FEDERATED TOTAL RETURN SERIES INC, N-30D, 1999-11-30

FEDERATED TOTAL RETURN SERIES INC
N-30D, 1999-11-30

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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 with an average portfolio
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.

NOVEMBER 30, 1999

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 3

What are the Fund's Investment Strategies? 4

What are the Principal Securities in Which the

Fund Invests? 6

What are the Specific Risks of Investing in the Fund? 8

What Do Shares Cost? 10

How is the Fund Sold? 10

How to Purchase Shares 11

How to Redeem Shares 12

Account and Share Information 13

Who Manages the Fund? 14

Financial Information 15

Independent Auditors' Report 34

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 investment adviser (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:

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

* 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.

* 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.

* 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.

* 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.

RISK/RETURN BAR CHART AND TABLE

[Graphic] - See Appendix

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

The Fund's Institutional Shares are sold without 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 2.48%.

Within the period shown in the Chart, the Fund's highest quarterly return was
2.60% (quarter ended June 30, 1997). Its lowest quarterly return was 0.38%
(quarter ended December 31, 1998).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Institutional Shares Average Annual
Total Return for the calendar periods ended December 31, 1998. The table shows
the Fund's Institutional Shares total returns averaged over a period of years
relative to Merrill Lynch 1-3 Year Treasury Index (ML13YTI) a broad-based
unmanaged index tracking short-term U.S. government securities with maturities
between 1 and 2.99 years, the Merrill Lynch 1-3 Corporate Index (ML13CI) a
broad-based market capitalization weighted index including fixed-coupon domestic
investment grade corporate bonds with at least $100 million par amount
outstanding, and Lipper Short Investment Grade Debt Funds Average (LSIGDA), an
average of funds with similar investment objectives. 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.

CALENDAR PERIOD FUND ML13YTI ML13CI LSIGDA
<S> <C> <C> <C> <C>
1 Year 6.37% 7.00% 7.21% 5.80%
Start of Performance 1 7.30% 6.87% 7.28% 6.18%
</TABLE>

1 The Fund's Institutional Shares start of performance date was October 1, 1996.

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.

What are the Fund's Fees and Expenses?

FEDERATED LIMITED DURATION 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

<S> <C>
Fees Paid Directly From
Your Investment
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) None
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 applicable) None
Exchange Fee None
<CAPTION>

<S> <C>
ANNUAL FUND OPERATING
EXPENSES (Before Waivers
and Reimbursements) 1
Expenses That are Deducted
From Fund Assets (as a
percentage of average net
assets)
Management Fee 2 0.40%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 4 0.61%
Total Annual Fund
Operating Expenses 1.26%

1 Although not contractually obligated to do so, the adviser and shareholder
services provider waived and reimbursed certain amounts. These are shown below
along with the net expenses the Fund actually paid for the fiscal year ended
September 30, 1999.

Total Waiver and
Reimbursement of Fund

Expenses 0.91%

Total Actual Annual Fund
Operating Expenses (after
waivers and

reimbursements) 0.35%

3 The shareholder services provider voluntarily waived the shareholder services
fee. The shareholder services provider can terminate this voluntary waiver at
any time. The shareholder services fee paid by the Fund's Institutional Shares
(after voluntary waiver) was 0.00% for the fiscal year ended September 30, 1999.

4 The adviser voluntarily reimbursed certain operating expenses of the Fund. The
adviser can terminate this voluntary reimbursement at any time. Total other
operating expenses paid by the Fund (after the voluntary reimbursement) was
0.35% for the fiscal year ended September 30, 1999. </TABLE>

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 WAIVERS AND REIMBURSEMENTS as
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 $ 128
3 Years $ 400
5 Years $ 692
10 Years $ 1,523

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, high quality fixed
income securities, combining various asset classes including U.S. Treasury,
asset-backed, mortgage-backed and corporate debt securities. The Fund's Adviser
actively manages the Fund's portfolio within a portfolio duration limitation to
attempt to construct a portfolio of securities offering attractive risk-adjusted
yields over a portfolio of comparable Treasury securities. As a matter of
investment policy, the Adviser manages the Fund's share price volatility
attributable to interest rate risk by limiting the dollar-weighted average
modified duration of its portfolio securities to three years or less. A
description of the various types of securities in which the Fund principally
invests, and their risks, immediately follows this strategy section.

The Adviser attempts to select securities offering attractive risk- adjusted
yields over comparable Treasury securities. Corporate and asset- backed
securities offer higher yields compared to Treasury securities to compensate for
their additional risks, such as credit risk. Mortgage- backed securities, which
usually have nominal credit risk, have higher yields due to their risk that the
principal will be repaid faster than expected if the underlying mortgages are
prepaid. In selecting securities, the Adviser seeks the higher relative returns
of corporate and asset-backed (including mortgage-backed) securities, while
attempting to limit or manage their additional credit or prepayment risks.

The Adviser's investment process first allocates the Fund's portfolio among
different types of fixed income securities. The Adviser makes a greater
allocation of the Fund's portfolio to those types of securities 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 to
arrive at what the adviser believes the yield "spread" should be of each
security type. (The spread is the difference between the yield of a security
versus the yield of a comparable U.S. Treasury security.)

Securities are selected by weighing projected spreads against the spreads at
which securities can currently be purchased. The Adviser also analyzes the
credit risks and prepayment risks of individual securities in order to complete
the analysis.

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 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.

Within the Fund's three-year portfolio duration constraint, the Adviser may
further manage interest rate risk by lengthening or shortening 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:

* current and expected U.S. growth;

* current and expected interest rates and inflation;

* the U.S. Federal Reserve Board's monetary policy; and

* 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.

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

* 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.

* 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

* 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 make the price of mortgage backed securities more volatile
than many other types of fixed income securities with comparable credit risks.

* 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.

* 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

* 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.

* 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.

LIQUIDITY RISKS

* 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.

* 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.

* 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

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?

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 accounts for which financial institutions act in a
fiduciary or agency capacity and to 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

* Establish an account with the investment professional; and

* 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

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

* 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 incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.

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:

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

* 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:

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

* amount to be redeemed; and

* 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:

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

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

* 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:

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

* 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:

* to allow your purchase to clear;

* during periods of market volatility; or

* 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. 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 E. CAULEY

Robert E. Cauley has been the Fund's portfolio manager since March 1999.
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 Ecomonics, from Carnegie Mellon
University.

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 Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in this prospectus.

Financial Highlights

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 34.

YEAR ENDED SEPTEMBER 30 1999 1 1998 1997
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING

OF PERIOD $10.23 $10.13 $10.00
INCOME FROM INVESTMENT
OPERATIONS:

Net investment income 0.63 0.70 0.66
Net realized and
unrealized gain (loss) on
investments and foreign
currency (0.35) 0.12 0.14
TOTAL FROM INVESTMENT

OPERATIONS 0.28 0.82 0.80
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.63) (0.70) (0.65)
Distributions from net
realized gain on
investments and foreign
currency transactions - (0.02) (0.02)
TOTAL DISTRIBUTIONS (0.63) (0.72) (0.67)
NET ASSET VALUE, END OF

PERIOD $ 9.88 $10.23 $10.13
TOTAL RETURN 2 2.88% 7.85% 8.27%

RATIOS TO AVERAGE NET

ASSETS:

Expenses 3 1.26% 2.27% 8.74%
Net investment income 3 5.54% 4.36% (2.27%)
Expenses (after waivers
and reimbursements) 0.35% 0.32% 0.00%
Net investment income
(after waivers and
reimbursements) 6.45% 6.31% 6.47%
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $66,820 $30,219 $7,589
Portfolio turnover 53% 64% 109%
</TABLE>

1 For the year ended September 30, 1999, the Fund was audited by Deloitte &
Touche LLP. Each of the previous years were audited by other auditors.

2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

3 During the period, certain fees were voluntarily waived and reimbursed. If
such waivers and reimbursements had not occurred, the ratios would have been as
indicated.

See Notes which are an integral part of the Financial Statements

Portfolio of Investments

SEPTEMBER 30, 1999

<TABLE>
<CAPTION>
PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

ASSET-BACKED SECURITIES-
46.7% 1
AUTOMOBILE-13.5%

$ 600,562 AFG Receivables Trust
1996-D, Class A, 6.10%,

10/15/2001 $ 601,151
84,126 AFG Receivables Trust
1997-A, Class C, 7.20%,

10/15/2002 84,661

67,883 AFG Receivables Trust
1997-B, Class C, 7.00%,

2/15/2003 68,200

1,500,000 BMW Vehicle Owner Trust
1999-A, Class A3, 6.41%,

4/25/2003 1,502,580

353,356 CIT RV Trust 1994-A, Class
A, 4.90%, 7/15/2009 350,849
50,000 Chase Manhattan Auto Owner
Trust 1997-A, Class A5,

6.50%, 12/17/2001 50,422

1,000,000 Key Auto Finance Trust

1999-1, 7.08%, 1/15/2017 986,880

17,575 Nationsbank Auto Grantor
Trust, Class A, 5.85%,

6/15/2002 17,586

2,000,000 Nissan Auto Receivables
Owner Trust 1999-A, Class

A3, 6.47%, 9/15/2003 2,005,940

279,947 2, 3 Paragon Auto Receivables
Owner Trust 1998-A, Class

B, 7.47%, 11/15/2004 277,982

672,793 2, 3 Paragon Auto Receivables
Owner Trust 1998-B, Class

B, 7.03%, 3/15/2005 663,133

1,005,506 Paragon Auto Receivables
Owner Trust 1999-A, Class

A, 5.95%, 11/15/2005 1,000,775
50,000 Team Fleet Financing Corp.
Series 1997-1 Class B,

7.80%, 5/15/2003 49,937

1,500,000 Toyota Auto Receivables
Owner Trust 1999-A, Class

C, 6.70%, 8/16/2004 1,494,630

258,522 Toyota Auto Receivables
Grantor Trust 1997-A,

Class A, 6.45%, 4/15/2002 259,796
640,110 World Omni Automobile
Lease Securitization Trust
1997-A, Class A3, 6.85%,

6/25/2003 641,938

150,000 Yamaha Motor Master Trust
1995-1, Class A, 6.20%,

5/15/2003 149,890
TOTAL 10,206,350

CREDIT CARD-10.0%

130,369 2 Banco Nacional de Mexico
S.A., Credit Card Merchant
Voucher Receivables Master
Trust Series 1996-A, Class
A1, 6.25%, 12/1/2003 128,210

250,000 Circuit City Credit Card
Master Trust 1995-1, Class

A, 6.375%, 8/15/2005 250,860

250,000 Citibank Credit Card
Master Trust 1998-1, Class

A, 5.75%, 1/15/2003 249,145

801,000 Citibank Credit Card
Master Trust I 1998-6,

Class A, 5.85%, 4/10/2003 797,476
<CAPTION>
PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

ASSET-BACKED SECURITIES-

continued 1

CREDIT CARD-CONTINUED

$ 215,000 Discover Card Master Trust
I 1995-2, Class A, 6.55%,

2/18/2003 $ 216,185
1,000,000 Fingerhut Master Trust
1998-2, Class A, 6.23%,

2/15/2007 993,250

260,000 First USA Credit Card
Master Trust 1997-6, Class

A, 6.42%, 3/17/2005 260,767
161,201 Fleetwood Credit Corp.
Grantor Trust 1996-B,

Class A, 6.90%, 3/15/2012 162,070
2,000,000 MBNA Master Credit Card
Trust 1997-F, Class A,

6.60%, 11/15/2004 2,015,380

1,000,000 MBNA Master Credit Card
Trust 1999-I, Class A,

6.40%, 1/18/2005 1,001,080

285,000 Prime Credit Card Master
Trust 1996-1, Class A,

6.70%, 7/15/2004 287,226

1,000,000 Proffitt's Credit Card
Master Trust 1998-2, Class

B, 6.15%, 9/15/2004 997,090
225,000 Spiegel Master Trust 1994-
B, Class A, 8.15%,

6/15/2004 227,414
TOTAL 7,586,153

HOME EQUITY LOAN-12.9%

500,000 2, 3 125 Home Loan Owner Trust
1998-1, Class B-2, 12.16%,

2/15/2029 424,375

88,333 Advanta Home Equity Loan
Trust 1992-1, Class A,

7.875%, 9/25/2008 88,880

189,107 Advanta Mortgage Loan
Trust 1997-1, Class A2,

7.10%, 4/25/2020 188,824

500,000 Amresco Residential
Securities Mortgage Loan
Trust 1996-1, Class A5,

7.05%, 4/25/2027 496,455

31,910 Cityscape Home Equity Loan
Trust 1996-2, Class A2,

7.20%, 4/25/2011 31,828

1,000,000 Cityscape Home Equity Loan
Trust 1997-1, Class M1,

7.58%, 3/25/2018 995,285

120,000 ContiMortgage Home Equity
Loan Trust 1997-3, Class

A5, 7.01%, 8/15/2013 119,757

250,000 ContiMortgage Home Equity
Loan Trust 1997-5, Class B,

7.62%, 1/15/2029 210,625

457,000 EQCC Home Equity Loan Trust
1997-2, Class A7, 6.89%,

2/15/2020 456,346

244,799 Green Tree Home Equity Loan
Trust 1999-A, Class B2A,

7.44%, 2/15/2029 244,341

942,642 Green Tree Home
Improvement Loan Trust
1995-C, Class B1, 7.20%,

7/15/2020 938,014

300,000 Green Tree Home
Improvement Loan Trust
1997-A, Class HE6, 7.16%,

3/15/2028 300,294

481,015 Green Tree Home
Improvement Loan Trust
1997-C, Class B2, 7.59%,

8/15/2028 422,841

507,845 Headlands Home Equity Loan
Trust 1998-2, Class A3,

6.67%, 12/15/2024 499,278

500,000 Independent National
Mortgage Corp. Home Equity
1997-A, Class BF, 7.39%,

10/25/2028 480,780
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

ASSET-BACKED SECURITIES-
continued 1
HOME EQUITY LOAN-CONTINUED

1,000,000 Mellon Bank Home Equity
Installment Loan 1998-1,

Class B, 6.95%, 3/25/2015 958,320
482,323 2 NC Finance Trust 1999-1,
Class B, 8.75%, 1/25/2029 467,250
1,500,000 Salomon Brothers Mortgage
Sec. VII 1999-NC3, Class

M3, 8.4825%, 7/25/2029 1,483,125

250,000 2, 3 Saxon Asset Securities
Trust 1998-1, Class BF2,

8.00%, 12/25/2027 223,215

500,000 Saxon Asset Securities
Trust 1999-1, Class BV1,

8.1325%, 2/25/2029 504,320
95,000 TMS Home Equity Trust 1996-
B, Class A7, 7.55%,

2/15/2020 95,490
80,300 UCFC Home Equity Loan 1995-
A1, Class A5, 8.55%,

1/10/2020 81,531
TOTAL 9,711,174

MANUFACTURED HOUSING-6.0%
32,333 Green Tree Financial Corp.

1994-1, Class A3, 6.90%,

4/15/2019 32,405
250,000 Green Tree Financial Corp.
1996-2, Class B-1, 7.55%,
4/15/2027 247,428

112,250 Green Tree Financial Corp.
1996-4, Class A-4, 6.80%,

6/15/2027 112,924
1,250,000 Green Tree Financial Corp.
1997-3, Class B1, 7.51%,

7/15/2028 1,192,625
1,275,000 Merit Securities Corp. 12,
Class 1, 7.98%, 7/28/2033 1,194,917
1,000,000 Merit Securities Corp. 13,
Class A4, 7.88%,

12/28/2033 994,690

270,898 Oakwood Mortgage
Investors, Inc. 1997-C,
Class A2, 6.45%,

11/15/2027 271,480

500,000 Vanderbilt Mortgage
Finance 1999-A, Class 2B2,

7.978%, 6/7/2016 492,500
TOTAL 4,538,969

OTHER-4.3%

269,144 Advanta Equipment
Receivables 1998-1, Class

C, 6.49%, 12/15/2006 268,128

890,307 Case Equipment Loan Trust
1999-A, Class B, 8/15/2005 881,061
200,000 Centerior Energy
Receivables Master Trust
1996-1, Class A, 7.20%,

4/15/2002 203,518

1,000,000 Copelco Capital Funding
LLC 1999-B, Class A3,

6.61%, 12/18/2002 1,000,780

200,000 Copelco Capital Funding
Corp. X 1997-A, Class A4,

6.47%, 4/20/2005 200,593

613,000 Green Tree Home Impovement
Loan Trust 1996-F Class

HI2, 7.70%, 11/15/2027 584,673

85,879 NationsCredit Grantor
Trust 1997, Class A, 6.75%,

8/15/2013 86,687
TOTAL 3,225,440

TOTAL ASSET-BACKED
SECURITIES (IDENTIFIED

COST $35,651,575) 35,268,086
<CAPTION>
PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-15.6%

AUTOMOBILE-0.3%
$ 200,000 Arvin Industries, Inc.,

Note, 6.875%, 2/15/2001 $ 199,352

BANKING-1.3%
1,000,000 Wells Fargo Co., Note,

6.50%, 9/3/2002 997,900
CABLE TELEVISION-0.3%

200,000 TKR Cable, Inc., Deb.,

10.50%, 10/30/2007 212,082

FINANCE-0.9%

700,000 AT&T Capital Corp., Medium
Term Note, 6.16%,

12/3/1999 701,232
FINANCE - AUTOMOTIVE-1.3%

945,000 Ford Motor Credit Corp.,

8.55%, 4/8/2002 985,852
FINANCIAL INTERMEDIARIES-

2.5%

1,000,000 Donaldson, Lufkin and
Jenrette Securities Corp.,

Sr. Note, 5.875%, 4/1/2002 977,160
250,000 Lehman Brothers Holdings,
Inc., Bond, 6.20%,

1/15/2002 245,758
200,000 Lehman Brothers Holdings,
Inc., Medium Term Note,

6.00%, 2/26/2001 197,764
500,000 Lehman Brothers Holdings,
Inc., Medium Term Note,

6.375%, 3/15/2001 496,455
TOTAL 1,917,137
FOOD & DRUG RETAILERS-0.6%
500,000 Great Atlantic & Pacific
Tea Co., Inc., Global Bond

Deb., 7.70%, 1/15/2004 487,755
FOREST PRODUCTS-0.8%

400,000 Fort James Corp., Sr. Note,
6.234%, 3/15/2001 399,688
200,000 Quno Corp., Sr. Note,

9.125%, 5/15/2005 211,190
TOTAL 610,878

INDUSTRIAL PRODUCTS &

EQUIPMENT-0.8%

600,000 Figgie International
Holdings, Inc., Sr. Note,

9.875%, 10/1/1999 600,000

INSURANCE-1.0%
250,000 Conseco, Inc., Note,

6.40%, 2/10/2003 236,670

250,000 HSB Group, Inc., Company
Guarantee, 6.22%,

7/15/2027 242,185
250,000 SunAmerica, Inc., Sr.
Note, 6.20%, 10/31/1999 250,113
TOTAL 728,968
PRINTING & PUBLISHING-0.1%
75,000 Valassis Communications,
Inc., Sr. Note, 9.55%,

12/1/2003 80,939
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-continued

RETAILERS-1.4%
$ 500,000 Dayton-Hudson Corp., Note,

5.95%, 6/15/2000 $ 500,675
50,000 Shopko Stores, Inc.,
8.50%, 3/15/2002 51,651
500,000 Wal-Mart Stores, Inc.,
Note, 5.85%, 6/1/2000 500,755
TOTAL 1,053,081

SUPRANATIONAL-2.0%
1,500,000 Corp Andina De Fomento,

Bond, 7.375%, 7/21/2000 1,506,375
TECHNOLOGY SERVICES-0.7%

500,000 Unisys Corp., Sr. Note,

11.75%, 10/15/2004 561,250

TELECOMMUNICATIONS &
CELLULAR-1.3%

1,000,000 AT&T Corp., Global Bond,

5.625%, 3/15/2004 958,990

UTILITIES-0.3%
250,000 2, 3 Camuzzi Gas, Bond, 9.25%,

12/15/2001 246,250

TOTAL CORPORATE BONDS
(IDENTIFIED COST

$11,962,267) 11,848,041
COLLATERALIZED MORTGAGE

OBLIGATIONS-22.5% 1

399,615 2, 3 Bayview Financial Acquisition Trust 1998-1, Class M23,
6.614%,

5/25/2029 367,398

465,571 2, 3 Bayview Financial Acquisition Trust 1998-1, Class MII,
7.383%,

5/25/2029 427,236

708,884 Bear Stearns Mortgage
Securities, Inc. 1996-8,
Class B3, 8.00%,

11/25/2027 698,066
164,826 2, 3 C-BASS ABS, LLC Series
1997-1, Class A-1, 4.699%,
2/1/2017 164,826

127,492 C-BASS ABS, LLC Series
1998-3, Class AF, 6.50%,

1/25/2033 122,871
1,587,500 2 C-BASS ABS, LLC Series
1999-3, Class B1, 7.312%,
2/3/2029 1,296,289

29,648 Countrywide Home Loans
1997-5, Class A-3, 7.50%,

9/25/2027 29,517

383,787 Countrywide Home Loans
1997-6, Class A1, 6.75%,

11/25/2027 383,234

405,000 Federal National Mortgage
Association, Series 1993-
32, Class H, 6.00%,

3/25/2023 374,127

827,473 GE Capital Mortgage
Services, Inc. 1994-27,

Class A3, 6.50%, 7/25/2024 826,869
92,419 2, 3 GE Capital Mortgage
Services, Inc. 1994-3,

Class B4, 6.50%, 1/25/2024 59,610
296,193 GE Capital Mortgage
Services, Inc. 1996-3,

Class A1, 7.00%, 3/25/2026 295,968
377,079 GE Capital Mortgage
Services, Inc. 1998-11,
Class 1A1, 6.75%,

6/25/2028 377,231
<CAPTION>

PRINCIPAL
AMOUNT

OR SHARES VALUE
<C> <S> <C>

COLLATERALIZED MORTGAGE
OBLIGATIONS-continued 1

$ 1,500,000 GE Capital Mortgage
Services, Inc. 1998-3,

Class A4, 6.25%, 1/25/2028 $ 1,496,250
971,131 Headlands Mortgage
Securities Inc. 1997-3,

Class B3, 7.75%, 3/25/2027 917,549
519,000 Homeside Mortgage
Securities, Inc. 1998-1,

Class A2, 6.75%, 2/25/2028 499,365
100,000 2, 3 K Mart CMBS Financing, Inc
Series 1997-1, Class D,

6.471%, 3/1/2007 100,015

900,000 2, 3 Mellon Residential Funding
Corp. 1998-TBC1, Class B4,

6.589%, 10/25/2028 672,750

1,258,000 2, 3 Mellon Residential Funding
Corp. 1999-TBC1, Class B4,

6.429%, 1/25/2029 923,058

250,000 2, 3 Nomura Depositor Trust
Commercial Mortgage Pass-
Thru 1998-ST I, Class A-3,

6.178%, 1/15/2003 244,648

500,000 2, 3 Nomura Depositor Trust
Commercial Mortgage Pass-
Thru 1998-ST I, Class A-5,

6.508%, 1/15/2003 467,655

629,858 Resecuritization Mortgage
Trust 1998-A, Class B3,

7.881%, 10/26/2023 533,609

1,000,000 Residential Accredit
Loans, Inc 1997-QS12,
Class A6, 7.25%,

11/25/2027 1,003,360

340,487 Residential Asset
Securitization Trust 1997-
A2, Class A3, 9.00%,

4/25/2027 342,309

1,000,000 Residential Asset
Securitization Trust 1997-
A7, Class A5, 7.50%,

9/25/2027 1,004,270

441,450 Residential Asset
Securitization Trust 1998-
A12, Class A1, 6.75%,

11/25/2028 438,744

892,477 Residential Funding
Mortgage Securities I
1994-S13, Class M1, 7.00%,

5/25/2024 874,877

1,000,000 Salomon Brothers Mortgage
Sec. VII 1999-3, Class M3,

8.589%, 5/25/2029 988,750

192,253 2 SMFC Trust Asset-Backed
Certificates, Series 1997-
A, Class 4, 7.719%,

1/28/2025 163,474

963,613 Structured Asset
Securities Corp. 1999-
ALS2, Class A2, 6.75%,

7/25/2029 942,984

TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS
(IDENTIFIED

COST $17,357,894) 17,036,909
PREFERRED STOCKS-0.3%

STEEL-0.3%
10,000 USX Capital LLC, Pfd.,

8.75%, Series A

(identified cost $254,375) 245,625
GOVERNMENT AGENCIES-1.7% 1

GOVERNMENT AGENCY-1.7%

$ 500,000 Federal Home Loan Bank
System, Sr. Note, 5.80%,

9/2/2008 471,275

301,804 Government National
Mortgage Association ARM

8902, 30 Year, 1/20/2022 304,949
187,797 Government National
Mortgage Association, Pool
423843, 8.50%, 8/15/2026 195,309

301,932 Government National
Mortgage Association, Pool

780360, 11.00%, 9/15/2015 332,786

TOTAL GOVERNMENT AGENCIES
(IDENTIFIED COST

$1,350,479) 1,304,319
<CAPTION>
PRINCIPAL
AMOUNT

OR SHARES VALUE
<C> <S> <C>

FOREIGN
GOVERNMENT/AGENCIES-1.4%
GOVERNMENT AGENCY-0.3%

$ 830,250 Brazil, Government of,

IDU, 6.063%, 1/1/2001 $ 806,380
SOVEREIGN-1.1%
200,000 Korea Development Bank,

Bond, 7.125%, 9/17/2001 199,178

TOTAL FOREIGN

GOVERNMENT/AGENCIES

(IDENTIFIED COST $950,258) 1,005,558
U.S. TREASURY-5.7%

1,122,000 United States Treasury

Note, 4.75%, 2/15/2004 1,076,368
250,000 United States Treasury
Note, 5.375%, 6/30/2003 246,397
500,000 United States Treasury
Note, 5.625%, 5/15/2001 499,955
1,000,000 United States Treasury
Note, 5.75%, 11/15/2000 1,002,720
1,400,000 United States Treasury
Note, 7.50%, 11/15/2001 1,450,470
TOTAL U.S. TREASURY

(IDENTIFIED COST

$4,302,024) 4,275,910
MUTUAL FUND-2.6%

222,868 The High Yield Bond
Portfolio (identified cost

$2,040,792) 1,950,097
REPURCHASE AGREEMENT-3.1%

2,360,000 ABN AMRO, Inc., 5.45%,
dated 9/30/1999, due
10/1/1999 (at amortized

cost) 2,360,000

TOTAL INVESTMENTS
(IDENTIFIED COST

$76,229,664) 5 $ 75,294,545
</TABLE>

1 Because of monthly principal payments, the average lives of the Asset- Backed
Securities, Collateralized Mortgage Obligations and certain Government Agency
Securities are less than the indicated periods.

2 Denotes a restricted security which is subject to restrictions on resale under
Federal Securities laws. At September 30,1999, these securities amounted to
$7,317,374 which represents 9.7% of net assets. Included in these amounts,
securities which have been deemed liquid amounted to $5,262,151 which represents
7.0% of net assets.

3 Denotes a restricted security that has been deemed liquid by criteria approved
by the Board of Directors.

4 The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.

5 The cost of investments for federal tax purposes amounts to $76,230,028. The
net unrealized depreciation of investments on a federal tax basis amounts to
$(935,483) which is comprised of $170,312 appreciation and $1,105,795
depreciation at September 30, 1999.

Note: The categories of investments are shown as a percentage of net assets
($75,568,498) at September 30, 1999.

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

SEPTEMBER 30, 1999

<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified cost
$76,229,664 and tax
cost $76,230,028) $ 75,294,545
Income receivable 693,207
Receivable for shares sold 6,616
TOTAL ASSETS 75,994,368
LIABILITIES:

Payable for shares

redeemed $ 77,167
Income distribution
payable 336,167
Accrued expenses 12,536
TOTAL LIABILITIES 425,870
Net assets for 7,648,866
shares outstanding $ 75,568,498
NET ASSETS CONSIST OF:

Paid in capital $ 77,044,265
Net unrealized
depreciation of
investments (935,119)
Accumulated net realized
loss on investments (573,723)
Undistributed net
investment income 33,075
TOTAL NET ASSETS $ 75,568,498
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
INSTITUTIONAL SHARES:
$66,819,860 / 6,763,278
shares outstanding $9.88
INSTITUTIONAL SERVICE
SHARES:
$8,748,638 / 885,588
shares outstanding $9.88
</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Operations

YEAR ENDED SEPTEMBER 30, 1999

<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 79,591
Interest 3,722,599
TOTAL INCOME 3,802,190
EXPENSES:

Investment advisory fee $ 224,110
Administrative personnel
and services fee 157,308
Custodian fees 6,046
Transfer and dividend
disbursing agent fees and
expenses 36,187
Directors'/Trustees' fees 3,696
Auditing fees 12,679
Legal fees 5,573
Portfolio accounting fees 58,557
Distribution services fee-
Institutional Service
Shares 27,473
Shareholder services fee-
Institutional Shares 112,597
Shareholder services fee-
Institutional Service
Shares 27,473
Share registration costs 25,635
Printing and postage 25,562
Insurance premiums 1,312
Taxes 6,388
Miscellaneous 2,945
TOTAL EXPENSES 733,541
WAIVERS AND
REIMBURSEMENTS:
Waiver of investment
advisory fee $ (224,110)
Waiver of distribution
services fee-Institutional
Service Shares (21,978)
Waiver of shareholder
services fee-Institutional
Shares (112,597)
Reimbursement of other
operating expenses (146,293)
TOTAL WAIVERS AND
REIMBURSEMENTS (504,978)
Net expenses 228,563
Net investment income 3,573,627
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS
Net realized loss on
investments (558,411)
Net change in unrealized
depreciation of
investments (1,379,505)
Net realized and
unrealized loss on
investments (1,937,916)
Change in net assets
resulting from operations $ 1,635,711
</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

YEAR ENDED SEPTEMBER 30 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET

ASSETS
OPERATIONS:

Net investment income $ 3,573,627 $ 1,424,328
Net realized loss on
investments ($2,474 and
($21,213), respectively,
as computed for federal tax

purposes) (558,411) (25,503)
Net change in unrealized

appreciation
(depreciation) of

investments (1,379,505) 385,862
CHANGE IN NET ASSETS

RESULTING FROM OPERATIONS 1,635,711 1,784,687
DISTRIBUTIONS TO
SHAREHOLDERS:

Distributions from net
investment income

Institutional Shares (2,875,443) (1,028,007)
Institutional Service
Shares (659,954) (406,658)
Distributions from net
realized gains on
investments
Institutional Shares - (13,500)
Institutional Service
Shares - (4,805)
CHANGE IN NET ASSETS
RESULTING FROM

DISTRIBUTIONS

TO SHAREHOLDERS (3,535,397) (1,452,970)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 62,007,341 37,046,762
Net asset value of shares
issued to shareholders in
payment of
distributions declared 674,646 229,582
Cost of shares redeemed (27,337,842) (5,797,404)
CHANGE IN NET ASSETS
RESULTING FROM SHARE

TRANSACTIONS 35,344,145 31,478,940
Change in net assets 33,444,459 31,810,657
NET ASSETS:

Beginning of period 42,124,039 10,313,382
End of period (including
undistributed net
investment income of
$33,075 for the year ended
September 30, 1999) $ 75,568,498 $ 42,124,039
</TABLE>

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

SEPTEMBER 30, 1999

ORGANIZATION

Federated Total Return Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as an open-end, management investment company.
The Corporation consists of four portfolios. The financial statements included
herein are only those of Federated Limited Duration Fund (the "Fund"), a
diversified portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
Fund offers two classes of shares: Institutional Shares and Institutional
Service Shares. The investment objective of the Fund is to provide total return.

SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.

INVESTMENT VALUATIONS

U.S. government securities, listed corporate bonds, other fixed income and
asset-backed securities, unlisted securities and private placement securities
are generally valued at the mean of the latest bid and asked price as furnished
by an independent pricing service. Short-term securities are valued at the
prices provided by an independent pricing service. However, short-term
securities with remaining maturities of 60 days or less at the time of purchase
may be valued at amortized cost, which approximates fair market value.
Investments in other open-end regulated investment companies are valued at net
asset value. With repect to valuation of foreign securities, trading in foreign
cities may be completed at times which vary from the closing of the New York
Stock Exchange. Therefore, foreign securities are valued at the latest closing
price on the exchange on which they are traded prior to the closing of the New
York Stock Exchange. Foreign securites quoted in foreign currencies are
translated into U.S. Dollars at the foreign exchange rate in effect at noon,
eastern time, on the day the value of the foreign security is determined.

REPURCHASE AGREEMENTS

It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.

The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.

Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
The following reclassifications have been made to the financial statements:

INCREASE (DECREASE)

UNDISTRIBUTED

NET INVESTMENT
INCOME PAID IN CAPITAL
$(462) $462

Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.

FEDERAL TAXES

It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.

Withholding taxes on foreign interest and dividends have been provided for in
accordance with the fund's understanding of the applicable country's tax rules
and rates.

At September 30, 1999, the Fund, for federal tax purposes, had a capital loss
carryforward of $3,491, which will reduce the Fund's taxable income arising from
future net realized gain on investments, if any, to the extent permitted by the
Code, and thus will reduce the amount of the distributions to shareholders which
would otherwise be necessary to relieve the Fund of any liability for federal
tax. Pursuant to the Code, such capital loss carryforward will expire as
follows:

EXPIRATION YEAR EXPIRATION AMOUNT
2006 $3,491

Additionally, the Fund's capital losses of $569,868 attributable to security
transactions incurred after October 31, 1998, were treated as arising on October
1, 1999, the first day of the Fund's next taxable year.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.

RESTRICTED SECURITIES

Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Board of Directors. The Fund will not
incur any registration costs upon such resales. The Fund's restricted securities
are valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.

Additional information on each restricted security held at September 30, 1999 is
as follows:

ACQUISITION ACQUISITION

SECURITY DATE COST
<S> <C> <C>
Banco Nacional de Mexico 1/9/1997 $ 123,186
C-BASS ABS, LLC Series 1999-3 7/9/1999 1,299,518
NC FINANCE TRUST 199-1 2/23/1999 479,991
SMFC TRUST 2/4/1998 175,656

</TABLE>

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.

OTHER

Investment transactions are accounted for on the trade date.

CAPITAL STOCK

At September 30, 1999, par value shares ($0.001 per share) authorized were as
follows:

NUMBER OF PAR VALUE

CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Institutional 1,000,000,000
Institutional Service 1,000,000,000
TOTAL 2,000,000,000

</TABLE>

Transactions in capital stock were as follows:

YEAR ENDED SEPTEMBER 30 1999 1998
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,262,382 $ 52,646,943 2,568,633 $ 26,072,998
Shares issued to
shareholders in payment of
distributions declared 40,839 408,205 13,782 140,038
Shares redeemed (1,494,996) (14,918,969) (376,449) (3,821,931)
NET CHANGE RESULTING FROM
INSTITUTIONAL SHARE

TRANSACTIONS 3,808,225 $ 38,136,179 2,205,966 $ 22,391,105

YEAR ENDED SEPTEMBER 30 1999 1998
INSTITUTIONAL SERVICE
SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 933,821 $ 9,360,398 1,080,982 $ 10,973,764
Shares issued to
shareholders in payment of
distributions declared 26,571 266,441 8,803 89,544
Shares redeemed (1,238,993) (12,418,873) (194,467) (1,975,473)
NET CHANGE RESULTING FROM
INSTITUTIONAL SERVICE

SHARE TRANSACTIONS (278,601) $ (2,792,034) 895,318 $ 9,087,835
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 3,529,624 $ 35,344,145 3,101,284 $ 31,478,940
</TABLE>

INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE

Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose
to waive any portion of its fee. The Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.

ADMINISTRATIVE FEE

Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.

DISTRIBUTION SERVICES FEE

The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b- 1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Institutional Service Shares to finance activities intended to result in the
sale of the Fund's Institutional Service Shares. The Plan provides that the Fund
may incur distribution expenses up to 0.25% of the average daily net assets of
the Institutional Service Shares, annually, to compensate FSC. The distributor
may voluntarily choose to waive any portion of its fee. The distributor can
modify or terminate this voluntary waiver at any time at its sole discretion.

SHAREHOLDER SERVICES FEE

Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES

FServ, through its subsidiary, FSSC serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.

PORTFOLIO ACCOUNTING FEES

FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.

GENERAL

Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
year ended September 30, 1999, were as follows:

Purchases $ 65,166,163
Sales $ 28,126,445

YEAR 2000 (UNAUDITED)

Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.

CHANGE OF INDEPENDENT AUDITORS (UNAUDITED)

On May 19, 1999, the Fund's Board of Directors, upon the recommendation of the
Audit Committee of the Board of Directors, requested and subsequently accepted
the resignation of Ernst & Young LLP ("E&Y") as the Fund's independent auditors.
E&Y's reports on the Fund's financial statements for the fiscal years ended
September 30, 1997 and September 30, 1998, contained no adverse opinion or
disclaimer of opinion nor were they qualified or modified as to uncertainty,
audit scope or accounting principles. During the Fund's fiscal years ended
September 30, 1997 and September 30, 1998, (i) there were no disagreements with
E&Y on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of E&Y, would have caused it to make reference to the
subject matter of the disagreements in connection with its reports on the
financial statements for such years; and (ii) there were no reportable events of
the kind described in Item 304(a)(1)(v) of Regulation S-K under the Securities
Act of 1934, as amended.

The Fund, by action of its Directors, upon the recommendation of the Audit
Committee of the Board, has engaged Deloitte & Touche LLP ("D&T") as the
independent auditors to audit the Fund's financial statements for the fiscal
year ended September 30, 1999. During the Fund's fiscal years ended September
30, 1997 and September 30, 1998, neither the Fund nor anyone on its behalf has
consulted D&T on items which (i) concerned the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Fund's financial statements or
(ii) concerned the subject of a disagreement (as defined in paragraph (a)(1)(iv)
of Item 304 of Regulation S-K) of reportable events (as described in paragraph
(a)(1)(v) of said Item 304).

Independent Auditors' Report

TO THE DIRECTORS OF FEDERATED TOTAL RETURN SERIES, INC.
AND SHAREHOLDERS OF THE INSTITUTIONAL SHARES OF

FEDERATED LIMITED DURATION FUND:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Limited Duration Fund (the "Fund") as
of September 30, 1999, and the related statement of operations, the statement of
changes in net assets, and the financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets for the year ended September 30, 1998 and financial
highlights for the years ended September 30, 1998 and 1997 were audited by other
auditors whose report dated November 13, 1998, expressed an unqualified opinion
on those statements.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to provide reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned at September 30, 1999,
by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Limited
Duration Fund as of September 30, 1999, the results of its operations, the
changes in its net assets and its financial highlights for the year then ended
in conformity with generally accepted accounting principles.

Deloitte & Touche LLP

Boston, Massachusetts
November 12, 1999

[Graphic]
Federated

World-Class Investment Manager

Federated Limited Duration Fund

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SHARES

PROSPECTUS

NOVEMBER 30, 1999

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 and Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, 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, DC. 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, DC 20549-0102. Call 1-202-942- 8090 for
information on the Public Reference Room's operations and copying charges.

[Graphic]
Federated

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

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Investment Company Act File No. 811-7115

Cusip 31428Q408

G01744-01-IS (11/99)

[Graphic]

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 with an average portfolio
duration of three years or less.

NOVEMBER 30, 1999

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 3

What are the Fund's Investment Strategies? 4

What are the Principal Securities in Which the

Fund Invests? 6

What are the Specific Risks of Investing in the Fund? 8

What Do Shares Cost? 10

How is the Fund Sold? 10

How to Purchase Shares 11

How to Redeem Shares 12

Account and Share Information 13

Who Manages the Fund? 14

Financial Information 15

Independent Auditors' Report 34

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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:

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

* 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.

RISK/RETURN BAR CHART AND TABLE

[Graphic] - See Appendix

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

The Fund's Institutional Service Shares are sold without 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 2.25%.

Within the period shown in the Chart, the Fund's highest quarterly return was
2.52% (quarter ended June 30, 1997). Its lowest quarterly return was 0.31%
(quarter ended December 31, 1998).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Institutional Service Shares Average
Annual Total Return for the calendar period ended December 31, 1998. The table
shows the Fund's Institutional Service Shares total returns averaged over a
period of years relative to Merrill Lynch 1-3 Year Treasury Index (ML13YTI) a
broad-based unmanaged index tracking short-term U.S. government securities with
maturities between 1 and 2.99 years, the Merrill Lynch 1-3 Corporate Index
(ML13CI) a broad-based market capitalization weighted index including
fixed-coupon domestic investment grade corporate bonds with at least $100
million par amount outstanding and Lipper Short Investment Grade Debt Funds
Average (LSIGDA), an average of funds with similar investment objectives. Total
returns for the index 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.

CALENDAR PERIOD FUND ML13YTI ML13CI LSIGDA
<S> <C> <C> <C> <C>
1 Year 6.06% 7.00% 7.21% 5.80%
Start of Performance 1 7.05% 6.87% 7.28% 6.18%
</TABLE>

1 The Fund's Institutional Service Shares start of performance date was October
1, 1996.

What are the Fund's Fees and Expenses?

FEDERATED LIMITED DURATION 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.

<TABLE>

SHAREHOLDER FEES

<S> <C>
ANNUAL FUND OPERATING
EXPENSES (Before Waivers
and Reimbursements) 1
Expenses That are Deducted
From Fund Assets (as a
percentage of average net
assets)
Management Fee 2 0.40%
Distribution (12b-1) Fee 3 0.25%
Shareholder Services Fee 0.25%
Other Expenses 4 0.61%
Total Annual Fund
Operating Expenses 1.51%

1 Although not contractually obligated to do so, the adviser and distributor
waived and reimbursed certain amounts. These are shown below along with the net
expenses the Fund actually paid for the fiscal year ended September 30, 1999.

Total Waivers and
Reimbursements of Fund

Expenses 0.86%

Total Actual Annual Fund
Operating Expenses (after
waivers and

reimbursements) 0.65%

3 The distributor voluntarily waived a portion of the distribution (12b-1) fee.
The distributor can terminate this voluntarily waiver at any time. The
distribution (12b-1) fee paid by the Fund's Institutional Service Shares (after
the voluntary waiver) was 0.05% for the fiscal year ended September 30, 1999.

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 WAIVERS AND
REIMBURSEMENTS as 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 $ 154
3 Years $ 477
5 Years $ 824
10 Years $ 1,802

What are the Fund's Investment Strategies?

* current and expected U.S. growth;

* current and expected interest rates and inflation;

* the U.S. Federal Reserve Board's monetary policy; and

* 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

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

MORTGAGE BACKED SECURITIES

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

SEQUENTIAL CMOS

ASSET BACKED SECURITIES

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

CORPORATE DEBT SECURITIES

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

PREPAYMENT RISKS

* 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

* 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.

LIQUIDITY RISKS

* 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.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

* 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?

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 to individuals, directly or through investment professionals.

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

* Establish an account with the investment professional; and

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

DIRECTLY FROM THE FUND

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

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

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)

How to Redeem Shares

You should redeem Shares:

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

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

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

BY TELEPHONE

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:

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

* amount to be redeemed; and

* 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:

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

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

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

PAYMENT METHODS FOR REDEMPTIONS

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

* 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:

* to allow your purchase to clear;

* during periods of market volatility; or

* 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

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

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

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

Who Manages the Fund?

THE FUND'S PORTFOLIO MANAGERS ARE:

RANDALL S. BAUER

ROBERT E. CAULEY

MARK E. DURBIANO

ADVISORY FEES

YEAR 2000 READINESS

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

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

Financial Highlights

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 34.

YEAR ENDED SEPTEMBER 30 1999 1 1998 1997
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING

OF PERIOD $10.23 $10.13 $10.00
INCOME FROM INVESTMENT
OPERATIONS:

Net investment income 0.60 0.67 0.63
Net realized and
unrealized gain (loss) on
investments and foreign
currency (0.35) 0.12 0.15
TOTAL FROM INVESTMENT

OPERATIONS 0.25 0.79 0.78
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.60) (0.67) (0.63)
Distributions from net
realized gain on
investments and foreign
currency -- (0.02) (0.02)
TOTAL DISTRIBUTIONS (0.60) (0.69) (0.65)
NET ASSET VALUE, END OF

PERIOD $ 9.88 $10.23 $10.13
TOTAL RETURN 2 2.57% 7.53% 8.10%

RATIOS TO AVERAGE NET

ASSETS:

Expenses 3 1.51% 2.56% 14.81%
Net investment income 3 5.23% 4.09% (8.21%)
Expenses (after waivers
and reimbursements) 0.65% 0.62% 0.29%
Net investment income
(after waivers and
reimbursements) 6.09% 6.03% 6.31%
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $8,749 $11,905 $2,724
Portfolio turnover 53% 64% 109%
</TABLE>

1 For the year ended September 30, 1999, the Fund was audited by Deloitte &
Touche LLP. Each of the previous years were audited by other auditors.

2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

3 During the period, certain fees were voluntarily waived and reimbursed. If
such waivers and reimbursements had not occurred, the ratios would have been as
indicated.

See Notes which are an integral part of the Financial Statements

Portfolio of Investments

SEPTEMBER 30, 1999

<TABLE>
<CAPTION>
PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

ASSET-BACKED SECURITIES--
46.7% 1
AUTOMOBILE--13.5%

$ 600,562 AFG Receivables Trust
1996-D, Class A, 6.10%,

10/15/2001 $ 601,151
84,126 AFG Receivables Trust
1997-A, Class C, 7.20%,

10/15/2002 84,661

67,883 AFG Receivables Trust
1997-B, Class C, 7.00%,

2/15/2003 68,200

1,500,000 BMW Vehicle Owner Trust
1999-A, Class A3, 6.41%,

4/25/2003 1,502,580

353,356 CIT RV Trust 1994-A, Class
A, 4.90%, 7/15/2009 350,849
50,000 Chase Manhattan Auto Owner
Trust 1997-A, Class A5,

6.50%, 12/17/2001 50,422

1,000,000 Key Auto Finance Trust

1999-1, 7.08%, 1/15/2017 986,880

17,575 Nationsbank Auto Grantor
Trust, Class A, 5.85%,

6/15/2002 17,586

2,000,000 Nissan Auto Receivables
Owner Trust 1999-A, Class

A3, 6.47%, 9/15/2003 2,005,940

279,947 2, 3 Paragon Auto Receivables
Owner Trust 1998-A, Class

B, 7.47%, 11/15/2004 277,982

672,793 2, 3 Paragon Auto Receivables
Owner Trust 1998-B, Class

B, 7.03%, 3/15/2005 663,133

1,005,506 Paragon Auto Receivables
Owner Trust 1999-A, Class

A, 5.95%, 11/15/2005 1,000,775
50,000 Team Fleet Financing Corp.
Series 1997-1 Class B,

7.80%, 5/15/2003 49,937

1,500,000 Toyota Auto Receivables
Owner Trust 1999-A, Class

C, 6.70%, 8/16/2004 1,494,630

258,522 Toyota Auto Receivables
Grantor Trust 1997-A,

Class A, 6.45%, 4/15/2002 259,796
640,110 World Omni Automobile
Lease Securitization Trust
1997-A, Class A3, 6.85%,

6/25/2003 641,938

150,000 Yamaha Motor Master Trust
1995-1, Class A, 6.20%,

5/15/2003 149,890
TOTAL 10,206,350

CREDIT CARD--10.0%

130,369 2 Banco Nacional de Mexico
S.A., Credit Card Merchant
Voucher Receivables Master
Trust Series 1996-A, Class
A1, 6.25%, 12/1/2003 128,210

250,000 Circuit City Credit Card
Master Trust 1995-1, Class

A, 6.375%, 8/15/2005 250,860

250,000 Citibank Credit Card
Master Trust 1998-1, Class

A, 5.75%, 1/15/2003 249,145

801,000 Citibank Credit Card
Master Trust I 1998-6,

Class A, 5.85%, 4/10/2003 797,476
<CAPTION>
PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

ASSET-BACKED SECURITIES--

continued 1

CREDIT CARD--CONTINUED

$ 215,000 Discover Card Master Trust
I 1995-2, Class A, 6.55%,

2/18/2003 $ 216,185
1,000,000 Fingerhut Master Trust
1998-2, Class A, 6.23%,

2/15/2007 993,250

260,000 First USA Credit Card
Master Trust 1997-6, Class

A, 6.42%, 3/17/2005 260,767
161,201 Fleetwood Credit Corp.
Grantor Trust 1996-B,

Class A, 6.90%, 3/15/2012 162,070
2,000,000 MBNA Master Credit Card
Trust 1997-F, Class A,

6.60%, 11/15/2004 2,015,380

1,000,000 MBNA Master Credit Card
Trust 1999-I, Class A,

6.40%, 1/18/2005 1,001,080

285,000 Prime Credit Card Master
Trust 1996-1, Class A,

6.70%, 7/15/2004 287,226

1,000,000 Proffitt's Credit Card
Master Trust 1998-2, Class

B, 6.15%, 9/15/2004 997,090
225,000 Spiegel Master Trust 1994-
B, Class A, 8.15%,

6/15/2004 227,414
TOTAL 7,586,153

HOME EQUITY LOAN--12.9%

500,000 2, 3 125 Home Loan Owner Trust
1998-1, Class B-2, 12.16%,

2/15/2029 424,375

88,333 Advanta Home Equity Loan
Trust 1992-1, Class A,

7.875%, 9/25/2008 88,880

189,107 Advanta Mortgage Loan
Trust 1997-1, Class A2,

7.10%, 4/25/2020 188,824

500,000 Amresco Residential
Securities Mortgage Loan
Trust 1996-1, Class A5,

7.05%, 4/25/2027 496,455

31,910 Cityscape Home Equity Loan
Trust 1996-2, Class A2,

7.20%, 4/25/2011 31,828

1,000,000 Cityscape Home Equity Loan
Trust 1997-1, Class M1,

7.58%, 3/25/2018 995,285

120,000 ContiMortgage Home Equity
Loan Trust 1997-3, Class

A5, 7.01%, 8/15/2013 119,757

250,000 ContiMortgage Home Equity
Loan Trust 1997-5, Class B,

7.62%, 1/15/2029 210,625

457,000 EQCC Home Equity Loan Trust
1997-2, Class A7, 6.89%,

2/15/2020 456,346

244,799 Green Tree Home Equity Loan
Trust 1999-A, Class B2A,

7.44%, 2/15/2029 244,341

942,642 Green Tree Home
Improvement Loan Trust
1995-C, Class B1, 7.20%,

7/15/2020 938,014

300,000 Green Tree Home
Improvement Loan Trust
1997-A, Class HE6, 7.16%,

3/15/2028 300,294

481,015 Green Tree Home
Improvement Loan Trust
1997-C, Class B2, 7.59%,

8/15/2028 422,841

507,845 Headlands Home Equity Loan
Trust 1998-2, Class A3,

6.67%, 12/15/2024 499,278

500,000 Independent National
Mortgage Corp. Home Equity
1997-A, Class BF, 7.39%,

10/25/2028 480,780
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

ASSET-BACKED SECURITIES--
continued 1
HOME EQUITY LOAN--CONTINUED

1,000,000 Mellon Bank Home Equity
Installment Loan 1998-1,

Class B, 6.95%, 3/25/2015 958,320
482,323 2 NC Finance Trust 1999-1,
Class B, 8.75%, 1/25/2029 467,250
1,500,000 Salomon Brothers Mortgage
Sec. VII 1999-NC3, Class

M3, 8.4825%, 7/25/2029 1,483,125

250,000 2, 3 Saxon Asset Securities
Trust 1998-1, Class BF2,

8.00%, 12/25/2027 223,215

500,000 Saxon Asset Securities
Trust 1999-1, Class BV1,

8.1325%, 2/25/2029 504,320
95,000 TMS Home Equity Trust 1996-
B, Class A7, 7.55%,

2/15/2020 95,490
80,300 UCFC Home Equity Loan 1995-
A1, Class A5, 8.55%,

1/10/2020 81,531
TOTAL 9,711,174

MANUFACTURED HOUSING--6.0%
32,333 Green Tree Financial Corp.

1994-1, Class A3, 6.90%,

4/15/2019 32,405
250,000 Green Tree Financial Corp.
1996-2, Class B-1, 7.55%,
4/15/2027 247,428

112,250 Green Tree Financial Corp.
1996-4, Class A-4, 6.80%,

6/15/2027 112,924
1,250,000 Green Tree Financial Corp.
1997-3, Class B1, 7.51%,

7/15/2028 1,192,625
1,275,000 Merit Securities Corp. 12,
Class 1, 7.98%, 7/28/2033 1,194,917
1,000,000 Merit Securities Corp. 13,
Class A4, 7.88%,

12/28/2033 994,690

270,898 Oakwood Mortgage
Investors, Inc. 1997-C,
Class A2, 6.45%,

11/15/2027 271,480

500,000 Vanderbilt Mortgage
Finance 1999-A, Class 2B2,

7.978%, 6/7/2016 492,500
TOTAL 4,538,969

OTHER--4.3%

269,144 Advanta Equipment
Receivables 1998-1, Class

C, 6.49%, 12/15/2006 268,128

890,307 Case Equipment Loan Trust
1999-A, Class B, 8/15/2005 881,061
200,000 Centerior Energy
Receivables Master Trust
1996-1, Class A, 7.20%,

4/15/2002 203,518

1,000,000 Copelco Capital Funding
LLC 1999-B, Class A3,

6.61%, 12/18/2002 1,000,780

200,000 Copelco Capital Funding
Corp. X 1997-A, Class A4,

6.47%, 4/20/2005 200,593

613,000 Green Tree Home Impovement
Loan Trust 1996-F Class

HI2, 7.70%, 11/15/2027 584,673

85,879 NationsCredit Grantor
Trust 1997, Class A, 6.75%,

8/15/2013 86,687
TOTAL 3,225,440

TOTAL ASSET-BACKED
SECURITIES (IDENTIFIED

COST $35,651,575) 35,268,086
<CAPTION>
PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-15.6%
AUTOMOBILE--0.3%

$ 200,000 Arvin Industries, Inc.,

Note, 6.875%, 2/15/2001 $ 199,352
BANKING--1.3%

1,000,000 Wells Fargo Co., Note,

6.50%, 9/3/2002 997,900

CABLE TELEVISION--0.3%
200,000 TKR Cable, Inc., Deb.,

10.50%, 10/30/2007 212,082
FINANCE--0.9%

700,000 AT&T Capital Corp., Medium
Term Note, 6.16%,

12/3/1999 701,232

FINANCE - AUTOMOTIVE--1.3%
945,000 Ford Motor Credit Corp.,

8.55%, 4/8/2002 985,852
FINANCIAL INTERMEDIARIES--

2.5%

1,000,000 Donaldson, Lufkin and
Jenrette Securities Corp.,

Sr. Note, 5.875%, 4/1/2002 977,160
250,000 Lehman Brothers Holdings,
Inc., Bond, 6.20%,

1/15/2002 245,758
200,000 Lehman Brothers Holdings,
Inc., Medium Term Note,

6.00%, 2/26/2001 197,764
500,000 Lehman Brothers Holdings,
Inc., Medium Term Note,

6.375%, 3/15/2001 496,455
TOTAL 1,917,137
FOOD & DRUG RETAILERS--0.6%
500,000 Great Atlantic & Pacific
Tea Co., Inc., Global Bond

Deb., 7.70%, 1/15/2004 487,755

FOREST PRODUCTS--0.8%
400,000 Fort James Corp., Sr. Note,

6.234%, 3/15/2001 399,688
200,000 Quno Corp., Sr. Note,
9.125%, 5/15/2005 211,190
TOTAL 610,878

INDUSTRIAL PRODUCTS &
EQUIPMENT--0.8%

600,000 Figgie International
Holdings, Inc., Sr. Note,

9.875%, 10/1/1999 600,000
INSURANCE--1.0%

250,000 Conseco, Inc., Note,

6.40%, 2/10/2003 236,670

250,000 HSB Group, Inc., Company
Guarantee, 6.22%,

7/15/2027 242,185
250,000 SunAmerica, Inc., Sr.
Note, 6.20%, 10/31/1999 250,113
TOTAL 728,968
PRINTING & PUBLISHING--0.1%
75,000 Valassis Communications,
Inc., Sr. Note, 9.55%,

12/1/2003 80,939
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-continued
RETAILERS--1.4%

$ 500,000 Dayton-Hudson Corp., Note,
5.95%, 6/15/2000 $ 500,675
50,000 Shopko Stores, Inc.,

8.50%, 3/15/2002 51,651
500,000 Wal-Mart Stores, Inc.,
Note, 5.85%, 6/1/2000 500,755
TOTAL 1,053,081

SUPRANATIONAL--2.0%
1,500,000 Corp Andina De Fomento,

Bond, 7.375%, 7/21/2000 1,506,375

TECHNOLOGY SERVICES--0.7%
500,000 Unisys Corp., Sr. Note,

11.75%, 10/15/2004 561,250

TELECOMMUNICATIONS &
CELLULAR--1.3%

1,000,000 AT&T Corp., Global Bond,

5.625%, 3/15/2004 958,990
UTILITIES--0.3%

250,000 2, 3 Camuzzi Gas, Bond, 9.25%,
12/15/2001 246,250
TOTAL CORPORATE BONDS
(IDENTIFIED COST
$11,962,267) 11,848,041
COLLATERALIZED MORTGAGE
OBLIGATIONS--22.5% 1
399,615 2, 3 Bayview Financial Acquisition Trust 1998-1, Class M23,
6.614%,

5/25/2029 367,398

465,571 2, 3 Bayview Financial Acquisition Trust 1998-1, Class MII,
7.383%,

5/25/2029 427,236

708,884 Bear Stearns Mortgage
Securities, Inc. 1996-8,
Class B3, 8.00%,

11/25/2027 698,066
164,826 2, 3 C-BASS ABS, LLC Series
1997-1, Class A-1, 4.699%,
2/1/2017 164,826

127,492 C-BASS ABS, LLC Series
1998-3, Class AF, 6.50%,

1/25/2033 122,871
1,587,500 2 C-BASS ABS, LLC Series
1999-3, Class B1, 7.312%,
2/3/2029 1,296,289

29,648 Countrywide Home Loans
1997-5, Class A-3, 7.50%,

9/25/2027 29,517

383,787 Countrywide Home Loans
1997-6, Class A1, 6.75%,

11/25/2027 383,234

405,000 Federal National Mortgage
Association, Series 1993-
32, Class H, 6.00%,

3/25/2023 374,127

827,473 GE Capital Mortgage
Services, Inc. 1994-27,

Class A3, 6.50%, 7/25/2024 826,869
92,419 2, 3 GE Capital Mortgage
Services, Inc. 1994-3,

Class B4, 6.50%, 1/25/2024 59,610
296,193 GE Capital Mortgage
Services, Inc. 1996-3,

Class A1, 7.00%, 3/25/2026 295,968
377,079 GE Capital Mortgage
Services, Inc. 1998-11,
Class 1A1, 6.75%,

6/25/2028 377,231
<CAPTION>

PRINCIPAL
AMOUNT

OR SHARES VALUE
<C> <S> <C>

COLLATERALIZED MORTGAGE
OBLIGATIONS--continued 1

$ 1,500,000 GE Capital Mortgage
Services, Inc. 1998-3,

Class A4, 6.25%, 1/25/2028 $ 1,496,250
971,131 Headlands Mortgage
Securities Inc. 1997-3,

Class B3, 7.75%, 3/25/2027 917,549
519,000 Homeside Mortgage
Securities, Inc. 1998-1,

Class A2, 6.75%, 2/25/2028 499,365
100,000 2, 3 K Mart CMBS Financing, Inc
Series 1997-1, Class D,

6.471%, 3/1/2007 100,015

900,000 2, 3 Mellon Residential Funding
Corp. 1998-TBC1, Class B4,

6.589%, 10/25/2028 672,750

1,258,000 2, 3 Mellon Residential Funding
Corp. 1999-TBC1, Class B4,

6.429%, 1/25/2029 923,058

250,000 2, 3 Nomura Depositor Trust
Commercial Mortgage Pass-
Thru 1998-ST I, Class A-3,

6.178%, 1/15/2003 244,648

500,000 2, 3 Nomura Depositor Trust
Commercial Mortgage Pass-
Thru 1998-ST I, Class A-5,

6.508%, 1/15/2003 467,655

629,858 Resecuritization Mortgage
Trust 1998-A, Class B3,

7.881%, 10/26/2023 533,609

1,000,000 Residential Accredit
Loans, Inc 1997-QS12,
Class A6, 7.25%,

11/25/2027 1,003,360

340,487 Residential Asset
Securitization Trust 1997-
A2, Class A3, 9.00%,

4/25/2027 342,309

1,000,000 Residential Asset
Securitization Trust 1997-
A7, Class A5, 7.50%,

9/25/2027 1,004,270

441,450 Residential Asset
Securitization Trust 1998-
A12, Class A1, 6.75%,

11/25/2028 438,744

892,477 Residential Funding
Mortgage Securities I
1994-S13, Class M1, 7.00%,

5/25/2024 874,877

1,000,000 Salomon Brothers Mortgage
Sec. VII 1999-3, Class M3,

8.589%, 5/25/2029 988,750

192,253 2 SMFC Trust Asset-Backed
Certificates, Series 1997-
A, Class 4, 7.719%,

1/28/2025 163,474

963,613 Structured Asset
Securities Corp. 1999-
ALS2, Class A2, 6.75%,

7/25/2029 942,984

TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS
(IDENTIFIED

COST $17,357,894) 17,036,909
PREFERRED STOCKS--0.3%

STEEL--0.3%
10,000 USX Capital LLC, Pfd.,

8.75%, Series A

(identified cost $254,375) 245,625
GOVERNMENT AGENCIES--1.7% 1
GOVERNMENT AGENCY--1.7%

$ 500,000 Federal Home Loan Bank
System, Sr. Note, 5.80%,

9/2/2008 471,275

301,804 Government National
Mortgage Association ARM

8902, 30 Year, 1/20/2022 304,949
187,797 Government National
Mortgage Association, Pool
423843, 8.50%, 8/15/2026 195,309

301,932 Government National
Mortgage Association, Pool

780360, 11.00%, 9/15/2015 332,786

TOTAL GOVERNMENT AGENCIES
(IDENTIFIED COST

$1,350,479) 1,304,319
<CAPTION>
PRINCIPAL
AMOUNT

OR SHARES VALUE
<C> <S> <C>

FOREIGN

GOVERNMENT/AGENCIES--1.4%

GOVERNMENT AGENCY--0.3%
$ 830,250 Brazil, Government of,

IDU, 6.063%, 1/1/2001 $ 806,380
SOVEREIGN--1.1%
200,000 Korea Development Bank,

Bond, 7.125%, 9/17/2001 199,178

TOTAL FOREIGN

GOVERNMENT/AGENCIES

(IDENTIFIED COST $950,258) 1,005,558
U.S. TREASURY--5.7%

1,122,000 United States Treasury

(IDENTIFIED COST

$4,302,024) 4,275,910
MUTUAL FUND--2.6%

222,868 The High Yield Bond
Portfolio (identified cost

$2,040,792) 1,950,097
REPURCHASE AGREEMENT--3.1%
4

2,360,000 ABN AMRO, Inc., 5.45%,
dated 9/30/1999, due
10/1/1999 (at amortized

cost) 2,360,000

TOTAL INVESTMENTS
(IDENTIFIED COST

$76,229,664) 5 $ 75,294,545
</TABLE>

3 Denotes a restricted security that has been deemed liquid by criteria approved
by the Board of Directors.

Note: The categories of investments are shown as a percentage of net assets
($75,568,498) at September 30, 1999.

