generally shorten the Fund's duration. The Adviser formulates its interest rate
outlook and otherwise attempts to anticipate changes in economic and market
conditions by analyzing a variety of factors, such as: o .......current and
expected U.S. growth; o current and expected interest rates and inflation; o the
U.S. Federal Reserve Board's monetary policy; and o changes in the supply of or
demand for U.S. government securities

There is no assurance that the Adviser's efforts to forecast market interest
rates, and assess relative risks and the impact of market interest rates on
particular securities, will be successful.

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.

The following describes the types of fixed income securities in which the Fund
principally invests.

    MORTGAGE BACKED SECURITIES

    Mortgage backed securities represent interests in pools of mortgages. The
    mortgages that comprise a pool normally have similar interest rates,
    maturities and other terms. Mortgages may have fixed or adjustable interest
    rates. Interests in pools of adjustable rate mortgages are known as ARMs.

    Mortgage backed securities come in a variety of forms. Many have extremely
    complicated terms. The simplest form of mortgage backed securities are
    pass-through certificates. An issuer of pass-through certificates gathers
    monthly payments from an underlying pool of mortgages. Then, the issuer
    deducts its fees and expenses and passes the balance of the payments onto
    the certificate holders once a month. Holders of pass-through certificates
    receive a pro rata share of all payments and pre-payments from the
    underlying mortgages. As a result, the holders assume all the prepayment
    risks of the underlying mortgages.

           COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

           CMOs, including interests in real estate mortgage investment conduits
           (REMICs), allocate payments and prepayments from an underlying
           pass-through certificate among holders of different classes of
           mortgage backed securities. This creates different prepayment and
           interest rate risks for each CMO class. The degree of increased or
           decreased prepayment risks depends upon the structure of the CMOs.
           However, the actual returns on any type of mortgage backed security
           depend upon the performance of the underlying pool of mortgages,
           which no one can predict and will vary among pools.

              SEQUENTIAL CMOS

              In a sequential pay CMO, one class of CMOs receives all principal
              payments and prepayments. The next class of CMOs receives all
              principal payments after the first class is paid off. This process
              repeats for each sequential class of CMO. As a result, each class
              of sequential pay CMOs reduces the prepayment risks of subsequent
              classes.

    ASSET BACKED SECURITIES

    Asset backed securities are payable from pools of obligations other than
    mortgages. Most asset backed securities involve consumer or commercial debts
    with maturities of less than ten years. However, almost any type of fixed
    income assets (including other fixed income securities) may be used to
    create an asset backed security. Asset backed securities may take the form
    of pass through instruments or asset-backed bonds. Asset backed securities
    have prepayment risks. Like CMOs, asset backed securities may be structured
    like Floaters, Inverse Floaters, IOs and POs.

    TREASURY SECURITIES

    Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

    AGENCY SECURITIES

    Agency securities are issued or guaranteed by a federal agency or other
    government sponsored entity acting under federal authority (a Government
    Sponsored Entity, or GSE). The United States supports some GSEs with its
    full faith and credit. Other GSEs receive support through federal subsidies,
    loans or other benefits. A few GSEs have no explicit financial support, but
    are regarded as having implied support because the federal government
    sponsors their activities. Agency securities are generally regarded as
    having low credit risks, but not as low as treasury securities.

    The Fund treats mortgage backed securities guaranteed by GSEs as agency
    securities. Although a GSE guarantee protects against credit risks, it does
    not reduce the interest rate and prepayment risks of these mortgage backed
    securities.

    CORPORATE DEBT SECURITIES

    Corporate debt securities are fixed income securities issued by businesses.
    Notes, bonds, debentures and commercial paper are the most prevalent types
    of corporate debt securities. The Fund may also purchase interests in bank
    loans to companies. The credit risks of corporate debt securities vary
    widely among issuers.

    In addition, the credit risk of an issuer's debt security may vary based on
    its priority for repayment. For example, higher ranking (senior) debt
    securities have a higher priority than lower ranking (subordinated)
    securities. This means that the issuer might not make payments on
    subordinated securities while continuing to make payments on senior
    securities. In addition, in the event of bankruptcy, holders of senior
    securities may receive amounts otherwise payable to the holders of
    subordinated securities. Some subordinated securities, such as trust
    preferred and capital securities notes, also permit the issuer to defer
    payments under certain circumstances. For example, insurance companies issue
    securities known as surplus notes that permit the insurance company to defer
    any payment that would reduce its capital below regulatory requirements.

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

INTEREST RATE RISKS

o   Prices of fixed income securities rise and fall in response to changes in
    the interest rate paid by similar securities. Generally, when interest rates
    rise, prices of fixed income securities fall. However, market factors, such
    as the demand for particular fixed income securities, may cause the price of
    certain fixed income securities to fall while the prices of other securities
    rise or remain unchanged.

O   Interest rate changes have a greater effect on the price of fixed income
    securities with longer durations. Duration measures the price sensitivity of
    a fixed income security to changes in interest rates.

PREPAYMENT RISKS

o   Generally, homeowners have the option to prepay their mortgages at any time
    without penalty. Homeowners frequently refinance high interest rate
    mortgages when mortgage rates fall. This results in the prepayment of
    mortgage backed securities with higher interest rates. Conversely,
    prepayments due to refinancings decrease when mortgage rates increase. This
    extends the life of mortgage backed securities with lower interest rates.
    Other economic factors can also lead to increases or decreases in
    prepayments. Increases in prepayments of high interest rate mortgage backed
    securities, or decreases in prepayments of lower interest rate mortgage
    backed securities, may reduce their yield and price. These factors,
    particularly the relationship between interest rates and mortgage
    prepayments makes the price of mortgage backed securities more volatile than
    many other types of fixed income securities with comparable credit risks.

o   Mortgage backed securities generally compensate for greater prepayment risk
    by paying a higher yield. The difference between the yield of a mortgage
    backed security and the yield of a U.S. Treasury security with a comparable
    maturity (the spread) measures the additional interest paid for risk.
    Spreads may increase generally in response to adverse economic or market
    conditions. A security's spread may also increase if the security is
    perceived to have an increased prepayment risk or perceived to have less
    market demand. An increase in the spread will cause the price of the
    security to decline.

o   The Fund may have to reinvest the proceeds of mortgage prepayments in other
    fixed income securities with lower interest rates, higher prepayment risks,
    or other less favorable characteristics.

CREDIT RISKS

o    Credit risk is the possibility that an issuer will default on a security by
     failing to pay interest or principal when due. If an issuer  defaults,  the
     Fund will lose money.

o   Many fixed income securities receive credit ratings from services such as
    Standard & Poor's and Moody's Investor Services, Inc. These services assign
    ratings to securities by assessing the likelihood of issuer default. Lower
    credit ratings correspond to higher credit risk. If a security has not
    received a rating, the Fund must rely entirely upon the Adviser's credit
    assessment.

o   Fixed income securities generally compensate for greater credit risk by
    paying interest at a higher rate. The difference between the yield of a
    security and the yield of a U.S. Treasury security with a comparable
    maturity (the spread) measures the additional interest paid for risk.
    Spreads may increase generally in response to adverse economic or market
    conditions. A security's spread may also increase if the security's rating
    is lowered, or the security is perceived to have an increased credit risk.
    An increase in the spread will cause the price of the security to decline.

o   Credit risk includes the possibility that a party to a transaction involving
    the Fund will fail to meet its obligations. This could cause the Fund to
    lose the benefit of the transaction or prevent the Fund from selling or
    buying other securities to implement its investment strategy.

LIQUIDITY RISKS

o    Trading  opportunities  are more limited for fixed income  securities  that
     have  not  received  any  credit  ratings,   have  received  ratings  below
     investment grade or are not widely held.

o   These features may make it more difficult to sell or buy a security at a
    favorable price or time. Consequently, the Fund may have to accept a lower
    price to sell a security, sell other securities to raise cash or give up an
    investment opportunity, any of which could have a negative effect on the
    Fund's performance. Infrequent trading of securities may also lead to an
    increase in their price volatility.

o   Liquidity risk also refers to the possibility that the Fund may not be able
    to sell a security or close out a derivative contract when it wants to. If
    this happens, the Fund will be required to continue to hold the security or
    keep the position open, and the Fund could incur losses.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

o   Securities rated below investment grade, also known as junk bonds, generally
    entail greater market, credit and liquidity risks than investment grade
    securities. For example, their prices are more volatile, economic downturns
    and financial setbacks may affect their prices more negatively, and their
    trading market may be more limited.

WHAT DO SHARES COST?

You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form (as
described in the prospectus) it is processed at the next calculated net asset
value (NAV). From time to time the Fund may purchase foreign securities that
trade in foreign markets on days the NYSE is closed. The value of the Fund's
assets may change on days you cannot purchase or redeem Shares. The Fund does
not charge a front-end sales charge. NAV is determined at the end of regular
trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund
generally values fixed income securities at the last sale price on a national
securities exchange, if available, otherwise, as determined by an independent
pricing service.

The Fund's current NAV and public offering price may be found in the mutual
funds section of certain local newspapers under "Federated" and Institutional
Shares.

The required minimum initial investment for Fund Shares is $100,000. There is no
required minimum subsequent investment amount. An account may be opened with a
smaller amount as long as the $100,000 minimum is reached within 90 days. An
institutional investor's minimum investment is calculated by combining all
accounts it maintains with the Fund. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep in
mind that investment professionals may charge you fees for their services in
connection with your Share transactions.

HOW IS THE FUND SOLD?

The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.

The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to retail and private banking customers of financial
institutions.

When the Distributor receives marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).

HOW TO PURCHASE SHARES

You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.

THROUGH AN INVESTMENT PROFESSIONAL

o        Establish an account with the investment professional; and

o  Submit your purchase order to the investment professional before the end of
   regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
   receive the next calculated NAV if the investment professional forwards the
   order to the Fund on the same day and the Fund receives payment within one
   business day. You will become the owner of Shares and receive dividends when
   the Fund receives your payment.

Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

o    Establish  your account with the Fund by submitting a completed New Account
     Form; and

o    Send your payment to the Fund by Federal Reserve wire or check.

You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.

An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.

BY WIRE Send your wire to:

  State Street Bank and Trust Company
  Boston, MA
  Dollar Amount of Wire

  ABA Number 011000028
  Attention: EDGEWIRE

  Wire Order Number, Dealer Number or Group Number
  Nominee/Institution Name
  Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are
restricted.

BY CHECK

Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:

  Federated Shareholder Services Company
  P.O. Box 8600

  Boston, MA 02266-8600

If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:

  Federated Shareholder Services Company
  1099 Hingham Street

  Rockland, MA 02370-3317

     Payment  should be made in U.S.  dollars and drawn on a U.S. bank. The Fund
will not accept  third-party  checks (checks originally payable to someone other
than you or The Federated Funds).

BY AUTOMATED CLEARING HOUSE (ACH)

Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.

HOW TO REDEEM SHARES

You should redeem Shares:

o    through an  investment  professional  if you  purchased  Shares  through an
     investment professional; or

o    directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.

DIRECTLY FROM THE FUND

BY TELEPHONE

You may redeem Shares by calling the Fund at 1-800-341-7400 once you have
completed the appropriate authorization form for telephone transactions. If you
call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern
time) you will receive a redemption amount based on that day's NAV.

BY MAIL

You may redeem Shares by mailing a written request to the Fund.

You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.

Send requests by mail to:

  Federated Shareholder Services Company
  P.O. Box 8600

  Boston, MA 02266-8600

Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:

  Federated Shareholder Services Company
  1099 Hingham Street
  Rockland, MA 02370-3317 All requests must include:

o    Fund Name and Share Class, account number and account registration;

o    amount to be redeemed; and

o    signatures of all shareholders exactly as registered.

Call your investment professional or the Fund if you need special instructions.

SIGNATURE GUARANTEES Signatures must be guaranteed if:

o    your  redemption  will be sent to an  address  other  than the  address  of
     record;

o    your  redemption  will be sent to an  address  of record  that was  changed
     within the last 30 days; or

o    a redemption is payable to someone other than the shareholder(s) of record.

A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.

PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:

o    an electronic  transfer to your account at a financial  institution that is
     an ACH member; or

o    wire  payment  to your  account  at a  domestic  commercial  bank that is a
     Federal Reserve System member.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:

o    to allow your purchase to clear;

o    during periods of market volatility; or

o    when a shareholder's  trade activity or amount adversely impacts the Fund's
     ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

SHARE CERTIFICATES

The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
dividends and capital gains paid.

DIVIDENDS AND CAPITAL GAINS

The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.

In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.

If you purchase Shares just before a Fund declares a capital gain distribution,
you will pay the full price for the Shares and then receive a portion of the
price back in the form of a taxable distribution, whether or not you reinvest
the distribution in Shares. Therefore, you should consider the tax implications
of purchasing Shares shortly before the Fund declares a capital gain. Contact
your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.

Fund distributions are expected to be [primarily dividends] [primarily capital
gains] [both dividends and capital gains]. Redemptions are taxable sales. Please
consult your tax adviser regarding your federal, state, and local tax liability.

WHO MANAGES THE FUND?

The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which totaled approximately $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees.

More than 4,000 investment professionals make Federated Funds available to their
customers.

THE FUND'S PORTFOLIO MANAGERS ARE:

RANDALL S. BAUER

     Randall S. Bauer has been the Fund's portfolio manager since inception. Mr.
Bauer  joined  Federated  in 1989 and has been a  Portfolio  Manager  and a Vice
President of the Fund's Adviser since 1994.  Mr. Bauer is a Chartered  Financial
Analyst and received his M.B.A. in Finance from Pennsylvania State University.

ROBERT K. KINSEY

     Robert K. Kinsey has been the Fund's portfolio  manager since May 1997. Mr.
Kinsey joined Federated in 1995 as a Portfolio Manager and a Vice President of a
Federated  advisory  subsidiary.  He has  been a  Portfolio  Manager  and a Vice
President of the Fund's Adviser since March,  1997. From 1992 to 1995, he served
as a Portfolio  Manager for Harris  Investment  Management  Co., Inc. Mr. Kinsey
received his M.B.A. in Finance from U.C.L.A.