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

SEPTEMBER 30, 1999

Payable for shares

redeemed $ 77,167
Income distribution
payable 336,167
Accrued expenses 12,536
TOTAL LIABILITIES 425,870
Net assets for 7,648,866
shares outstanding $ 75,568,498
NET ASSETS CONSIST OF:

See Notes which are an integral part of the Financial Statements

Statement of Operations

YEAR ENDED SEPTEMBER 30, 1999

<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 79,591
Interest 3,722,599
TOTAL INCOME 3,802,190
EXPENSES:

Investment advisory fee $ 224,110
Administrative personnel
and services fee 157,308
Custodian fees 6,046
Transfer and dividend
disbursing agent fees and
expenses 36,187
Directors'/Trustees' fees 3,696
Auditing fees 12,679
Legal fees 5,573
Portfolio accounting fees 58,557
Distribution services fee--
Institutional Service
Shares 27,473
Shareholder services fee--
Institutional Shares 112,597
Shareholder services fee--
Institutional Service
Shares 27,473
Share registration costs 25,635
Printing and postage 25,562
Insurance premiums 1,312
Taxes 6,388
Miscellaneous 2,945
TOTAL EXPENSES 733,541
WAIVERS AND
REIMBURSEMENTS:
Waiver of investment
advisory fee $ (224,110)
Waiver of distribution
services fee--Institutional
Service Shares (21,978)
Waiver of shareholder
services fee--Institutional
Shares (112,597)
Reimbursement of other
operating expenses (146,293)
TOTAL WAIVERS AND
REIMBURSEMENTS (504,978)
Net expenses 228,563
Net investment income 3,573,627
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS
Net realized loss on
investments (558,411)
Net change in unrealized
depreciation of
investments (1,379,505)
Net realized and
unrealized loss on
investments (1,937,916)
Change in net assets
resulting from operations $ 1,635,711
</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

YEAR ENDED SEPTEMBER 30 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET

ASSETS
OPERATIONS:

Net investment income $ 3,573,627 $ 1,424,328
Net realized loss on
investments ($2,474 and
($21,213), respectively,
as computed for federal tax

purposes) (558,411) (25,503)
Net change in unrealized

appreciation
(depreciation) of

investments (1,379,505) 385,862
CHANGE IN NET ASSETS

RESULTING FROM OPERATIONS 1,635,711 1,784,687
DISTRIBUTIONS TO
SHAREHOLDERS:

Distributions from net
investment income

Institutional Shares (2,875,443) (1,028,007)
Institutional Service
Shares (659,954) (406,658)
Distributions from net
realized gains on
investments
Institutional Shares -- (13,500)
Institutional Service
Shares -- (4,805)
CHANGE IN NET ASSETS
RESULTING FROM

DISTRIBUTIONS

TRANSACTIONS 35,344,145 31,478,940
Change in net assets 33,444,459 31,810,657
NET ASSETS:

Beginning of period 42,124,039 10,313,382
End of period (including
undistributed net
investment income of
$33,075 for the year ended
September 30, 1999) $ 75,568,498 $ 42,124,039
</TABLE>

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

SEPTEMBER 30, 1999

ORGANIZATION

SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS

REPURCHASE AGREEMENTS

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

INCREASE (DECREASE)

UNDISTRIBUTED

NET INVESTMENT
INCOME PAID IN CAPITAL
$(462) $462

Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.

FEDERAL TAXES

Withholding taxes on foreign interest and dividends have been provided for in
accordance with the fund's understanding of the applicable country's tax rules
and rates.

EXPIRATION YEAR EXPIRATION AMOUNT
2006 $3,491

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

RESTRICTED SECURITIES

Additional information on each restricted security held at September 30, 1999 is
as follows:

ACQUISITION ACQUISITION

SECURITY DATE COST
<S> <C> <C>
Banco Nacional de Mexico 1/9/1997 $ 123,186
C-BASS ABS, LLC Series 1999-3 7/9/1999 1,299,518
NC FINANCE TRUST 199-1 2/23/1999 479,991
SMFC TRUST 2/4/1998 175,656

</TABLE>

USE OF ESTIMATES

OTHER

Investment transactions are accounted for on the trade date.

CAPITAL STOCK

At September 30, 1999, par value shares ($0.001 per share) authorized were as
follows:

NUMBER OF PAR VALUE

CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Institutional 1,000,000,000
Institutional Service 1,000,000,000
TOTAL 2,000,000,000

</TABLE>

Transactions in capital stock were as follows:

TRANSACTIONS 3,808,225 $ 38,136,179 2,205,966 $ 22,391,105

SHARE TRANSACTIONS (278,601) $ (2,792,034) 895,318 $ 9,087,835
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 3,529,624 $ 35,344,145 3,101,284 $ 31,478,940
</TABLE>

INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE

ADMINISTRATIVE FEE

DISTRIBUTION SERVICES FEE

SHAREHOLDER SERVICES FEE

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES

PORTFOLIO ACCOUNTING FEES

FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.

GENERAL

Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
year ended September 30, 1999, were as follows:

Purchases $ 65,166,163
Sales $ 28,126,445

YEAR 2000 (UNAUDITED)

CHANGE OF INDEPENDENT AUDITORS (UNAUDITED)

Independent Auditors' Report

TO THE DIRECTORS OF FEDERATED TOTAL RETURN SERIES, INC.

AND SHAREHOLDERS OF THE INSTITUTIONAL SERVICE SHARES OF
FEDERATED LIMITED DURATION FUND:

Deloitte & Touche LLP

Boston, Massachusetts
November 12, 1999

[Graphic]
Federated

World-Class Investment Manager

Federated Limited Duration Fund

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SERVICE SHARES

PROSPECTUS

NOVEMBER 30, 1999

[Graphic]
Federated

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

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Investment Company Act File No. 811-7115

Cusip 31428Q309

G01744-02-SS (11/99)

[Graphic]

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 and Analysis without charge by calling 1-

800-341-7400.

NOVEMBER 30, 1999

[Graphic]
Federated

World-Class Investment Manager
Federated Limited Duration Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

G01744-03 (11/99)

[Graphic]

CONTENTS

How is the Fund Organized? 1
Securities in Which the Fund Invests 1
What Do Shares Cost? 10
How is the Fund Sold? 10
Subaccounting Services 10
Redemption in Kind 11
Account and Share Information 11
Tax Information 11
Who Manages and Provides Services to the Fund? 12
How Does the Fund Measure Performance? 15
Who is Federated Investors, Inc.? 16
Investment Ratings 18
Addresses 20

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

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.

CORPORATE DEBT SECURITIES

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 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. 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.

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.

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

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:

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

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

* 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:

* Buy call options on financial and foreign currency futures contracts in
anticipation of an increase in the value of the underlying asset;

* 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

* 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.

INTER-FUND BORROWING AND LENDING ARRANGEMENTS

The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend
and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary
for both borrowing and lending funds, and an inter- fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.

For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter- fund loans may
be made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the "Repo Rate") and more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term borrowings
(the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on
inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.

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 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

CREDIT RISKS

* 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.

CALL AND PREPAYMENT RISKS

* 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.

* 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.

* 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.

* 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

* 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.

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

RISKS ASSOCIATED WITH COMPLEX CMOS

* 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

CURRENCY RISKS

* 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.

* 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

* 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.

* 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

* 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.

* 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.

* 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.

* Dollar relative to other currencies.

LEVERAGE RISKS

* 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.

* 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."

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;

* 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 12, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Institutional Shares: Charles
Schwab & Co., Inc., San Francisco, CA, 5.70%; Grand Old Co., Zanesville, OH,
7.23%; S&E Trust Company, Oaks, PA, 8.67%; First Mar & Co., Marquette, MI,
9.52%; and JAS & Co., St. Cloud, MN, 31.56%.

As of November 12, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Institutional Service Shares:
FTC & Co., Denver, CO, 5.23%; National Investor Services Corp., New York, NY,
7.23%; Donaldson, Lufkin Jenrette Securities Corporation, Inc., Jersey City, NJ,
9.87%; Wells Fargo Bank, Calabasas, CA, 18.93%; and Anbee

& Company, Aurora, IL, 42.63%.

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.

The Fund is entitled to a loss carryforward, 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 12, 1999, the Fund's Board and Officers as a group owned less
than 1% of the Fund's outstanding Institutional and Institutional Service
Shares.

NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*#+ Chief Executive Officer $0 $0 for the Corporation
Birth Date: July 28, 1924 and Director or Trustee of and 54 other investment
Federated Investors Tower the Federated Fund companies in the
1001 Liberty Avenue Complex; Chairman and Fund Complex
Pittsburgh, PA Director, Federated
CHARIMAN AND DIRECTOR Investors, Inc.; Chairman
and Trustee, Federated Investment
Management Company; Chairman and
Director, Federated Investment
Counseling, and Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.

THOMAS G. BIGLEY Director or Trustee of $1,087.15 $113,860.22 for the
Birth Date: February 3, 1934 the Federated Fund Corporation and 54 other
15 Old Timber Trail Complex; Director, Member investment companies
Pittsburgh, PA of Executive Committee, in the Fund Complex
DIRECTOR Children's Hospital of
Pittsburgh; Director,
Robroy Industries, Inc.
(coated steel conduits/
computer storage
equipment); 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 $1,196.04 $125,264.48 for the
Birth Date: June 23, 1937 Federated Fund Complex; Corporation and 54 other
Wood/Commercial Dept. President, Investment investment companies
John R. Wood Associates, Inc. Realtors Properties Corporation; in the Fund Complex

3255 Tamiami Trail North Senior Vice President,
Naples, FL John R. Wood and
DIRECTOR Associates, Inc.,

Realtors; Partner or
Trustee in private real
estate ventures in
Southwest Florida;
formerly: President,
Naples Property
Management, Inc. and
Northgate Village
Development Corporation.

NICHOLAS CONSTANTAKIS Director or Trustee of the $1,087.15 $47,958.02 for the
Birth Date: September 3, 1939 Federated Fund Complex; Corporation and 29 other
175 Woodshire Drive formerly: Partner, investment companies
Pittsburgh, PA Andersen Worldwide SC. in the Fund Complex
DIRECTOR

JOHN F. CUNNINGHAM Director or Trustee of some $570.74 $0 for the Corporation
Birth Date: March 5, 1943 of the Federated Fund and 46 other investment
353 El Brillo Way Complex; Chairman, companies in the
Palm Beach, FL President and Chief Fund Complex
DIRECTOR Executive Officer,
Cunningham & Co., Inc.
(strategic business
consulting) ; Trustee
Associate, Boston College;
Director, Iperia Corp.
(communications/software);
formerly: 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.
J. CHRISTOPHER DONAHUE*+ President or Executive $0 $0 for the Corporation
Birth Date: April 11, 1949 Vice President of the and 16 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Director or Trustee of some Fund Complex
Pittsburgh, PA of the Funds in the
EXECUTIVE VICE PRESIDENT Federated Fund Complex;
AND DIRECTOR President, Chief Executive
Officer and Director, Federated
Investors, Inc.; President and Trustee,
Federated Investment Management
Company; President and Trustee,
Federated Investment Counseling;
President and Director, Federated
Global Investment Management Corp.;
President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services
Company; Director, Federated Services
Company.

LAWRENCE D. ELLIS, M.D.* Director or Trustee of the $1,087.15 $113,860.22 for the
Birth Date: October 11, 1932 Federated Fund Complex Corporation and 54 other
3471 Fifth Avenue Professor of Medicine, investment companies
Suite 1111 University of Pittsburgh; in the Fund Complex
Pittsburgh, PA Medical Director,
DIRECTOR University of Pittsburgh

Medical Center - Downtown;
Hematologist, Oncologist, and
Internist, University of Pittsburgh
Medical Center; Member, National Board
of Trustees, Leukemia Society of
America.

NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
PETER E. MADDEN Director or Trustee of the $989.03 $113,860.22 for the
Birth Date: March 16, 1942 Federated Fund Complex; Corporation and 54 other
One Royal Palm Way formerly: Representative, investment companies
100 Royal Palm Way Commonwealth of in the Fund Complex
Palm Beach, FL Massachusetts General
DIRECTOR Court; President, State
Street Bank and Trust
Company and State
Street Corporation.
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, JR. Director or Trustee of some $600.16 $0 for the Corporation
Birth Date: April 10, 1945 of the Federated Fund and 50 other investment
80 South Road Complex; Management companies in the
Westhampton Beach, NY Consultant. Fund Complex
DIRECTOR Previous Positions: Chief
Executive Officer, PBTC International
Bank; Partner, Arthur Young & Company
(now Ernst & Young LLP); 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., J.D., S.J.D.# Director or Trustee of $1,171.83 $113,860.22 for the
Birth Date: December 20, 1932 the Federated Fund Corporation and 54
President, Duquesne University Complex; President, Law other investment companies
Pittsburgh, PA Professor, Duquesne in the Fund Complex
DIRECTOR University; Consulting
Partner, Mollica & Murray;
Director, Michael Baker
Corp. (engineering,
construction, operations
and technical services).
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 $1,087.15 $113,860.22 for the
Birth Date: June 21, 1935 Federated Fund Complex; Corporation and 54 other
4905 Bayard Street Public Relations/ investment companies
Pittsburgh, PA Marketing/Conference in the Fund Complex
DIRECTOR Planning.
Previous Positions:
National Spokesperson,
Aluminum Company of
America; television
producer; business owner.

JOHN S. WALSH Director or Trustee of some $570.74 $0 for the Corporation
Birth Date: November 28, 1957 of the Federated Fund and 48 other investment
2007 Sherwood Drive Complex; President and companies in the
Valparaiso, IN Director, Heat Wagon, Inc. Fund Complex
DIRECTOR (manufacturer of
construction temporary
heaters); President and
Director, Manufacturers
Products, Inc.
(distributor of 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 $0 $0 for the Corporation
Birth Date: May 2, 1929 Securities Corp. and 8 other investment
Federated Investors Tower companies in the
1001 Liberty Avenue Fund Complex
Pittsburgh, PA

PRESIDENT

EDWARD C. GONZALES Trustee or Director of some $0 $0 for the Corporation
Birth Date: October 22, 1930 of the Funds in the and 1 other investment
Federated Investors Tower Federated Fund Complex; company in the
1001 Liberty Avenue President, Executive Vice Fund Complex
Pittsburgh, PA President and Treasurer of
EXECUTIVE VICE PRESIDENT some of the Funds in the
Federated Fund Complex; Vice Chairman,
Federated Investors, Inc.; Vice
President, Federated Investment
Management Company, Federated
Investment 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 $0 $0 for the Corporation
Birth Date: October 26, 1938 and Secretary of the and 54 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Executive Vice President, Fund Complex

Pittsburgh, PA Secretary, and Director,
EXECUTIVE VICE PRESIDENT Federated Investors, Inc.;
AND SECRETARY Trustee, Federated

Investment Management Company and
Federated Investment Counseling;
Director, Federated Global Investment
Management Corp., Federated Services
Company and Federated Securities Corp.

RICHARD J. THOMAS Treasurer of the Federated $0 $0 for the Corporation
Birth Date: June 17, 1954 Fund Complex; Vice and 54 other investment
Federated Investors Tower President - Funds companies in the
1001 Liberty Avenue Financial Services Fund Complex
Pittsburgh, PA Division, Federated

TREASURER Investors, Inc.; formerly:
various management
positions within Funds
Financial Services
Division of Federated
Investors, Inc.

Counseling, Federated Global Investment
Management Corp., Federated Investment
Management Company and Passport
Research, Ltd.; Registered
Representative, 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 $0 $0 for the Corporation
Birth Date: November 3, 1954 Vice President of the and 3 other investment
Federated Investors Tower Corporation. companies in the
1001 Liberty Avenue Mr. Balestrino joined Fund Complex
Pittsburgh, PA Federated in 1986 and has
VICE PRESIDENT 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.

</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 1, 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.

On September 30, 1999, the Fund owned securities of the following regular
broker/dealers: Donaldson, Lufkin and Jenrette Securities Corporation,
Inc. with a market value of $977,160 and Lehman Brothers Holdings, Inc.

with a market value of $939,977.

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:

AVERAGE AGGREGATE DAILY NET ASSETS

MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS <S> <C> 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 </TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may 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, Deloitte & Touche 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
<S> <C> <C> <C>
Advisory Fee Earned $224,110 $ 91,284 $ 24,589
Advisory Fee Reduction 224,110 91,284 22,579
Brokerage Commissions 0 0 0
Administrative Fee 157,308 155,001 155,000
12B-1 FEE

Institutional Service Shares 27,473 - -
SHAREHOLDER SERVICES FEE

Institutional Shares 112,597 - -
Institutional Service Shares 27,473 - -
</TABLE>

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

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

30-DAY START OF PERFORMANCE ON

SHARE CLASS PERIOD 1 YEAR SEPTEMBER 30, 1996
<S> <C> <C> <C>
INSTITUTIONAL SHARES:

Total Return NA 2.88% 6.30%
Yield 6.70% NA NA

30-DAY START OF PERFORMANCE ON
PERIOD 1 YEAR SEPTEMBER 30, 1996

<S> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Total Return NA 2.57% 6.03%
Yield 6.39% 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:

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

* 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;

* 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 Fund; and

* 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

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

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

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.

LIPPER ANALYTICAL SERVICES, INC.

Lipper Analytical Services, Inc. ranks funds in various categories by making
comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the "Short Intermediate
Grade Bond Funds" category in advertising and sales literature.

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 managed 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.

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:

* Leading market positions in well-established industries;

* High rates of return on funds employed;

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

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

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

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

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.

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

Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116

MANAGEMENT DISCUSSION AND ANALYSIS

Federated Limited Duration Fund

Annual Report for One Year Ended September 30, 1999

INSTITUTIONAL SHARES

INSTITUTIONAL SERVICE SHARES

Federated Limited Duration Fund represents a high quality, fixed income
portfolio combining various fixed income asset classes. Investments are
concentrated in U.S. Treasury, government agency, and high quality corporate
debt securities. The fund may also allocate a small percentage of assets, 15
percent combined, in either or both of the high yield corporate and
international bond sectors.

Two factors had the greatest effect on the fund's outcome for the year under
review; a year which at best could be considered difficult. The first was a
general increase in yield levels which began a mere three weeks into the period
and lasted until fiscal year-end. The second was a continuation of spread
widening in credit-sensitive securities despite a healthy economy. The increase
in yields has put calendar 1999 on track to be the worst year for bonds since
1994, which was in turn the worst year for bonds in over a generation. To put
things in the context of the fund's fiscal year, on October 1, 1998, the yield
on the 2-year Treasury note was 4.13%. On September 30, 1999, it had risen to
5.60%, an increase of 36%. The belief that continued economic growth must
eventually produce inflation was the major culprit behind the yield increase,
despite an absence of actual evidence of inflation. On the credit front, Y2K was
the major factor behind wider spreads, a trend which actually started in May,
then became particularly acute in the third quarter of 1999. Issuers hoping to
clean up their funding needs prior to calendar year-end pushed their issuance
into the third, and even second calendar quarter. The market, which had expected
heavy issuance only in the fourth quarter, was not prepared for the onslaught of
supply. The silver lining in the "Y2K cloud" is that with the beginning of the
fund's new fiscal year, the bulk of issuance for the year has now been seen.
Spreads at this writing have generally stopped widening. Following the turn of
the millenium, fund management believes there is likely to be a snapback of
spreads as event risk is diminished in a relatively robust economy.

It is fair to say that "spread product" (i.e., those securities whose values are
established on a relative basis to treasury yields), which comprises the
majority of fund assets, did not have as good a year as might have been
expected. The market dislocation of last year moved credit spreads to the point
where fund management believed an overweighting of credit risk was the indicated
strategy. Soon after the beginning of the current fiscal year, the fund was
positioned to take advantage of this opportunity, and the fund's performance
into the second calendar quarter reflected the subsequent improvement in spread
levels. As mentioned above however, once the unanticipated supply pipeline hit
beginning in the second quarter, these spread gains were reversed. In the case
of certain sectors like subordinate asset-backed securities, spreads are
actually wider today than they were at the wides of October 1998. With regard to
corporates, current spreads, while wider than they were in the second quarter,
are at least tighter than they were at last October's wides. Mortgages have
probably fared the best overall, though they too stand at wider levels than they
were earlier in the year. In addition, the negative convexity of mortgages has
been exacerbated by the general backup in interest rates. If one can make the
case that the economy will remain in reasonable shape, and that inflation is not
as big a factor as general market consensus would have it appear, the new fiscal
year should bring on the benefits of both spread tightening and a better
environment for interest rates.

For the entire fiscal year ended September 30, 1999, the fund produced a 2.88%
for Institutional Shares and 2.57% for Institutional Service Shares total return
relative to a 3.22% total return for the Merrill Lynch 1-3 Year Government Bond
Index and a 4.00% total return for the Merrill Lynch 1-3 Year Corporate Bond
Index. The fund's significant allocation to the asset- backed sector (ABS),
particularly the approximate 20 percent fund allocation to subordinate ABS, was
responsible for the underperformance. While subordinate ABSs have generally
suffered badly over the past 15 months, for the most part the underperformance
of this portion of the portfolio should be recovered. Fund management believes
that, as the securities which have been marked down in value actually begin to
pay off, everything else being equal, payments received at par should have a
direct positive effect on the fund's net asset value. At this writing, marginal
assets in the fund are generally being deployed in AAA-rated ABS, a sector which
is performing much better than its non-AAA rated counterpart. In addition,
corporate exposure is being slightly reduced as better relative value appears to
exist in ABS. Treasury and agency exposure remains between 5% and 10% of the
fund, a level which has remained unchanged for several months. Finally, MBS
exposure, which is generally allocated to short duration (2-3 year average
life), alternative-A (good credit borrowers who do not meet specific agency
underwriting standards) and jumbo (loan size in excess of $240,000) product, is
being maintained at a little over 20 percent of the portfolio. Subordinate ABS
exposure is not being deliberately reduced since it makes little sense to reduce
a sector which is expected to recover, despite the current stigma attached to
it. With regard to the fund's interest rate sensitivity, the fund's duration is
positioned just inside that of the Merrill Lynch 1-3 Year Corporate Index.

SHAREHOLDER MEETING RESULTS

An Annual Meeting of Shareholders of Federated Total Return Series (the
"Corporation"), was held on March 23, 1999. On January 12, 1999, the record date
for shareholders voting at the meeting, there were 24,102,378 total outstanding
shares. The following items were considered by shareholders of the Corporation
and the results of their voting were as follows:

AGENDA ITEM 1

To elect Directors. 1

WITHHELD
AUTHORITY

NAME FOR TO VOTE
<S> <C> <C>
Thomas G. Bigley 18,104,839 35,879
Nicholas P. Constantakis 18,138,428 2,290
John F. Cunningham 18,138,428 2,290
J. Christopher Donahue 18,138,428 2,290
Charles F. Mansfield, Jr. 18,138,428 2,290
John E. Murray, Jr., J.D., S.J.D. 18,138,428 2,290
John S. Walsh 18,138,428 2,290
</TABLE>

1 The following Directors of the Corporation continued their terms: John F.
Donahue, John T. Conroy, Lawrence D. Ellis, M.D., Peter E. Madden, and
Marjorie P. Smuts.

AGENDA ITEM 2

To ratify the selection of Ernst & Young LLP as the Corporation's independent
auditors.

The results of shareholders voting were as follows:

ABSTENTIONS

AND BROKER

FOR AGAINST NON-VOTES
<S> <C> <C>
18,110,860 215 29,642

</TABLE>

INSTITUTIONAL SHARES

GROWTH OF $100,000 INVESTED IN FEDERATED LIMITED DURATION FUND

[Graphic] - See Appendix 2

AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED SEPTEMBER 30, 1999
<S> <C>
1 Year 2.88%
Start of Performance
(10/1/96) 6.30%
</TABLE>

The graph above illustrates the hypothetical investment of $100,000 1 in the
Federated Limited Duration Fund (Institutional Shares) (the "Fund") from October
1, 1996 (start of performance) to September 30, 1999 compared to the Merrill
Lynch 1-3 Year Treasury Index (ML13YTI),2 Merrill Lynch 1-3 Year Corporate Index
(ML13CI),2 and the Lipper Short Investment Grade Debt Funds Average (LSIGDA).3

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.

This report must be preceded or accompanied by the Fund's prospectus dated
November 30, 1999, and, together with financial statements contained therein,
constitutes the Fund's annual report.

1 The Fund's performance assumes the reinvestment of all dividends and
distributions. The ML13YTI, ML13CI, and the LSIGDA have been adjusted to reflect
reinvestment of dividends on securities in the indices and the average.

2 The ML13YTI and ML13CI are not adjusted to reflect sales charges, expenses, or
other fees that the Securities and Exchange Commission (SEC) requires to be
reflected in the Fund's performance. The indices are unmanaged.

3 The LSIGDA represents the average of the total returns reported by all the
mutual funds designated by Lipper Analytical Services, Inc., as falling into the
category, and is not adjusted to reflect any sales charges. However, these total
returns are reported net of expenses or other fees that the SEC requires to be
reflected in the fund's performance.

INSTITUTIONAL SERVICE SHARES

GROWTH OF $25,000 INVESTED IN FEDERATED LIMITED DURATION FUND

[Graphic] - See Appendix 2

AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED SEPTEMBER 30, 1999
<S> <C>
1 Year 2.57%
Start of Performance
(10/1/96) 6.03%
</TABLE>

The graph above illustrates the hypothetical investment of $25,000 1 in the
Federated Limited Duration Fund (Institutional Service Shares) (the "Fund") from
October 1, 1996 (start of performance) to September 30, 1999 compared to the
Merrill Lynch 1-3 Year Treasury Index (ML13YTI),2 Merrill Lynch 1-3 Year
Corporate Index (ML13CI),2 and the Lipper Short Investment Grade Debt Funds

Average (LSIGDA).3

This report must be preceded or accompanied by the Fund's prospectus dated
November 30, 1999, and, together with financial statements contained therein,
constitutes the Fund's annual report.

[Graphic]
Federated

World-Class Investment Manager
Federated Limited Duration Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Cusip 31428Q309
Cusip 31428Q408

G01744-04 (11/99)

[Graphic]

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.

NOVEMBER 30, 1999

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 3

What are the Fund's Investment Strategies? 4

What are the Principal Securities in Which the

Fund Invests? 5

What are the Specific Risks of Investing in the Fund? 10

What Do Shares Cost? 12

How is the Fund Sold? 12

How to Purchase Shares 12

How to Redeem Shares 13

Account and Share Information 15

Who Manages the Fund? 16

Financial Information 17

Independent Auditors' Report 29

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. The Fund seeks to
provide the appreciation component of total return by selecting those securities
whose prices will, in the opinion of the Adviser, benefit from anticipated
changes in economic and market conditions. 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 non-governmental investment grade, 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:

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

* 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.

* 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.

* 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.

RISK/RETURN BAR CHART AND TABLE

[Graphic] - See Appendix

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

The Fund's Institutional Shares are not subject to a sales charge (load). The
total return displayed above is based upon net asset value.

The Fund's Institutional Shares total return for the nine-month period from
January 1, 1999 to September 1999 was 1.41%.

Within the period shown in the Chart, the Fund's Institutional Shares highest
quarterly return was 2.23% (quarter ended September 30, 1998). Its lowest
quarterly return was 1.58% (quarter ended June 30, 1998).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Institutional Shares Average Annual
Total Return for the calendar period ended December 31, 1998. The table shows
the Fund's Institutional Shares total returns averaged over the year relative to
the Lehman Brothers Mortgage-Backed Securities Index (LBMBSI), a broad-based
market index, and the Lipper U.S. Mortgage Fund Category (LUSMFC), an average of
funds with similar objectives. The LBMBSI is composed of all fixed rate,
securitized mortgage pools by GNMA, FNMA, and the FHLMC, including GNMA
Graduated Payment Mortgages. Lipper figures represent the average of the total
returns reported by all of the mutual funds designated by Lipper Analytical
Services, Inc. as falling into the respective categories indicated. 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.

<TABLE>

CALENDAR PERIOD FUND LBMBSI LUSMFC
<S> <C> <C> <C>
1 Year 7.58% 6.96% 6.17%
Start of Performance 1 9.67% 8.62% 8.10%

</TABLE>

1 The Fund's Institutional Shares start of performance date was May 31, 1997.

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.