MARK E. DURBIANO

     Mark E. Durbiano has been the Fund's  portfolio  manager for the high yield
corporate bonds asset category of the Fund since inception.  Mr. Durbiano joined
Federated  in 1982 and has been a Senior  Portfolio  Manager  and a Senior  Vice
President of the Fund's Adviser since 1996. From 1988 through 1995, Mr. Durbiano
was a Portfolio Manager and a Vice President of the Fund's Adviser. Mr. Durbiano
is a Chartered  Financial  Analyst and received  his M.B.A.  in Finance from the
University of Pittsburgh.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.

YEAR 2000 READINESS

The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.

While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.

The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.

Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities
will have difficulty determining the Year 2000 readiness of those entities.

The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.

FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS

The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.

This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.


<PAGE>






12

FEDERATED LIMITED DURATION FUND

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SHARES

A Statement of Additional Information (SAI) dated November 30, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report's Management Discussion & Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, the Annual Report, Semi-Annual Report
and other information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.

You can obtain information about the Fund (including the SAI) by writing or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected]. or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying charges.

INVESTMENT COMPANY ACT FILE NO.811-7115
CUSIP 31428Q408

000000-00 (11/99)

PROSPECTUS

FEDERATED LIMITED DURATION FUND

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SERVICE SHARES

A mutual fund seeking to provide total return by investing primarily in a
diversified portfolio of fixed income securities having a duration of three
years or less.

As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.

CONTENTS

Risk/Return Summary
What are the Fund's Fees and Expenses?
What are the Fund's Investment Strategies?
What are the Principal Securities in Which the Fund Invests?
What are the Specific Risks of Investing in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information

[Insert Main Heading from Auditor's Report Page, if applicable]

   november 30, 1999


<PAGE>



RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide total return. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the strategies and policies described in this prospectus. The
Fund's total return will consist of two components: (1) changes in the market
value of its portfolio securities (both realized and unrealized appreciation),
and (2) income received from its portfolio securities. The Fund expects that
income will comprise the largest component of its total return.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund invests primarily in a diversified portfolio of domestic fixed income
securities, including corporate debt securities, U.S. government obligations and
mortgage backed and asset backed securities. Under normal market conditions, the
Fund invests at least 65% of its assets in domestic investment grade debt
securities. The Adviser seeks to enhance the Fund's performance by allocating
relatively more of its portfolio to the security type that the Adviser expects
to offer the best balance between total return and risk.

Although the value of the Fund's shares will fluctuate, the Adviser will seek to
manage the magnitude of fluctuation by limiting the Fund's dollar weighted
average duration to three years or less. Duration measures the price sensitivity
of a fixed income security to changes in interest rates.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

o    INTEREST RATE RISK. Prices of fixed income  securities  generally fall when
     interest rates rise.

o   PREPAYMENT RISK. When homeowners prepay their mortgages in response to lower
    interest rates, the Fund will be required to reinvest the proceeds at the
    lower interest rates available. Also, when interest rates fall, the price of
    mortgage backed securities may not rise to as great an extent as that of
    other fixed income securities.

o   CREDIT RISKS. There is a possibility that issuers of securities in which the
    Fund may invest may default in the payment of interest or principal on the
    securities when due, which would cause the Fund to lose money.

o    LIQUIDITY RISKS. The fixed income  securities in which the Fund invests may
     be less readily  marketable  and may be subject to greater  fluctuation  in
     price than other securities.

o   RISKS ASSOCIATED WITH NON-INVESTMENT GRADE SECURITIES. The Fund may invest a
    portion of its assets in securities rated below investment grade which may
    be subject to greater interest rate, credit and liquidity risks than
    investment grade securities.

The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.


<PAGE>



RISK/RETURN BAR CHART AND TABLE

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares of Fund as of the calendar
year-end for one year.

The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of __% up to __%.

The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features one distinct
vertical bar, shaded in charcoal, and visually representing by height the total
return percentages for the calendar year stated directly at its base. The
calculated total return percentage for the Fund's Institutional Service Shares
for the calendar year is stated directly at the top of the bar, for the calendar
year 1998. The percentage noted is: [insert percentage shown at the top of the
bar in the chart].

The bar chart shows the variability of the Fund's Institutional Service Shares
total returns on a calendar year-end basis.

The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.

The Fund's total return for the nine-month period from January 1, 1999 to
September 30, 1999 was ____%.

Within the period shown in the Chart, the Fund's highest quarterly return was
___% (quarter ended ______). Its lowest quarterly return was ___% (quarter ended
_________).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Institutional Service Shares Average
Annual Total Return for the calendar period ending December 31, 1998. [The table
shows the Fund's total returns averaged over a period of years relative to (name
of index), a broad-based market index (and [insert other optional indexes, as
applicable]). [Insert one-sentence definitions of broad-based index and any
optional indexes. OR, if indexes are defined in the Investment Strategy, a
cross-reference to the Investment Strategy section is sufficient and the
following language can be used: [Total returns for the indexes shown do not
reflect sales charges, expenses or other fees that the SEC requires to be
reflected in the Fund's performance.] Indexes are unmanaged, and it is not
possible to invest directly in an index.

                     [FUND]
                     [CLASS]

                     INCLUDE          BROAD-BASED    OTHER INDEX
                     COLUMNS FOR      INDEX          OR AVERAGE  OTHER INDEX OR

CALENDAR PERIOD      ALL CLASSES      (REQUIRED)     (OPTIONAL)    AVERAGE

                     OFFERED IN                                    (OPTIONAL)

                     PROSPECTUS

1 Year
[5 Years]
[10 Years]
[Start of

Performance1]

1 THE FUND'S INSTITUTIONAL SERVICE SHARES START OF PERFORMANCE DATE WAS
________________.

INSTRUCTION: IF THE BROAD BASED MARKET INDEX IS CHANGED, ADD DISCLOSURE TO THE
SENTENCE ABOVE THAT EXPLAINS THE REASON(S) FOR THE SELECTION AND PROVIDE RETURNS
FOR BOTH THE OLD AND THE NEW INDEXES. INSTRUCTION: IF THE BAR CHART SHOWS ONLY
ONE YEAR OR IF THERE IS NO BAR CHART BECAUSE THERE HAS NOT BEEN ONE FULL
CALENDAR YEAR OF PERFORMANCE, SUBSTITUTE THE FOLLOWING FOR THE TWO SENTENCES
ABOVE: [The Fund's (insert class name, or model share class name, as applicable)
7-Day Net Yield as of _______ was __%. Investors may call the Fund at 1-800-____
to acquire the current 7-Day Net Yield.]

Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential returns.


<PAGE>



WHAT ARE THE FUND'S FEES AND EXPENSES?

FEDERATED LIMITED DURATION FUND - INSTITUTIONAL SERVICE SHARES

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Service Shares.

SHAREHOLDER FEES

FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a            None
percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a percentage of          None
original purchase price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends       None
(and other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if            None
applicable)
Exchange Fee                                                      None

ANNUAL FUND OPERATING EXPENSES (Before
[Reimbursements/Waivers])(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fee                                                    0.40%
Distribution (12b-1) Fee                                          0.25%
Shareholder Services Fee                                          0.25%
Other Expenses                                                    %
Total Annual Fund Operating Expenses                              %
1 Although not contractually obligated to do so, the [adviser will
  (waive/reimburse)] [adviser (waived/reimbursed)] [and] [distributor (will
  reimburse/reimbursed)] certain amounts. These are shown below along with the
  net expenses the Fund [ACTUALLY PAID] [EXPECTS TO PAY] for the fiscal year
  ended September 30, 1999

   Total [Reimbursements/Waivers] of Fund Expenses                %
   Total Actual Annual Fund Operating Expenses (after             %
   [reimbursements/waivers] )

2 [Insert Applicable footnote(s) as provided by State Street Bank.

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
  Institutional Service Shares with the cost of investing in other mutual funds.
  The Example assumes that you invest $10,000 in the Fund's Institutional
  Service Shares for the time periods indicated and then redeem all of your
  Shares at the end of

those periods. Expenses assuming no redemption are also shown. The Example also
assumes that your investment has a 5% return each year and that the Fund's
Institutional Service Shares operating expenses are [BEFORE
REIMBURSEMENTS/WAIVERS] as [estimated] [shown] in the table and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be: INSTITUTIONAL SERVICE SHARE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Expenses assuming redemption $ $ $ $ Expenses assuming no $ $ $ $ redemption


<PAGE>



WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

Under normal market conditions, the Fund invests at least 65% of the value of
its total assets in a diversified portfolio of domestic investment grade debt
securities, including corporate debt securities, U.S. government obligations,
and mortgage backed and asset backed securities. Investment grade debt
securities are rated in one of the four highest categories (BBB or higher) by a
nationally recognized statistical rating organization (NRSRO), or if unrated, of
comparable quality as determined by the Adviser. A description of the various
types of securities in which the Fund principally invests, and their risks,
immediately follows this strategy section.

The Adviser seeks to enhance the Fund's performance by allocating relatively
more of its portfolio to the security type that the Adviser expects to offer the
best balance between total return and risk and thus offer the greatest potential
for return. The allocation process is based on the Adviser's continuing analysis
of a variety of economic and market indicators in order to arrive at the
projected yield "spread" of each security type. (The spread is the difference
between the yield of a security versus the yield of a U.S. treasury security
with a comparable average life.) The security's projected spread is weighed
against the spread the security can currently be purchased for, as well as the
security's credit risk (in the case of corporate securities and privately issued
asset backed and mortgage backed securities) and its risk of prepayment (in the
case of asset backed and mortgage backed securities) in order to complete the
analysis. Asset and mortgaged backed securities tend to amortize principal on a
somewhat irregular schedule over time, since the borrower can usually prepay all
or part of the loan without penalty. These securities generally offer higher
yields versus U.S. treasury securities and non-mortgage backed agency securities
to compensate for this prepayment risk as well as any credit risk which might
also be present in the security. Similarly, corporate debt securities, which
tend to pay off on a predetermined schedule, generally offer higher yields than
U.S. government securities to compensate for credit risk. The Adviser invests
the Fund's portfolio, seeking the higher relative returns of asset and mortgage
backed securities and corporate debt securities, when available, while
attempting to limit the associated credit or prepayment risks. The Adviser
attempts to manage the Fund's prepayment risk by selecting asset and mortgage
backed securities with characteristics that make prepayment fluctuations less
likely. Characteristics that the Adviser may consider in selecting securities
include the average interest rates of the underlying mortgages and the federal
agencies (if any) that support the mortgages. The Adviser attempts to assess the
relative returns and risks for mortgage backed securities by analyzing how the
timing, amount and division of cash flows might change in response to changing
economic and market conditions. The Adviser attempts to manage the Fund's credit
risk by selecting corporate debt securities that make default in the payment of
principal and interest less likely. The Adviser looks at a variety of factors,
including macroeconomic analysis and corporate earnings analysis, among others,
to determine which business sectors and credit ratings are most advantageous for
investment by the Fund. In selecting individual corporate fixed income
securities, the Adviser analyzes a company's business, competitive position, and
general financial condition to assess whether the security's credit risk is
commensurate with its potential return. The Fund may invest a portion of its
portfolio in non-investment grade fixed income securities, which are rated BB or
lower by an NRSRO. The non-investment grade securities in which the Fund invests
generally pay higher interest rates as compensation for the greater default risk
attached to the securities. The Fund's share price volatility attributable to
interest rate risk is managed by maintaining, at all times, a dollar-weighted
average portfolio duration of three years or less. The Adviser may lengthen or
shorten duration from time-to-time based on its interest rate outlook. If the
Adviser expects interest rates to decline, it will generally lengthen the Fund's
duration, and if the Adviser expects interest rates to increase, it will
generally shorten the Fund's duration. The Adviser formulates its interest rate
outlook and otherwise attempts to anticipate changes in economic and market
conditions by analyzing a variety of factors, such as: o .......current and
expected U.S. growth; o current and expected interest rates and inflation; o the
U.S. Federal Reserve Board's monetary policy; and o changes in the supply of or
demand for U.S. government securities

There is no assurance that the Adviser's efforts to forecast market interest
rates, and assess relative risks and the impact of market interest rates on
particular securities, will be successful.

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.

The following describes the types of fixed income securities in which the Fund
principally invests.

    MORTGAGE BACKED SECURITIES

    Mortgage backed securities represent interests in pools of mortgages. The
    mortgages that comprise a pool normally have similar interest rates,
    maturities and other terms. Mortgages may have fixed or adjustable interest
    rates. Interests in pools of adjustable rate mortgages are known as ARMs.

    Mortgage backed securities come in a variety of forms. Many have extremely
    complicated terms. The simplest form of mortgage backed securities are
    pass-through certificates. An issuer of pass-through certificates gathers
    monthly payments from an underlying pool of mortgages. Then, the issuer
    deducts its fees and expenses and passes the balance of the payments onto
    the certificate holders once a month. Holders of pass-through certificates
    receive a pro rata share of all payments and pre-payments from the
    underlying mortgages. As a result, the holders assume all the prepayment
    risks of the underlying mortgages.

           COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

           CMOs, including interests in real estate mortgage investment conduits
           (REMICs), allocate payments and prepayments from an underlying
           pass-through certificate among holders of different classes of
           mortgage backed securities. This creates different prepayment and
           interest rate risks for each CMO class. The degree of increased or
           decreased prepayment risks depends upon the structure of the CMOs.
           However, the actual returns on any type of mortgage backed security
           depend upon the performance of the underlying pool of mortgages,
           which no one can predict and will vary among pools.

              SEQUENTIAL CMOS

              In a sequential pay CMO, one class of CMOs receives all principal
              payments and prepayments. The next class of CMOs receives all
              principal payments after the first class is paid off. This process
              repeats for each sequential class of CMO. As a result, each class
              of sequential pay CMOs reduces the prepayment risks of subsequent
              classes.

    ASSET BACKED SECURITIES

    Asset backed securities are payable from pools of obligations other than
    mortgages. Most asset backed securities involve consumer or commercial debts
    with maturities of less than ten years. However, almost any type of fixed
    income assets (including other fixed income securities) may be used to
    create an asset backed security. Asset backed securities may take the form
    of pass through instruments or asset-backed bonds. Asset backed securities
    have prepayment risks. Like CMOs, asset backed securities may be structured
    like Floaters, Inverse Floaters, IOs and POs.

    TREASURY SECURITIES

    Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

    AGENCY SECURITIES

    Agency securities are issued or guaranteed by a federal agency or other
    government sponsored entity acting under federal authority (a Government
    Sponsored Entity, or GSE). The United States supports some GSEs with its
    full faith and credit. Other GSEs receive support through federal subsidies,
    loans or other benefits. A few GSEs have no explicit financial support, but
    are regarded as having implied support because the federal government
    sponsors their activities. Agency securities are generally regarded as
    having low credit risks, but not as low as treasury securities.

    The Fund treats mortgage backed securities guaranteed by GSEs as agency
    securities. Although a GSE guarantee protects against credit risks, it does
    not reduce the interest rate and prepayment risks of these mortgage backed
    securities.

    CORPORATE DEBT SECURITIES

    Corporate debt securities are fixed income securities issued by businesses.
    Notes, bonds, debentures and commercial paper are the most prevalent types
    of corporate debt securities. The Fund may also purchase interests in bank
    loans to companies. The credit risks of corporate debt securities vary
    widely among issuers.

    In addition, the credit risk of an issuer's debt security may vary based on
    its priority for repayment. For example, higher ranking (senior) debt
    securities have a higher priority than lower ranking (subordinated)
    securities. This means that the issuer might not make payments on
    subordinated securities while continuing to make payments on senior
    securities. In addition, in the event of bankruptcy, holders of senior
    securities may receive amounts otherwise payable to the holders of
    subordinated securities. Some subordinated securities, such as trust
    preferred and capital securities notes, also permit the issuer to defer
    payments under certain circumstances. For example, insurance companies issue
    securities known as surplus notes that permit the insurance company to defer
    any payment that would reduce its capital below regulatory requirements.

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

INTEREST RATE RISKS

o   Prices of fixed income securities rise and fall in response to changes in
    the interest rate paid by similar securities. Generally, when interest rates
    rise, prices of fixed income securities fall. However, market factors, such
    as the demand for particular fixed income securities, may cause the price of
    certain fixed income securities to fall while the prices of other securities
    rise or remain unchanged.

O   Interest rate changes have a greater effect on the price of fixed income
    securities with longer durations. Duration measures the price sensitivity of
    a fixed income security to changes in interest rates.

PREPAYMENT RISKS

o   Generally, homeowners have the option to prepay their mortgages at any time
    without penalty. Homeowners frequently refinance high interest rate
    mortgages when mortgage rates fall. This results in the prepayment of
    mortgage backed securities with higher interest rates. Conversely,
    prepayments due to refinancings decrease when mortgage rates increase. This
    extends the life of mortgage backed securities with lower interest rates.
    Other economic factors can also lead to increases or decreases in
    prepayments. Increases in prepayments of high interest rate mortgage backed
    securities, or decreases in prepayments of lower interest rate mortgage
    backed securities, may reduce their yield and price. These factors,
    particularly the relationship between interest rates and mortgage
    prepayments makes the price of mortgage backed securities more volatile than
    many other types of fixed income securities with comparable credit risks.

o   Mortgage backed securities generally compensate for greater prepayment risk
    by paying a higher yield. The difference between the yield of a mortgage
    backed security and the yield of a U.S. Treasury security with a comparable
    maturity (the spread) measures the additional interest paid for risk.
    Spreads may increase generally in response to adverse economic or market
    conditions. A security's spread may also increase if the security is
    perceived to have an increased prepayment risk or perceived to have less
    market demand. An increase in the spread will cause the price of the
    security to decline.

o   The Fund may have to reinvest the proceeds of mortgage prepayments in other
    fixed income securities with lower interest rates, higher prepayment risks,
    or other less favorable characteristics.

CREDIT RISKS

o    Credit risk is the possibility that an issuer will default on a security by
     failing to pay interest or principal when due. If an issuer  defaults,  the
     Fund will lose money.

o   Many fixed income securities receive credit ratings from services such as
    Standard & Poor's and Moody's Investor Services, Inc. These services assign
    ratings to securities by assessing the likelihood of issuer default. Lower
    credit ratings correspond to higher credit risk. If a security has not
    received a rating, the Fund must rely entirely upon the Adviser's credit
    assessment.

o   Fixed income securities generally compensate for greater credit risk by
    paying interest at a higher rate. The difference between the yield of a
    security and the yield of a U.S. Treasury security with a comparable
    maturity (the spread) measures the additional interest paid for risk.
    Spreads may increase generally in response to adverse economic or market
    conditions. A security's spread may also increase if the security's rating
    is lowered, or the security is perceived to have an increased credit risk.
    An increase in the spread will cause the price of the security to decline.

o   Credit risk includes the possibility that a party to a transaction involving
    the Fund will fail to meet its obligations. This could cause the Fund to
    lose the benefit of the transaction or prevent the Fund from selling or
    buying other securities to implement its investment strategy.

LIQUIDITY RISKS

o    Trading  opportunities  are more limited for fixed income  securities  that
     have  not  received  any  credit  ratings,   have  received  ratings  below
     investment grade or are not widely held.

o   These features may make it more difficult to sell or buy a security at a
    favorable price or time. Consequently, the Fund may have to accept a lower
    price to sell a security, sell other securities to raise cash or give up an
    investment opportunity, any of which could have a negative effect on the
    Fund's performance. Infrequent trading of securities may also lead to an
    increase in their price volatility.

o   Liquidity risk also refers to the possibility that the Fund may not be able
    to sell a security or close out a derivative contract when it wants to. If
    this happens, the Fund will be required to continue to hold the security or
    keep the position open, and the Fund could incur losses.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

O   Securities rated below investment grade, also known as junk bonds, generally
    entail greater market, credit and liquidity risks than investment grade
    securities. For example, their prices are more volatile, economic downturns
    and financial setbacks may affect their prices more negatively, and their
    trading market may be more limited.

WHAT DO SHARES COST?

 You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form (as
described in the prospectus) it is processed at the next calculated net asset
value (NAV). From time to time the Fund may purchase foreign securities that
trade in foreign markets on days the NYSE is closed. The value of the Fund's
assets may change on days you cannot purchase or redeem Shares. The Fund does
not charge a front-end sales charge. NAV is determined at the end of regular
trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund
generally values fixed income securities at the last sale price on a national
securities exchange, if available, otherwise, as determined by an independent
pricing service.

The Fund's current NAV and public offering price may be found in the mutual
funds section of certain local newspapers under "Federated" and Institutional
Service Shares.

The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount. An account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days. An
institutional investor's minimum investment is calculated by combining all
accounts it maintains with the Fund. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep in
mind that investment professionals may charge you fees for their services in
connection with your Share transactions.

HOW IS THE FUND SOLD?

The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share class
has different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.

The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to retail and private banking customers of financial
institutions or individuals, directly or through investment professionals.

When the Distributor receives marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).

RULE 12B-1 PLAN

The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Institutional Service Shares. Because these
Shares pay marketing fees on an ongoing basis, your investment cost may be
higher over time than other shares with different sales charges and marketing
fees.

HOW TO PURCHASE SHARES

You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.

THROUGH AN INVESTMENT PROFESSIONAL

o        Establish an account with the investment professional; and

o  Submit your purchase order to the investment professional before the end of
   regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
   receive the next calculated NAV if the investment professional forwards the
   order to the Fund on the same day and the Fund receives payment within one
   business day. You will become the owner of Shares and receive dividends when
   the Fund receives your payment.

Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

o    Establish  your account with the Fund by submitting a completed New Account
     Form; and

o    Send your payment to the Fund by Federal Reserve wire or check.

You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.

An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.

BY WIRE Send your wire to:

  State Street Bank and Trust Company
  Boston, MA
  Dollar Amount of Wire

  ABA Number 011000028
  Attention: EDGEWIRE

  Wire Order Number, Dealer Number or Group Number
  Nominee/Institution Name
  Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are
restricted.

BY CHECK

Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:

  Federated Shareholder Services Company
  P.O. Box 8600

  Boston, MA 02266-8600

If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:

  Federated Shareholder Services Company
  1099 Hingham Street
  Rockland, MA 02370-3317

     Payment  should be made in U.S.  dollars and drawn on a U.S. bank. The Fund
will not accept  third-party  checks (checks originally payable to someone other
than you or The Federated Funds).

BY AUTOMATED CLEARING HOUSE (ACH)

Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.

HOW TO REDEEM SHARES

You should redeem Shares:

o    through an  investment  professional  if you  purchased  Shares  through an
     investment professional; or

o    directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.

DIRECTLY FROM THE FUND

BY TELEPHONE

You may redeem Shares by calling the Fund at 1-800-341-7400 once you have
completed the appropriate authorization form for telephone transactions. If you
call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern
time) you will receive a redemption amount based on that day's NAV.

BY MAIL

You may redeem Shares by mailing a written request to the Fund.

You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.

Send requests by mail to:

  Federated Shareholder Services Company
  P.O. Box 8600

  Boston, MA 02266-8600

Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:

  Federated Shareholder Services Company
  1099 Hingham Street

  Rockland, MA 02370-3317 All requests must include:

o        Fund Name and Share Class, account number and account registration;

o        amount to be redeemed; and

o        signatures of all shareholders exactly as registered.

Call your investment professional or the Fund if you need special instructions.

SIGNATURE GUARANTEES Signatures must be guaranteed if:

o    your  redemption  will be sent to an  address  other  than the  address  of
     record;

o    your  redemption  will be sent to an  address  of record  that was  changed
     within the last 30 days; or

o    a redemption is payable to someone other than the shareholder(s) of record.

A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.

PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:

o    an electronic  transfer to your account at a financial  institution that is
     an ACH member; or

o    wire  payment  to your  account  at a  domestic  commercial  bank that is a
     Federal Reserve System member.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:

o    to allow your purchase to clear;

o    during periods of market volatility; or

o    when a shareholder's  trade activity or amount adversely impacts the Fund's
     ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

SHARE CERTIFICATES

The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
dividends and capital gains paid.

DIVIDENDS AND CAPITAL GAINS

The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.

In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.

If you purchase Shares just before a Fund declares a capital gain distribution,
you will pay the full price for the Shares and then receive a portion of the
price back in the form of a taxable distribution, whether or not you reinvest
the distribution in Shares. Therefore, you should consider the tax implications
of purchasing Shares shortly before the Fund declares a capital gain. Contact
your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.

Fund distributions are expected to be [primarily dividends] [primarily capital
gains] [both dividends and capital gains]. Redemptions are taxable sales. Please
consult your tax adviser regarding your federal, state, and local tax liability.

WHO MANAGES THE FUND?

The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which totaled approximately $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees.

More than 4,000 investment professionals make Federated Funds available to their
customers.

THE FUND'S PORTFOLIO MANAGERS ARE:

RANDALL S. BAUER

     Randall S. Bauer has been the Fund's portfolio manager since inception. Mr.
Bauer  joined  Federated  in 1989 and has been a  Portfolio  Manager  and a Vice
President of the Fund's Adviser since 1994.  Mr. Bauer is a Chartered  Financial
Analyst and received his M.B.A. in Finance from Pennsylvania State University.

ROBERT K. KINSEY

     Robert K. Kinsey has been the Fund's portfolio  manager since May 1997. Mr.
Kinsey joined Federated in 1995 as a Portfolio Manager and a Vice President of a
Federated  advisory  subsidiary.  He has  been a  Portfolio  Manager  and a Vice
President of the Fund's Adviser since March,  1997. From 1992 to 1995, he served
as a Portfolio  Manager for Harris  Investment  Management  Co., Inc. Mr. Kinsey
received his M.B.A. in Finance from U.C.L.A.

MARK E. DURBIANO

     Mark E. Durbiano has been the Fund's  portfolio  manager for the high yield
corporate bonds asset category of the Fund since inception.  Mr. Durbiano joined
Federated  in 1982 and has been a Senior  Portfolio  Manager  and a Senior  Vice
President of the Fund's Adviser since 1996. From 1988 through 1995, Mr. Durbiano
was a Portfolio Manager and a Vice President of the Fund's Adviser. Mr. Durbiano
is a Chartered  Financial  Analyst and received  his M.B.A.  in Finance from the
University of Pittsburgh.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.

YEAR 2000 READINESS

The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.

While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.

The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.

Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities
will have difficulty determining the Year 2000 readiness of those entities.

The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.

FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS

The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.

This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.


<PAGE>




FEDERATED LIMITED DURATION FUND

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SERVICE SHARES

A Statement of Additional Information (SAI) dated November 30, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report's Management Discussion & Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, the Annual Report, Semi-Annual Report
and other information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.

You can obtain information about the Fund (including the SAI) by writing or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected]. or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying charges.

INVESTMENT COMPANY ACT FILE NO.811-7115
CUSIP 31428Q309

000000-00 (11/99)

STATEMENT OF ADDITIONAL INFORMATION

FEDERATED LIMITED DURATION FUND

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Federated Limited Duration Fund -
Institutional Shares and Institutional Service Shares (Fund), dated November 30,
1999. Obtain the prospectuses and the Annual Report's Management Discussion &
Analysis without charge by calling 1-800-341-7400.

   November 30, 1999

                                CONTENTS
                                How is the Fund Organized?
                                Securities in Which the Fund Invests
                                What do Shares Cost?
                                How is the Fund Sold?
                                Exchanging Securities for Shares
                                Subaccounting Services
                                Redemption in Kind
                                Account and Share Information
                                Tax Information
                                Who Manages and Provides Services to the Fund?
                                How Does the Fund Measure Performance?
                                Who is Federated Investors, Inc.?
                                Investment Ratings
                                Addresses

CUSIP 31428Q408

         31428Q309

G01922-__ (11/99)


<PAGE>



HOW IS THE FUND ORGANIZED?