<TABLE>

SHAREHOLDER FEES

<S> <C>
Fees Paid Directly From
Your Investment
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) None
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 applicable) None
Exchange Fee None

ANNUAL FUND OPERATING EXPENSES (Before Waivers and Reimbursements) 1 Expenses
That are Deducted From Fund Assets (as a percentage of average net assets)

Management Fee 2 0.40%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 4 3.30%
Total Annual Fund
Operating Expenses 3.95%
1 Although not contractually obligated to do so, the adviser and shareholder
services provider waived and reimbursed certain amounts. These are shown below
along with the net expenses the Fund actually paid for the fiscal year ended
September 30, 1999.
Total Waivers and Reimbursements of Fund Expenses 3.65%
Total Actual Annual Fund Operating Expenses (after waivers and reimbursements) 0.30%

2 The adviser voluntarily waived the management fee. The adviser can terminate
this voluntary waiver at any time. The management fee paid by the Fund (after
the voluntary waiver) was 0.00% for the fiscal year ended September 30, 1999. 3
The shareholder services provider voluntarily waived the shareholder services
fee. The shareholder services provider can terminate this voluntary waiver at
any time. The shareholder services fee paid by the Fund's Institutional Shares
(after the voluntary waiver) was 0.00% for the fiscal year ended September 30,
1999. 4 The adviser voluntarily reimbursed certain operating expenses of the
Fund. The adviser can terminate this voluntary reimbursement at any time. Total
other expenses paid by the Fund (after voluntary reimbursement) was 0.30% for
the fiscal year ended September 30, 1999.

</TABLE>

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 Institutional Shares operating expenses are BEFORE
WAIVERS AND REIMBURSEMENTS as 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:

<TABLE>

<S> <C>
1 Year $ 397
3 Years $ 1,204
5 Years $ 2,028
10 Years $ 4,164

</TABLE>

What are the Fund's Investment Strategies?

The Fund invests primarily in a portfolio of U.S. government and non-government
investment grade, 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:

* current and expected U.S. economic growth;

* current and expected interest rates and inflation;

* the Federal Reserve's monetary policy; and

* 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
circumstance; 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.

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

AGENCY SECURITIES

MORTGAGE BACKED SECURITIES

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

PACS, TACS AND COMPANION CLASSES

IOS AND POS

FLOATERS AND INVERSE FLOATERS

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

DERIVATIVE CONTRACTS

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

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

OPTIONS

The Fund may:

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

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

* 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

INTEREST RATE SWAPS

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

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.

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.

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

* Establish an account with the investment professional; and

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

DIRECTLY FROM THE FUND

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

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

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)

How to Redeem Shares

You should redeem Shares:

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

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

THROUGH AN 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:

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

* amount to be redeemed; and

* 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:

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

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

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

* if exchanging (transferring) into another fund with a different shareholder
registration.

PAYMENT METHODS FOR REDEMPTIONS

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

* 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:

* to allow your purchase to clear;

* during periods of market volatility; or

* 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

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

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 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

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 Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.

Financial Highlights

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on Page 29.

<TABLE>

YEAR ENDED SEPTEMBER 30 1999 1 1998 1997 2
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING

OF PERIOD $10.11 $10.26 $10.00
INCOME FROM INVESTMENT
OPERATIONS:

Net investment income 0.67 0.95 0.25
Net realized and
unrealized gain (loss) on
investments (0.35) (0.15) 0.26
TOTAL FROM INVESTMENT

OPERATIONS 0.32 0.80 0.51
LESS DISTRIBUTIONS:

Distributions from net

investment income (0.66) (0.95) (0.25)
NET ASSET VALUE, END OF

PERIOD $ 9.77 $10.11 $10.26
TOTAL RETURN 3 3.20% 8.25% 5.12%

RATIOS TO AVERAGE NET

ASSETS:

Expenses 4 3.95% 7.48% 12.25% 5
Net investment income
(loss) 4 2.98% 2.20% (4.88%) 5
Expenses (after waivers
and reimbursements) 0.30% 0.26% 0.00% 5
Net investment income
(after waivers and
reimbursements) 6.63% 9.42% 7.37% 5
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $17,049 $5,224 $5,145
Portfolio turnover 150% 147% 9%

</TABLE>

1 For the year ended September 30, 1999, the Fund was audited by Deloitte &
Touche LLP. Each of the previous years were audited by other auditors.

2 Reflects operations for the period from May 31, 1997 (start of performance) to
September 30, 1997.

3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

4 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.

5 Computed on an annualized basis.

See Notes which are an integral part of the Financial Statements

Portfolio of Investments

SEPTEMBER 30, 1999

<TABLE>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

ASSET-BACKED SECURITIES-
6.7%
HOME EQUITY LOANS -6.7%

$ 49,004 Green Tree Home Equity Loan
Trust 99, Class B2A,

7.440%, 2/15/2029 $ 48,912
200,000 Mellon Bank Home Equity
Installment Loan 98-1,

6.950%, 3/25/2015 191,664

12,498,115 New Century Home Equity
Loan Trust 99, Class C3,
1.935%, (Interest Only)

6/25/2002 595,660

7,000,000 Salomon Brothers Mortgage
Sec. VII-4, 2.547%,

(Interest Only), 4/15/2028 350,000

TOTAL ASSET-BACKED
SECURITIES (IDENTIFIED

COST $1,257,809) 1,186,236
LONG-TERM OBLIGATIONS-

92.9%

FEDERAL HOME LOAN MORTGAGE

CORPORATION-18.8%

1,785,125 6.500%, 9/1/2028 1,713,720
557,565 7.000%, 6/1/2028 548,332
1,038,265 7.500%, 2/1/2027 1,043,456
TOTAL 3,305,508
FEDERAL HOME LOAN MORTGAGE
CORPORATION-DEBENTURE-4.3%

800,000 5.750%, 3/15/2009 748,464
FEDERAL HOME LOAN MORTGAGE
CORPORATION REMIC-8.3%

250,000 Series 2031-BO, (Principal
Only), 2/20/2028 185,922
660,021 Series 197-PO, (Principal
Only), 4/1/2028 411,279
2,643,541 Series 2139-IO, 6.500%,
(Interest Only),

10/15/2026 661,705
265,178 Series 2030-PE, 7.000%,
(Interest Only), 2/15/2028 100,768
325,000 Series 2081-ED, 7.500%,
(Interest Only), 8/15/2028 102,476
TOTAL 1,462,150

FEDERAL NATIONAL MORTGAGE

ASSOCIATION-30.2%
2,023,431 6.000%, 6/1/2014 -

7/1/2029 1,894,814
1,159,000 6.500%, 9/1/2029 1,111,551
1,780,012 1 7.000%, 4/1/2029 -

10/1/2029 1,749,414
100,000 1 7.500%, 10/1/2029 100,312
445,293 8.000%, 12/1/2026 454,618
TOTAL 5,310,709

FEDERAL NATIONAL MORTGAGE
ASSOCIATION REMIC-2.6%

462,509 FNGT, Series 99-T2-A1,

7.50%,1/19/2039 462,583
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

LONG-TERM OBLIGATIONS-

continued

GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION-27.9%

$ 967,562 6.000%, 11/15/2028 -
5/15/2029 $ 898,148
1,857,015 6.500%, 5/15/2024 -
4/15/2029 1,784,918
2,246,312 7.000%, 9/15/2028 -
6/15/2029 2,204,193
TOTAL 4,887,259

GOVERNMENT NATIONAL

MORTGAGE ASSOCIATION

REMIC-0.8%
200,000 Series 97-17-PO,

(Principal Only),

12/20/2027 148,738

TOTAL LONG-TERM
OBLIGATIONS (IDENTIFIED

COST $16,493,336) 16,325,411
REPURCHASE AGREEMENTS-5.2%

205,000 ABN AMRO, Inc., 5.450%,
dated 9/30/1999, due

10/1/1999 205,000

250,000 3 Credit Suisse First
Boston, Inc., 5.260%,
dated 9/13/1999, due

10/14/1999 250,000
450,000 3 J.P. Morgan & Co., Inc.,
5.260%, dated 9/9/1999,

due 10/14/1999 450,000

TOTAL REPURCHASE
AGREEMENTS (AT AMORTIZED

COST) 905,000

TOTAL INVESTMENTS
(IDENTIFIED COST

$18,656,145) 4 $ 18,416,647

</TABLE>

1 Indicates securities subject to dollar roll transactions.

2 The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in joint
accounts with other Federated funds.

3 Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase agreement
within seven days.

4 The cost of investments for federal tax purposes amounts to $18,656,145. The
net unrealized depreciation of investments on a federal tax basis amounts to
$239,498 which is comprised of $173,567 appreciation and $413,065 depreciation
at September 30, 1999.

Note: The categories of investments are shown as a percentage of net assets
($17,578,078) at September 30, 1999.

The following acronym is used throughout this portfolio:

REMIC -Real Estate Mortgage Investment Conduit

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

SEPTEMBER 30, 1999

<TABLE>

<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$18,656,145) $ 18,416,647
Income receivable 83,203
Receivable for shares sold 1,000
TOTAL ASSETS 18,500,850
LIABILITIES:

Payable for investments
purchased $ 100,302
Payable for shares
redeemed 18,067
Income distribution
payable 87,401
Payable for dollar roll
transactions 686,535
Accrued expenses 30,467
TOTAL LIABILITIES 922,772
Net assets for 1,799,130
shares outstanding $ 17,578,078
NET ASSETS CONSIST OF:

Paid in capital $ 17,840,741
Net unrealized
depreciation of
investments 1 (239,498)
Accumulated net realized
loss on investments (23,165)
TOTAL NET ASSETS $ 17,578,078
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
INSTITUTIONAL SHARES:
$17,049,410 / 1,745,020

shares outstanding $9.77

INSTITUTIONAL SERVICE

$528,668 / 54,110 shares

outstanding $9.77

</TABLE>

1 Includes $84,429 of unrealized appreciation at July 19,1999, related to the
tax-free transfer of assets from a Common Trust Fund.

See Notes which are an integral part of the Financial Statements

Statement of Operations

YEAR ENDED SEPTEMBER 30, 1999

<TABLE>

<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar
roll expense of $4,747) $ 717,374
EXPENSES:

Investment advisory fee $ 41,413
Administrative personnel
and services fee 155,000
Custodian fees 3,861
Transfer and dividend
disbursing agent fees and
expenses 53,423
Directors'/Trustees' fees 2,843
Auditing fees 12,635
Legal fees 3,088
Portfolio accounting fees 52,420
Distribution services fee-
Institutional Service
Shares 404
Shareholder services fee-
Institutional Shares 25,479
Shareholder services fee-
Institutional Service
Shares 404
Share registration costs 26,595
Printing and postage 27,244
Insurance premiums 1,445
Taxes 1,012
Miscellaneous 1,731
TOTAL EXPENSES 408,997
WAIVERS AND
REIMBURSEMENTS:
Waiver of investment
advisory fee $ (41,413)
Waiver of distribution
services fee-Institutional
Service Shares (323)
Waiver of shareholder
services fee-Institutional
Shares (25,479)
Reimbursement of other
operating expenses (310,249)
TOTAL WAIVERS AND
REIMBURSEMENTS (377,464)
Net expenses 31,533
Net investment income 685,841
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on
investments (9,453)
Net change in unrealized
depreciation of
investments (394,001)
Net realized and
unrealized loss on
investments (403,454)
Change in net assets
resulting from operations $ 282,387

</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

<TABLE>

YEAR ENDED SEPTEMBER 30 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET

ASSETS
OPERATIONS:

Net investment income $ 685,841 $ 488,461
Net realized loss on
investments ($440 and
$(13,712), respectively,
as computed for federal tax

purposes) (9,453) (3,683)
Net change in unrealized
depreciation (394,001) (75,797)
CHANGE IN NET ASSETS

RESULTING FROM OPERATIONS 282,387 408,981
DISTRIBUTIONS TO
SHAREHOLDERS:

Distributions from net
investment income

Institutional Shares (669,956) (488,300)
Institutional Service
Shares (10,121) (161)
CHANGE IN NET ASSETS
RESULTING FROM

DISTRIBUTIONS

TO SHAREHOLDERS (680,077) (488,461)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 11,435,668 5,156,650
Proceeds from shares
issued in connection with
the tax-free transfer of
assets from a Common Trust
Fund 3,204,570 -
Net asset value of shares
issued to shareholders in
payment of
distributions declared 96,174 46,227
Cost of shares redeemed (1,999,893) (5,034,414)
CHANGE IN NET ASSETS
RESULTING FROM SHARE

TRANSACTIONS 12,736,519 168,463
Change in net assets 12,338,829 88,983
NET ASSETS:

Beginning of period 5,239,249 5,150,266
End of period $ 17,578,078 $ 5,239,249

</TABLE>

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

SEPTEMBER 30, 1999

ORGANIZATION

Federated Total Return Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of four portfolios. The
financial statements included herein are only those of Federated Mortgage Fund
(the "Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares. The investment objective of the Fund is to provide
total return.

On July 19, 1999, the Fund received a tax-free transfer of assets from a Common
Trust Fund as follows:

<TABLE>

<S> <C>
Fund Shares Issued $ 325,337
Common Trust Fund Net Assets Received $ 3,204,570
Unrealized Appreciation 1 $ 84,429

</TABLE>

1 Unrealized appreciation is included in the Common Trust Fund net assets
acquired above.

SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS

U.S. government securities are generally valued at the mean of the latest bid
and asked price as furnished by an independent pricing service. Short- term
securities are valued at the prices provided by an independent pricing service.
However, short-term securities with remaining maturities of 60 days or less at
the time of purchase may be valued at amortized cost, which approximates fair
market value.

REPURCHASE AGREEMENTS

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

FEDERAL TAXES

At September 30, 1999, the Fund, for federal tax purposes, had a capital loss
carryforward of $13,272, which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire in
2006 ($13,272).

Additionally, net capital losses of $9,484 attributable to security transactions
after October 31, 1998, are treated as arising on October 1, 1999, the first day
of the Fund's next taxable year.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

DOLLAR ROLL TRANSACTIONS

The Fund enters into dollar roll transactions, with respect to mortgage
securities issued by GNMA and FNMA in which the Fund sells mortgage securities
to financial institutions and simultaneously agrees to accept substantially
similar (same type, coupon and maturity) securities at a later date at an agreed
upon price. Dollar roll transactions involve "to be announced" securities and
are treated as short-term financing arrangements which will not exceed twelve
months. The Fund will use the proceeds generated from the transactions to invest
in short-term investments, which may enhance the Fund's current yield and total
return.

USE OF ESTIMATES

OTHER

Investment transactions are accounted for on the trade date.

CAPITAL STOCK

At September 30, 1999, par value shares ($0.001 per share) authorized were as
follows:

<TABLE>

NUMBER OF PAR VALUE

SHARE CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Institutional Shares 1,000,000
Institutional Service Shares 1,000,000
TOTAL 2,000,000

</TABLE>

Transactions in capital stock were as follows:

<TABLE>

YEAR ENDED SEPTEMBER 30 1999 1998
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,087,338 $ 10,771,969 508,001 $ 5,141,650
Shares issued in
connection with the tax-
free transfer of assets
from a Common Trust Fund 325,337 3,204,570 - -
Shares issued to
shareholders in payment of
distributions declared 8,852 87,946 4,581 46,199
Shares redeemed (193,428) (1,929,683) (496,925) (5,029,318)
NET CHANGE RESULTING FROM

INSTITUTIONAL

SHARE TRANSACTIONS 1,228,099 $ 12,134,802 15,657 $ 158,531

YEAR ENDED SEPTEMBER 30 1999 1998
INSTITUTIONAL SERVICE
SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 58,881 $ 579,270 1,494 $ 15,000
Shares issued to
shareholders in payment of
distributions declared 841 8,228 3 28
Shares redeemed (7,138) (70,210) (494) (5,096)
NET CHANGE RESULTING FROM
INSTITUTIONAL SERVICE

SHARE TRANSACTIONS 52,584 $ 517,288 1,003 $ 9,932
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 1,280,683 $ 12,652,090 16,660 $ 168,463

</TABLE>

INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE

Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose
to waive any portion of its fee and/or reimburse certain operating expenses of
the Fund. The Adviser can modify or terminate this voluntary waiver and/or
reimbursement at any time at its sole discretion.

ADMINISTRATIVE FEE

DISTRIBUTION SERVICES FEE

The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b- 1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Institutional Service Shares to finance activities intended to result in the
sale of the Fund's Institutional Service Shares. The Plan provides that the Fund
may incur distribution expenses up to 0.25% of the average daily net assets of
the Institutional Service Shares, annually, to compensate FSC. FSC may
voluntarily choose to waive any portion of its fee. FSC can modify or terminate
this voluntary waiver at any time at its sole discretion.

SHAREHOLDER SERVICES FEE

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES

FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.

PORTFOLIO ACCOUNTING FEES

FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.

INTERFUND TRANSACTIONS

During the year ended September 30, 1999, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $10,436,795 and $3,191,826, respectively.

GENERAL

Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
year ended September 30, 1999, were as follows:

<TABLE>

<S> <C>
Purchases $ 25,250,187
Sales $ 15,498,823

</TABLE>

YEAR 2000 (UNAUDITED)

CHANGE OF INDEPENDENT AUDITORS (UNAUDITED)

Independent Auditors' Report

TO THE DIRECTORS OF FEDERATED TOTAL RETURN SERIES, INC.
AND SHAREHOLDERS OF INSTITUTIONAL SHARES OF FEDERATED MORTGAGE FUND:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Mortgage Fund (the "Fund") as of
September 30, 1999, and the related statement of operations, statement of
changes in net assets and the financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets for the year ended September 30, 1998 and financial
highlights for the years ended September 30, 1998 and 1997 were audited by other
auditors whose report dated November 13, 1998, expressed an unqualified opinion
on those statements.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to provide
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
September 30, 1999, by correspondence with the custodian and brokers; where
replies were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe our audit provides a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Fund as of
September 30, 1999, the results of its operations, the changes in its net assets
and its financial highlights for the year then ended in conformity with
generally accepted accounting principles.

Deloitte & Touche LLP

Boston, Massachusetts

November 12, 1999

[Graphic]
Federated

World-Class Investment Manager

PROSPECTUS

Federated Mortgage Fund

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SHARES

NOVEMBER 30, 1999

You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. 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, DC 20549-0102. Call 1-202-942- 8090 for
information on the Public Reference Room's operations and copying fees.

[Graphic]
Federated

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

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Investment Company Act File No. 811-7115

Cusip 31428Q887

G01922-01-IS (11/99)

[Graphic]

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.

NOVEMBER 30, 1999

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 3

What are the Fund's Investment Strategies? 4

What are the Principal Securities in Which the

Fund Invests? 6

What are the Specific Risks of Investing in the Fund? 11

What Do Shares Cost? 13

How is the Fund Sold? 13

How to Purchase Shares 13

How to Redeem Shares 15

Account and Share Information 16

Who Manages the Fund? 17

Financial Information 18

Independent Auditors' Report 30

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. The Fund seeks to
provide the appreciation component of total return by selecting those securities
whose prices will, in the opinion of the Adviser, benefit from anticipated
changes in economic and market conditions. 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 non-governmental investment grade 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:

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

* 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.

RISK/RETURN BAR CHART AND TABLE

[Graphic] - See Appendix

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

The Fund's Institutional Service Shares are not sold subject to a sales charge
(load). The total return displayed above is based upon net asset value.

The Fund's Institutional Service Shares total return for the nine-month period
from January 1, 1999 to September 30, 1999 was 1.18%.

Within the period shown in the Chart, the Fund's Institutional Service Shares
highest quarterly return was 2.15% (quarter ended September 30, 1998). Its
lowest quarterly return was 1.51% (quarter ended June 30, 1998).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Institutional Service Shares Average
Annual Total Return for the calendar period ended December 31, 1998. The table
shows the Fund's Institutional Service Shares total returns averaged over the
year relative to the Lehman Brothers Mortgage-Backed Securities Index (LBMBSI),
a broad-based market index, and the Lipper U.S. Mortgage Fund Category (LUSMFC),
an average of funds with similar objectives. The LBMBSI is composed of all fixed
rate, securitized mortgage pools by GNMA, FNMA, and the FHLMC, including GNMA
Graduated Payment Mortgages. Lipper figures represent the average of the total
returns reported by all of the mutual funds designated by Lipper Analytical
Services, Inc. as falling into the respective categories indicated. 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.

<TABLE>

CALENDAR PERIOD FUND LBMBSI LUSMFC
<S> <C> <C> <C>
1 Year 7.26% 6.96% 6.17%
Start of Performance 1 9.38% 8.62% 8.10%

</TABLE>

1 The Fund's Institutional Service Shares start of performance date was May 31,
1997.

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.

<TABLE>

SHAREHOLDER FEES

<S> <C>
Fees Paid Directly From
Your Investment
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) None
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 applicable) None
Exchange Fee None

ANNUAL FUND OPERATING EXPENSES (Before Waivers and Reimbursements) 1 Expenses
That are Deducted From Fund Assets (as a percentage of average net assets)

Management Fee 2 0.40%
Distribution (12b-1) Fee 3 0.25%
Shareholder Services Fee 0.25%
Other Expenses 4 3.30%
Total Annual Fund
Operating Expenses 4.20%
1 Although not contractually obligated to do so, the adviser and distributor
waived and reimbursed certain amounts. These are shown below along with the net
expenses the Fund actually paid for the fiscal year ended September 30, 1999.
Total Waivers and Reimbursements of Fund Expenses 3.60%
Total Actual Annual Fund Operating Expenses (after waivers and reimbursements) 0.60%

2 The adviser voluntarily waived the management fee. The adviser can terminate
this voluntary waiver at any time. The management fee paid by the Fund (after
the voluntary waiver) was 0.00% for the fiscal year ended September 30, 1999. 3
The distributor voluntarily waived a portion of the distribution (12b-1) fee.
The distributor can terminate this voluntary waiver at any time. The
distribution (12b-1) fee paid by the Fund's Institutional Service Shares (after
the voluntary waiver) was 0.05% for the fiscal year ended September 30, 1999. 4
The adviser voluntarily reimbursed certain operating expenses of the Fund. The
adviser can terminate this voluntary reimbursement at any time. Total other
expenses paid by the Fund (after the voluntary reimbursement) was 0.30% for the
fiscal year ended September 30, 1999.

</TABLE>

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 Institutional Service Shares operating
expenses are BEFORE WAIVERS AND REIMBURSEMENTS as 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:

<TABLE>

<S> <C>
1 Year $ 422
3 Years $ 1,275
5 Years $ 2,142
10 Years $ 4,372

</TABLE>

What are the Fund's Investment Strategies?

* current and expected U.S. economic growth;

* current and expected interest rates and inflation;

* the Federal Reserve's monetary policy; and

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

TEMPORARY DEFENSIVE INVESTMENTS

PORTFOLIO TURNOVER

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

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.

MORTGAGE BACKED SECURITIES

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 CMOs.
As a result, each class of sequential pay CMOs reduces the prepayment risks of
subsequent classes.

PACS, TACS AND COMPANION CLASSES

IOS AND POS

FLOATERS AND INVERSE FLOATERS

NON-GOVERNMENTAL MORTGAGE BACKED SECURITIES

Non-governmental mortgage backed securities (including non-governmental CMOs)
are issued by private entities, rather than by U.S. govern-ment 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

DERIVATIVE 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

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

OPTIONS

The Fund may:

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

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

SWAPS

INTEREST RATE SWAPS

SPECIAL TRANSACTIONS

DELAYED DELIVERY TRANSACTIONS

TO BE ANNOUNCED SECURITIES (TBAS)

DOLLAR ROLLS

REPURCHASE AGREEMENTS

ASSET COVERAGE

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

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.

PREPAYMENT RISKS

LIQUIDITY RISKS

RISKS ASSOCIATED WITH COMPLEX CMOS

What Do Shares Cost?

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.

RULE 12B-1 PLAN

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

* Establish an account with the investment professional; and

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

DIRECTLY FROM THE FUND

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

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

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)

How to Redeem Shares

You should redeem Shares:

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

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

THROUGH AN 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:

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

* amount to be redeemed; and

* 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:

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

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

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

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

PAYMENT METHODS FOR REDEMPTIONS

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

* 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:

* to allow your purchase to clear;

* during periods of market volatility; or

* 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

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

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 FUND'S PORTFOLIO MANAGERS ARE:

KATHLEEN M. FOODY-MALUS

EDWARD J. TIEDGE

ADVISORY FEES

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

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

Financial Highlights

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 30.

<TABLE>

YEAR ENDED SEPTEMBER 30 1999 1 1998 1997 2
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING

OF PERIOD $10.11 $10.26 $10.00
INCOME FROM INVESTMENT
OPERATIONS:

Net investment income 0.66 0.92 0.24
Net realized and
unrealized gain (loss) on
investments (0.37) (0.15) 0.26
TOTAL FROM INVESTMENT

OPERATIONS 0.29 0.77 0.50
LESS DISTRIBUTIONS:

Distributions from net

investment income (0.63) (0.92) (0.24)
NET ASSET VALUE, END OF

PERIOD $ 9.77 $10.11 $10.26
TOTAL RETURN 3 2.89% 7.93% 5.07%

RATIOS TO AVERAGE NET

ASSETS:

Expenses 4 4.20% 9.00% 14.14% 5
Net investment income
(loss) 4 2.78% (1.90%) (6.38%) 5
Expenses (after waivers
and reimbursements) 0.60% 0.48% 0.00% 5
Net investment income
(after waivers and
reimbursements) 6.38% 6.62% 7.76% 5
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $529 $15 $5
Portfolio turnover 150% 147% 9%

</TABLE>

1 For the year ended September 30, 1999, the Fund was audited by Deloitte &
Touche LLP. Each of the previous years were audited by other auditors.

2 Reflects operations for the period from May 31, 1997 (start of performance) to
September 30, 1997.

3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

4 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.

5 Computed on an annualized basis.

See Notes which are an integral part of the Financial Statements

Portfolio of Investments

SEPTEMBER 30, 1999

<TABLE>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

ASSET-BACKED SECURITIES-
6.7%
HOME EQUITY LOANS -6.7%

$ 49,004 Green Tree Home Equity Loan
Trust 99, Class B2A,

7.440%, 2/15/2029 $ 48,912
200,000 Mellon Bank Home Equity
Installment Loan 98-1,

6.950%, 3/25/2015 191,664

12,498,115 New Century Home Equity
Loan Trust 99, Class C3,
1.935%, (Interest Only)

6/25/2002 595,660

7,000,000 Salomon Brothers Mortgage
Sec. VII-4, 2.547%,

(Interest Only), 4/15/2028 350,000

TOTAL ASSET-BACKED
SECURITIES (IDENTIFIED

COST $1,257,809) 1,186,236
LONG-TERM OBLIGATIONS-

92.9%

FEDERAL HOME LOAN MORTGAGE

CORPORATION-18.8%

1,785,125 6.500%, 9/1/2028 1,713,720
557,565 7.000%, 6/1/2028 548,332
1,038,265 7.500%, 2/1/2027 1,043,456
TOTAL 3,305,508
FEDERAL HOME LOAN MORTGAGE
CORPORATION-DEBENTURE-4.3%

800,000 5.750%, 3/15/2009 748,464
FEDERAL HOME LOAN MORTGAGE
CORPORATION REMIC-8.3%

250,000 Series 2031-BO, (Principal
Only), 2/20/2028 185,922
660,021 Series 197-PO, (Principal
Only), 4/1/2028 411,279
2,643,541 Series 2139-IO, 6.500%,
(Interest Only),

10/15/2026 661,705
265,178 Series 2030-PE, 7.000%,
(Interest Only), 2/15/2028 100,768
325,000 Series 2081-ED, 7.500%,
(Interest Only), 8/15/2028 102,476
TOTAL 1,462,150

FEDERAL NATIONAL MORTGAGE

ASSOCIATION-30.2%
2,023,431 6.000%, 6/1/2014 -

7/1/2029 1,894,814
1,159,000 6.500%, 9/1/2029 1,111,551
1,780,012 1 7.000%, 4/1/2029 -

10/1/2029 1,749,414
100,000 1 7.500%, 10/1/2029 100,312
445,293 8.000%, 12/1/2026 454,618
TOTAL 5,310,709

FEDERAL NATIONAL MORTGAGE
ASSOCIATION REMIC-2.6%

462,509 FNGT, Series 99-T2-A1,

7.50%,1/19/2039 462,583
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

LONG-TERM OBLIGATIONS-

continued

GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION-27.9%

$ 967,562 6.000%, 11/15/2028 -
5/15/2029 $ 898,148
1,857,015 6.500%, 5/15/2024 -
4/15/2029 1,784,918
2,246,312 7.000%, 9/15/2028 -
6/15/2029 2,204,193
TOTAL 4,887,259

GOVERNMENT NATIONAL

MORTGAGE ASSOCIATION

REMIC-0.8%
200,000 Series 97-17-PO,

(Principal Only),

12/20/2027 148,738

TOTAL LONG-TERM
OBLIGATIONS (IDENTIFIED

COST $16,493,336) 16,325,411
REPURCHASE AGREEMENTS-5.2%

205,000 ABN AMRO, Inc., 5.450%,
dated 9/30/1999, due

10/1/1999 205,000

250,000 3 Credit Suisse First
Boston, Inc., 5.260%,
dated 9/13/1999, due

10/14/1999 250,000
450,000 3 J.P. Morgan & Co., Inc.,
5.260%, dated 9/9/1999,

due 10/14/1999 450,000

TOTAL REPURCHASE
AGREEMENTS (AT AMORTIZED

COST) 905,000

TOTAL INVESTMENTS
(IDENTIFIED COST

$18,656,145) 4 $ 18,416,647

</TABLE>

1 Indicates securities subject to dollar roll transactions.

3 Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase agreement
within seven days.

Note: The categories of investments are shown as a percentage of net assets
($17,578,078) at September 30, 1999.

The following acronym is used throughout this portfolio:

REMIC -Real Estate Mortgage Investment Conduit

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

SEPTEMBER 30, 1999

<TABLE>

shares outstanding $9.77

INSTITUTIONAL SERVICE

$528,668 / 54,110 shares

outstanding $9.77

</TABLE>

1 Includes $84,429 of unrealized appreciation at July 19,1999, related to the
tax-free transfer of assets from a Common Trust Fund.