     The Fund is a diversified  portfolio of Federated Total Return Series, Inc.
(Corporation).  The Corporation is an open-end,  management  investment  company
that was  established  under the laws of the State of  Maryland  on October  11,
1993. The Corporation may offer separate series of shares representing interests
in separate  portfolios of  securities.  The  Corporation  changed its name from
Insight  Institutional  Series,  Inc. to Federated Total Return Series,  Inc. on
March 21, 1995.  The Fund changed its name from  Federated  Total Return Limited
Duration Fund to Federated Limited Duration Fund on May 14, 1997.

The Board of Directors (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Institutional Service Shares (Shares).
This SAI relates to both classes of Shares. The Fund's investment adviser is
Federated Investment Management Company (Adviser). Effective March 31, 1999,
Federated Management, former Adviser to the Fund, became Federated Investment
Management Company (formerly, Federated Advisers).

SECURITIES IN WHICH THE FUND INVESTS

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.

The following describes the types of fixed income securities in which the Fund
invests.

    TREASURY SECURITIES

    Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

    AGENCY SECURITIES

    Agency securities are issued or guaranteed by a federal agency or other
    government sponsored entity acting under federal authority (a GSE). The
    United States supports some GSEs with its full faith and credit. Other GSEs
    receive support through federal subsidies, loans or other benefits. A few
    GSEs have no explicit financial support, but are regarded as having implied
    support because the federal government sponsors their activities. Agency
    securities are generally regarded as having low credit risks, but not as low
    as treasury securities.

    The Fund treats mortgage backed securities guaranteed by GSEs as agency
    securities. Although a GSE guarantee protects against credit risks, it does
    not reduce the interest rate and prepayment risks of these mortgage backed
    securities.

    CORPORATE DEBT SECURITIES

    Corporate debt securities are fixed income securities issued by businesses.
    Notes, bonds, debentures and commercial paper are the most prevalent types
    of corporate debt securities. The Fund may also purchase interests in bank
    loans to companies. The credit risks of corporate debt securities vary
    widely among issuers.

    In addition, the credit risk of an issuer's debt security may vary based on
    its priority for repayment. For example, higher ranking (senior) debt
    securities have a higher priority than lower ranking (subordinated)
    securities. This means that the issuer might not make payments on
    subordinated securities while continuing to make payments on senior
    securities. In addition, in the event of bankruptcy, holders of senior
    securities may receive amounts otherwise payable to the holders of
    subordinated securities. Some subordinated securities, such as trust
    preferred and capital securities notes, also permit the issuer to defer
    payments under certain circumstances. For example, insurance companies issue
    securities known as surplus notes that permit the insurance company to defer
    any payment that would reduce its capital below regulatory requirements.

        COMMERCIAL PAPER

        Commercial paper is an issuer's obligation with a maturity of less than
        nine months. Companies typically issue commercial paper to pay for
        current expenditures. Most issuers constantly reissue their commercial
        paper and use the proceeds (or bank loans) to repay maturing paper. If
        the issuer cannot continue to obtain liquidity in this fashion, its
        commercial paper may default. The short maturity of commercial paper
        reduces both the market and credit risks as compared to other debt
        securities of the same issuer.

        DEMAND INSTRUMENTS

        Demand instruments are corporate debt securities that the issuer must
        repay upon demand. Other demand instruments require a third party, such
        as a dealer or bank, to repurchase the security for its face value upon
        demand. The Fund treats demand instruments as short-term securities,
        even though their stated maturity may extend beyond one year.

    MUNICIPAL SECURITIES

    Municipal securities are issued by states, counties, cities and other
    political subdivisions and authorities. Although many municipal securities
    are exempt from federal income tax, the Fund may invest in taxable municipal
    securities.

    MORTGAGE BACKED SECURITIES

    Mortgage backed securities represent interests in pools of mortgages. The
    mortgages that comprise a pool normally have similar interest rates,
    maturities and other terms. Mortgages may have fixed or adjustable interest
    rates. Interests in pools of adjustable rate mortgages are known as ARMs.

    Mortgage backed securities come in a variety of forms. Many have extremely
    complicated terms. The simplest form of mortgage backed securities are
    pass-through certificates. An issuer of pass-through certificates gathers
    monthly payments from an underlying pool of mortgages. Then, the issuer
    deducts its fees and expenses and passes the balance of the payments onto
    the certificate holders once a month. Holders of pass-through certificates
    receive a pro rata share of all payments and pre-payments from the
    underlying mortgages. As a result, the holders assume all the prepayment
    risks of the underlying mortgages. The Fund may invest in mortgage backed
    securities primarily by investing in another investment company (which is
    not available for general investment by the public) that owns those
    securities and that is advised by an affiliate of the Adviser. This other
    investment company is managed independently of the Fund and may incur
    additional administrative expenses. Therefore, any such investment by the
    Fund may be subject to duplicate expenses. However, the Adviser believes
    that the benefits and efficiencies of this approach should outweigh the
    potential additional expenses. The Fund may also invest in such securities
    directly.

    COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

    CMOs, including interests in real estate mortgage investment conduits
    (REMICs), allocate payments and prepayments from an underlying pass-through
    certificate among holders of different classes of mortgage backed
    securities. This creates different prepayment and market risks for each CMO
    class. The degree of increased or decreased prepayment risks depends upon
    the structure of the CMOs. However, the actual returns on any type of
    mortgage backed security depend upon the performance of the underlying pool
    of mortgages, which no one can predict and will vary among pools.

        SEQUENTIAL CMOS

        In a sequential pay CMO, one class of CMOs receives all principal
        payments and prepayments. The next class of CMOs receives all principal
        payments after the first class is paid off. This process repeats for
        each sequential class of CMO. As a result, each class of sequential pay
        CMOs reduces the prepayment risks of subsequent classes.

        PACS, TACS AND COMPANION CLASSES

        More sophisticated CMOs include planned amortization classes (PACs) and
        targeted amortization classes (TACs). PACs and TACs are issued with
        companion classes. PACs and TACs receive principal payments and
        prepayments at a specified rate. The companion classes receive principal
        payments and prepayments in excess of the specified rate. In addition,
        PACs will receive the companion classes' share of principal payments, if
        necessary, to cover a shortfall in the prepayment rate. This helps PACs
        and TACs to control prepayment risks by increasing the risks to their
        companion classes.

        IOS AND POS

        CMOs may allocate interest payments to one class (Interest Only or IOs)
        and principal payments to another class (Principal Only or POs). POs
        increase in value when prepayment rates increase. In contrast, IOs
        decrease in value when prepayments increase, because the underlying
        mortgages generate less interest payments. However, IOs tend to increase
        in value when interest rates rise (and prepayments decrease), making IOs
        a useful hedge against market risks.

        FLOATERS AND INVERSE FLOATERS

        Another variant allocates interest payments between two classes of CMOs.
        One class (Floaters) receives a share of interest payments based upon a
        market index such as LIBOR. The other class (Inverse Floaters) receives
        any remaining interest payments from the underlying mortgages. Floater
        classes receive more interest (and Inverse Floater classes receive
        correspondingly less interest) as interest rates rise. This shifts
        prepayment and interest rate risks from the Floater to the Inverse
        Floater class, reducing the price volatility of the Floater class and
        increasing the price volatility of the Inverse Floater class.

        Z CLASSES AND RESIDUAL CLASSES

        CMOs must allocate all payments received from the underlying mortgages
        to some class. To capture any unallocated payments, CMOs generally have
        an accrual (Z) class. Z classes do not receive any payments from the
        underlying mortgages until all other CMO classes have been paid off.
        Once this happens, holders of Z class CMOs receive all payments and
        prepayments. Similarly, REMICs have residual interests that receive any
        mortgage payments not allocated to another REMIC class.

        The degree of increased or decreased prepayment risks depends upon the
        structure of the CMOs. However, the actual returns on any type of
        mortgage backed security depend upon the performance of the underlying
        pool of mortgages, which no one can predict and will vary among pools.

ASSET BACKED SECURITIES

Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities have prepayment
risks. Like CMOs, asset backed securities may be structured like Floaters,
Inverse Floaters, IOs and POs.

BANK INSTRUMENTS

     Bank instruments are unsecured  interest bearing deposits with banks.  Bank
instruments  include bank accounts,  time deposits,  certificates of deposit and
banker's  acceptances.  Yankee  instruments are denominated in U.S.  dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are denominated
in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.

ZERO COUPON SECURITIES

Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the market and credit risks of a zero coupon security. A zero coupon
step-up security converts to a coupon security before final maturity.

There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs are
the most common forms of stripped zero coupon securities. In addition, some
securities give the issuer the option to deliver additional securities in place
of cash interest payments, thereby increasing the amount payable at maturity.
These are referred to as pay-in-kind or PIK securities.

CREDIT ENHANCEMENT

Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.

CONVERTIBLE SECURITIES

Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.

Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.

The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.

FOREIGN SECURITIES

Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:

o    it is organized  under the laws of, or has a principal  office  located in,
     another country;

o    the principal trading market for its securities is in another country; or

o    it (or its  subsidiaries)  derived in its most current fiscal year at least
     50% of its total assets, capitalization, gross revenue or profit from goods
     produced, services performed, or sales made in another country.

Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks. The Fund may
invest more than 10% in foreign securities.

    FOREIGN EXCHANGE CONTRACTS

    In order to convert U.S. dollars into the currency needed to buy a foreign
    security, or to convert foreign currency received from the sale of a foreign
    security into U.S. dollars, the Fund may enter into spot currency trades. In
    a spot trade, the Fund agrees to exchange one currency for another at the
    current exchange rate. The Fund may also enter into derivative contracts in
    which a foreign currency is an underlying asset. The exchange rate for
    currency derivative contracts may be higher or lower than the spot exchange
    rate. Use of these derivative contracts may increase or decrease the Fund's
    exposure to currency risks.

HEDGING

Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different derivatives
contracts, or derivatives contracts and securities. The Fund's ability to hedge
may be limited by the costs of the derivatives contracts. The Fund may attempt
to lower the cost of hedging by entering into transactions that provide only
limited protection, including transactions that (1) hedge only a portion of its
portfolio, (2) use derivatives contracts that cover a narrow range of
circumstances or (3) involve the sale of derivatives contracts with different
terms. Consequently, hedging transactions will not eliminate risk even if they
work as intended. In addition, hedging strategies are not always successful, and
could result in increased expenses and losses to the Fund.

DERIVATIVE CONTRACTS

Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.

Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.

For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.

Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to interest
rate and currency risks, and may also expose the Fund to liquidity risks.

The Fund may trade in the following types of derivative contracts.

    FUTURES CONTRACTS

    Futures contracts provide for the future sale by one party and purchase by
    another party of a specified amount of an underlying asset at a specified
    price, date, and time. Entering into a contract to buy an underlying asset
    is commonly referred to as buying a contract or holding a long position in
    the asset. Entering into a contract to sell an underlying asset is commonly
    referred to as selling a contract or holding a short position in the asset.
    Futures contracts are considered to be commodity contracts. Futures
    contracts traded OTC are frequently referred to as forward contracts.

    The Fund may buy and sell financial and foreign currency futures contracts.

    OPTIONS

    Options are rights to buy or sell an underlying asset for a specified price
    (the exercise price) during, or at the end of, a specified period. A call
    option gives the holder (buyer) the right to buy the underlying asset from
    the seller (writer) of the option. A put option gives the holder the right
    to sell the underlying asset to the writer of the option. The writer of the
    option receives a payment, or premium, from the buyer, which the writer
    keeps regardless of whether the buyer uses (or exercises) the option.

    The Fund may:

o    Buy call options on financial  and foreign  currency  futures  contracts in
     anticipation of an increase in the value of the underlying asset;

o Buy put options on portfolio securities, financial and foreign currency
futures contracts in anticipation of a decrease in the value of the underlying
asset; and o Buy or write options to close out existing options positions.

    The Fund may also write call options on portfolio securities, financial and
    foreign currency futures contracts to generate income from premiums, and in
    anticipation of a decrease or only limited increase in the value of the
    underlying asset. If a call written by the Fund is exercised, the Fund
    foregoes any possible profit from an increase in the market price of the
    underlying asset over the exercise price plus the premium received.

    The Fund may also write put options on financial and foreign currency
    futures contracts to generate income from premiums, and in anticipation of
    an increase or only limited decrease in the value of the underlying asset.
    In writing puts, there is a risk that the Fund may be required to take
    delivery of the underlying asset when its current market price is lower than
    the exercise price.

    When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.

    The Fund may not purchase or sell futures contracts or related options if
    immediately thereafter the sum of the amount of margin deposits on the
    Fund's existing futures positions and premiums paid for related options
    would exceed 5% of the market value of the Fund's total assets.

    SWAPS

    Swaps are contracts in which two parties agree to pay each other (swap) the
    returns derived from underlying assets with differing characteristics. Most
    swaps do not involve the delivery of the underlying assets by either party,
    and the parties might not own the assets underlying the swap. The payments
    are usually made on a net basis so that, on any given day, the Fund would
    receive (or pay) only the amount by which its payment under the contract is
    less than (or exceeds) the amount of the other party's payment. Swap
    agreements are sophisticated instruments that can take many different forms,
    and are known by a variety of names including caps, floors, and collars.
    Common swap agreements that the Fund may use include:

        INTEREST RATE SWAPS

        Interest rate swaps are contracts in which one party agrees to make
        regular payments equal to a fixed or floating interest rate times a
        stated principal amount of fixed income securities, in return for
        payments equal to a different fixed or floating rate times the same
        principal amount, for a specific period. For example, a $10 million
        LIBOR swap would require one party to pay the equivalent of the London
        Interbank Offer Rate of interest (which fluctuates) on $10 million
        principal amount in exchange for the right to receive the equivalent of
        a stated fixed rate of interest on $10 million principal amount.

SPECIAL TRANSACTIONS

    REPURCHASE AGREEMENTS

    Repurchase agreements are transactions in which the Fund buys a security
    from a dealer or bank and agrees to sell the security back at a mutually
    agreed upon time and price. The repurchase price exceeds the sale price,
    reflecting the Fund's return on the transaction. This return is unrelated to
    the interest rate on the underlying security. The Fund will enter into
    repurchase agreements only with banks and other recognized financial
    institutions, such as securities dealers, deemed creditworthy by the
    Adviser.

    The Fund's custodian or subcustodian will take possession of the securities
    subject to repurchase agreements. The Adviser or subcustodian will monitor
    the value of the underlying security each day to ensure that the value of
    the security always equals or exceeds the repurchase price.

    Repurchase agreements are subject to credit risks.

    REVERSE REPURCHASE AGREEMENTS

    Reverse repurchase agreements are repurchase agreements in which the Fund is
    the seller (rather than the buyer) of the securities, and agrees to
    repurchase them at an agreed upon time and price. A reverse repurchase
    agreement may be viewed as a type of borrowing by the Fund. Reverse
    repurchase agreements are subject to credit risks. In addition, reverse
    repurchase agreements create leverage risks because the Fund must repurchase
    the underlying security at a higher price, regardless of the market value of
    the security at the time of repurchase.


<PAGE>


    DELAYED DELIVERY TRANSACTIONS

    Delayed delivery transactions, including when issued transactions, are
    arrangements in which the Fund buys securities for a set price, with payment
    and delivery of the securities scheduled for a future time. During the
    period between purchase and settlement, no payment is made by the Fund to
    the issuer and no interest accrues to the Fund. The Fund records the
    transaction when it agrees to buy the securities and reflects their value in
    determining the price of its shares. Settlement dates may be a month or more
    after entering into these transactions so that the market values of the
    securities bought may vary from the purchase prices. Therefore, delayed
    delivery transactions create interest rate risks for the Fund. Delayed
    delivery transactions also involve credit risks in the event of a
    counterparty default. The Fund does not intend to engage in when-issued and
    delayed delivery transactions to an extent that would cause the segregation
    of more than 20% of the total value of its assets.

    SECURITIES LENDING

    The Fund may lend portfolio securities to borrowers that the Adviser deems
    creditworthy. In return, the Fund receives cash or liquid securities from
    the borrower as collateral. The borrower must furnish additional collateral
    if the market value of the loaned securities increases. Also, the borrower
    must pay the Fund the equivalent of any dividends or interest received on
    the loaned securities.

     The Fund will  reinvest cash  collateral  in securities  that qualify as an
acceptable  investment for the Fund. However,  the Fund must pay interest to the
borrower for the use of cash collateral.

    Loans are subject to termination at the option of the Fund or the borrower.
    The Fund will not have the right to vote on securities while they are on
    loan, but it will terminate a loan in anticipation of any important vote.
    The Fund may pay administrative and custodial fees in connection with a loan
    and may pay a negotiated portion of the interest earned on the cash
    collateral to a securities lending agent or broker.

    Securities lending activities are subject to interest rate risks and credit
risks.

    ASSET COVERAGE

    In order to secure its obligations in connection with derivatives contracts
    or special transactions, the Fund will either own the underlying assets,
    enter into an offsetting transaction or set aside readily marketable
    securities with a value that equals or exceeds the Fund's obligations.
    Unless the Fund has other readily marketable assets to set aside, it cannot
    trade assets used to secure such obligations without entering into an
    offsetting derivative contract or terminating a special transaction. This
    may cause the Fund to miss favorable trading opportunities or to realize
    losses on derivative contracts or special transactions.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash. The
Fund may invest in mortgage backed and high yield securities primarily by
investing in another investment company (which is not available for general
investment by the public) that owns those securities and that is advised by an
affiliate of the Adviser. This other investment company is managed independently
of the Fund and may incur additional administrative expenses. Therefore, any
such investment by the Fund may be subject to duplicate expenses. However, the
Adviser believes that the benefits and efficiencies of this approach should
outweigh the potential additional expenses. The Fund may also invest in such
securities directly.

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in the prospectus. Additional risk factors are
outlined below.

INTEREST RATE RISKS

o   Prices of fixed income securities rise and fall in response to changes in
    the interest rate paid by similar securities. Generally, when interest rates
    rise, prices of fixed income securities fall. However, market factors, such
    as the demand for particular fixed income securities, may cause the price of
    certain fixed income securities to fall while the prices of other securities
    rise or remain unchanged.

O   Interest rate changes have a greater effect on the price of fixed income
    securities with longer durations. Duration measures the price sensitivity of
    a fixed income security to changes in interest rates.


<PAGE>


CREDIT RISKS

o    Credit risk is the possibility that an issuer will default on a security by
     failing to pay interest or principal when due. If an issuer  defaults,  the
     Fund will lose money.

o   Many fixed income securities receive credit ratings from services such as
    Standard & Poor's and Moody's Investor Services, Inc. These services assign
    ratings to securities by assessing the likelihood of issuer default. Lower
    credit ratings correspond to higher credit risk. If a security has not
    received a rating, the Fund must rely entirely upon the Adviser's credit
    assessment.

o   Fixed income securities generally compensate for greater credit risk by
    paying interest at a higher rate. The difference between the yield of a
    security and the yield of a U.S. Treasury security with a comparable
    maturity (the spread) measures the additional interest paid for risk.
    Spreads may increase generally in response to adverse economic or market
    conditions. A security's spread may also increase if the security's rating
    is lowered, or the security is perceived to have an increased credit risk.
    An increase in the spread will cause the price of the security to decline.

o   Credit risk includes the possibility that a party to a transaction involving
    the Fund will fail to meet its obligations. This could cause the Fund to
    lose the benefit of the transaction or prevent the Fund from selling or
    buying other securities to implement its investment strategy.

CALL AND PREPAYMENT RISKS

o   Call risk is the possibility that an issuer may redeem a fixed income
    security before maturity (a call) at a price below its current market price.
    An increase in the likelihood of a call may reduce the security's price.

o   If a fixed income security is called, the Fund may have to reinvest the
    proceeds in other fixed income securities with lower interest rates, higher
    credit risks, or other less favorable characteristics.

o   Generally, homeowners have the option to prepay their mortgages at any time
    without penalty. Homeowners frequently refinance high interest rate
    mortgages when mortgage rates fall. This results in the prepayment of
    mortgage backed securities with higher interest rates. Conversely,
    prepayments due to refinancings decrease when mortgage rates increase. This
    extends the life of mortgage backed securities with lower interest rates.
    Other economic factors can also lead to increases or decreases in
    prepayments. Increases in prepayments of high interest rate mortgage backed
    securities, or decreases in prepayments of lower interest rate mortgage
    backed securities, may reduce their yield and price. These factors,
    particularly the relationship between interest rates and mortgage
    prepayments makes the price of mortgage backed securities more volatile than
    many other types of fixed income securities with comparable credit risks.

o   Mortgage backed securities generally compensate for greater prepayment risk
    by paying a higher yield. The difference between the yield of a mortgage
    backed security and the yield of a U.S. Treasury security with a comparable
    maturity (the spread) measures the additional interest paid for risk.
    Spreads may increase generally in response to adverse economic or market
    conditions. A security's spread may also increase if the security is
    perceived to have an increased prepayment risk or perceived to have less
    market demand. An increase in the spread will cause the price of the
    security to decline.

o   The Fund may have to reinvest the proceeds of mortgage prepayments in other
    fixed income securities with lower interest rates, higher prepayment risks,
    or other less favorable characteristics.

LIQUIDITY RISKS

o   Trading opportunities are more limited for CMOs that have complex terms or
    that are not widely held. These features may make it more difficult to sell
    or buy a security at a favorable price or time. Consequently, the Fund may
    have to accept a lower price to sell a security, sell other securities to
    raise cash or give up an investment opportunity, any of which could have a
    negative effect on the Fund's performance. Infrequent trading of securities
    may also lead to an increase in their price volatility.

o   Liquidity risk also refers to the possibility that the Fund may not be able
    to sell a securitY or close out a derivative contract when it wants to. If
    this happens, the Fund will be required to continue to hold the security or
    keep the position open, and the Fund could incur losses.

o    OTC  derivative  contracts  generally  carry  greater  liquidity  risk than
     exchange-traded contracts.

RISKS ASSOCIATED WITH COMPLEX CMOS

o   CMOs with complex or highly variable prepayment terms, such as companion
    classes, IOs, POs, Inverse Floaters and residuals, generally entail greater
    market, prepayment and liquidity risks than other mortgage backed
    securities. For example, their prices are more volatile and their trading
    market may be more limited.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

o   Securities rated below investment grade, also known as junk bonds, generally
    entail greater market, credit and liquidity risks than investment grade
    securities. For example, their prices are more volatile, economic downturns
    and financial setbacks may affect their prices more negatively, and their
    trading market may be more limited.

CURRENCY RISKS

o   Exchange rates for currencies fluctuate daily. The combination of currency
    risk and market risks tends to make securities traded in foreign markets
    more volatile than securities traded exclusively in the U.S.

o   The Adviser attempts to manage currency risk by limiting the amount the Fund
    invests in securities denominated in a particular currency. However,
    diversification will not protect the Fund against a general increase in the
    value of the U.S. dollar relative to other currencies.

EURO RISKS

o   The Fund may make significant investments in securities denominated in the
    Euro, the new single currency of the European Monetary Union (EMU).
    Therefore, the exchange rate between the Euro and the U.S. dollar will have
    a significant impact on the value of the Fund's investments.

o   With the advent of the Euro, the participating countries in the EMU can no
    longer follow independent monetary policies. This may limit these countries'
    ability to respond to economic downturns or political upheavals, and
    consequently reduce the value of their foreign government securities.

RISKS OF FOREIGN INVESTING

o   Foreign securities pose additional risks because foreign economic or
    political conditions may be less favorable than those of the United States.
    Securities in foreign markets may also be subject to taxation policies that
    reduce returns for U.S. investors.

o   Foreign companies may not provide information (including financial
    statements) as frequently or to as great an extent as companies in the
    United States. Foreign companies may also receive less coverage than United
    States companies by market analysts and the financial press. In addition,
    foreign countries may lack uniform accounting, auditing and financial
    reporting standards or regulatory requirements comparable to those
    applicable to U.S. companies. These factors may prevent the Fund and its
    Adviser from obtaining information concerning foreign companies that is as
    frequent, extensive and reliable as the information available concerning
    companies in the United States.

o   Foreign countries may have restrictions on foreign ownership of securities
    or may impose exchange controls, capital flow restrictions or repatriation
    restrictions which could adversely affect the liquidity of the Fund's
    investments.

o        Dollar relative to other currencies.

LEVERAGE RISKS

o    Leverage risk is created when an investment  exposes the Fund to a level of
     risk that  exceeds  the  amount  invested.  Changes in the value of such an
     investment magnify the Fund's risk of loss and potential for gain.

o    Investments  can have these same  results if their  returns  are based on a
     multiple of a specified index, security, or other benchmark.

FUNDAMENTAL INVESTMENT OBJECTIVE

The Fund's investment objective is to provide total return. The investment
objective may not be changed by the Fund's Directors without shareholder
approval.

INVESTMENT LIMITATIONS

SELLING SHORT OR BUYING ON MARGIN

The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for clearance
of purchases and sales of portfolio securities. The deposit or payment by the
Fund of initial or variation margin in connection with futures contracts or
related options transactions is not considered the purchase of a security on
margin. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue
senior securities, except that the Fund may borrow money directly or through
reverse repurchase agreements in amounts up to one-third of the value of its
total assets, including the amount borrowed. The Fund will not borrow money or
engage in reverse repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure to facilitate management of the
Fund by enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The Fund
will not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage,
pledge, or hypothecate any assets except to secure permitted borrowings. For
purposes of this limitation, the following will not be deemed to be pledges of
the Fund's assets: margin deposits for the purchase and sale of financial
futures contracts and related options, and segregation or collateral
arrangements made in connection with options activities or the purchase of
securities on a when-issued basis. DIVERSIFICATION OF INVESTMENTS With respect
to securities comprising 75% of the value of its total assets, the Fund will not
purchase securities issued by any one issuer (other than cash, cash items, or
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, and repurchase agreements collateralized by such securities)
if, as a result, more than 5% of the value of its total assets would be invested
in the securities of that issuer, and will not acquire more than 10% of the
outstanding voting securities of any one issuer.

INVESTING IN REAL ESTATE

The Fund will not purchase or sell real estate, including limited partnership
interests, although it may invest in the securities of companies whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.

INVESTING IN COMMODITIES

The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that the Fund may engage in
transactions involving financial futures contracts or options on financial
futures contracts.

UNDERWRITING

The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.

LENDING CASH OR SECURITIES

The Fund will not lend any of its assets, except portfolio securities. This
shall not prevent the Fund from purchasing or holding U.S. government
obligations, money market instruments, variable rate demand notes, bonds,
debentures, notes, certificates of indebtedness, or other debt securities,
entering into repurchase agreements, or engaging in other transactions where
permitted by the Fund's investment objective, policies, and limitations.

CONCENTRATION OF INVESTMENTS

The Fund will not invest 25% or more of the value of its total assets in any one
industry (other than securities issued by the U.S. government, its agencies or
instrumentalities).

THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD OF
DIRECTORS (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT. THE FOLLOWING
LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL.
SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS
BECOMES EFFECTIVE.

INVESTING IN RESTRICTED AND ILLIQUID SECURITIES

The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for settlement in
more than seven days after notice, interest rate swaps, non-negotiable fixed
time deposits with maturities over seven days, and certain restricted securities
not determined by the Directors to be liquid.

Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of the investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction.

The Fund does not expect to borrow money, pledge securities or engage in reverse
repurchase agreements during the coming fiscal year.

For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."