See Notes which are an integral part of the Financial Statements

Statement of Operations

YEAR ENDED SEPTEMBER 30, 1999

<TABLE>

<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar
roll expense of $4,747) $ 717,374
EXPENSES:

</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

<TABLE>

YEAR ENDED SEPTEMBER 30 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET

ASSETS
OPERATIONS:

Net investment income $ 685,841 $ 488,461
Net realized loss on
investments ($440 and
$(13,712), respectively,
as computed for federal tax

purposes) (9,453) (3,683)
Net change in unrealized
depreciation (394,001) (75,797)
CHANGE IN NET ASSETS

RESULTING FROM OPERATIONS 282,387 408,981
DISTRIBUTIONS TO
SHAREHOLDERS:

Distributions from net
investment income

Institutional Shares (669,956) (488,300)
Institutional Service
Shares (10,121) (161)
CHANGE IN NET ASSETS
RESULTING FROM

DISTRIBUTIONS

TRANSACTIONS 12,736,519 168,463
Change in net assets 12,338,829 88,983
NET ASSETS:

Beginning of period 5,239,249 5,150,266
End of period $ 17,578,078 $ 5,239,249

</TABLE>

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

SEPTEMBER 30, 1999

ORGANIZATION

On July 19, 1999, the Fund received a tax-free transfer of assets from a Common
Trust Fund as follows:

<TABLE>

<S> <C>
Fund Shares Issued $ 325,337
Common Trust Fund Net Assets Received $ 3,204,570
Unrealized Appreciation 1 $ 84,429

</TABLE>

1 Unrealized appreciation is included in the Common Trust Fund net assets
acquired above.

SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS

REPURCHASE AGREEMENTS

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

FEDERAL TAXES

Additionally, net capital losses of $9,484 attributable to security transactions
after October 31, 1998, are treated as arising on October 1, 1999, the first day
of the Fund's next taxable year.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

DOLLAR ROLL TRANSACTIONS

USE OF ESTIMATES

OTHER

Investment transactions are accounted for on the trade date.

CAPITAL STOCK

At September 30, 1999, par value shares ($0.001 per share) authorized were as
follows:

<TABLE>

NUMBER OF PAR VALUE

SHARE CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Institutional Shares 1,000,000
Institutional Service Shares 1,000,000
TOTAL 2,000,000

</TABLE>

Transactions in capital stock were as follows:

<TABLE>

INSTITUTIONAL

SHARE TRANSACTIONS 1,228,099 $ 12,134,802 15,657 $ 158,531

SHARE TRANSACTIONS 52,584 $ 517,288 1,003 $ 9,932
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 1,280,683 $ 12,652,090 16,660 $ 168,463

</TABLE>

INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE

Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose
to waive any portion of its fee and/or reimburse certain operating expenses of
the Fund. The Adviser can modify or terminate this voluntary waiver and/or
reimbursement at any time at its sole discretion.

ADMINISTRATIVE FEE

DISTRIBUTION SERVICES FEE

The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b- 1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Institutional Service Shares to finance activities intended to result in the
sale of the Fund's Institutional Service Shares. The Plan provides that the Fund
may incur distribution expenses up to 0.25% of the average daily net assets of
the Institutional Service Shares, annually, to compensate FSC. FSC may
voluntarily choose to waive any portion of its fee. FSC can modify or terminate
this voluntary waiver at any time at its sole discretion.

SHAREHOLDER SERVICES FEE

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES

PORTFOLIO ACCOUNTING FEES

FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.

INTERFUND TRANSACTIONS

GENERAL

Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
year ended September 30, 1999, were as follows:

<TABLE>

<S> <C>
Purchases $ 25,250,187
Sales $ 15,498,823

</TABLE>

YEAR 2000 (UNAUDITED)

CHANGE OF INDEPENDENT AUDITORS (UNAUDITED)

Independent Auditors' Report

TO THE DIRECTORS OF FEDERATED TOTAL RETURN SERIES, INC. AND SHAREHOLDERS OF
INSTITUTIONAL SERVICE SHARES OF FEDERATED MORTGAGE FUND:

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Fund as of
September 30, 1999, the results of its operations, the changes in its net assets
and its financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.

Deloitte & Touche LLP

Boston, Massachusetts

November 12, 1999

[Graphic]
Federated

World-Class Investment Manager

PROSPECTUS

Federated Mortgage Fund

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SERVICE SHARES

NOVEMBER 30, 1999

[Graphic]
Federated

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

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Investment Company Act File No. 811-7115

Cusip 31428Q804

G01922-02-SS (11/99)

[Graphic]

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 and Analysis without charge by calling 1- 800-341-7400.

NOVEMBER 30, 1999

[Graphic]
Federated

World-Class Investment Manager
Federated Mortgage Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

G01922-03 (11/99)

[Graphic]

CONTENTS

How is the Fund Organized? 1

Securities in Which the Fund Invests 1

What Do Shares Cost? 7

How is the Fund Sold? 7

Subaccounting Services 7

Redemption in Kind 8

Account and Share Information 8

Tax Information 8

Who Manages and Provides Services to the Fund? 9

How Does the Fund Measure Performance? 12

Who is Federated Investors, Inc.? 13

Addresses 15

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.

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

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

MORTGAGE BACKED SECURITIES

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

PACs, TACs and Companion Classes

IOs and POs

Floaters and Inverse Floaters

Z Classes

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

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

DERIVATIVE 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

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

OPTIONS

The Fund may:

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

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

* 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

INTEREST RATE SWAPS

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 subject to credit risks.

REVERSE REPURCHASE AGREEMENTS AND BORROWING FOR LEVERAGE

DELAYED DELIVERY TRANSACTIONS

TO BE ANNOUNCED SECURITIES (TBAS)

DOLLAR ROLLS

SECURITIES LENDING

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.

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

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

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

CREDIT RISKS

* 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.

* 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 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 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.

RISKS ASSOCIATED WITH COMPLEX CMOS

* 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

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 AND BUYING ON MARGIN

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 OF 1940. 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;

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

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.

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

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

SUPPLEMENTAL PAYMENTS

Subaccounting Services

Redemption in Kind

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.

As of November 12, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Institutional Shares: Mitbanko
Trust and Savings Bank, Mitchell, SD owned approximately 156,982 shares (9.08%);
Colonial Trust Company, Phoenix, AR owned approximately 161,030 shares (9.31%);
The Fulton Company, Lancaster, PA owned approximately 167,967 shares (9.71%);
Vernat Company, Rutland, VT owned approximately 321,762 shares (18.61%); and STC
& CO., Springfield, MO owned approximately 573,294 shares (33.15%).

As of November 12, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Institutional Service Shares:
Edna E. Hamilton, Pinellas Park, FL owned approximately 3,793 shares (6.32%);
Elizabeth Lewis Doyle, Santa Rosa, CA owned approximately 4,009 shares (6.68%);
State Street Bank & Trust (CUST IRA Rollover FBO Donald L. Mott), Middleton, TN
owned approximately 6,260 shares (10.43%); Michael E. Carlisle and Thelma W.
Carlisle, Lexington, KY owned approximately 8,022 shares (13.36%); Fairy Turner,
McKee, KY owned approximately 11,581 shares (19.29%); and Dewey Fee,
Middlesboro, KY owned approximately 13,040 shares (21.72%).

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 is entitled to a loss carryforward, 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

As of November 12, the Fund's Board and Officers as a group owned less than 1%
of the Fund's outstanding Institutional and Institutional Service Shares.

<TABLE>

NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*#+ Chief Executive Officer $0 $0 for the Corporation and
Birth Date: July 28, 1924 and Director or Trustee of 54 other investment
Federated Investors Tower the Federated Fund companies in the Fund
1001 Liberty Avenue Complex; Chairman and Complex
Pittsburgh, PA Director, Federated
CHARIMAN AND DIRECTOR Investors, Inc.; Chairman
and Trustee, Federated Investment
Management Company; Chairman and
Director, Federated Investment
Counseling, and Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.

THOMAS G. BIGLEY Director or Trustee of $1,087.15 $113,860.22 for the
Birth Date: February 3, 1934 the Federated Fund Corporation and 54 other
15 Old Timber Trail Complex; Director, Member investment companies in
Pittsburgh, PA of Executive Committee, the Fund Complex
DIRECTOR Children's Hospital of
Pittsburgh; Director,
Robroy Industries, Inc.
(coated steel conduits/
computer storage
equipment); 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 $1,196.04 $125,264.48 for the
Birth Date: June 23, 1937 Federated Fund Complex; Corporation and 54 other
Wood/Commercial Dept. President, Investment investment companies in
John R. Wood Associates, Inc. Realtors Properties Corporation; the Fund Complex

3255 Tamiami Trail North Senior Vice President,
Naples, FL John R. Wood and
DIRECTOR Associates, Inc.,

Realtors; Partner or
Trustee in private real
estate ventures in
Southwest Florida;
formerly: President,
Naples Property
Management, Inc. and
Northgate Village
Development Corporation.

NICHOLAS CONSTANTAKIS Director or Trustee of the $1,087.15 $47,958.02 for the
Birth Date: September 3, 1939 Federated Fund Complex; Corporation and 29 other
175 Woodshire Drive formerly: Partner, investment companies in
Pittsburgh, PA Andersen Worldwide SC. the Fund Complex
DIRECTOR

JOHN F. CUNNINGHAM Director or Trustee of some $570.74 $0 for the Corporation and
Birth Date: March 5, 1943 of the Federated Fund 46 other investment
353 El Brillo Way Complex; Chairman, companies in the Fund
Palm Beach, FL President and Chief Complex
DIRECTOR Executive Officer,
Cunningham & Co., Inc.
(strategic business
consulting) ; Trustee
Associate, Boston College;
Director, Iperia Corp.
(communications/software);
formerly: 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.
J. CHRISTOPHER DONAHUE*+ President or Executive $0 $0 for the Corporation and
Birth Date: April 11, 1949 Vice President of the 16 other investment
Federated Investors Tower Federated Fund Complex; companies in the Fund
1001 Liberty Avenue Director or Trustee of some Complex
Pittsburgh, PA of the Funds in the
EXECUTIVE VICE PRESIDENT AND Federated Fund Complex;
DIRECTOR President, Chief Executive
Officer and Director, Federated
Investors, Inc.; President and Trustee,
Federated Investment Management
Company; President and Trustee,
Federated Investment Counseling;
President and Director, Federated
Global Investment Management Corp.;
President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services
Company; Director, Federated Services
Company.

LAWRENCE D. ELLIS, M.D.* Director or Trustee of the $1,087.15 $113,860.22 for the
Birth Date: October 11, 1932 Federated Fund Complex; Corporation and 54 other
3471 Fifth Avenue Professor of Medicine, investment companies in
Suite 1111 University of Pittsburgh; the Fund Complex
Pittsburgh, PA Medical Director,
DIRECTOR University of Pittsburgh

Medical Center - Downtown;
Hematologist, Oncologist, and
Internist, University of Pittsburgh
Medical Center; Member, National Board
of Trustees, Leukemia Society of
America.

NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
PETER E. MADDEN Director or Trustee of the $989.03 $113,860.22 for the
Birth Date: March 16, 1942 Federated Fund Complex; Corporation and 54 other
One Royal Palm Way formerly: Representative, investment companies in
100 Royal Palm Way Commonwealth of the Fund Complex
Palm Beach, FL Massachusetts General
DIRECTOR Court; President, State
Street Bank and Trust
Company and State
Street Corporation.
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, JR. Director or Trustee of some $600.16 $0 for the Corporation and
Birth Date: April 10, 1945 of the Federated Fund 50 other investment
80 South Road Complex; Management companies in the Fund
Westhampton Beach, NY Consultant. Complex
DIRECTOR Previous Positions: Chief
Executive Officer, PBTC International
Bank; Partner, Arthur Young & Company
(now Ernst & Young LLP); 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., J.D., S.J.D.# Director or Trustee of $1,171.83 $113,860.22 for the
Birth Date: December 20, 1932 the Federated Fund Corporation and 54 other
President, Duquesne University Complex; President, Law investment companies in
Pittsburgh, PA Professor, Duquesne the Fund Complex
DIRECTOR University; Consulting

Partner, Mollica & Murray;
Director, Michael Baker
Corp. (engineering,
construction, operations
and technical services).
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 $1,087.15 $113,860.22 for the
Birth Date: June 21, 1935 Federated Fund Complex; Corporation and 54 other
4905 Bayard Street Public Relations/ investment companies in
Pittsburgh, PA Marketing/Conference the Fund Complex
DIRECTOR Planning.
Previous Positions:
National Spokesperson,
Aluminum Company of
America; television
producer; business owner.

JOHN S. WALSH Director or Trustee of some $570.74 $0 for the Corporation and
Birth Date: November 28, 1957 of the Federated Fund 48 other investment
2007 Sherwood Drive Complex; President and companies in the Fund
Valparaiso, IN Director, Heat Wagon, Inc. Complex
DIRECTOR (manufacturer of
construction temporary
heaters); President and
Director, Manufacturers
Products, Inc.
(distributor of 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 $0 $0 for the Corporation and
Birth Date: May 2, 1929 Securities Corp. 8 other investment
Federated Investors Tower companies in the Fund
1001 Liberty Avenue Complex

Pittsburgh, PA

PRESIDENT

EDWARD C. GONZALES Trustee or Director of some $0 $0 for the Corporation and
Birth Date: October 22, 1930 of the Funds in the 1 other investment company
Federated Investors Tower Federated Fund Complex; in the Fund Complex
1001 Liberty Avenue President, Executive Vice
Pittsburgh, PA President and Treasurer of
EXECUTIVE VICE PRESIDENT some of the Funds in the
Federated Fund Complex; Vice Chairman,
Federated Investors, Inc.; Vice
President, Federated Investment
Management Company, Federated
Investment 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 $0 $0 for the Corporation and
Birth Date: October 26, 1938 and Secretary of the 54 other investment
Federated Investors Tower Federated Fund Complex; companies in the Fund
1001 Liberty Avenue Executive Vice President, Complex
Pittsburgh, PA Secretary, and Director,
EXECUTIVE VICE PRESIDENT AND SECRETARY Federated Investors, Inc.;

Trustee, Federated Investment
Management Company and Federated
Investment Counseling; Director,
Federated Global Investment Management
Corp., Federated Services Company and
Federated Securities Corp.

TREASURER Investors, Inc.; formerly:
various management
positions within Funds
Financial Services
Division of Federated
Investors, Inc.

JOSEPH M. BALESTRINO Joseph M. Balestrino is $0 $0 for the Corporation and
Birth Date: November 3, 1954 Vice President of the 3 other investment
Federated Investors Tower Corporation. companies in the Fund
1001 Liberty Avenue Mr. Balestrino joined Complex
Pittsburgh, PA Federated in 1986 and has
VICE PRESIDENT 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.

</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 April 1, 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.

OTHER RELATED SERVICES

BROKERAGE TRANSACTIONS

ADMINISTRATOR

<TABLE>

MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS

<S> <C>

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

</TABLE>

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

shareholders.

INDEPENDENT AUDITORS

FEES PAID BY THE FUND FOR SERVICES

<TABLE>

FOR THE YEAR ENDED SEPTEMBER 30 1999 1998 1997
<S> <C> <C> <C>
Advisory Fee Earned $ 41,413 $ 20,745 $ 6,692
Advisory Fee Reduction 41,413 20,745 6,692
Brokerage Commissions 0 0 0
Administrative Fee 155,000 155,001 155,001
12B-1 FEE

Institutional Service Shares 81 - -
SHAREHOLDER SERVICES FEE

Institutional Shares 0 - -
Institutional Service Shares 404 - -

</TABLE>

How Does the Fund Measure Performance?

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

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

<TABLE>

START OF PERFORMANCE

30-DAY PERIOD 1 YEAR ON MAY 31, 1997
<S> <C> <C> <C>
INSTITUTIONAL SHARES:
Total Return NA 3.20% 7.12%
Yield 6.96% NA NA

START OF PERFORMANCE

30-DAY PERIOD 1 YEAR ON MAY 31, 1997
<S> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Total Return NA 2.89% 6.82%
Yield 6.66% 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.

YIELD

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

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

* 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 Fund; and

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

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

LIPPER ANALYTICAL SERVICES, INC.

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.

LEHMAN BROTHERS MORTGAGE BACKED SECURITIES INDEX

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 FUNDS OVERVIEW

MUNICIPAL FUNDS

EQUITY FUNDS

CORPORATE BOND FUNDS

GOVERNMENT FUNDS

MONEY MARKET FUNDS

MUTUAL FUND MARKET

FEDERATED CLIENTS OVERVIEW

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

INSTITUTIONAL CLIENTS

BANK MARKETING

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

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

Deloitte & Touche LLP

200 Berkeley Street

Boston, MA 02116

MANAGEMENT DISCUSSION AND ANALYSIS

Federated Mortgage Fund

Annual Report for Fiscal Year Ended September 30, 1999

INSTITUTIONAL SHARES

INSTITUTIONAL SERVICE SHARES

Federated Mortgage Fund (the "Fund") provides shareholders with a professionally
managed portfolio of mortgage backed securities. The Fund will invest at least
65% of its total assets in U.S. government and non- U.S. government mortgage
backed securities.

The U.S. Treasury market during the fiscal reporting period saw yields along the
Treasury curve increase by about 150 basis points. The increase in Treasury
yields occurred after the roller coaster ride in the 1998 financial markets.
During the later half of 1998, the Federal Reserve Board (the "Fed") eased
interest rates three times in an attempt to provide stability to the financial
markets. Yields in the Treasury market reached new lows as investors paid a
premium for liquidity and safety. The flight to quality and liquidity occurred
in those Treasuries that were already in reduced supply, making the impact even
more pronounced. Treasury securities with the same maturity but issued at
different time periods traded at substantial yield pickups to Treasury
securities newly issued. As the focus shifted from overseas financial issues to
domestic economic news the Treasury market started to experience cracks. Concern
over continued strong growth, low inflation, and a tight labor market raised
investors' fears of a potential tightening of monetary policy by the Fed. These
fears were realized in the second half of the fiscal year as the Fed increased
the federal funds rate twice. The first tightening occurred on June 30, 1999, as
the Fed increased rates by 25 basis points and moved to a neutral directive.
Investor reaction was euphoric. However, this proved to be short lived as
concerns over continued strength in the domestic economy spooked investors. The
Fed moved on August 24, 1999, to raise short-term rates 25 basis points to 5.25%
and moved to a tightening bias. The combination of this news with the dollar's
weakness versus the yen, rising commodity prices, rate hikes by the Bank of
England, and another record international trade deficit put additional pressure
on Treasuries. As the reporting period ended yields along the Treasury curve
were at the higher end.

Investors in the mortgage market also had a tumultuous experience. The first
half of the reporting period saw the mortgage market benefit from a return of
liquidity and declining implied volatility in the options market. The second
half of the reporting period proved to be difficult for investors in spread
product. Historically, rising interest rates are generally good for the
performance of spread product versus Treasuries. Increasing interest rates
generally result in less prepayment risk for mortgages and, therefore, tighter
mortgage backed spreads. The latter half of the reporting period saw an increase
in interest rates accompanied by widening of all fixed income sectors. The
primary reason for this anomaly was supply. Concerns over Y2K led corporations
to increase issuance of debt in the first half of 1999. This enormous supply
surge was not met with strong demand by investors. Investor apathy forced the
dealer community to hedge their unsold inventory by selling other spread product
or paying fixed interest rate swaps, exacerbating the widening in spreads. By
August mortgage spreads had widened to levels last seen in October of 1998. As
September began the mortgage market started to tighten as investors had several
pieces of positive news. The Fed announced, in the beginning of September, that
over year-end they would accept agency mortgage securities as collateral in
their repurchase agreements with the dealer community. This announcement coupled
with stable interest rates, slowing prepayment rates, tightening spreads, and
declining volatility helped the mortgage sector outperform Treasuries.

Current portfolio strategy targets an effective duration of 4.1 years, which is
neutral to the Lehman Brothers Mortgage-Backed Securities Index. 1 Fund
management focused on the purchase of structured mortgage product. Structure
product was used to create premium collateral. This structure included
interest-only securities comprised of mortgage loans originated in the state of
New York. These securities, on a total rate of return basis, should outperform
comparable duration mortgage securities due to their improved prepayment
characteristics. The favorable prepayment profile is due to the disincentive for
homeowners to refinance their mortgage in the state of New York. Historically,
these loans prepay on average 35% to 40% slower than their generic counterparts.
The Fund also utilized the dollar roll market throughout the reporting period to
enhance the overall income stream.

As of September 30, 1999, the Fund recorded net assets of $17.6 million with an
average 30-day net yield as calculated under Securities and Exchange Commission
guidelines of 6.96% 2 for Institutional Shares and 6.66%2 for Institutional
Service Shares based upon a net asset value of $9.77. The Fund's total return
for the fiscal year ended September 30, 1999, was 3.20%2 for the Institutional
Shares and 2.89%2 Institutional Service Shares. This compares to 2.27% for the
Lehman Brothers Mortgage- Backed Securities Index.

1 This index is unmanaged.

2 Performance quoted represents past performance and is no guarantee of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.

SHAREHOLDER MEETING RESULTS

An Annual Meeting of Shareholders of Federated Total Return Series, Inc. (the
"Corporation"), was held on March 23, 1999. On January 12, 1999, the record date
for shareholders voting at the meeting, there were 24,102,378 total outstanding
shares. The following items were considered by shareholders of the Corporation
and the results of their voting were as follows:

AGENDA ITEM 1

To elect Directors. 1

<TABLE>

WITHHELD
AUTHORITY

</TABLE>

1 The following Directors of the Corporation continued their terms: John F.
Donahue, John T. Conroy, Lawrence D. Ellis, M.D., Peter E. Madden, and
Marjorie P. Smuts.

AGENDA ITEM 2

To ratify the selection of Ernst & Young LLP as the Corporation's independent
auditors.

The results of shareholders voting were as follows:

<TABLE>

ABSTENTIONS

AND BROKER

FOR AGAINST NON-VOTES
<S> <C> <C>
18,110,860 215 29,642

</TABLE>

INSTITUTIONAL SHARES

GROWTH OF $100,000 INVESTED IN FEDERATED MORTGAGE FUND

[Graphic] - See Appendix 2

<TABLE>

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED SEPTEMBER 30, 1999
<S> <C>

1 Year 3.20%
Start of Performance (5/31/97) 7.12%

</TABLE>

The graph above illustrates the hypothetical investment of $100,000 1 in the
Federated Mortgage Fund (Institutional Shares) (the "Fund") from May 31, 1997
(start of performance) to September 30, 1999, compared to the Lehman Brothers
Mortgage- Backed Securities Index (LBMBSI)2 and the Lipper

U.S. Mortgage Fund Category (LUSMFC).2

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. YOUR INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH
MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.

This report must be preceded or accompanied by the Fund's prospectus dated
November 30, 1999, and, together with financial statements contained therein,
constitutes the Fund's annual report.

1 The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBMBSI and the LUSMFC have been adjusted to reflect
reinvestment of dividends on securities in the indexes.

2 The LBMBSI and LUSMFC are not adjusted to reflect sales charges, expenses, or
other fees that the Securities and Exchange Commission requires to be reflected
in the Fund's performance. The indexes are unmanaged.

INSTITUTIONAL SERVICE SHARES

GROWTH OF $25,000 INVESTED IN FEDERATED MORTGAGE FUND

[Graphic] - See Appendix 2

<TABLE>

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED SEPTEMBER 30, 1999
<S> <C>

1 Year 2.89%
Start of Performance (5/31/97) 6.82%

</TABLE>

The graph above illustrates the hypothetical investment of $25,000 1 in the
Federated Mortgage Fund (Institutional Service Shares) (the "Fund") from May 31,
1997 (start of performance) to September 30, 1999 compared to the Lehman
Brothers Mortgage-Backed Securities Index (LBMBSI)2 and the Lipper

U.S. Mortgage Fund Category (LUSMFC).2

This report must be preceded or accompanied by the Fund's prospectus dated
November 30, 1999, and, together with financial statements contained therein,
constitutes the Fund's annual report.

1 The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBMBSI and the LUSMFC have been adjusted to reflect
reinvestment of dividends on securities in the indexes.

[Graphic]
Federated

World Class Investment Manager
Federated Mortgage Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Cusip 31428Q804

Cusip 31428Q887

G01922-04 (11/99)

[Graphic]

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.

NOVEMBER 30, 1999

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 3

What are the Fund's Investment Strategies? 4

What are the Principal Securities in Which the

Fund Invests? 6

What are the Specific Risks of Investing in the Fund? 8

What Do Shares Cost? 10

How is the Fund Sold? 10

How to Purchase Shares 11

How to Redeem Shares 12

Account and Share Information 14

Who Manages the Fund? 15

Financial Information 16

Independent Auditors' Report 33

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 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. The Fund seeks to provide
the appreciation component of total return by selecting those securities whose
prices will, in the opinion of the Adviser, benefit from anticipated changes in
economic and market conditions.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 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 and thus offer the greatest potential for return. The Adviser
may lengthen or shorten duration from time to time based on its interest rate
outlook, but the Fund has no set duration parameters. 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:

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

* CREDIT RISK. 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.

* LIQUIDITY RISK. 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.

RISK/RETURN BAR CHART AND TABLE

[Graphic] - See Appendix

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

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

The Fund's Institutional Shares total return for the nine-month period from
January 1, 1999 to September 30, 1999 was (0.82%).

Within the period shown in the Chart, the Fund's Institutional Shares highest
quarterly return was 4.54% (quarter ended September 30, 1998). Its lowest
quarterly return was (0.08%) (quarter ended March 31, 1997).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Institutional Shares Average Annual
Total Returns for the calendar periods ended December 31, 1998. The table shows
the Fund's Institutional Shares total returns averaged over a period of years
relative to the Lehman Brothers Aggregate Bond Index (LBABI), a broad-based
market index. The LBABI is an unmanaged index measuring both the capital price
changes and income provided by the underlying universe of securities, comprised
of U.S. Treasury obligations, U.S. agency obligations, foreign obligations, U.S.
investment-grade corporate debt and mortgage-backed obligations. Total returns
for the index 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.

CALENDAR PERIOD FUND LBABI
<S> <C> <C>
1 Year 9.23% 8.69%
Start of Performance 1 10.21% 9.54%

</TABLE>

1 The Fund's Institutional Shares start of performance date was October 1, 1996.

What are the Fund's Fees and Expenses?

FEDERATED TOTAL RETURN BOND 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.

<TABLE>

<S> <C>
SHAREHOLDER FEES
Fees Paid Directly From
Your Investment
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) None
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 applicable) None
Exchange Fee None

ANNUAL FUND OPERATING EXPENSES (Before Waivers)1 Expenses That are Deducted From
Fund Assets (as a percentage of average net assets)

Management Fee 2 0.40%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 0.32%
Total Annual Fund
Operating Expenses 0.97%
1 Although not contractually obligated to do so, the adviser and shareholder
services provider waived certain amounts. These are shown below along with the
net expenses the Fund actually paid for the fiscal year ended September 30, 1999.
Total Waiver of Fund

Expenses 0.62%
Total Actual Annual Fund
Operating Expenses (after
waivers) 0.35%
2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) was 0.03% for the fiscal year ended September
30, 1999. 3 The shareholder services provider voluntarily waived the shareholder
services fee. The shareholder services provider can terminate this voluntary
waiver at any time. The shareholder services fee paid by the Fund's
Institutional Shares (after the voluntary waiver) was 0.00% for the fiscal year
ended September 30, 1999.

</TABLE>

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 Institutional Shares operating expenses are BEFORE
WAIVERS as 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 $ 99
3 Years $ 309
5 Years $ 536
10 Years $ 1,190

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
noninvestment grade fixed income securities, which are rated BB or lower by an
NRSRO. The noninvestment 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, but the Fund has no set duration parameters. 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:

* current and expected U.S. growth;

* current and expected interest rates and inflation;

* the U.S. Federal Reserve Board's monetary policy; and

* 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

What are the Principal Securities in Which the Fund Invests?

FIXED INCOME SECURITIES

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

MORTGAGE BACKED SECURITIES

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)

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

CORPORATE DEBT SECURITIES

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

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

PREPAYMENT RISKS

* 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.

* 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

* 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.

LIQUIDITY RISKS

* 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.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

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.

How is the Fund Sold?

The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to retail and private banking customers of financial
institutions.

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

* Establish an account with the investment professional; and

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

DIRECTLY FROM THE FUND

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

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

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)

How to Redeem Shares

You should redeem Shares:

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

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

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

BY TELEPHONE

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:

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

* amount to be redeemed; and

* 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:

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

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

* 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

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

* 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:

* to allow your purchase to clear;

* during periods of market volatility; or

* 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

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

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

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 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

YEAR 2000 READINESS

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

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

Financial Highlights

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 33.

YEAR ENDED SEPTEMBER 30 1999 1 1998 1997
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING

OF PERIOD $10.90 $10.32 $10.00
INCOME FROM INVESTMENT
OPERATIONS:

Net investment income 0.63 0.64 0.72
Net realized and
unrealized gain (loss) on
investments (0.70) 0.58 0.32
TOTAL FROM INVESTMENT

OPERATIONS (0.07) 1.22 1.04
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.63) (0.64) (0.72)
Distributions from net
realized gain on
investments (0.02) - -
TOTAL DISTRIBUTIONS (0.65) (0.64) (0.72)
NET ASSET VALUE, END OF

PERIOD $10.18 $10.90 $10.32
TOTAL RETURN 2 (0.63%) 12.21% 10.52%

RATIOS TO AVERAGE NET

ASSETS:

Expenses 3 0.97% 1.41% 4.40%
Net investment income 3 5.48% 4.94% 2.76%
Expenses (after waivers) 0.35% 0.32% 0.01%
Net investment income
(after waivers) 6.10% 6.03% 7.15%
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $145,428 $98,496 $16,700
Portfolio turnover 97% 75% 101%

</TABLE>

1 For the year ended September 30, 1999, the Fund was audited by Deloitte &
Touche LLP. Each of the previous years were audited by other auditors.

2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

3 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.