PORTFOLIO TURNOVER

INSTRUCTION: FOR ANY FUND, OTHER THAN MONEY MARKET FUNDS, EXPLAIN ANY
SIGNIFICANT VARIATION IN THE FUND'S PORTFOLIO TURNOVER RATES FOR THE LAST TWO
FISCAL YEARS OR ANY ANTICIPATED VARIATION IN THE TURNOVER RATE FROM THAT
REPORTED FOR THE LAST FISCAL YEAR. THIS SHOULD BE DRAFTED BY THE ATTORNEY AFTER
DISCUSSION WITH THE PORTFOLIO MANAGER.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

        for fixed income securities, at the last sale price on a national
securities exchange, if available, otherwise, as determined by an independent
pricing service;

o  futures contracts and options are generally valued at market values
   established by the exchanges on which they are traded at the close of trading
   on such exchanges. Options traded in the over-the-counter market are
   generally valued according to the mean between the last bid and the last
   asked price for the option as provided by an investment dealer or other
   financial institution that deals in the option. The Board may determine in
   good faith that another method of valuing such investments is necessary to
   appraise their fair market value;

        for short-term obligations, according to the mean between bid and asked
   prices as furnished by an independent pricing service, except that short-term
   obligations with remaining maturities of less than 60 days at the time of
   purchase may be valued at amortized cost or at fair market value as
   determined in good faith by the Board; and

     for all other  securities  at fair value as determined in good faith by the
Board.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.

WHAT DO SHARES COST?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.

The NAV for each class of Shares may differ due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.

HOW IS THE FUND SOLD?

     Under the Distributor's  Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

RULE 12B-1 PLAN - INSTITUTIONAL SERVICE SHARES

As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.

The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.

SHAREHOLDER SERVICES

The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.

SUPPLEMENTAL PAYMENTS

Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.

Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.

SUBACCOUNTING SERVICES

Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.

Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.

Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.

Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote.

All Shares of the Corporation have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.

Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote.

     As of  November  __,  1999,  the  following  shareholders  owned of record,
beneficially,  or  both,  5% or more of  outstanding  Shares:  (TO BE  FILED  BY
AMENDMENT.)

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

TAX INFORMATION

FEDERAL INCOME TAX

The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.

The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.

INSTRUCTION:  IF THE FUND HAS A LOSS CARRY-FORWARD, ADD THE FOLLOWING SENTENCE.

The Fund is entitled to a loss carry-forward, which may reduce the taxable
income or gain that the Fund would realize, and to which the shareholder would
be subject, in the future.

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF DIRECTORS

The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of four funds and the Federated Fund Complex is
comprised of 54 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.

As of November __, 1999, the Fund's Board and Officers as a group owned less
than 1% of the Fund's outstanding Institutional and Institutional Service
Shares.


<TABLE>
<CAPTION>

NAME                                                                        AGGREGATE       TOTAL
BIRTH DATE                                                                  COMPENSATION    COMPENSATION
ADDRESS                    PRINCIPAL OCCUPATIONS                            FROM            FROM CORPORATION
POSITION WITH              FOR PAST FIVE YEARS                              CORPORATION     AND FUND COMPLEX
CORPORATION

<S>                        <C>                                             <C>             <C>

JOHN F. DONAHUE*#+         Chief Executive Officer and Director or                     $0   $0 for the
Birth Date: July 28,       Trustee of the Federated Fund Complex;                           Corporation
1924                       Chairman and Director, Federated Investors,                      and 54 other
Federated Investors        Inc.; Chairman and Trustee, Federated                            investment
Tower                      Investment Management Company; Chairman and                      companies in the
1001 Liberty Avenue        Director, Federated Investment Counseling,                       Fund Complex
Pittsburgh, PA             and Federated Global Investment Management
CHARIMAN and DIRECTOR      Corp.; Chairman, Passport Research, Ltd.

THOMAS G. BIGLEY           Director or Trustee of the Federated Fund                    $   $113,860.22 for the
Birth Date: February 3,    Complex; Director, Member of Executive                           Corporation and
1934                       Committee, Children's Hospital of Pittsburgh;                    54 other investment
15 Old Timber Trail        Director, Robroy Industries, Inc. (coated                        companies in the
Pittsburgh, PA             steel conduits/computer storage equipment);                      Fund Complex
DIRECTOR                   formerly: Senior Partner, Ernst & Young LLP;
                           Director, MED 3000 Group, Inc. (physician
                           practice management); Director, Member of
                           Executive Committee, University of Pittsburgh.

JOHN T. CONROY, JR.        Director or Trustee of the Federated Fund                    $   $125,264.48 for the
Birth Date: June 23,       Complex; President, Investment Properties                        Corporation and
1937                       Corporation; Senior Vice President,                              54 other investment
Wood/Commercial Dept.      John R. Wood and Associates, Inc., Realtors;                     companies in the
John R. Wood               Partner or Trustee in private real estate                        Fund Complex

Associates, Inc.           ventures in Southwest Florida; formerly:
Realtors                   President, Naples Property Management, Inc.
3255 Tamiami Trail         and Northgate Village Development Corporation.
North

Naples, FL

DIRECTOR

NICHOLAS CONSTANTAKIS      Director or Trustee of the Federated Fund                    $   $47,958.02 for the
Birth Date: September      Complex; formerly: Partner, Andersen                             Corporation and

3, 1939                    Worldwide SC.                                                    29 other investment
175 Woodshire Drive                                                                         companies
Pittsburgh, PA                                                                              in the Fund Complex

DIRECTOR

JOHN F. CUNNINGHAM         Director or Trustee of some of the Federated                 $   $0 for the
Birth Date: March 5,       Fund Complex; Chairman, President and Chief                      Corporation
1943                       Executive Officer, Cunningham & Co., Inc.                        and 46 other
353 El Brillo Way          (strategic business consulting) ; Trustee                        investment
Palm Beach, FL             Associate, Boston College; Director, Iperia                      companies in the
DIRECTOR                   Corp. (communications/software); formerly:                       Fund Complex
                           Director, Redgate Communications and EMC Corporation
                           (computer storage systems).

                           Previous Positions: Chairman of the Board and
                           Chief Executive Officer, Computer Consoles,
                           Inc.; President and Chief Operating Officer,
                           Wang Laboratories; Director, First National
                           Bank of Boston; Director, Apollo Computer,

                           Inc.

LAWRENCE D. ELLIS, M.D.*   Director or Trustee of the Federated Fund                    $   $113,860.22 for the
Birth Date: October 11,    Complex; Professor of Medicine, University of                    Corporation and
1932                       Pittsburgh; Medical Director, University of                      54 other investment
3471 Fifth Avenue          Pittsburgh Medical Center - Downtown;                            companies in the
Suite 1111                 Hematologist, Oncologist, and Internist,                         Fund Complex
Pittsburgh, PA             University of Pittsburgh Medical Center;
DIRECTOR                   Member, National Board of Trustees, Leukemia
                           Society of America.

PETER E. MADDEN            Director or Trustee of the Federated Fund                    $   $113,860.22 for the
Birth Date: March 16,      Complex; formerly: Representative,                               Corporation and
1942                       Commonwealth of Massachusetts General Court;                     54 other investment
One Royal Palm Way         President, State Street Bank and Trust                           companies in the
100 Royal Palm Way         Company and State Street Corporation.                            Fund Complex
Palm Beach, FL

DIRECTOR                   Previous Positions: Director, VISA USA and
                           VISA International; Chairman and Director,
                           Massachusetts Bankers Association; Director,
                           Depository Trust Corporation; Director, The
                           Boston Stock Exchange.

CHARLES F. MANSFIELD,      Director or Trustee of some of the Federated                 $   $0 for the
JR.                        Fund Complex; Management Consultant.                             Corporation and
Birth Date: April 10,                                                                       50  other
1945                       Previous Positions: Chief Executive Officer,                     investment
80 South Road              PBTC International Bank; Partner, Arthur                         companies in the
Westhampton Beach, NY      Young & Company (now Ernst & Young LLP);                         Fund Complex
DIRECTOR                   Chief Financial Officer of Retail Banking
                           Sector, Chase Manhattan Bank; Senior Vice
                           President, Marine Midland Bank; Vice
                           President, Citibank; Assistant Professor of
                           Banking and Finance, Frank G. Zarb School of
                           Business, Hofstra University.

JOHN E. MURRAY, JR.,       Director or Trustee of the Federated Fund                    $   $113,860.22 for the
J.D., S.J.D.#              Complex; President, Law Professor, Duquesne                      Corporation and
Birth Date: December       University; Consulting Partner, Mollica &                        54 other investment
20, 1932                   Murray; Director, Michael Baker Corp.                            companies in the
President, Duquesne        (engineering, construction, operations, and                      Fund Complex
University                 technical services).
Pittsburgh, PA

DIRECTOR                   Previous Positions: Dean and Professor of
                           Law, University of Pittsburgh School of Law;
                           Dean and Professor of Law, Villanova
                           University School of Law.

MARJORIE P. SMUTS          Director or Trustee of the Federated Fund                    $   $113,860.22 for the
Birth Date: June 21,       Complex; Public                                                  Corporation and
1935                       Relations/Marketing/Conference Planning.                         54 other investment
4905 Bayard Street                                                                          companies in the
Pittsburgh, PA             Previous Positions: National Spokesperson,                       Fund Complex
DIRECTOR                   Aluminum Company of America; television
                           producer; business owner.

JOHN S. WALSH              Director or Trustee of some of the Federated                 $   $0 for the
Birth Date: November       Fund Complex; President and Director, Heat                       Corporation and
28, 1957                   Wagon, Inc. (manufacturer of construction                        48 other investment
2007 Sherwood Drive        temporary heaters); President and Director,                      companies in the
Valparaiso, IN             Manufacturers Products, Inc. (distributor of                     Fund Complex
DIRECTOR                   portable construction heaters); President,
                           Portable Heater Parts, a division of
                           Manufacturers Products, Inc.; Director, Walsh
                           & Kelly, Inc. (heavy highway contractor);
                           formerly: Vice President, Walsh & Kelly, Inc.

GLEN R. JOHNSON            Staff member, Federated Securities Corp.                     $   $0 for the
 Birth Date: May 2, 1929                                                                    Corporation and
Federated Investors                                                                         8 other investment

Tower                                                                                       companies in the

1001 Liberty Avenue                                                                         Fund Complex
Pittsburgh, PA

PRESIDENT

J. CHRISTOPHER DONAHUE*+   President or Executive Vice President of the                $0   $0 for the
Birth Date: April 11,      Federated Fund Complex; Director or Trustee                      Corporation and
1949                       of some of the Funds in the Federated Fund                       16 other investment
Federated Investors        Complex; President, CEO and Director,                            companies in the
Tower                      Federated Investors, Inc.; President and                         Fund Complex
1001 Liberty Avenue        Trustee, Federated Investment Management
Pittsburgh, PA             Company; President and Trustee, Federated
EXECUTIVE VICE             Investment Counseling; President and
PRESIDENT and              Director, Federated Global Investment
DIRECTOR                   Management Corp.; President, Passport
                           Research, Ltd.; Trustee, Federated
                           Shareholder Services Company; Director,
                           Federated Services Company.


<PAGE>



EDWARD C. GONZALES         Trustee or Director of some of the Funds in                 $0   $0 for the
Birth Date: October 22,    the Federated Fund Complex; President,                           Corporation and 1
1930                       Executive Vice President and Treasurer of                        other investment
Federated Investors        some of the Funds in the Federated Fund                          company
Tower                      Complex; Vice Chairman, Federated Investors,                     in the Fund Complex
1001 Liberty Avenue        Inc.; Vice President, Federated Investment
Pittsburgh, PA             Management Company, Federated Investment
EXECUTIVE VICE PRESIDENT   Counseling, Federated Global Investment
                           Management Corp. and Passport Research, Ltd.;
                           Executive Vice President and Director,
                           Federated Securities Corp.; Trustee,
                           Federated Shareholder Services Company.

JOHN W. MCGONIGLE          Executive Vice President and Secretary of the               $0   $0 for the
Birth Date: October 26,    Federated Fund Complex; Executive Vice                           Corporation and
1938                       President, Secretary, and Director, Federated                    54 other investment
Federated Investors        Investors, Inc.; Trustee, Federated                              companies in the
Tower                      Investment Management Company; Trustee,                          Fund Complex
1001 Liberty Avenue Federated Investment Counseling and Director, Pittsburgh, PA
Federated Global Investment Management Corp.; EXECUTIVE VICE Director, Federated
Services Company; PRESIDENT and SECRETARY Director, Federated Securities Corp.

RICHARD J. THOMAS          Treasurer of the Federated Fund Complex; Vice               $0   $0 for the
Birth Date: June 17,       President - Funds Financial Services                             Corporation and
1954                       Division, Federated Investors, Inc.;                             54 other investment
Federated Investors        formerly: various management positions within                    companies in the
Tower                      Funds Financial Services Division of                             Fund Complex

1001 Liberty Avenue        Federated Investors, Inc.
Pittsburgh, PA

TREASURER

WILLIAM D. DAWSON, III     Chief Investment Officer of this Fund and                   $0   $0 for the
Birth Date: March 3,       various other Funds in the Federated Fund                        Corporation and
1949                       Complex; Executive Vice President, Federated                     41 other investment
Federated Investors        Investment Counseling, Federated Global                          companies in the
Tower                      Investment Management Corp., Federated                           Fund Complex
1001 Liberty Avenue        Investment Management Company and Passport
Pittsburgh, PA             Research, Ltd.; Registered Representative,
CHIEF INVESTMENT OFFICER   Federated Securities Corp.; Portfolio

                           Manager, Federated Administrative Services; Vice
                           President, Federated Investors, Inc.; formerly:
                           Executive Vice President and Senior Vice President,
                           Federated Investment Counseling Institutional
                           Portfolio Management Services Division; Senior Vice
                           President, Federated Investment Management Company
                           and Passport Research, Ltd.

JOSEPH M. BALESTRINO       Joseph M. Balestrino is Vice President of the               $0   $0 for the
Birth Date: November 3,    Corporation.  Mr. Balestrino joined Federated                    Corporation
1954                       in 1986 and has been a Senior Portfolio                          and 3 other
Federated Investors        Manager and Senior Vice President of the                         investment
Tower                      Fund's Adviser since 1998. He was a Portfolio                    companies in the
1001 Liberty Avenue        Manager and a Vice President of the Fund's                       Fund Complex
Pittsburgh, PA             Adviser from 1995 to 1998. Mr. Balestrino
VICE PRESIDENT             served as a Portfolio Manager and an
                           Assistant Vice President of the Adviser from
                           1993 to 1995. Mr. Balestrino is a Chartered
                           Financial Analyst and received his Master's
                           Degree in Urban and Regional Planning from
                           the University of Pittsburgh.
</TABLE>

* AN ASTERISK DENOTES A DIRECTOR WHO IS DEEMED TO BE AN INTERESTED PERSON AS
DEFINED IN THE INVESTMENT COMPANY ACT OF 1940.

# A POUND SIGN DENOTES A MEMBER OF THE BOARD'S EXECUTIVE COMMITTEE, WHICH
HANDLES THE BOARD'S RESPONSIBILITIES BETWEEN ITS MEETINGS.

     + MR.  DONAHUE  IS THE FATHER OF J.  CHRISTOPHER  DONAHUE,  EXECUTIVE  VICE
PRESIDENT AND DIRECTOR OF THE CORPORATION.

++MESSR. CUNNINGHAM, MANSFIELD AND WALSH BECAME MEMBERS OF THE BOARD OF
DIRECTORS ON ___________.THEY DID NOT EARN ANY FEES FOR SERVING THE FUND COMPLEX
SINCE THESE FEES ARE REPORTED AS OF THE END OF THE LAST CALENDAR YEAR. THEY DID
NOT RECEIVE ANY FEES AS OF THE FISCAL YEAR END OF THE COMPANY.

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly owned subsidiary of Federated.

The Adviser shall not be liable to the Corporation or any Fund shareholder for
any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Corporation.

OTHER RELATED SERVICES

Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms which have sold or
are selling Shares of the Fund and other funds distributed by the Distributor
and its affiliates. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Fund's Board.

For the fiscal year ended, September 30, 1999, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $_______ for which the Fund
paid $_______ in brokerage commissions.

On September 30, 1999, the Fund owned securities of the following regular
broker/dealers: [identify issuer name and aggregate dollar amount of debt and
equity securities held by Fund].

Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.

ADMINISTRATOR

Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:

MAXIMUM ADMINISTRATIVE      AVERAGE AGGREGATE DAILY NET ASSETS OF THE FEDERATED
FEE                             FUNDS
0.150 of 1%                     on the first $250 million
0.125 of 1%                     on the next $250 million
0.100 of 1%                     on the next $250 million
0.075 of 1%                     on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN

State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.

INDEPENDENT AUDITORS

The independent auditor for the Fund, Ernst & Young LLP, plans and performs its
audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.

FEES PAID BY THE FUND FOR SERVICES

FOR THE YEAR ENDED SEPTEMBER 30,           1999          1998         1997
Advisory Fee Earned                          $          $91,284      $24,589
Advisory Fee Reduction                       $          $91,284      $22,579
Brokerage Commissions                        $            $0           $0
Administrative Fee                           $         $155,001     $155,000
12b-1 Fee
  Institutional Service Shares               $          $2,940        $356
Shareholder Services Fee
  Institutional Shares                       $            $0           $0
  Institutional Service Shares               $          $14,703      $1,755

Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.

HOW DOES THE FUND MEASURE PERFORMANCE?

The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.

The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns given for the one-year and Start of Performance periods ended
September 30, 1999.

Yield given for the 30-day period ended September 30, 1999.

<TABLE>
<CAPTION>

                           30-DAY PERIOD       1 Year     5 Years    10 Years    Start of Performance
                                                                                    on ____________
INSTITUTIONAL SHARES

Total Return                     NA                          NA         NA
Yield                                            NA          NA         NA                NA
<S>                      <C>                 <C>         <C>         <C>         <C>
- -------------------------------------------------------------------------------------------------------


                           30-DAY PERIOD       1 Year     5 Years    10 Years    Start of Performance
                                                                                    on ____________
INSTITUTIONAL
SERVICE SHARES

Total Return                     NA                          NA         NA
Yield                                            NA          NA         NA                NA

- -------------------------------------------------------------------------------------------------------
</TABLE>

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.

When Shares of a Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.

YIELD

The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.

To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

o    references  to  ratings,   rankings,   and  financial  publications  and/or
     performance comparisons of Shares to certain indices;

o    charts,  graphs and illustrations  using the Fund's returns,  or returns in
     general,   that  demonstrate   investment  concepts  such  as  tax-deferred
     compounding, dollar-cost averaging and systematic investment;

o    discussions  of economic,  financial and political  developments  and their
     impact on the securities market, including the portfolio manager's views on
     how such developments could impact the Funds; and

o    information  about  the  mutual  fund  industry  from  sources  such as the
     Investment Company Institute.

The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:

     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.

MERRILL LYNCH 1-3 YEAR CORPORATE INDEX is a market capitalization weighted index
including fixed-coupon domestic investment grade corporate bonds with at least
$100 million par amount outstanding. Both interest and price return are
calculated daily based on an accrued schedule and trader pricing. Quality range
is BBB3-AAA. Maturities for all bonds are more than one year and less than three
years. Yankees, Canadians, and all Structured Notes are excluded.

LEHMAN BROTHERS HIGH YIELD INDEX covers the universe of fixed rate, publicly
issued, noninvestment grade debt registered with the SEC. All bonds included in
the High Yield Index must be dollar-denominated and nonconvertible and have at
least one year remaining to maturity and an outstanding par value of at least
$100 million. Generally securities must be rated Ba1 or lower by Moody's
Investors Service, including defaulted issues. If no Moody's rating is
available, bonds must be rated BB+ or lower by S&P; and if no S&P rating is
available, bonds must be rated below investment grade by Fitch Investor's
Service. A small number of unrated bonds is included in the index; to be
eligible they must have previously held a high yield rating or have been
associated with a high yield issuer, and must trade accordingly.

WHO IS FEDERATED INVESTORS, INC.?

Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.

EQUITY FUNDS

In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.

CORPORATE BOND FUNDS

In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.

GOVERNMENT FUNDS

In the government sector, as of December 31, 1998, Federated manages 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.

MONEY MARKET FUNDS

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.

     The Chief  Investment  Officers  responsible  for  oversight of the various
investment  sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A.  Frantzen.  The Chief  Investment  Officers are Executive Vice
Presidents of the Federated advisory companies.

MUTUAL FUND MARKET

Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.

FEDERATED CLIENTS OVERVIEW

Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

INSTITUTIONAL CLIENTS

Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.

BANK MARKETING

Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.


<PAGE>



INVESTMENT RATINGS

STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS

AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher-rated issues only in small degree.

A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.

BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.

BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.

B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.

CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B rating.

CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.

C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS

AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.

A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

BAA--Bonds which are rated BAA are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

BA--Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA--Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C--Bonds which are rated C are the lowest-rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS

AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.

A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.

B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C--Bonds are imminent default in payment of interest or principal.

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS

PRIME-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:

o    Leading market positions in well-established industries;

o    High rates of return on funds employed;

o    Conservative  capitalization  structure with moderate  reliance on debt and
     ample asset protection;

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

o    Well-established access to a range of financial markets and assured sources
     of alternate liquidity.

PRIME-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS

FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.

FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.


<PAGE>



ADDRESSES

FEDERATED LIMITED DURATION FUND

Institutional Shares
Institutional Service Shares

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

INVESTMENT ADVISER

Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue

Pittsburgh, PA 15222-3779

CUSTODIAN

State Street Bank and Trust Company
P.O. Box 8600

Boston, MA 02266-8600

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

INDEPENDENT AUDITORS

Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072

ITEM 23.    EXHIBITS.

        (a)    (i) Conformed copy of Articles of Incorporation; (ii) Conformed
               copy of Articles of Amendment of Articles of

                    Incorporation; (2)
        (b)    Copy of By-Laws; (1)

        (c)    Copy of Specimen Certificate for Shares of Capital Stock of
               the Registrant; (10)

        (d)    (i)    Copy of Investment Advisory Contract and conformed
                      copies of Exhibits A and B of Investment Advisory
                      Contract; (7)

               (ii)   Conformed copies of Exhibits D and E of Investment
                      Advisory Contract; (11)

        (e)           (i) Copy of Distributor's Contract and Conformed copies of
                      Exhibits A, B, C, and D to Distributor's Contract;(4)

               (ii)   Copy of Distributor's Contract and Conformed copies of
                      Exhibits E and F to Distributor's Contract; (10)

               (iii)  Conformed copies of Exhibits G and H to Distributor's
                      Contract; (11)

               (iv) The Registrant hereby incorporates the conformed copy of the
specimen Mutual Funds Sales and Service Agreement; Mutual Funds Service
Agreement; and Plan Trustee/Mutual Funds Service Agreement from Item 24(b)(6) of
the Cash Trust Series II Registration Statement on Form N-1A, filed with the
Commission on July 24, 1995. (File Numbers 33-38550 and 811-6269);

        (f)    Not Applicable;

        (g)           (i) Conformed copy of the Custodian Agreement of the
                      Registrant; (4)

               (ii)   Conformed Copy of Fee Schedule to the Custodian
                      Agreement of the Registrant; (13)

- -------------------------------------------------
+     All exhibits have been filed electronically.

(1)  Response is incorporated by reference to Registrant's  Initial Registration
     Statement  on Form N-1A filed  October 25,  1993.  (File Nos.  33-50773 and
     811-7115)

(2)  Response  is  incorporated  by  reference  to  Registrant's   Pre-Effective
     Amendment No. 1 on Form N-1A filed December 21, 1993.  (File Nos.  33-50773
     and 811-7115)

(4)  Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment  No. 1 on Form N-1A filed May 27, 1994.  (File Nos.  33-50773 and
     811-7115)

(7)  Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment  No. 4 on Form N-1A filed June 6, 1995.  (File Nos.  33-50773 and
     811-7115)

(10) Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment No. 8 on Form N-1A filed November 27, 1996.  (File Nos.  33-50773
     and 811-7115)

(11) Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment No. 9 on Form N-1A filed March 31, 1997. (File Nos.  33-50773 and
     811-7115)

(13) Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment No. 13 on Form N-1A filed November 26, 1997. (File Nos.  33-50773
     and 811-7115)


<PAGE>


        (h)    (i)    Conformed copy of Fund Accounting Services,
                      Administrative Services, Transfer Agency Services,
                      and Custody Services Procurement Agreement of the
                      Registrant; (13)

               (ii) Conformed copy of Administrative Services Agreement; (4)
               (iii) Conformed copy of Exhibit B of Funds Participating in

                      Services Agreement; (15)

               (iv)  The responses described in Item 24(b)(6) are hereby
                      incorporated by reference;

               (v)    Conformed Copy of Amended and Restated Shareholder
                      Services Agreement of the Registrant; (13)

        (i)    Conformed copy of Opinion and Consent of Counsel as to legality
               of shares being registered; (2)

        (j) Conformed copy of Consent of Independent Auditors;(13) (k) Not
        Applicable; (l) Conformed copy of Initial Capital Understanding; (3) (m)
        (i) Conformed copy of Distribution Plan including Exhibits

                      A and B; (11)

               (ii) Conformed copy of Exhibits C to Distribution Plan;(10) (iii)
               Conformed copy of Exhibit D and E to Distribution

                      Plan; (11)

               (iv)   The responses described in Item 24(b)(6) are hereby
                      incorporated by reference;

(n)  Copies  of  Financial  Data  Schedules;  (16)  (o)  The  Registrant  hereby
     incorporates  the conformed  copy of the specimen  Multiple Class Plan from
     Item 24(b)(18) of the World Investment Series, Inc. Registration  Statement
     on Form N-1A,  filed with the  Commission  on January 26, 1996.  (File Nos.
     33-52149 and 811-07141);

        (p)    (i) Conformed copy of Power of Attorney; (14) (ii) Conformed copy
               of Limited Power of Attorney; (10)

- ----------------------------------
 +    All exhibits have been filed electronically.

(2)  Response  is  incorporated  by  reference  to  Registrant's   Pre-Effective
     Amendment No. 1 on Form N-1A filed December 21, 1993.  (File Nos.  33-50773
     and 811-7115)

(3)  Response  is  incorporated  by  reference  to  Registrant's   Pre-Effective
     Amendment  No. 2 on Form N-1A filed January 13, 1994.  (File Nos.  33-50773
     and 811-7115)

(4)  Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment  No. 1 on Form N-1A filed May 27, 1994.  (File Nos.  33-50773 and
     811-7115)

(11) Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment No. 9 on Form N-1A filed March 31, 1997. (File Nos.  33-50773 and
     811-7115)

(13) Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment No. 13 on Form N-1A filed November 26, 1997. (File Nos.  33-50773
     and 811-7115)

(14) Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment No. 14 on Form N-1A filed April 30, 1998. (File Nos. 33-50773 and
     811-7115)

(15) Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment  No. 15 on Form N-1A filed August 28, 1998.  (File Nos.  33-50773
     and 811-7115)

(16) Response  is  incorporated  by  reference  to  Registrant's  Post-Effective
     Amendment No. 17 on Form N-1A filed November 25, 1998. (File Nos.  33-50773
     and 811-7115)


<PAGE>


Item 24.    Persons Controlled by or Under Common Control with the Fund:

            None

Item 25.    Indemnification: (1)

Item 26.  Business and Other Connections of Investment Adviser:

           For a description of the other business of the investment adviser,
           see the section entitled "Who Manages the Fund?" in Part A. The
           affiliations with the Registrant of four of the Trustees and one of
           the Officers of the investment adviser are included in Part B of this
           Registration Statement under "Who Manages and Provides Services to
           the Fund?" The remaining Trustee of the investment adviser, his
           position with the investment adviser, and, in parentheses, his
           principal occupation is: Mark D. Olson (Partner, Wilson, Halbrook &
           Bayard), 107 W. Market Street, Georgetown, Delaware 19947.