See Notes which are an integral part of the Financial Statements

Portfolio of Investments

SEPTEMBER 30, 1999

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-29.0%

AUTOMOTIVE-0.7%
$ 1,250,000 Meritor Automotive, Inc.,

Note, 6.80%, 2/15/2009 $ 1,164,770
BANKING-1.5%
400,000 1, 2 CIBC Capital Funding LP,

Bank Guarantee, 6.40%,

12/17/2004 389,348
725,000 1, 2 Den Danske Bank Group, Sub.
Note, 7.25%, 6/15/2005 718,330
260,000 FirstBank Puerto Rico,
Sub. Note, 7.625%,

12/20/2005 246,314
550,000 GreenPoint Bank, Sr. Note,
6.70%, 7/15/2002 542,014
350,000 Republic New York Corp.,
Sub. Note, 7.75%,

5/15/2009 355,491
300,000 Summit Bancorp, Bond,
8.40%, 3/15/2027 296,916
TOTAL 2,548,413

BEVERAGE & TOBACCO-0.3%
275,000 Anheuser-Busch Cos., Inc.,

Note, 7.00%, 9/1/2005 273,342
260,000 Philip Morris Cos., Inc.,
Deb., 6.00%, 11/15/1999 260,263
TOTAL 533,605

CABLE TELEVISION-0.5%
530,000 Continental Cablevision,

Sr. Deb., 9.50%, 8/1/2013 593,891
300,000 TKR Cable, Inc., Deb.,
10.50%, 10/30/2007 318,123
TOTAL 912,014

CHEMICALS & PLASTICS-0.2%
500,000 1, 2 Fertinitro Finance,

Company Guarantee, 8.29%,

4/1/2020 344,735
CONSUMER PRODUCTS-0.3%

500,000 Hershey Foods Corp., Note,
6.95%, 8/15/2012 498,115
ECOLOGICAL SERVICES &

EQUIPMENT-0.9%
750,000 USA Waste Services, Inc.,

Note, 6.125%, 7/15/2001 722,040
300,000 USA Waste Services, Inc.,
Sr. Note, 7.00%, 10/1/2004 279,819
500,000 WMX Technologies, Inc.,
Deb., 8.75%, 5/1/2018 495,355
TOTAL 1,497,214

EDUCATION-1.6%
1,250,000 Boston University, 7.625%,

7/15/2097 1,189,537
1,000,000 Columbia University,
Medium Term Note, 8.62%,

2/21/2001 1,033,760
525,000 Harvard University,
Revenue Bonds, 8.125%

Bonds, 4/15/2007 565,808
TOTAL 2,789,105

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-continued

ELECTRONICS-0.4%
$ 600,000 Anixter International,

Inc., Company Guarantee,

8.00%, 9/15/2003 $ 599,916
FINANCE - AUTOMOTIVE-0.6%

485,000 Chrysler Financial Corp.,

Deb., 13.25%, 10/15/1999 488,414
500,000 Ford Motor Credit Corp.,
Unsub., 6.875%, 6/5/2001 499,831
TOTAL 988,245

FINANCIAL INTERMEDIARIES-
2.6%

750,000 Amvescap PLC, Sr. Note,

6.60%, 5/15/2005 717,112
400,000 Bankers Trust Corp., Sub.
Note, 8.25%, 5/1/2005 417,624
400,000 FINOVA Capital Corp.,
Note, 7.40%, 6/1/2007 396,012
1,575,000 1, 2 Fidelity Investments,
Bond, 7.57%, 6/15/2029 1,548,099
400,000 Green Tree Financial
Corp., Sr. Sub. Note,

10.25%, 6/1/2002 423,208
275,000 Lehman Brothers Holdings,
Inc., Note, 6.90%,

1/29/2001 275,245
250,000 Lehman Brothers Holdings,
Inc., Note, 8.50%,

8/1/2015 257,555
300,000 Salomon, Inc., Sr. Note,
7.75%, 5/15/2000 303,021
TOTAL 4,337,876

FINANCIAL SERVICES-0.5%

250,000 Associates Corp. of North
America, Sr. Note, 9.125%,

4/1/2000 253,915

500,000 General Electric Capital
Corp., Medium Term Note,

6.65%, 9/3/2002 502,090
TOTAL 756,005

FOREST PRODUCTS-1.9%

300,000 Container Corp. of
America, Sr. Note, 11.25%,

5/1/2004 311,250
1,300,000 Fort James Corp., Sr. Note,
6.234%, 3/15/2001 1,298,986
1,500,000 Quno Corp., Sr. Note,
9.125%, 5/15/2005 1,583,925
TOTAL 3,194,161

HEALTHCARE-0.3%
500,000 Tenet Healthcare Corp.,

Sr. Sub. Note, 8.125%,

12/1/2008 458,750
INDUSTRIAL PRODUCTS &

EQUIPMENT-1.7%

2,185,000 Figgie International
Holdings, Inc., Sr. Note,

9.875%, 10/1/1999 2,185,000
575,000 Southdown, Inc., Sr. Sub.
Note, 10.00%, 3/1/2006 626,451
TOTAL 2,811,451

INSURANCE-2.1%
250,000 Conseco, Inc., Note,

6.40%, 2/10/2003 236,670
250,000 Conseco, Inc., Sr. Note,
10.50%, 12/15/2004 270,555
600,000 Delphi Financial Group,
Inc., 9.31%, 3/25/2027 581,610
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-continued

INSURANCE-CONTINUED
$ 400,000 Delphi Financial Group,

Inc., Note, 8.00%,

10/1/2003 $ 400,180
400,000 Hartford Life, Inc., Note,
7.10%, 6/15/2007 395,944
360,000 1, 2 Life Re Capital Trust I,
Company Guarantee, 8.72%,

6/15/2027 371,858
250,000 SunAmerica, Inc., Sr.
Note, 6.20%, 10/31/1999 250,112
1,000,000 1, 2 Union Central Life
Insurance Co., Note,

8.20%, 11/1/2026 1,009,760
TOTAL 3,516,689

LEISURE & ENTERTAINMENT-
1.1%

1,500,000 Paramount Communications,
Inc., Sr. Deb., 8.25%,

8/1/2022 1,494,690
400,000 Paramount Communications,
Inc., Sr. Note, 7.50%,

1/15/2002 404,884
TOTAL 1,899,574

MACHINERY & EQUIPMENT-0.3%
500,000 Caterpillar, Inc., Deb.,

9.75%, 6/1/2019 526,870
METALS & MINING-1.2%

450,000 Barrick Gold Corp., Deb.,

7.50%, 5/1/2007 446,863
150,000 Inco Ltd., Note, 9.60%,
6/15/2022 139,930
1,200,000 1, 2 Normandy Finance Ltd.,
Company Guarantee, 7.50%,

7/15/2005 1,146,756
225,000 Santa Fe Pacific Gold,
Note, 8.375%, 7/1/2005 219,202
TOTAL 1,952,751

OIL & GAS-1.0%
250,000 Husky Oil Ltd., Sr. Note,

7.125%, 11/15/2006 234,417

265,000 Occidental Petroleum
Corp., Sr. Note, 10.125%,

11/15/2001 281,904
515,000 Sun Co., Inc., Note,
8.125%, 11/1/1999 516,457
650,000 Sunoco, Inc., Note, 7.75%,
9/1/2009 652,684
TOTAL 1,685,462

PHARMACEUTICAL-0.5%

480,000 American Home Products
Corp., Note, 7.70%,

2/15/2000 483,082
400,000 Lilly (Eli) & Co., Unsecd.
Note, 6.57%, 1/1/2016 378,528
TOTAL 861,610

PRINTING & PUBLISHING-0.4%
300,000 News America Holdings,

Inc., Company Guarantee,

10.125%, 10/15/2012 331,173
300,000 News America Holdings,
Inc., Company Guarantee,

8.00%, 10/17/2016 294,786
TOTAL 625,959

REAL ESTATE-0.4%
750,000 Sun Communities, Inc.,

Medium Term Note, 6.77%,

5/16/2005 688,388
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-continued

RETAILERS-2.0%
$ 750,000 Dayton-Hudson Corp., Deb.,

10.00%, 12/1/2000 $ 781,845
634,931 K Mart Corp., Pass Thru

Cert., 8.54%, 1/2/2015 641,262
750,000 May Department Stores Co.,
Deb., 9.875%, 6/15/2021 814,553
650,000 Shopko Stores, Inc.,
8.50%, 3/15/2002 671,463
400,000 Shopko Stores, Inc., Sr.
Note, 9.25%, 3/15/2022 438,064
TOTAL 3,347,187

SERVICES-0.3%
500,000 Stewart Enterprises, Inc.,

Note, 6.40%, 5/1/2003 476,135
SOVEREIGN GOVERNMENT-0.9%

1,350,000 Quebec, Province of,

11.00%, 6/15/2015 1,449,360

SUPRANATIONAL-0.3%
500,000 Corp Andina De Fomento, Sr.

Note, 7.75%, 3/1/2004 499,840
TECHNOLOGY SERVICES-1.8%

1,350,000 Dell Computer Corp., Deb.,
7.10%, 4/15/2028 1,232,969
1,500,000 Unisys Corp., Sr. Note,

11.75%, 10/15/2004 1,683,750
TOTAL 2,916,719

TELECOMMUNICATIONS &
CELLULAR-0.8%

500,000 MCI Communications Corp.,
Sr. Note, 7.125%,

1/20/2000 501,330

850,000 Qwest Communications
International, Inc., Sr.
Note, Series B, 7.50%,

11/1/2008 847,875
TOTAL 1,349,205

UTILITIES-1.9%

600,000 Cincinnati Gas and
Electric Co., Note, 6.35%,

6/15/2003 591,300

1,050,000 1, 2 Edison Mission Holding
Co., Sr. Secd. Note,

8.734%, 10/1/2026 1,021,692

100,000 National Rural Utilities
Cooperative Finance Corp.,
Collateral Trust, 5.50%,

1/15/2005 95,329

1,100,000 National Rural Utilities
Cooperative Finance Corp.,
Medium Term Note, 5.75%,

12/1/2008 1,013,397
170,000 Puget Sound Energy, Inc.,
Medium Term Note, 7.02%,

12/1/2027 156,820
500,000 1, 2 Tenaga Nasional Berhad,
Deb., 7.50%, 1/15/2096 362,960
TOTAL 3,241,498

TOTAL CORPORATE BONDS
(IDENTIFIED COST

$50,193,691) 48,471,622
ASSET-BACKED SECURITIES-

1.7%

STRUCTURED PRODUCT (ABS)-
1.5%

1,000,000 1, 2 125 Home Loan Owner Trust
1998-1A, Class B-1, 9.26%,

2/15/2029 860,000

750,000 Citibank Credit Card
Master Trust 1997-6, Class

A, 6.323%, 8/15/2006 543,023
<CAPTION>

PRINCIPAL
AMOUNT

OR SHARES VALUE
<C> <S> <C>

ASSET-BACKED SECURITIES-

continued
STRUCTURED PRODUCT (ABS)-

CONTINUED

$ 489,598 Green Tree Home Equity Loan
Trust 1999-A, Class B2A,

7.44%, 2/15/2029 $ 488,682
516,381 1, 2 Merrill Lynch Mortgage
Investors, Inc. 1998-FF3,
Class BB, 5.50%,

11/20/2029 501,535
TOTAL 2,393,240

WHOLE LOAN-0.2%

432,569 1 SMFC Trust Asset-Backed
Certificates, Series 1997-
A, Class 4, 7.7191%,

1/28/2025 367,818

TOTAL ASSET-BACKED
SECURITIES (IDENTIFIED

COST $2,913,530) 2,761,058
GOVERNMENT AGENCIES-3.4%

1,000,000 Federal Home Loan Bank

System, 5.785%, 3/17/2003 981,970
175,000 Federal Home Loan Mortgage
Corp., 7.90%, 9/19/2001 181,060
390,000 Federal National Mortgage
Association, 7.50%,

2/11/2002 400,955

500,000 Federal National Mortgage
Association, Deb., 6.75%,

7/30/2007 489,615

350,000 Federal National Mortgage
Association, Medium Term

Note, 6.71%, 7/24/2001 354,151
675,000 Private Export Funding
Corp., 7.30%, 1/31/2002 692,530
256,000 Tennessee Valley
Authority, Series 93-1,

8.625%, 11/15/2029 268,680

1,373,000 Tennessee Valley
Authority, Note, 8.625%,

11/15/2029 1,441,005

1,000,000 Tennessee Valley
Authority, Series C,

6.00%, 3/15/2013 923,670

TOTAL GOVERNMENT AGENCIES
(IDENTIFIED COST

$5,677,808) 5,733,636
MUTUAL FUNDS-34.1% 4
47,209 The High Yield Bond

Portfolio 413,079
5,826,496 Federated Mortgage Core
Portfolio 56,458,750

TOTAL MUTUAL FUNDS
(IDENTIFIED COST

$58,233,239) 56,871,829
PREFERRED STOCKS-0.1%

TELECOMMUNICATIONS &
CELLULAR-0.1%

3,800 AT&T Corp., Pfd.

(identified cost $99,560) 95,475
U.S. TREASURY-29.2%

U.S. TREASURY BONDS-13.8%

2,965,000 5.25%, 11/15/2028 2,570,952
1,600,000 6.00%, 2/15/2026 1,526,416
3,240,000 6.375%, 8/15/2027 3,245,897
5,500,000 7.25%, 5/15/2004 5,800,905
3,700,000 8.125%, 5/15/2021 4,414,877
1,210,000 8.75%, 5/15/2017 1,498,646
1,400,000 9.875%, 11/15/2015 1,875,930
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

U.S. TREASURY-continued
U.S. TREASURY BONDS-

CONTINUED

$ 1,400,000 11.625%, 11/15/2004 $ 1,741,726
300,000 11.75%, 11/15/2014 420,138
TOTAL 23,095,487
U.S. TREASURY NOTES-15.4%

1,422,000 4.75%, 2/15/2004 1,364,167
1,750,000 5.75%, 4/30/2003 1,746,798
5,800,000 6.125%, 8/15/2007 5,807,946
4,625,000 6.25%, 2/15/2003 4,686,744
7,600,000 6.50%, 10/15/2006 7,773,052
575,000 6.50%, 5/15/2005 589,070
2,250,000 7.00%, 7/15/2006 2,362,905
1,250,000 7.875%, 11/15/2004 1,355,288
TOTAL 25,685,970
TOTAL U.S. TREASURY

(IDENTIFIED COST

$50,003,125) 48,781,457
TOTAL INVESTMENTS
(IDENTIFIED COST

$167,120,953) 3 $ 162,715,077

</TABLE>

1 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. At September 30, 1999, these securities amounted to
$8,642,891 which represents 5.2% of net assets. Included in these amounts,
securities which have been deemed liquid amounted to $8,275,073 which represents
5.0% of net assets.

2 Denotes a restricted security that has been deemed liquid by criteria approved
by the fund's Board of Directors.

3 The cost of investments for federal tax purposes amounts to $167,148,520. The
net unrealized depreciation of investments on a federal tax basis amounts to
$4,433,443 which is comprised of $108,623 appreciation and $4,542,066
depreciation at September 30, 1999.

4 Pursuant to an Exemptive order, the Fund may invest in Federated Core Trust
(the "Trust") which is also managed by Federated Investment Management Company,
the Fund's adviser. The Trust is an open-end management investment company under
the Investment Company Act of 1940 available only to registered investment
companies and other institutional investors. High Yield Bond Portfolio and
Federated Mortgage Core Portfolio (the "Portfolios") are two series of the
Trust. Federated receives no fees on behalf of the Portfolios. Income
distributions from the Portfolios are declared daily and paid monthly. Income
distributions earned by the Fund are recorded as dividend income in the
accompanying financial statements.

Note: The categories of investments are shown as a percentage of net assets
($166,803,407) at September 30, 1999.

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

SEPTEMBER 30, 1999

<TABLE>

<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified cost
$167,120,953 and tax
cost $167,148,520) $ 162,715,077
Income receivable 2,568,596
Receivable for investments
sold 6,841,962
Receivable for shares sold 539,986
TOTAL ASSETS 172,665,621
LIABILITIES:

Payable for investments
purchased $ 5,000,000
Payable for shares
redeemed 211,632
Income distribution
payable 591,706
Accrued expenses 58,876
TOTAL LIABILITIES 5,862,214
Net assets for 16,379,436
shares outstanding $ 166,803,407
NET ASSETS CONSIST OF:

Paid in capital $ 171,058,295
Net unrealized
depreciation of
investments (4,405,876)
Accumulated net realized
gain on investments 103,314
Undistributed net
investment income 47,674
TOTAL NET ASSETS $ 166,803,407
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
INSTITUTIONAL SHARES:
$145,427,831 / 14,280,313
shares outstanding $10.18
INSTITUTIONAL SERVICE
SHARES:
$21,375,576 / 2,099,123
shares outstanding $10.18

</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Operations

YEAR ENDED SEPTEMBER 30, 1999

<TABLE>

<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 2,180,838
Interest 6,708,259
TOTAL INCOME 8,889,097
EXPENSES:

Investment advisory fee $ 551,737
Administrative personnel
and services fee 155,000
Custodian fees 15,570
Transfer and dividend
disbursing agent fees and
expenses 54,673
Directors'/Trustees' fees 4,994
Auditing fees 12,948
Legal fees 10,239
Portfolio accounting fees 63,667
Distribution services fee-
Institutional Service
Shares 40,782
Shareholder services fee-
Institutional Shares 304,061
Shareholder services fee-
Institutional Service
Shares 40,766
Share registration costs 64,348
Printing and postage 31,896
Insurance premiums 1,379
Taxes 10,448
Miscellaneous 10,561
TOTAL EXPENSES 1,373,069
WAIVERS:
Waiver of investment
advisory fee $ (504,690)
Waiver of distribution
services fee-Institutional
Service Shares (32,619)
Waiver of shareholder
services fee-Institutional
Shares (304,061)
TOTAL WAIVERS (841,370)
Net expenses 531,699
Net investment income 8,357,398
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on
investments 115,242
Net change in unrealized
depreciation of
investments (9,393,410)
NET REALIZED AND
UNREALIZED LOSS ON
INVESTMENTS (9,278,168)
Change in net assets
resulting from operations $ (920,770)

</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

YEAR ENDED SEPTEMBER 30 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET

ASSETS
OPERATIONS:

Net investment income $ 8,357,398 $ 2,803,451
Net realized gain on
investments ($142,809 and
$289,634, respectively, as
computed for federal tax
purposes) 115,242 289,258
Net change in unrealized
appreciation (9,393,410) 4,721,298
CHANGE IN NET ASSETS

RESULTING FROM OPERATIONS (920,770) 7,814,007
DISTRIBUTIONS TO
SHAREHOLDERS:

Distributions from net
investment income

Institutional Shares (7,367,196) (2,331,285)
Institutional Service
Shares (940,617) (473,640)
Distributions from net
realized gains on
investments
Institutional Shares (203,445) -
Institutional Service
Shares (25,544) -
CHANGE IN NET ASSETS
RESULTING FROM

DISTRIBUTIONS

TO SHAREHOLDERS (8,536,802) (2,804,925)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 159,738,857 70,082,146
Proceeds from shares
issued in connection with
the acquisition of
Federated Bond Index Fund - 32,686,566 1
Net asset value of shares
issued to shareholders in
payment of
distributions declared 2,573,271 758,566
Cost of shares redeemed (97,972,705) (15,603,573)
CHANGE IN NET ASSETS
RESULTING FROM SHARE

TRANSACTIONS 64,339,423 87,923,705
Change in net assets 54,881,851 92,932,787
NET ASSETS:

Beginning of period 111,921,556 18,988,769
End of period (including
undistributed net
investment income of
$47,674 for the year ended
September 30, 1999) $ 166,803,407 $ 111,921,556

</TABLE>

1 Includes $1,196,929 of unrealized appreciation at September 25, 1998, related
to the acquisition of Federated Bond Index Fund.

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

SEPTEMBER 30, 1999

ORGANIZATION

Federated Total Return Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of four portfolios. The
financial statements included herein are only those of Federated Total Return
Bond Fund (the "Fund"), a diversified portfolio. The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares. The investment objective of the Fund is to provide
total return.

On September 25, 1998, the Fund acquired all the net assets of the Federated
Bond Index Fund ("Acquired Fund") pursuant to a plan of reorganization approved
by the Acquired Fund's shareholders. The acquisition was accomplished by a
tax-free exchange of 2,912,799 Institutional Shares and 102,566 Institutional
Service Shares of the Fund (valued at $31,574,746 and $1,111,820, respectively)
for the 4,334,809 Institutional Shares and 152,639 Institutional Service Shares
of the Acquired Fund outstanding on September 25, 1998. The Acquired Fund's net
assets of $31,754,919 and $1,112,347 consisted of $30,893,400 and $603,010 of
Paid in Capital for the Institutional Shares and Institutional Service Shares,
respectively, and $1,196,929 of unrealized appreciation, and $173,927 of net
realized loss on investments at the date were combined with those of the Fund.
The aggregate net assets of the Fund and the Acquired Fund immediately before
the acquisition were $65,031,029 and $12,154,342 and $31,754,919 and $1,112,347
for the Institutional Shares and Institutional Service Shares, respectively.
Immediately after the acquisiton, the combined aggregate net assets of the Fund
were $97,184,464 and $13,261,642 for Institutional Shares and Institutional
Service Shares, respectively.

SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS

Municipal bonds are valued by an independent pricing service, taking into
consideration yield, liquidity, risk, credit quality, coupon, maturity, type of
issue, and any factors or market data the pricing service deems relevant. U.S.
government securities, listed corporate bonds, other fixed income securities,
asset-backed securities, unlisted securities and private placement securities
are generally valued at the mean of the latest bid and asked price as furnished
by an independent pricing service. Short- term securities are valued at the
prices provided by independent pricing service. However, short-term securities
with remaining maturities of 60 days or less at the time of purchase may be
valued at amortized cost, which approximates fair market value. Investments in
other open-end regulated investment companies are valued at net asset value.

REPURCHASE AGREEMENTS

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date.

INCREASE (DECREASE)
UNDISTRIBUTED NET

INVESTMENT INCOME PAID IN CAPITAL
$(133) $133

Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.

FEDERAL TAXES

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

RESTRICTED SECURITIES

SECURITY ACQUISITION DATE ACQUISITION COST
SMFC Trust 2/4/1998 $395,226

USE OF ESTIMATES

OTHER

Investment transactions are accounted for on the trade date.

CAPITAL STOCK

At September 30, 1999, par value shares ($0.001 per share) authorized were as
follows:

NUMBER OF PAR VALUE

CLASS NAME CAPITAL STOCK AUTHORIZED
Institutional Service 1,000,000,000
Institutional Service Shares 1,000,000,000
TOTAL 2,000,000,000

Transactions in capital stock were as follows:
<TABLE>

YEAR ENDED SEPTEMBER 30 1999 1998
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 12,649,367 $ 132,633,835 5,715,004 $ 58,695,494
Shares issued in
connection with the
acquisition of the
Federated Bond Index Fund - - 2,912,799 31,574,746
Shares issued to
shareholders in payment of
distributions declared 174,918 1,826,335 35,962 382,408
Shares redeemed (7,577,001) (79,157,964) (1,248,242) (13,117,236)
NET CHANGE RESULTING FROM

INSTITUTIONAL

SHARE TRANSACTIONS 5,247,284 $ 55,302,206 7,415,523 $ 77,535,412

YEAR ENDED SEPTEMBER 30 1999 1998
INSTITUTIONAL SERVICE
SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,597,077 $ 27,105,022 1,107,366 $ 11,386,652
Shares issued in
connection with the
acquisition of the
Federated Bond Index Fund - - 102,566 1,111,820
Shares issued to
shareholders in payment of
distributions declared 71,343 746,936 35,522 376,158
Shares redeemed (1,800,528) (18,814,741) (235,957) (2,486,337)
NET CHANGE RESULTING FROM
INSTITUTIONAL SERVICE

SHARE TRANSACTIONS 867,892 $ 9,037,217 1,009,497 $ 10,388,293
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 6,115,176 $ 64,339,423 8,425,020 $ 87,923,705

</TABLE>

INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE

ADMINISTRATIVE FEE

DISTRIBUTION SERVICES FEE

The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b- 1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Institutional Service Shares to finance activities intended to result in the
sale of the Fund's Institutional Service Shares. The Plan provides that the Fund
may incur distribution expenses up to 0.25% of the average daily net assets of
the Institutional Service Shares annually, to compensate FSC. The distributor
may voluntarily choose to waive any portion of its fee. The distributor can
modify or terminate this voluntary waiver at any time at its sole discretion.

SHAREHOLDER SERVICES FEE

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES

PORTFOLIO ACCOUNTING FEES

FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.

INTERFUND TRANSACTIONS

During the period ended September 30, 1999, the Fund engaged in purchase and
sale transactions with funds that have a common investment adviser (or
affiliated investment advisers), common Directors/Trustees, and/or common
Officers. These purchase and sale transactions were made at current market value
pursuant to Rule 17a-7 under the Act amounting to $103,521,531 and $49,085,010,
respectively.

GENERAL

Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
year ended September 30, 1999, were as follows:

Purchases $230,648,128
Sales $129,764,605

YEAR 2000 (UNAUDITED)

CHANGE OF INDEPENDENT AUDITORS (UNAUDITED)

On May 19, 1999, the Fund's Board of Directors, upon the recommendation of the
Audit Committee of the Board of Directors, requested and subsequently accepted
the resignation of Ernst & Young LLP ("E&Y") as the Fund's independent auditors.
E&Y's reports on the Fund's financial statements for the fiscal years ended
September 30, 1997 and September 30, 1998, contained no adverse opinion or
disclaimer of opinion nor was it qualified or modified as to uncertainty, audit
scope or accounting principles. During the Fund's fiscal years ended September
30, 1997 and September 30, 1998, (i) there were no disagreements with E&Y on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of E&Y, would have caused it to make reference to the subject
matter of the disagreements in connection with its reports on the financial
statements for such years; and (ii) there were no reportable events of the kind
described in Item 304(a)(1)(v) of Regulation S-K under the Securities Act of
1934, as amended.

The Fund, by action of its Directors, upon the recommendation of the Audit
Committee of the Board, has engaged Deloitte & Touche LLP ( "D&T") as the
independent auditors to audit the Fund's financial statements for the fiscal
year ended September 30, 1999. During the Fund's fiscal years ended September
30, 1997 and September 30, 1998, neither the Fund nor anyone on its behalf has
consulted D&T on items which (i) concerned the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Fund's financial statements or
(ii) concerned the subject of a disagreement (as defined in paragraph (a)(1)(iv)
of Item 304 of Regulation S-K) of reportable events (as described in paragraph
(a)(1)(v) of said Item 304).

Independent Auditors' Report

TO THE DIRECTORS OF FEDERATED TOTAL RETURN SERIES, INC.
AND SHAREHOLDERS OF THE INSTITUTIONAL SHARES OF

FEDERATED TOTAL RETURN BOND FUND:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Total Return Bond Fund (the "Fund")
as of September 30, 1999, and the related statement of operations, statement of
changes in net assets, and the financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets for the year ended September 30, 1998 and financial
highlights for the years ended September 30, 1998 and 1997 were audited by other
auditors whose report dated November 13, 1998, express an unqualified opinion on
those statements.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to provide reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned at September 30, 1999,
by correspondence with the custodian and brokers; where replies were not
received, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Total
Return Bond Fund as of September 30, 1999, the results of its operations, the
changes in its net assets and its financial highlights for the year then ended
in conformity with generally accepted accounting principles.

Deloitte & Touche LLP

Boston, Massachusetts

November 12, 1999

[Graphic]
Federated

World-Class Investment Manager

PROSPECTUS

Federated Total Return Bond Fund

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SHARES

NOVEMBER 30, 1999

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 and 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.

[Graphic]
Federated

Federated Total Return Bond Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Investment Company Act File No. 811-7115

Cusip 31428Q101

G01721-01-IS (11/99)

[Graphic]

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.

NOVEMBER 30, 1999

CONTENTS

Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the
Fund Invests? 6
What are the Specific Risks of Investing in the Fund? 8
What Do Shares Cost? 10
How is the Fund Sold? 10
How to Purchase Shares 11
How to Redeem Shares 12
Account and Share Information 14
Who Manages the Fund? 15
Financial Information 16
Independent Auditors' Report 33

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 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. The Fund seeks to provide
the appreciation component of total return by selecting those securities whose
prices will, in the opinion of the Adviser, benefit from anticipated changes in
economic and market conditions. 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?

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:

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

* 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.

RISK/RETURN BAR CHART AND TABLE

[Graphic] - See Appendix

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

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

The Fund's Institutional Service Shares total return for the nine-month period
from January 1, 1999 to September 30, 1999 was (1.05%).

Within the period shown in the Chart, the Fund's Institutional Service Shares
highest quarterly return was 4.47% (quarter ended September 30, 1998). Its
lowest quarterly return was (0.16%) (quarter ended March 31, 1997).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Institutional Service Shares Average
Annual Total Returns for the calendar periods ended December 31, 1998. The table
shows the Fund's Institutional Service Shares total returns averaged over a
period of years relative to the Lehman Brothers Aggregate Bond Index (LBABI), a
broad-based market index. The LBABI is an unmanaged index measuring both the
capital price changes and income provided by the underlying universe of
securities, comprised of U.S. Treasury obligations, U.S. agency obligations,
foreign obligations, U.S. investment-grade corporate debt and mortgage-backed
obligations. Total returns for the index 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.

CALENDAR PERIOD FUND LBABI
<S> <C> <C>
1 Year 8.91% 8.69%
Start of Performance 1 9.89% 9.54%

</TABLE>

1 The Fund's Institutional Service Shares start of performance date was October
1, 1996.

What are the Fund's Fees and Expenses?

FEDERATED TOTAL RETURN BOND 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

<S> <C>
Fees Paid Directly From
Your Investment
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) None
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 applicable) None
Exchange Fee None

ANNUAL FUND OPERATING
EXPENSES (Before Waivers)

Expenses That are Deducted
From Fund Assets (as a
percentage of average net
assets)

Management Fee 2 0.40%
Distribution (12b-1) Fee 3 0.25%
Shareholder Services Fee 0.25%
Other Expenses 0.32%
Total Annual Fund
Operating Expenses 1.22%

1 Although not contractually obligated to do so, the adviser and distributor
waived certain amounts. These are shown below along with the net expenses the
Fund actually paid for the fiscal year ended September 30, 1999.

Total Waiver of Fund

Expenses 0.57%
Total Actual Annual Fund

Operating Expenses (after

waivers) 0.65%

2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by the
Fund (after the voluntary waiver) was 0.03% for the fiscal year ended September
30, 1999.

3 The distributor voluntarily waived a portion of the distribution (12b-1) fee.
The distributor can terminate this voluntary waiver at any time. The
distribution (12b-1) fee paid by the Fund's Institutional Service Shares (after
the voluntary waiver) was 0.05% for the fiscal year ended September 30, 1999.

</TABLE>

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 Institutional Service Shares operating
expenses are BEFORE WAIVERS as 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 $ 124
3 Years $ 387
5 Years $ 670
10 Years $ 1,477

What are the Fund's Investment Strategies?

* current and expected U.S. growth;

* current and expected interest rates and inflation;

* the U.S. Federal Reserve Board's monetary policy; and

* 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

What are the Principal Securities in Which the Fund Invests?

FIXED INCOME SECURITIES

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

MORTGAGE BACKED SECURITIES

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

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

CORPORATE DEBT SECURITIES

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

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

PREPAYMENT RISKS

* 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.

* 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

* 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.

LIQUIDITY RISKS

* 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.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

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.

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.

RULE 12B-1 PLAN

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

* Establish an account with the investment professional; and

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

DIRECTLY FROM THE FUND

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

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

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)

How to Redeem Shares

You should redeem Shares:

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

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

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

BY TELEPHONE

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:

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

* amount to be redeemed; and

* 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:

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

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

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

PAYMENT METHODS FOR REDEMPTIONS

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

* 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:

* to allow your purchase to clear;

* during periods of market volatility; or

* 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

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

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

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 FUND'S PORTFOLIO MANAGERS ARE:

JOSEPH M. BALESTRINO

MARK E. DURBIANO

DONALD T. ELLENBERGER

JOHN T. GENTRY

ADVISORY FEES

YEAR 2000 READINESS

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

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

Financial Highlights

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 33.

YEAR ENDED SEPTEMBER 30 1999 1 1998 1997
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING

OF PERIOD $10.90 $10.32 $10.00
INCOME FROM INVESTMENT
OPERATIONS:

Net investment income 0.60 0.61 0.69
Net realized and
unrealized gain (loss) on
investments (0.70) 0.58 0.32
TOTAL FROM INVESTMENT

OPERATIONS (0.10) 1.19 1.01
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.60) (0.61) (0.69)
Distributions from net
realized gain on
investments (0.02) - -
TOTAL DISTRIBUTIONS (0.62) (0.61) (0.69)
NET ASSET VALUE, END OF

PERIOD $10.18 $10.90 $10.32
TOTAL RETURN 2 (0.93%) 11.87% 10.22%

RATIOS TO AVERAGE NET

ASSETS:

Expenses 3 1.22% 1.66% 4.90%
Net investment income 3 5.23% 4.67% 2.12%
Expenses (after waivers) 0.65% 0.63% 0.31%
Net investment income
(after waivers) 5.80% 5.70% 6.71%
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $21,376 $13,425 $2,289
Portfolio turnover 97% 75% 101%
</TABLE>

1 For the year ended September 30, 1999, the Fund was audited by Deloitte &
Touche LLP. Each of the previous years were audited by other auditors.

2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

3 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.

See Notes which are an integral part of the Financial Statements

Portfolio of Investments

SEPTEMBER 30, 1999

<TABLE>
<CAPTION>
PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-29.0%

AUTOMOTIVE-0.7%
$ 1,250,000 Meritor Automotive, Inc.,

Note, 6.80%, 2/15/2009 $ 1,164,770
BANKING-1.5%
400,000 1, 2 CIBC Capital Funding LP,

Bank Guarantee, 6.40%,

12/17/2004 389,348
725,000 1, 2 Den Danske Bank Group, Sub.
Note, 7.25%, 6/15/2005 718,330
260,000 FirstBank Puerto Rico,
Sub. Note, 7.625%,

12/20/2005 246,314
550,000 GreenPoint Bank, Sr. Note,
6.70%, 7/15/2002 542,014
350,000 Republic New York Corp.,
Sub. Note, 7.75%,

5/15/2009 355,491
300,000 Summit Bancorp, Bond,
8.40%, 3/15/2027 296,916
TOTAL 2,548,413

BEVERAGE & TOBACCO-0.3%
275,000 Anheuser-Busch Cos., Inc.,

Note, 7.00%, 9/1/2005 273,342
260,000 Philip Morris Cos., Inc.,
Deb., 6.00%, 11/15/1999 260,263
TOTAL 533,605

CABLE TELEVISION-0.5%
530,000 Continental Cablevision,

Sr. Deb., 9.50%, 8/1/2013 593,891
300,000 TKR Cable, Inc., Deb.,
10.50%, 10/30/2007 318,123
TOTAL 912,014

CHEMICALS & PLASTICS-0.2%
500,000 1, 2 Fertinitro Finance,

Company Guarantee, 8.29%,

4/1/2020 344,735
CONSUMER PRODUCTS-0.3%

500,000 Hershey Foods Corp., Note,
6.95%, 8/15/2012 498,115
ECOLOGICAL SERVICES &

EQUIPMENT-0.9%
750,000 USA Waste Services, Inc.,

Note, 6.125%, 7/15/2001 722,040
300,000 USA Waste Services, Inc.,
Sr. Note, 7.00%, 10/1/2004 279,819
500,000 WMX Technologies, Inc.,
Deb., 8.75%, 5/1/2018 495,355
TOTAL 1,497,214

EDUCATION-1.6%
1,250,000 Boston University, 7.625%,

7/15/2097 1,189,537
1,000,000 Columbia University,
Medium Term Note, 8.62%,

2/21/2001 1,033,760
525,000 Harvard University,
Revenue Bonds, 8.125%

Bonds, 4/15/2007 565,808
TOTAL 2,789,105

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-continued

ELECTRONICS-0.4%
$ 600,000 Anixter International,

Inc., Company Guarantee,

8.00%, 9/15/2003 $ 599,916
FINANCE - AUTOMOTIVE-0.6%

485,000 Chrysler Financial Corp.,

Deb., 13.25%, 10/15/1999 488,414
500,000 Ford Motor Credit Corp.,
Unsub., 6.875%, 6/5/2001 499,831
TOTAL 988,245

FINANCIAL INTERMEDIARIES-
2.6%

750,000 Amvescap PLC, Sr. Note,

10.25%, 6/1/2002 423,208
275,000 Lehman Brothers Holdings,
Inc., Note, 6.90%,

1/29/2001 275,245
250,000 Lehman Brothers Holdings,
Inc., Note, 8.50%,

8/1/2015 257,555
300,000 Salomon, Inc., Sr. Note,
7.75%, 5/15/2000 303,021
TOTAL 4,337,876

FINANCIAL SERVICES-0.5%

250,000 Associates Corp. of North
America, Sr. Note, 9.125%,

4/1/2000 253,915

500,000 General Electric Capital
Corp., Medium Term Note,

6.65%, 9/3/2002 502,090
TOTAL 756,005

FOREST PRODUCTS-1.9%

300,000 Container Corp. of
America, Sr. Note, 11.25%,

5/1/2004 311,250
1,300,000 Fort James Corp., Sr. Note,
6.234%, 3/15/2001 1,298,986
1,500,000 Quno Corp., Sr. Note,
9.125%, 5/15/2005 1,583,925
TOTAL 3,194,161

HEALTHCARE-0.3%
500,000 Tenet Healthcare Corp.,

Sr. Sub. Note, 8.125%,

12/1/2008 458,750
INDUSTRIAL PRODUCTS &

EQUIPMENT-1.7%

2,185,000 Figgie International
Holdings, Inc., Sr. Note,

9.875%, 10/1/1999 2,185,000
575,000 Southdown, Inc., Sr. Sub.
Note, 10.00%, 3/1/2006 626,451
TOTAL 2,811,451

INSURANCE-2.1%
250,000 Conseco, Inc., Note,

6.40%, 2/10/2003 236,670
250,000 Conseco, Inc., Sr. Note,
10.50%, 12/15/2004 270,555
600,000 Delphi Financial Group,
Inc., 9.31%, 3/25/2027 581,610
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-continued

INSURANCE-CONTINUED
$ 400,000 Delphi Financial Group,

Inc., Note, 8.00%,

10/1/2003 $ 400,180
400,000 Hartford Life, Inc., Note,
7.10%, 6/15/2007 395,944
360,000 1, 2 Life Re Capital Trust I,
Company Guarantee, 8.72%,

6/15/2027 371,858
250,000 SunAmerica, Inc., Sr.
Note, 6.20%, 10/31/1999 250,112
1,000,000 1, 2 Union Central Life
Insurance Co., Note,

8.20%, 11/1/2026 1,009,760
TOTAL 3,516,689

LEISURE & ENTERTAINMENT-
1.1%

1,500,000 Paramount Communications,
Inc., Sr. Deb., 8.25%,

8/1/2022 1,494,690
400,000 Paramount Communications,
Inc., Sr. Note, 7.50%,

1/15/2002 404,884
TOTAL 1,899,574

MACHINERY & EQUIPMENT-0.3%
500,000 Caterpillar, Inc., Deb.,

9.75%, 6/1/2019 526,870
METALS & MINING-1.2%

450,000 Barrick Gold Corp., Deb.,

7.50%, 5/1/2007 446,863
150,000 Inco Ltd., Note, 9.60%,
6/15/2022 139,930
1,200,000 1, 2 Normandy Finance Ltd.,
Company Guarantee, 7.50%,

7/15/2005 1,146,756
225,000 Santa Fe Pacific Gold,
Note, 8.375%, 7/1/2005 219,202
TOTAL 1,952,751

OIL & GAS-1.0%
250,000 Husky Oil Ltd., Sr. Note,

7.125%, 11/15/2006 234,417

265,000 Occidental Petroleum
Corp., Sr. Note, 10.125%,

11/15/2001 281,904
515,000 Sun Co., Inc., Note,
8.125%, 11/1/1999 516,457
650,000 Sunoco, Inc., Note, 7.75%,
9/1/2009 652,684
TOTAL 1,685,462

PHARMACEUTICAL-0.5%

480,000 American Home Products
Corp., Note, 7.70%,

2/15/2000 483,082
400,000 Lilly (Eli) & Co., Unsecd.
Note, 6.57%, 1/1/2016 378,528
TOTAL 861,610

PRINTING & PUBLISHING-0.4%
300,000 News America Holdings,

Inc., Company Guarantee,

10.125%, 10/15/2012 331,173
300,000 News America Holdings,
Inc., Company Guarantee,

8.00%, 10/17/2016 294,786
TOTAL 625,959

REAL ESTATE-0.4%
750,000 Sun Communities, Inc.,

Medium Term Note, 6.77%,

5/16/2005 688,388
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-continued

RETAILERS-2.0%
$ 750,000 Dayton-Hudson Corp., Deb.,

10.00%, 12/1/2000 $ 781,845
634,931 K Mart Corp., Pass Thru

SERVICES-0.3%
500,000 Stewart Enterprises, Inc.,

Note, 6.40%, 5/1/2003 476,135
SOVEREIGN GOVERNMENT-0.9%

1,350,000 Quebec, Province of,

11.00%, 6/15/2015 1,449,360

SUPRANATIONAL-0.3%
500,000 Corp Andina De Fomento, Sr.

Note, 7.75%, 3/1/2004 499,840
TECHNOLOGY SERVICES-1.8%

1,350,000 Dell Computer Corp., Deb.,
7.10%, 4/15/2028 1,232,969
1,500,000 Unisys Corp., Sr. Note,

11.75%, 10/15/2004 1,683,750
TOTAL 2,916,719

TELECOMMUNICATIONS &
CELLULAR-0.8%

500,000 MCI Communications Corp.,
Sr. Note, 7.125%,

1/20/2000 501,330

850,000 Qwest Communications
International, Inc., Sr.
Note, Series B, 7.50%,

11/1/2008 847,875
TOTAL 1,349,205

UTILITIES-1.9%

600,000 Cincinnati Gas and
Electric Co., Note, 6.35%,

6/15/2003 591,300

1,050,000 1, 2 Edison Mission Holding
Co., Sr. Secd. Note,

8.734%, 10/1/2026 1,021,692

100,000 National Rural Utilities
Cooperative Finance Corp.,
Collateral Trust, 5.50%,

1/15/2005 95,329

1,100,000 National Rural Utilities
Cooperative Finance Corp.,
Medium Term Note, 5.75%,

12/1/2008 1,013,397
170,000 Puget Sound Energy, Inc.,
Medium Term Note, 7.02%,

12/1/2027 156,820
500,000 1, 2 Tenaga Nasional Berhad,
Deb., 7.50%, 1/15/2096 362,960
TOTAL 3,241,498

TOTAL CORPORATE BONDS
(IDENTIFIED COST

$50,193,691) 48,471,622
ASSET-BACKED SECURITIES-

1.7%

STRUCTURED PRODUCT (ABS)-
1.5%

1,000,000 1, 2 125 Home Loan Owner Trust
1998-1A, Class B-1, 9.26%,

2/15/2029 860,000

750,000 Citibank Credit Card
Master Trust 1997-6,

6.323%, Class A, 8/15/2006 543,023
<CAPTION>
PRINCIPAL
AMOUNT

OR SHARES VALUE
<C> <S> <C>

ASSET-BACKED SECURITIES-

continued
STRUCTURED PRODUCT (ABS)-

CONTINUED

$ 489,598 Green Tree Home Equity Loan
Trust 1999-A, Class B2A,

7.44%, 2/15/2029 $ 488,682
516,381 1, 2 Merrill Lynch Mortgage
Investors, Inc. 1998-FF3,
Class BB, 5.50%,

11/20/2029 501,535
TOTAL 2,393,240

WHOLE LOAN-0.2%

432,569 1 SMFC Trust Asset-Backed
Certificates, Series 1997-
A, Class 4, 7.7191%,

1/28/2025 367,818

TOTAL ASSET-BACKED
SECURITIES (IDENTIFIED
COST $2,913,530) 2,761,058
GOVERNMENT AGENCIES-3.4%

1,000,000 Federal Home Loan Bank

System, 5.785%, 3/17/2003 981,970
175,000 Federal Home Loan Mortgage
Corp., 7.90%, 9/19/2001 181,060
390,000 Federal National Mortgage
Association, 7.50%,

2/11/2002 400,955

500,000 Federal National Mortgage
Association, Deb., 6.75%,

7/30/2007 489,615

350,000 Federal National Mortgage
Association, Medium Term

Note, 6.71%, 7/24/2001 354,151
675,000 Private Export Funding
Corp., 7.30%, 1/31/2002 692,530
256,000 Tennessee Valley
Authority, Series 93-1,

8.625%, 11/15/2029 268,680

1,373,000 Tennessee Valley
Authority, Note, 8.625%,

11/15/2029 1,441,005

1,000,000 Tennessee Valley
Authority, Series C,

6.00%, 3/15/2013 923,670

TOTAL GOVERNMENT AGENCIES
(IDENTIFIED COST

$5,677,808) 5,733,636
MUTUAL FUNDS-34.1% 4
47,209 The High Yield Bond

Portfolio 413,079
5,826,496 Federated Mortgage Core
Portfolio 56,458,750

TOTAL MUTUAL FUNDS
(IDENTIFIED COST
$58,233,239) 56,871,829
PREFERRED STOCKS-0.1%
TELECOMMUNICATIONS &
CELLULAR-0.1%

3,800 AT&T Corp., Pfd.

(identified cost $99,560) 95,475
U.S. TREASURY-29.2%

U.S. TREASURY BONDS-13.8%

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

U.S. TREASURY-continued
U.S. TREASURY BONDS-

CONTINUED

$ 1,400,000 11.625%, 11/15/2004 $ 1,741,726
300,000 11.75%, 11/15/2014 420,138
TOTAL 23,095,487
U.S. TREASURY NOTES-15.4%

(IDENTIFIED COST

$50,003,125) 48,781,457
TOTAL INVESTMENTS
(IDENTIFIED COST

$167,120,953) 3 $ 162,715,077
</TABLE>

2 Denotes a restricted security that has been deemed liquid by criteria approved
by the fund's Board of Directors.

Note: The categories of investments are shown as a percentage of net assets
($166,803,407) at September 30, 1999.

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

SEPTEMBER 30, 1999

See Notes which are an integral part of the Financial Statements

Statement of Operations

YEAR ENDED SEPTEMBER 30, 1999

<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 2,180,838
Interest 6,708,259
TOTAL INCOME 8,889,097
EXPENSES:

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

YEAR ENDED SEPTEMBER 30 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET

ASSETS
OPERATIONS:

RESULTING FROM OPERATIONS (920,770) 7,814,007
DISTRIBUTIONS TO
SHAREHOLDERS:

Distributions from net
investment income

DISTRIBUTIONS

TRANSACTIONS 64,339,423 87,923,705
Change in net assets 54,881,851 92,932,787
NET ASSETS:

Beginning of period 111,921,556 18,988,769
End of period (including
undistributed net
investment income of
$47,674 for the year ended
September 30, 1999) $ 166,803,407 $ 111,921,556
</TABLE>

1 Includes $1,196,929 of unrealized appreciation at September 25, 1998, related
to the acquisition of Federated Bond Index Fund.

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

SEPTEMBER 30, 1999

ORGANIZATION

Federated Total Return Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of four portfolios. The
financial statements included herein are only those of Federated Total Return
Bond Fund (the "Fund"), a diversified portfolio. The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares. The investment objective of the Fund is to provide
total return.

SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS

REPURCHASE AGREEMENTS

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

INCREASE (DECREASE)
UNDISTRIBUTED NET
INVESTMENT INCOME PAID IN CAPITAL
<S> <C>
$(133) $133

</TABLE>

Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.

FEDERAL TAXES

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

RESTRICTED SECURITIES

SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
SMFC Trust 2/4/1998 $395,226

</TABLE>

USE OF ESTIMATES

OTHER

Investment transactions are accounted for on the trade date.

CAPITAL STOCK

At September 30, 1999, par value shares ($0.001 per share) authorized were as
follows:

NUMBER OF PAR VALUE

CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Institutional Service 1,000,000,000
Institutional Service Shares 1,000,000,000
TOTAL 2,000,000,000

</TABLE>

Transactions in capital stock were as follows:

INSTITUTIONAL

SHARE TRANSACTIONS 5,247,284 $ 55,302,206 7,415,523 $ 77,535,412

SHARE TRANSACTIONS 867,892 $ 9,037,217 1,009,497 $ 10,388,293
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 6,115,176 $ 64,339,423 8,425,020 $ 87,923,705
</TABLE>

INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE

ADMINISTRATIVE FEE

DISTRIBUTION SERVICES FEE

The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b- 1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Institutional Service Shares to finance activities intended to result in the
sale of the Fund's Institutional Service Shares. The Plan provides that the Fund
may incur distribution expenses up to 0.25% of the average daily net assets of
the Institutional Service Shares annually, to compensate FSC. The distributor
may voluntarily choose to waive any portion of its fee. The distributor can
modify or terminate this voluntary waiver at any time at its sole discretion.

SHAREHOLDER SERVICES FEE

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES

PORTFOLIO ACCOUNTING FEES

FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.

INTERFUND TRANSACTIONS

GENERAL

Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
year ended September 30, 1999, were as follows:

Purchases $230,648,128
Sales $129,764,605

YEAR 2000 (UNAUDITED)

CHANGE OF INDEPENDENT AUDITORS (UNAUDITED)

On May 19, 1999, the Fund's Board of Directors, upon the recommendation of the
Audit Committee of the Board of Directors, requested and subsequently accepted
the resignation of Ernst & Young LLP ("E&Y") as the Fund's independent auditors.
E&Y's reports on the Fund's financial statements for the fiscal years ended
September 30, 1997 and September 30, 1998, contained no adverse opinion or
disclaimer of opinion nor was it qualified or modified as to uncertainty, audit
scope or accounting principles. During the Fund's fiscal years ended September
30, 1997 and September 30, 1998, (i) there were no disagreements with E&Y on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of E&Y, would have caused it to make reference to the subject
matter of the disagreements in connection with its reports on the financial
statements for such years; and (ii) there were no reportable events of the kind
described in Item 304(a)(1)(v) of Regulation S-K under the Securities Act of
1934, as amended.

The Fund, by action of its Directors, upon the recommendation of the Audit
Committee of the Board, has engaged Deloitte & Touche LLP ( "D&T") as the
independent auditors to audit the Fund's financial statements for the fiscal
year ended September 30, 1999. During the Fund's fiscal years ended September
30, 1997 and September 30, 1998, neither the Fund nor anyone on its behalf has
consulted D&T on items which (i) concerned the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Fund's financial statements or
(ii) concerned the subject of a disagreement (as defined in paragraph (a)(1)(iv)
of Item 304 of Regulation S-K) of reportable events (as described in paragraph
(a)(1)(v) of said Item 304).

Independent Auditors' Report

TO THE DIRECTORS OF FEDERATED TOTAL RETURN SERIES, INC.
AND SHAREHOLDERS OF THE INSTITUTIONAL SERVICE SHARES OF

FEDERATED TOTAL RETURN BOND FUND:

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to provide reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned at September 30, 1999,
by correspondence with the custodian and brokers; where replies were not
received, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.

Deloitte & Touche LLP

Boston, Massachusetts
November 12, 1999

[Graphic]
Federated

World-Class Investment Manager

Federated Total Return Bond Fund

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SERVICE SHARES

PROSPECTUS

NOVEMBER 30, 1999

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 and 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.

[Graphic]
Federated

Federated Total Return Bond Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Investment Company Act File No. 811-7115

Cusip 31428Q507

G01721-03-SS (11/99)

[Graphic]

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 and Analysis without charge by calling 1-800-341-7400.

NOVEMBER 30, 1999

[Graphic]
Federated

World-Class Investment Manager
Federated Total Return Bond Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

G01722-02 (11/99)

[Graphic]

CONTENTS

How is the Fund Organized? 1

Securities in Which the Fund Invests 1

What Do Shares Cost? 9

How is the Fund Sold? 9

Subaccounting Services 9

Redemption in Kind 10

Account and Share Information 10

Tax Information 10

Who Manages and Provides Services to the Fund? 11

How Does the Fund Measure Performance? 14

Who is Federated Investors, Inc.? 16

Investment Ratings 17

Addresses 19

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.

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

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

CORPORATE DEBT SECURITIES

COMMERCIAL PAPER

DEMAND INSTRUMENTS

MUNICIPAL SECURITIES

MORTGAGE BACKED SECURITIES

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

Sequential CMOs

PACs, TACs and Companion Classes

IOs and POs

Floaters and Inverse Floaters

Z Classes and Residual Classes

ASSET BACKED SECURITIES

BANK INSTRUMENTS

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.

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

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:

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

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

FOREIGN EXCHANGE CONTRACTS

HEDGING

DERIVATIVE CONTRACTS

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

FUTURES CONTRACTS

The Fund may buy and sell financial and foreign currency futures contracts

OPTIONS

The Fund may:

* Buy call options on financial and foreign currency futures contracts in
anticipation of an increase in the value of the underlying asset;

* 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

* Buy or write options to close out existing options positions.

When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.

SWAPS

INTEREST RATE SWAPS

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS

DELAYED DELIVERY TRANSACTIONS

SECURITIES LENDING

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.

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

ASSET COVERAGE

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

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

CREDIT RISKS

* 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.

CALL AND PREPAYMENT RISKS

* 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.

* 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

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

RISKS ASSOCIATED WITH COMPLEX CMOS

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

CURRENCY RISKS

EURO RISKS

RISKS OF FOREIGN INVESTING

LEVERAGE RISKS

* 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

ISSUING SENIOR SECURITIES AND BORROWING MONEY

PLEDGING ASSETS

DIVERSIFICATION OF INVESTMENTS

INVESTING IN REAL ESTATE

INVESTING IN COMMODITIES

UNDERWRITING

LENDING CASH OR SECURITIES

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 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 OF 1940. 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.

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;

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

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.

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

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

SUPPLEMENTAL PAYMENTS

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

Redemption in Kind

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.

As of November 15, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Institutional Shares: Grand Old
Co., Zanesville, OH owned approximately 1,689,787 shares (11.18%); and Onedun,
Dundee, IL owned approximately 1,698,292 shares (11.23%).

As of November 15, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Institutional Service Shares:
Merchants National Bank (as trustee for retirement plan of Plano Molding Co.,
PSP), Aurora, IL owned approximately 104,514 shares (6.38%); Anbee & Company,
Aurora, IL owned approximately 104,675 shares (6.39%); Hometown Bank & Co.,
Wilson, NC owned approximately 326,701 shares (19.95%); and FNB Nominee Co.,
Indiana, PA owned approximately 384,000 shares (23.45%).

Tax Information

FEDERAL INCOME TAX

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

As of November 15, 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>

NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM CORPORATION AND
POSITION WITH CORPORATION FOR PAST FIVE YEARS FROM CORPORATION FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*#+ Chief Executive Officer $0 $0 for the Corporation and
Birth Date: July 28, 1924 and Director or Trustee of 54 other investment
Federated Investors Tower the Federated Fund companies in the
1001 Liberty Avenue Complex; Chairman and Fund Complex
Pittsburgh, PA Director, Federated
CHARIMAN AND DIRECTOR Investors, Inc.; Chairman
and Trustee, Federated Investment
Management Company; Chairman and
Director, Federated Investment
Counseling, and Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.

THOMAS G. BIGLEY Director or Trustee of $1,087.15 $113,860.22 for the Corporation
Birth Date: February 3, 1934 the Federated Fund and 54 other investment
15 Old Timber Trail Complex; Director, Member companies in the
Pittsburgh, PA of Executive Committee, Fund Complex
DIRECTOR Children's Hospital of
Pittsburgh; Director,
Robroy Industries, Inc.
(coated steel conduits/
computer storage
equipment); 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 $1,196.04 $125,264.48 for the Corporation
Birth Date: June 23, 1937 Federated Fund Complex; and 54 other investment
Wood/Commercial Dept. President, Investment companies in the
John R. Wood Associates, Inc. Realtors Properties Corporation; Fund Complex

3255 Tamiami Trail North Senior Vice President,
Naples, FL John R. Wood and
DIRECTOR Associates, Inc.,

Realtors; Partner or
Trustee in private real
estate ventures in
Southwest Florida;
formerly: President,
Naples Property
Management, Inc. and
Northgate Village
Development Corporation.

NICHOLAS CONSTANTAKIS Director or Trustee of the $1,087.15 $47,958.02 for the Corporation
Birth Date: September 3, 1939 Federated Fund Complex; and 29 other investment
175 Woodshire Drive formerly: Partner, companies in the
Pittsburgh, PA Andersen Worldwide SC. Fund Complex
DIRECTOR

JOHN F. CUNNINGHAM Director or Trustee of some $570.74 $0 for the Corporation and
Birth Date: March 5, 1943 of the Federated Fund 46 other investment
353 El Brillo Way Complex; Chairman, companies in the
Palm Beach, FL President and Chief Fund Complex
DIRECTOR Executive Officer,
Cunningham & Co., Inc.
(strategic business
consulting) ; Trustee
Associate, Boston College;
Director, Iperia Corp.
(communications/software);
formerly: 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.
J. CHRISTOPHER DONAHUE*+ President or Executive $0 $0 for the Corporation and
Birth Date: April 11, 1949 Vice President of the 16 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Director or Trustee of some Fund Complex
Pittsburgh, PA of the Funds in the
EXECUTIVE VICE PRESIDENT Federated Fund Complex;
AND DIRECTOR President, Chief Executive
Officer and Director, Federated
Investors, Inc.; President and Trustee,
Federated Investment Management
Company; President and Trustee,
Federated Investment Counseling;
President and Director, Federated
Global Investment Management Corp.;
President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services
Company; Director, Federated Services
Company.

NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM CORPORATION AND
POSITION WITH CORPORATION FOR PAST FIVE YEARS FROM CORPORATION FUND COMPLEX
<S> <C> <C> <C>
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the $1,087.15 $113,860.22 for the Corporation
Birth Date: October 11, 1932 Federated Fund Complex; and 54 other investment
3471 Fifth Avenue Professor of Medicine, companies in the
Suite 1111 University of Pittsburgh; Fund Complex
Pittsburgh, PA Medical Director,
DIRECTOR University of Pittsburgh

Medical Center - Downtown;
Hematologist, Oncologist, and
Internist, University of Pittsburgh
Medical Center; Member, National Board
of Trustees, Leukemia Society of
America.

PETER E. MADDEN Director or Trustee of the $989.03 $113,860.22 for the Corporation
Birth Date: March 16, 1942 Federated Fund Complex; and 54 other investment
One Royal Palm Way formerly: Representative, companies in the
100 Royal Palm Way Commonwealth of Fund Complex
Palm Beach, FL Massachusetts General
DIRECTOR Court; President, State
Street Bank and Trust
Company and State Street
Corporation.
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, JR. Director or Trustee of some $600.16 $0 for the Corporation and
Birth Date: April 10, 1945 of the Federated Fund 50 other investment
80 South Road Complex; Management companies in the
Westhampton Beach, NY Consultant. Fund Complex
DIRECTOR Previous Positions: Chief
Executive Officer, PBTC International
Bank; Partner, Arthur Young & Company
(now Ernst & Young LLP); 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., J.D., S.J.D.# Director or Trustee of $1,171.83 $113,860.22 for the Corporation
Birth Date: December 20, 1932 the Federated Fund Complex; and 54 other investment
President, Duquesne University President, Law Professor, companies in the
Pittsburgh, PA Duquesne University; Fund Complex
DIRECTOR Consulting Partner, Mollica
& Murray; Director, Michael
Baker Corp. (engineering,
construction, operations
and technical services).
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 $1,087.15 $113,860.22 for the Corporation
Birth Date: June 21, 1935 Federated Fund Complex; and 54 other investment
4905 Bayard Street Public Relations/ companies in the
Pittsburgh, PA Marketing/Conference Fund Complex
DIRECTOR Planning.
Previous Positions:
National Spokesperson,
Aluminum Company of
America; television
producer; business owner.

JOHN S. WALSH Director or Trustee of some $570.74 $0 for the Corporation and
Birth Date: November 28, 1957 of the Federated Fund 48 other investment
2007 Sherwood Drive Complex; President and companies in the
Valparaiso, IN Director, Heat Wagon, Inc. Fund Complex
DIRECTOR (manufacturer of
construction temporary
heaters); President and
Director, Manufacturers
Products, Inc.
(distributor of 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 $0 $0 for the Corporation and
Birth Date: May 2, 1929 Securities Corp. 8 other investment
Federated Investors Tower companies in the
1001 Liberty Avenue Fund Complex

Pittsburgh, PA

PRESIDENT

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

NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM CORPORATION AND
POSITION WITH CORPORATION FOR PAST FIVE YEARS FROM CORPORATION FUND COMPLEX
<S> <C> <C> <C>
JOHN W. MCGONIGLE Executive Vice President $0 $0 for the Corporation and
Birth Date: October 26, 1938 and Secretary of the 54 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Executive Vice President, Fund Complex
Pittsburgh, PA Secretary, and Director,
EXECUTIVE VICE PRESIDENT Federated Investors, Inc.;
AND SECRETARY Trustee, Federated

Investment Management Company and
Federated Investment Counseling;
Director, Federated Global Investment
Management Corp., Federated Services
Company and Federated Securities Corp.

RICHARD J. THOMAS Treasurer of the Federated $0 $0 for the Corporation and
Birth Date: June 17, 1954 Fund Complex; Vice 54 other investment
Federated Investors Tower President - Funds companies in the
1001 Liberty Avenue Financial Services Fund Complex
Pittsburgh, PA Division, Federated
TREASURER Investors, Inc.; formerly:
various management
positions within Funds
Financial Services
Division of Federated
Investors, Inc.