           The remaining Officers of the investment adviser are:

           Executive Vice Presidents:                 William D. Dawson, III
                                                      Henry A. Frantzen
                                                      J. Thomas Madden

           Senior Vice Presidents:                    Joseph M. Balestrino
                                                      David A. Briggs
                                                      Drew J. Collins
                                                      Jonathan C. Conley
                                                      Deborah A. Cunningham
                                                      Mark E. Durbiano
                                                      Jeffrey A. Kozemchak
                                                      Sandra L. McInerney
                                                      Susan M. Nason
                                                      Mary Jo Ochson
                                                      Robert J. Ostrowski

           Vice Presidents:                           Todd A. Abraham
                                                      J. Scott Albrecht
                                                      Arthur J. Barry
                                                      Randall S. Bauer
                                                      G. Andrew Bonnewell
                                                      Micheal W. Casey
                                                      Robert E. Cauley
                                                      Alexandre de Bethmann
B.      Anthony Delserone, Jr.

                                                      Michael P. Donnelly
                                                      Linda A. Duessel
                                                      Donald T. Ellenberger
                                                      Kathleen M. Foody-Malus
                                                      Thomas M. Franks
                                                      James E. Grefenstette
                                                      Marc Halperin
                                                      Patricia L. Heagy
                                                      Susan R. Hill
                                                      William R. Jamison
                                                      Constantine J. Kartsonas
                                                      Robert M. Kowit
                                                      Richard J. Lazarchic
                                                      Steven Lehman
                                                      Marian R. Marinack
                                                      William M. Painter
                                                      Jeffrey A. Petro
                                                      Keith J. Sabol
                                                      Frank Semack
                                                      Aash M. Shah
                                                      Michael W. Sirianni, Jr.
                                                      Christopher Smith
                                                      Edward J. Tiedge
                                                      Leonardo A. Vila
                                                      Paige M. Wilhelm
                                                      George B. Wright

           Assistant Vice Presidents:                 Arminda Aviles
                                                      Nancy J. Belz
                                                      Lee R. Cunningham, II
                                                      James H. Davis, II
                                                      Jacqueline A. Drastal
                                                      Paul S. Drotch
                                                      Salvatore A. Esposito
                                                      Donna M. Fabiano
                                                      Gary E. Farwell
                                                      Eamonn G. Folan
                                                      John T. Gentry
                                                      John W. Harris
                                                      Nathan H. Kehm
                                                      John C. Kerber
                                                      Grant K. McKay
                                                      Christopher Matyszewski
                                                      Natalie F. Metz
                                                      Thomas Mitchell
                                                      Joseph M. Natoli
                                                      Trent Neville
                                                      Ihab Salib
                                                      Roberto Sanchez-Dahl, Sr.
                                                      James W. Schaub
                                                      John Sheehy
                                                      John Sidawi
                                                      Matthew K. Stapen
                                                      Diane Tolby
                                                      Timothy G. Trebilcock
                                                      Steven J. Wagner
                                                      Lori A. Wolff

           Secretary:                                 G. Andrew Bonnewell

           Treasurer:                                 Thomas R. Donahue

           Assistant Secretaries:                     C. Grant Anderson
                                                      Karen M. Brownlee
                                                      Leslie K. Ross

           Assistant Treasurer:                       Dennis McAuley, III

           The business address of each of the Officers of the investment
           adviser is Federated Investors Tower, 1001 Liberty Avenue,
           Pittsburgh, Pennsylvania 15222-3779. These individuals are also
           officers of a majority of the investment advisers to the investment
           companies in the Federated Fund Complex described in Part B of this
           Registration Statement.

ITEM 27.  PRINCIPAL UNDERWRITERS:

(a)  Federated  Securities  Corp. the Distributor for shares of the Fund, acts
     as principal  underwriter for the following open- end investment companies,
     including the Registrant:

     Cash Trust Series II; Cash Trust Series, Inc.; CCB Funds; Edward D. Jones &
Co. Daily Passport Cash Trust;  Federated  Adjustable Rate U.S. Government Fund,
Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Core
Trust;  Federated Equity Funds;  Federated  Equity Income Fund, Inc.;  Federated
Fund for U.S.  Government  Securities,  Inc.;  Federated  GNMA Trust;  Federated
Government Income Securities,  Inc.; Federated Government Trust;  Federated High
Income Bond Fund, Inc.; Federated High Yield Trust;  Federated Income Securities
Trust; Federated Income Trust;  Federated Index Trust;  Federated  Institutional
Trust; Federated Insurance Series; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust;  Federated
Short-Term Municipal Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust;  Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated
U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years;  Federated U.S. Government
Securities  Fund:  5-10  Years;  Federated  Utility  Fund,  Inc.;  Fixed  Income
Securities,  Inc.; ; Hibernia Funds; Independence One Mutual Funds; Intermediate
Municipal Trust;  International  Series,  Inc.;  Investment Series Funds,  Inc.;
Managed Series Trust; Marshall Funds, Inc.; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal  Securities Income Trust;  Newpoint Funds; Regions Funds; RIGGS Funds;
SouthTrust Funds;  Tax-Free  Instruments Trust; The Planters Funds; The Wachovia
Funds;  The  Wachovia  Municipal  Funds;  Vision  Group of  Funds,  Inc.;  World
Investment Series, Inc.; Blanchard Funds;  Blanchard Precious Metals Fund, Inc.;
DG Investor Series; High Yield Cash Trust;  Investment Series Trust; Star Funds;
Targeted  Duration Trust;  The Virtus Funds;  Trust for Financial  Institutions;
Federated Securities Corp. also acts as principal  underwriter for the following
closed-end investment company: Liberty Term Trust, Inc.- 1999.

               (b)
<TABLE>
<CAPTION>

           (1)                                 (2)                             (3)
Name and Principal                  Positions and Offices              Positions and Offices
 BUSINESS ADDRESS                      WITH DISTRIBUTOR                   WITH FUND

<S>                                <C>                                <C>

Richard B. Fisher                   Chairman, Chief Executive                    --
Federated Investors Tower           Officer, Chief Operating
1001 Liberty Avenue                 Officer
Pittsburgh, PA 15222-3779           Federated Securities Corp.


Arthur L. Cherry                    Director                                     --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John B. Fisher                      President-Institutional Sales                --
Federated Investors Tower           and Director
1001 Liberty Avenue                 Federated Securities Corp.
Pittsburgh, PA 15222-3779


<PAGE>


           (1)                                 (2)                             (3)
Name and Principal                  Positions and Offices              Positions and Offices

 BUSINESS ADDRESS                      WITH DISTRIBUTOR                   WITH FUND

Thomas R. Donahue                   Director, Assistant Secretary                --
Federated Investors Tower           and Treasurer
1001 Liberty Avenue                 Federated Securities Corp.
Pittsburgh, PA 15222-3779

James F. Getz                       President-Broker/Dealer and                  --
Federated Investors Tower           Director
1001 Liberty Avenue                 Federated Securities Corp.
Pittsburgh, PA 15222-3779

David M. Taylor                     Executive Vice President                     --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mark W. Bloss                       Senior Vice President,                       --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard W. Boyd                     Senior Vice President,                       --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Laura M. Deger                      Senior Vice President,                       --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Theodore Fadool, Jr.                Senior Vice President,                       --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Bryant R. Fisher                    Senior Vice President,                       --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Christopher T. Fives                Senior Vice President,                       --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

James S. Hamilton                   Senior Vice President,                       --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

James M. Heaton                     Senior Vice President,                       --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Keith Nixon                         Senior Vice President,                       --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779


<PAGE>


           (1)                                 (2)                             (3)
Name and Principal                  Positions and Offices              Positions and Offices

 BUSINESS ADDRESS                      WITH DISTRIBUTOR                   WITH FUND

Solon A. Person, IV                 Senior Vice President,                       --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Ronald M. Petnuch                   Senior Vice President,                       --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA  15222-3779

Timothy C. Pillion                  Senior Vice President,                       --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Thomas E. Territ                    Senior Vice President,                       --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Ernest G. Anderson                  Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Teresa M. Antoszyk                  Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John B. Bohnet                      Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis            Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Matthew W. Brown                    Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David J. Callahan                   Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mark Carroll                        Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Steven R. Cohen                     Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779


<PAGE>


           (1)                                 (2)                             (3)
Name and Principal                  Positions and Offices              Positions and Offices

 BUSINESS ADDRESS                      WITH DISTRIBUTOR                   WITH FUND

Mary J. Combs                       Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr.              Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

R. Leonard Corton, Jr.              Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Kevin J. Crenny                     Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Daniel T. Culbertson                Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

G. Michael Cullen                   Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Marc C. Danile                      Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Robert J. Deuberry                  Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

William C. Doyle                    Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Jill Ehrenfeld                      Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mark D. Fisher                      Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mark A. Gessner                     Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779


<PAGE>


           (1)                                 (2)                             (3)
Name and Principal                  Positions and Offices              Positions and Offices

 BUSINESS ADDRESS                      WITH DISTRIBUTOR                   WITH FUND

Joseph D. Gibbons                   Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John K. Goettlicher                 Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Craig S. Gonzales                   Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

G. Tad Gullickson                   Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Dayna C. Haferkamp                  Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Bruce E. Hastings                   Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

James E. Hickey                     Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Charlene H. Jennings                Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

H. Joseph Kennedy                   Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Michael W. Koenig                   Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Dennis M. Laffey                    Vice President,
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue

Pittsburgh, PA 15222-3779

Christopher A. Layton               Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779


<PAGE>


           (1)                                 (2)                             (3)
Name and Principal                  Positions and Offices              Positions and Offices

 BUSINESS ADDRESS                      WITH DISTRIBUTOR                   WITH FUND

Michael H. Liss                     Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Michael R. Manning                  Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Amy Michalisyn                      Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mark J. Miehl                       Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard C. Mihm                     Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Alec H. Neilly                      Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Thomas A. Peters III                Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Robert F. Phillips                  Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard A. Recker                   Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Eugene B. Reed                      Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Paul V. Riordan                     Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John Rogers                         Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779


<PAGE>


           (1)                                 (2)                             (3)
Name and Principal                  Positions and Offices              Positions and Offices

 BUSINESS ADDRESS                      WITH DISTRIBUTOR                   WITH FUND

Brian S. Ronayne                    Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Thomas S. Schinabeck                Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Larry Sebbens                       Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Edward J. Segura                    Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Edward L. Smith                     Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David W. Spears                     Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John A. Staley                      Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Colin B. Starks                     Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Jeffrey A. Stewart                  Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

William C. Tustin                   Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Paul A. Uhlman                      Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Miles J. Wallace                    Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779


<PAGE>


           (1)                                 (2)                             (3)
Name and Principal                  Positions and Offices              Positions and Offices

 BUSINESS ADDRESS                      WITH DISTRIBUTOR                   WITH FUND

John F. Wallin                      Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard B. Watts                    Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Edward J. Wojnarowski               Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Michael P. Wolff                    Vice President,                              --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Robert W. Bauman                    Assistant Vice President,                    --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Edward R. Bozek                     Assistant Vice President,                    --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Beth C. Dell                        Assistant Vice President,                    --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David L. Immonen                    Assistant Vice President,                    --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John T. Glickson                    Assistant Vice President,                    --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Ernest L. Linane                    Assistant Vice President,                    --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Renee L. Martin                     Assistant Vice President,                    --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Timothy S. Johnson                  Secretary,                                   --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779


<PAGE>


           (1)                                 (2)                             (3)
Name and Principal                  Positions and Offices              Positions and Offices

 BUSINESS ADDRESS                      WITH DISTRIBUTOR                   WITH FUND

Dennis McAuley                      Assistant Treasurer,                         --
Federated Investors Tower           Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779


</TABLE>

            (c) Not applicable

Item 28.       Location of Accounts and Records:

               All accounts and records required to be maintained by Section
               31(a) of the Investment Company Act of 1940 and Rules 31a-1
               through 31a-3 promulgated thereunder are maintained at one of the
               following locations:

               Registrant                    Federated Investors Funds
                                          5800 Corporate Drive
                                          Pittsburgh, PA  15237-7000

            Federated Services Company    Federated Investors Tower
            Transfer Agent, Dividend      1001 Liberty Avenue
            Disbursing Agent and          Pittsburgh, PA  15222-3779
            Portfolio Recordkeeper

            Federated Administrative      Federated Investors Tower
            Services                      1001 Liberty Avenue

                                          Pittsburgh, PA  15222-3779

            Federated Management          Federated Investors Tower
            Investment Adviser            1001 Liberty Avenue

                                          Pittsburgh, PA  15222-3779

            State Street Bank and         P.O. Box 8600
            Trust Company                 Boston, MA  02266-8600
            Custodian

Item 29.    Management Services:  Not applicable.

Item 30.    Undertakings:

        Registrant hereby undertakes to comply with the provisions of Section
        16(c) of the 1940 Act with respect to the removal of Directors and the
        calling of special shareholder meetings by shareholders.


<PAGE>


                                   SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED TOTAL RETURN SERIES,
INC. has duly caused this Amendment to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, all in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 30th day of September, 1999.

                       FEDERATED TOTAL RETURN SERIES, INC.

                  BY: /s/ C. Grant Anderson
                  C. Grant Anderson, Assistant Secretary
                  Attorney in Fact for John F. Donahue

                  September  30, 1999

     Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:

    NAME                            TITLE                         DATE
By: /s/ C. Grant Anderson         Attorney In Fact          September 30, 1999

        C. Grant Anderson         For the Persons
    ASSISTANT SECRETARY           Listed Below

    NAME                            TITLE

John F. Donahue*                  Chairman and Director
                                  (Chief Executive Officer)

Glen R. Johnson*                  President

J. Christopher Donahue*           Executive Vice President
                                  and Director

Edward C. Gonzales*               Executive Vice President

John W. McGonigle*                Executive Vice President
                                  and Secretary

Richard J. Thomas*                Treasurer

Thomas G. Bigley*                 Director

John T. Conroy, Jr.*              Director

Nicholas P. Constantakis*         Director

John F. Cunningham*               Director

Lawrence D. Ellis, M.D.*          Director

Peter E. Madden*                  Director

Charles F. Mansfield, Jr.*        Director

John E. Murray, Jr.*              Director

Marjorie P. Smuts*                Director

John S. Walsh*                    Director

* By Power of Attorney



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