WILLIAM D. DAWSON, III Chief Investment Officer $0 $0 for the Corporation and
Birth Date: March 3, 1949 of this Fund and various 41 other investment
Federated Investors Tower other Funds in the companies in the

1001 Liberty Avenue Federated Fund Complex; Fund Complex
Pittsburgh, PA Executive Vice President,
CHIEF INVESTMENT OFFICER Federated Investment

JOSEPH M. BALESTRINO Joseph M. Balestrino is $0 $0 for the Corporation and
Birth Date: November 3, 1954 Vice President of the 3 other investment
Federated Investors Tower Corporation. companies in the
1001 Liberty Avenue Mr. Balestrino joined Fund Complex
Pittsburgh, PA Federated in 1986 and has
VICE PRESIDENT 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.

</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.

INVESTMENT ADVISER

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

The Adviser is a wholly owned subsidiary of Federated.

OTHER RELATED SERVICES

BROKERAGE TRANSACTIONS

ADMINISTRATOR

<TABLE>

MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS

<S> <C>

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

</TABLE>

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

shareholders.

INDEPENDENT AUDITORS

FEES PAID BY THE FUND FOR SERVICES

<TABLE>

FOR THE YEAR ENDED

SEPTEMBER 30 1999 1998 1997
<S> <C> <C> <C>
Advisory Fee Earned $551,737 $187,800 $ 33,489
Advisory Fee Reduction 504,690 187,800 33,489
Brokerage Commissions 0 0 0
Administrative Fee 155,000 155,001 154,935

12B-1 FEE

Institutional Service Shares 40,782 - -
SHAREHOLDER SERVICES FEE

Institutional Shares 304,061 - -
Institutional Service Shares 40,766 - -

</TABLE>

How Does the Fund Measure Performance?

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

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

<TABLE>

START OF PERFORMANCE

SHARE CLASS 30-DAY PERIOD 1 YEAR ON OCTOBER 1, 1996
<S> <C> <C> <C>
INSTITUTIONAL SHARES:

Total Return NA (0.63%) 7.27%
Yield 6.67% NA NA

START OF PERFORMANCE

SHARE CLASS 30-DAY PERIOD 1 YEAR ON OCTOBER 1, 1996
<S> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES:

Total Return NA (0.93%) 6.96%
Yield 6.34% 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.

YIELD

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

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

* 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 Fund; and

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

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

RUSSELL ACTIVE SECTOR ROTATION ACCOUNTS UNIVERSE

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.

LIPPER ANALYTICAL SERVICES, INC.

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.

LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) INDEX

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.

LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX

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.

LEHMAN BROTHERS AGGREGATE BOND INDEX

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 FUNDS OVERVIEW

MUNICIPAL FUNDS

EQUITY FUNDS

CORPORATE BOND FUNDS

GOVERNMENT FUNDS

MONEY MARKET FUNDS

MUTUAL FUND MARKET

FEDERATED CLIENTS OVERVIEW

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

INSTITUTIONAL CLIENTS

BANK MARKETING

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

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.

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

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

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

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

* Leading market positions in well-established industries;

* High rates of return on funds employed;

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

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

* 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-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.

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

Deloitte & Touche LLP

200 Berkeley Street

Boston, MA 02116

MANAGEMENT DISCUSSION AND ANALYSIS

Federated Total Return Bond Fund

Annual Report for Fiscal Year Ended September 30, 1999

INSTITUTIONAL SHARES

INSTITUTIONAL SERVICE SHARES

The fixed income markets generally experienced both a volatile and difficult
period over the 12-month reporting period ended September 30, 1999. You may
recall that domestic interest rates had plummeted during the summer of 1998, a
direct result of the global financial and currency crises. In response to
depressed worldwide economic conditions, the Federal Reserve Board (the "Fed")
ultimately reduced interest rates on three occasions in an attempt to restore
confidence in global financial markets. In retrospect, the three rate cuts
orchestrated during the latter half of 1998 took U.S. interest rates to
"artificially" low levels, given the sustained domestic economic activity at the
time.

Over the past fiscal year, global economies have experienced a substantial
rebound off the bottom which occurred in the fall of 1998. The Fed interest rate
decreases were followed by nearly 200 individual rate cuts by central banks
around the world. As foreign economies responded positively to this "liquidity
infusion," interest rates began rising and continued to rise over the past 12
months. For the entire 12-month reporting period ended September 30, 1999, rates
increased well over 100 basis points (one full percent) for all Treasury
securities from 2-30 years in maturity. As is typical, the 5-year point on the
maturity spectrum exhibited the largest move, with an increase of 168 basis
points (1.68%).

In terms of fixed income sector performance, significant quarter-to- quarter
volatility was displayed among the various high quality components-Treasuries,
agencies, mortgages, corporates and asset-backed securities. All non-Treasury
"spread" sectors performed relatively well both early and late in the fiscal
year, while generally underperforming pure Treasury securities during the spring
and summer of 1999. Over the entire 12-month reporting period, investors were
better suited in the spread sectors, as opposed to pure U.S. Treasury
securities, as the extra income served to partially offset the price decline
resulting from higher interest rates.

Federated Total Return Bond Fund did not vary significantly from its benchmark
index or Lipper 1 category in terms of interest rate exposure. Duration was
maintained very near the duration of the Lehman Brothers Aggregate Bond Index.2
However, the fund did overweight the "spread" sectors for the entire reporting
period, namely the corporate and mortgage areas. Thus, the fund was in a
position to benefit from the outperformance of these sectors relative to U.S.
Treasuries. For the 12-month reporting period ended September 30, 1999, the fund
generated a (0.63%)3 total return for Institutional Shares and (0.93%)3 for
Institutional Service Shares, compared to (0.37%) for the Lehman Brothers
Aggregate Bond Index2 and (1.01%) for the Lipper Intermediate Investment Grade
Debt category.1

For the near future, fund management does not anticipate a significant strategy
change. Interest rate exposure should remain near neutral and greater emphasis
will continue to be placed on the higher yielding "spread" sectors. Thus, fund
management believes that the fund should continue to generate an above-average
income yield relative to its primary performance benchmarks, while participating
directly in the price performance dictated by the direction of interest rates.

1 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the respective categories indicated. These figures do not reflect sales charges.

2 This index is unmanaged.

3 Performance quoted represents past performance and is no guarantee of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.

LAST MEETING OF SHAREHOLDERS

AGENDA ITEM 1

To elect Directors. 1

WITHHELD
AUTHORITY

</TABLE>

1 The following Directors of the Corporation continued their terms: John F.
Donahue, John T. Conroy, Lawrence D. Ellis, M.D., Peter E. Madden, and
Marjorie P. Smuts.

AGENDA ITEM 2

To ratify the selection of Ernst & Young LLP as the Corporation's independent
auditors.

The results of shareholders voting were as follows:

ABSTENTIONS

AND BROKER

FOR AGAINST NON-VOTES
<S> <C> <C>
18,110,860 215 29,642

</TABLE>

INSTITUTIONAL SHARES

GROWTH OF $100,000 INVESTED IN FEDERATED TOTAL RETURN BOND FUND

[Graphic] - See Appendix 2

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED SEPTEMBER 30, 1999
<S> <C>

1 Year (0.63%)
Start of Performance (10/1/96) 7.27%

</TABLE>

The graph above illustrates the hypothetical investment of $100,000 1 in the
Federated Total Return Bond Fund (Institutional Shares) (the "Fund") from
October 1, 1996 (start of performance) to September 30, 1999 compared to the
Lehman Brothers Aggregate Bond Index (LBABI).2

This report must be preceded or accompanied by the Fund's prospectus dated
November 30, 1999, and, together with financial statements contained therein,
constitutes the Fund's annual report.

1 The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBABI has been adjusted to reflect reinvestment of dividends
on securities in the index.

2 The LBABI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. The index is unmanaged.

INSTITUTIONAL SERVICE SHARES

GROWTH OF $25,000 INVESTED IN FEDERATED TOTAL RETURN BOND FUND

[Graphic] - See Appendix 2

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED SEPTEMBER 30, 1999
<S> <C>

1 Year (0.93%)
Start of Performance (10/1/96) 6.96%

</TABLE>

The graph above illustrates the hypothetical investment of $25,000 1 in the
Federated Total Return Bond Fund (Institutional Service Shares) (the "Fund")
from October 1, 1996 (start of performance) to September 30, 1999 compared to
the Lehman Brothers Aggregate Bond Index (LBABI).2

This report must be preceded or accompanied by the Fund's prospectus dated
November 30, 1999, and, together with financial statements contained therein,
constitutes the Fund's annual report.

1 The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBABI has been adjusted to reflect reinvestment of dividends
on securities in the index.

2 The LBABI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. The index is unmanaged.

[Graphic]
Federated

World-Class Investment Manager
Federated Total Return Bond Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Cusip 31428Q101
Cusip 31428Q507
G01721-04 (11/99)

[Graphic]

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.

NOVEMBER 30, 1999

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 3

What are the Fund's Investment Strategies? 4

What are the Principal Securities in Which the

Fund Invests? 7

What are the Specific Risks of Investing in the Fund? 14

What Do Shares Cost? 17

How is the Fund Sold? 18

How to Purchase Shares 18

How to Redeem Shares 20

Account and Share Information 22

Who Manages the Fund? 23

Financial Information 25

Independent Auditors' Report 42

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:

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

* 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.

* 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.

* 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.

* 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.

* CURRENCY RISKS. Because exchange rates for currencies fluctuate daily, prices
of the foreign securities in which the Fund invests are more volatile than
prices of securities traded exclusively in the U.S.

RISK/RETURN BAR CHART AND TABLE

[Graphic] - See Appendix

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

The Fund's Institutional Service Shares are sold without a sales charge (load).
The total returns displayed above are based upon net asset value.

The Fund's Institutional Service Shares total return for the nine-month period
from January 1, 1999 to September 30, 1999 was 3.23%.

Within the period shown in the Chart, the Fund's Institutional Service Shares
highest quarterly return was 2.30% (quarter ended September 30, 1998). Its
lowest quarterly return was 1.24% (quarter ended June 30, 1998).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Institutional Service Shares Average
Annual Total Returns for the calendar periods ended December 31, 1998. The table
shows the Fund's Institutional Service Shares total returns averaged over a
period of years relative to the Merrill Lynch 1-Year Treasury Bill Index
("ML1YT"), a broad-based market index tracking 1 year U.S. government
securities. Total returns for the index 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.

<TABLE>

CALENDAR PERIOD FUND ML1YT
<S> <C> <C>
1 Year 7.15% 5.89%
Start of Performance 1 7.47% 5.82%

</TABLE>

1 The Fund's Institutional Service Shares start of performance date was May 31,
1997.

What are the Fund's Fees and Expenses?

FEDERATED ULTRASHORT BOND 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.

<TABLE>

SHAREHOLDER FEES

<S> <C>
Fees Paid Directly From
Your Investment
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) None
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 applicable) None
Exchange Fee None

ANNUAL FUND OPERATING EXPENSES (Before Waivers and Reimbursements) 1 Expenses
That are Deducted From Fund Assets (as a percentage of average net assets)

Management Fee 2 0.60%
Distribution (12b-1) Fee 3 0.25%
Shareholder Services Fee 0.25%
Other Expenses 4 0.41%
Total Annual Fund
Operating Expenses 5 1.51%
1 Although not contractually obligated to do so, the Adviser will waive and
reimburse and the distributor will waive certain amounts. These are shown below
along with the net expenses the Fund expects to pay for the fiscal year ending
September 30, 2000.
Total Reimbursement and

Waiver of Fund Expenses 0.71%
Total Actual Annual Fund

Operating Expenses (after
waivers and

reimbursements) 0.80%
2 The Adviser expects to voluntarily waive a portion of the management fee. The
Adviser can terminate this anticipated voluntary waiver at any time. The
management fee paid by the Fund (after the anticipated voluntary waiver) is
expected to be 0.25% for the fiscal year ending September 30, 2000.
3 The Fund's Institutional Service Shares have no present intention of paying or
accruing the distribution (12b-1) fee for the fiscal year ending September 30,
2000.
4 The Adviser is expected to voluntarily reimburse certain operating expenses of
the Fund. The Adviser can terminate this voluntary reimbursement at any time.
Total other operating expenses paid by the Fund (after the anticipated voluntary
reimbursement) is expected to be 0.30% for the year ended September 30, 1999.
5 For the fiscal year ended
September 30, 1999, the
Fund had Total Annual Fund
Operating Expenses and
Total Actual Annual Fund
Operating Expenses of
1.51% and 0.77%,
respectively.

</TABLE>

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 Institutional Service Shares operating
expenses are BEFORE WAIVERS AND REIMBURSEMENTS as estimated 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 $ 154
3 Years $ 477
5 Years $ 824
10 Years $ 1,802

What are the Fund's Investment Strategies?

The Fund invests in a diversified portfolio of domestic and foreign fixed income
securities, including corporate, mortgage-backed, other asset- backed and U.S.
government securities. The Fund's Adviser actively manages the Fund's portfolio
seeking to limit fluctuation in the Fund's share price due to changes in market
interest rates while selecting investments that should offer enhanced returns
based upon the Adviser's credit analysis. The Adviser limits fluctuation in the
Fund's share price by limiting the dollar-weighted average modified duration of
the Fund's portfolio to one year or less. The Adviser then seeks higher returns
through security selection than are possible in a portfolio limited exclusively
to very high credit quality securities. The Fund does not have the maturity and
credit- quality constraints of a money market fund. A description of the various
types of securities in which the Fund invests, and their risks, immediately
follows this section.

The Fund invests at least 65% of its portfolio in investment grade fixed income
securities. The Fund may invest the remainder 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).
The Adviser attempts to select securities offering attractive risk-adjusted
yields over comparable Treasury securities. Corporate and asset-backed
securities offer higher yields compared to Treasury securities to compensate for
their additional risks, such as credit risk. Mortgage-backed securities, which
usually have nominal credit risk, have higher yields due to their risk that the
principal will be repaid faster than expected if the underlying mortgages are
prepaid. In selecting securities, the Adviser seeks the higher relative returns
of corporate and asset-backed (including mortgage-backed) securities, while
attempting to limit or manage their additional credit or prepayment risks.

The Adviser's investment process first allocates the Fund's portfolio among
different types of fixed income securities. The Adviser makes a greater
allocation of the Fund's portfolio to those types of securities 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 what the Adviser believes the yield "spread" should be of
each security type. (The spread is the difference between the yield of a
security versus the yield of a comparable U.S. Treasury security.)

Securities are selected by weighing projected spreads against the spreads at
which the securities can currently be purchased. The Adviser also analyzes the
prepayment risks and credit risks of individual securities in order to complete
the analysis.

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 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 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
order to enhance returns, the Adviser may purchase lower rated securities that
provide better returns than investment grade securities, and foreign securities
that provide better returns than domestic securities. There is no assurance that
the Adviser's efforts to enhance returns will be successful.

Within the Fund's one-year portfolio duration constraint, the Adviser may
further manage interest rate risk by lengthening or shortening 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:

* current and expected U.S. growth;

* current and expected interest rates and inflation;

* the U.S. Federal Reserve Board's monetary policy and

* 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.

Because the Fund will typically invest in fixed income securities with remaining
maturities greater than one year, the Fund will use futures contracts and
interest rate swaps to maintain the Fund's targeted duration.

TEMPORARY DEFENSIVE INVESTMENTS

The Fund may temporarily depart from its principal investment strategies by
investing in assets in cash and shorter-term, higher-quality 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.

HEDGING

What are the Principal Securities in Which the Fund Invests?

FIXED INCOME SECURITIES

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

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.

CORPORATE DEBT SECURITIES

MORTGAGE BACKED SECURITIES

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

SEQUENTIAL CMOS

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 an
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 10 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

CREDIT ENHANCEMENT

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:

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

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

FOREIGN EXCHANGE CONTRACTS

DERIVATIVE 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

The Fund may buy and sell the following types of futures contracts: financial
futures, foreign currency forward contracts, and futures on securities indices.

OPTIONS

The Fund may:

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

* 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

INTEREST RATE SWAPS

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

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

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.

CREDIT RISKS

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.

Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investors Service, 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

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.

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.

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.

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

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.

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.

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

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

RISKS OF FOREIGN INVESTING

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.

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.

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

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

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.

What Do Shares Cost?

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.

How is the Fund Sold?

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

RULE 12B-1 PLAN

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

* Establish an account with the investment professional; and

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

DIRECTLY FROM THE FUND

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

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

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)

How to Redeem Shares

You should redeem Shares:

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

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

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

BY TELEPHONE

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:

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

* amount to be redeemed; and

* 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:

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

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

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

PAYMENT METHODS FOR REDEMPTIONS

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

* 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:

* to allow your purchase to clear;

* during periods of market volatility; or

* 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

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

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 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 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

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

Financial Highlights

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditor's Report on page 42.

<TABLE>

YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1 1998 2, 3

<S> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $2.00 $1.99
INCOME FROM INVESTMENT

OPERATIONS:

Net investment income 0.12 4 0.10
Net realized and
unrealized gain (loss) on
investments and
futures contracts 0.01 5 0.03
TOTAL FROM INVESTMENT

OPERATIONS 0.13 0.13
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.15) (0.11)
Distributions from net
realized gain on
investments and
futures contracts - (0.01)
Total distributions (0.15) (0.12)
NET ASSET VALUE, END OF

PERIOD $1.98 $2.00
TOTAL RETURN 6 5.32% 6.75%

RATIOS TO AVERAGE NET

ASSETS:

Expenses 7 1.26% 7.39% 8
Net investment income (net
operating loss) 7 5.87% (1.65%) 8
Expenses (after waivers
and reimbursements) 0.77% 0.56% 8
Net investment income
(after waivers and
reimbursements) 6.36% 5.18% 8
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $196,032 $100
Portfolio turnover 20% 501%

</TABLE>

1 For the year ended September 30, 1999, the Fund was audited by Deloitte &
Touche LLP. Each of the previous years were audited by other auditors.

2 Reflects operations for the period from October 3, 1997 (date of initial
public investment) to September 30, 1998.

3 Per share amounts have been restated to reflect a share dividend as disclosed
in the Notes.

4 Per share amount is based on the average number of shares outstanding.

5 The amount shown in this caption for a share outstanding does not correspond
with the aggregate net realized and unrealized loss on investments and futures
contracts for the year ended due to the timing of sales and repurchases of Fund
shares in relation to fluctuating market values of the investments of the Fund.

6 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

7 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.

8 Computed on an annualized basis.

See Notes which are an integral part of the Financial Statements

Portfolio of Investments

SEPTEMBER 30, 1999

<TABLE>

PRINCIPAL

AMOUNT VALUE
<S> <C> <C>

ASSET-BACKED SECURITIES-

48.1%

AUTOMOBILE-8.3%

$ 545,881 AFG Receivables Trust
1996-B, Class A, 6.60%,

4/15/2001 $ 545,220
1,336,188 AFG Receivables Trust
1996-D, Class A, 6.10%,

10/15/2001 1,337,497

1,000,000 Ford Credit Auto Loan
Master Trust 1995-1 A,

Class A, 6.50%, 8/15/2002 1,005,680
2,000,000 Harley-Davidson Eaglemark
Motorcycle Trust 1999-1,

Class A4, 5.52%, 2/15/2005 1,966,740
220,773 Household Auto Revolving
Trust I 1998-1, Class B1,

6.30%, 5/17/2005 219,808

5,000,000 Household Auto Revolving
Trust I 1999-1, Class A3,

6.33%, 6/17/2003 5,004,050

3,000,000 Nissan Auto Receivables
Owner Trust 1999-A, Class

A3, 6.47%, 9/15/2003 3,008,910

3,200,000 Toyota Auto Receivables
1999-A Owner Trust, Class

C, 6.70%, 8/16/2004 3,188,544
TOTAL 16,276,449

CREDIT CARD-8.2%

5,000,000 Citibank Credit Card
Master Trust I 1998-6,

Class A, 5.85%, 4/10/2003 4,978,000
2,000,000 MBNA Master Credit Card
Trust 1997-F, Class A,

6.60%, 11/15/2004 2,015,380

4,000,000 MBNA Master Credit Card
Trust 1999-I, Class A,

6.40%, 1/18/2005 4,004,320

5,000,000 Providian Master Trust 1999-2, Class A, 6.60%,

4/16/2007 5,001,500
TOTAL 15,999,200

HOME EQUITY LOAN-19.8%

750,000 1 125 Home Loan Owner Trust
1998-1A, Class B-2,

12.16%, 2/15/2029 636,563

500,000 Amresco Residential
Securities Mortgage Loan
Trust 1996-1, Class A5,

7.05%, 4/25/2027 496,455

1,000,000 Chase Funding Mortgage
Loan 1999-1, Class IIB,

8.13%, 6/25/2028 1,001,940

1,000,000 Cityscape Home Equity Loan
Trust 1997-1, Class A4,

7.23%, 3/25/2018 991,535

5,000,000 ContiMortgage Home Equity
Loan Trust 1999-3, Class

A2, 6.77%, 1/25/2018 4,960,150

278,808 ContiMortgage Home Equity
Loan Trust 1994-4, Class

A6, 8.27%, 12/15/2024 280,768

1,000,000 ContiMortgage Home Equity
Loan Trust 1997-1, Class

A7, 7.32%, 9/15/2021 1,000,000

250,000 ContiMortgage Home Equity
Loan Trust 1997-5, Class B,

7.62%, 1/15/2029 210,625

800,000 Countrywide Asset-Backed
Certificates 1999-1, Class

BV, 8.09%, 2/25/2029 792,816

3,000,000 Countrywide Asset-Backed
Certificates 1999-2, Class

BV, 7.94%, 5/25/2029 2,928,750

300,000 EQCC Home Equity Loan Trust 1995-4, Class A4, 6.95%,

3/15/2012 300,615

907,000 EQCC Home Equity Loan Trust 1997-2, Class A7, 6.89%,

2/15/2020 905,703

1,000,000 Green Tree Home Equity Loan
Trust 1999-A, Class A3,

5.98%, 4/15/2018 992,440

235,661 Green Tree Home
Improvement Loan Trust
1995-C, Class B1, 7.20%,

7/15/2020 234,503

220,000 Green Tree Home
Improvement Loan Trust
1997-E, Class HEA, 6.61%,

1/15/2029 220,479
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<S> <C> <C>

ASSET-BACKED SECURITIES-

continued

HOME EQUITY LOAN-CONTINUED

$ 296,243 Headlands Home Equity Loan
Trust 1998-2, Class A3,

6.67%, 12/15/2024 $ 291,246
2,000,000 Mellon Bank Home Equity
Installment Loan 1998-1,

Class B, 6.95%, 3/25/2015 1,916,640
3,243,701 Merrill Lynch Mortgage
Investors, Inc. 1998-FF3,
Class BB, 5.50%,

11/20/2029 3,150,445
482,323 NC Finance Trust 1999-1,
Class B, 8.75%, 1/25/2029 467,251
3,337,500 Salomon Brothers Mortgage
Sec. VII 1998-NC1, Class

M3, 6.63%, 3/30/2028 3,113,787

3,000,000 Salomon Brothers Mortgage
Sec. VII 1999-NC3, Class

M3, 8.48%, 7/25/2029 2,966,250

3,000,000 Salomon Brothers Mortgage
Sec. VII 1999-3, Class M3,

8.38%, 5/25/2029 2,966,250

2,500,000 Salomon Brothers Mortgage
Sec. VII 1999-NC2, Class

M3, 8.63%, 4/25/2029 2,471,875

1,900,000 Saxon Asset Securities
Trust 1998-1, Class BF2,

8.00%, 12/25/2027 1,671,620

800,000 Saxon Asset Securities
Trust 1999-1, Class BV1,

8.13%, 2/25/2029 806,912

2,173,331 Saxon Asset Securities
Trust 1999-2, Class BV1,

8.31%, 9/25/2001 2,193,695

35,000 The Money Store Home Equity
Trust 1996-B, Class A7,

7.55%, 2/15/2020 35,180

32,525 The Money Store Home Equity
Trust 1995-C, Class A3,

6.55%, 9/15/2021 32,549

70,000 The Money Store Home Equity
Trust 1997-D, Class AV2,

6.49%, 10/15/2026 69,139

190,000 The Money Store Home Equity
Trust 1998-B, Class AF4,

6.12%, 6/15/2021 188,453

500,000 UCFC Home Equity Loan Trust
1997-C, Class A5, 6.88%,

9/15/2022 495,265
TOTAL 38,789,899

MANUFACTURED HOUSING-6.3%
1,257,675 Green Tree Financial Corp.

1993-4, Class B1, 7.20%,

1/15/2019 1,247,224
181,940 Green Tree Financial Corp.
1994-5, Class A4, 7.95%,

11/15/2019 184,833
500,000 Green Tree Financial Corp.
1994-7, Class A6, 8.95%,

3/15/2020 521,910
250,000 Green Tree Financial Corp.
1995-3, Class B1, 7.85%,

8/15/2025 249,338
1,065,431 Green Tree Financial Corp.
1996-10, Class A4, 6.42%,

11/15/2028 1,068,649
500,000 Green Tree Financial Corp.
1997-3, Class B1, 7.51%,

7/15/2028 477,050
450,000 Green Tree Financial Corp.
1997-4, Class A4, 6.65%,

2/15/2029 451,440
1,500,000 Green Tree Financial Corp.
1997-4, Class B1, 7.23%,

2/15/2029 1,363,560

461,568 Indymac Manufactured
Housing Contract 1997-1,

Class A3, 6.61%, 2/25/2028 459,025
4,000,000 Merit Securities Corp. 12,
Class 1, 7.98%, 7/28/2033 3,748,760
2,000,000 Merit Securities Corp. 13,
Class A4, 7.88%,

12/28/2033 1,989,380

121,571 Vanderbilt Mortgage
Finance 1995-B, Class A3,

6.68%, 5/7/2006 121,636

500,000 Vanderbilt Mortgage
Finance 1999-A, Class 2B2,

7.98%, 6/7/2016 492,500
TOTAL 12,375,305

PRINCIPAL

AMOUNT VALUE
<S> <C> <C>

ASSET-BACKED SECURITIES-

continued

OTHER-5.5%

$ 1,200,000 Circuit City Credit Card
Master Trust 1995-1, Class

A, 6.38%, 8/15/2005 $ 1,204,128
5,000,000 Copelco Capital Funding
LLC 1999-B, Class A3,

6.61%, 12/18/2002 5,003,900

384,005 Green Tree Recreational
Equipment & Consumer Trust
Series 1996-A, Class B,

5.95%, 2/15/2018 363,844

98,516 Green Tree Recreational
Equipment & Consumer Trust
Series 1997-B, Class A1,

6.55%, 7/15/2028 98,142

818,378 NationsCredit Grantor
Trust 1997-1, Class A,

6.75%, 8/15/2013 826,079

1,450,000 Newcourt Equipment Trust
Securities 1998-2, Class

D, 7.21%, 9/15/2007 1,440,104

1,900,000 Newcourt Receivables Asset
Trust 1997-1, Class A4,

6.19%, 5/20/2005 1,899,155
TOTAL 10,835,352

TOTAL ASSET-BACKED
SECURITIES (IDENTIFIED

COST $95,090,105) 94,276,205
COLLATERALIZED MORTGAGE

OBLIGATIONS-22.2%
WHOLE LOAN-22.2%

771,394 1 Bayview Financial
Acquisition Trust 1998-1,
Class MI1, 7.52%,

5/25/2029 727,038

485,997 1 Bayview Financial
Acquisition Trust 1998-1,
Class MII-1, 6.13%,

5/25/2029 463,826

628,615 Bear Stearns Mortgage
Securities, Inc. 1996-8,
Class B3, 8.00%,

11/25/2027 619,022
297,482 C-BASS ABS, LLC Series
1998-3, Class AF, 6.50%,

1/25/2033 286,699
4,000,000 C-BASS ABS, LLC Series
1999-3, Class B1, 7.27%,

2/3/2029 3,266,240

1,725,119 Countrywide Home Loans
1999-5, Class A1, 6.75%,

5/25/2028 1,675,306

2,896,156 GE Capital Mortgage
Services, Inc. 1994-27,

Class A3, 6.50%, 7/25/2024 2,894,042
500,000 GE Capital Mortgage
Services, Inc. 1997-HE4,
Class A5, 6.80%,

12/25/2017 496,775

75,416 GE Capital Mortgage
Services, Inc. 1998-11,
Class 1A1, 6.75%,

6/25/2028 75,446

962,114 Greenwich Capital
Acceptance 1994-C, Class

B1, 6.45%, 1/25/2025 960,633

2,200,000 Homeside Mortgage
Securities, Inc. 1998-1,

Class A2, 6.75%, 2/25/2028 2,116,768
100,000 1 Mellon Residential Funding
Corp. 1998-TBC1, Class B4,
6.59%, 10/25/2028 74,750

802,361 Norwest Asset Securities
Corp. 1998-2, Class A1,

6.50%, 2/25/2028 798,077

4,813,230 PNC Mortgage Securities
Corp. 1999-5, Class 2A1,

6.75%, 7/25/2029 4,697,672

629,858 Resecuritization Mortgage
Trust 1998-A, Class B3,

7.88%, 10/26/2023 533,609

1,000,000 Residential Accredit
Loans, Inc. 1997-QS12,
Class A6, 7.25%,

11/25/2027 1,003,360

250,000 Residential Accredit
Loans, Inc. 1998-QS14,
Class A1, 6.75%,

10/25/2028 248,870

4,127,253 Residential Accredit
Loans, Inc. 1998-QS14,
Class A2, 6.50%,

10/25/2028 3,942,394

5,791,809 Residential Asset Securitization Trust 1997- A13, Class A13,
6.92%,

5/25/2027 5,713,619

441,450 Residential Asset Securitization Trust 1998- A12, Class A1,
6.75%,

11/25/2028 438,744

581,763 Residential Asset Securitization Trust 1998- A5, Class A1,
6.75%,

6/25/2028 582,012

755,811 Residential Asset Securitization Trust 1998- A6, Class IA7,
6.75%,

7/25/2028 756,602
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<S> <C> <C>

COLLATERALIZED MORTGAGE

OBLIGATIONS-continued

WHOLE LOAN-CONTINUED

$ 1,338,715 Residential Funding
Mortgage Securities I
1994-S13, Class M1, 7.00%,

5/25/2024 $ 1,312,316
1,259,308 Residential Funding
Mortgage Securities I
1995-S4, Class M1, 8.00%,

4/25/2010 1,261,952

1,500,000 Residential Funding
Mortgage Securities I
1996-S1, Class A11, 7.10%,

1/25/2026 1,495,350

486,110 Residential Funding
Mortgage Securities I
1996-S25, Class M3, 7.75%,

12/25/2026 480,248

6,745,292 Structured Asset
Securities Corp. 1999-
ALS2, Class A2, 6.75%,

7/25/2029 6,600,888

TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS
(IDENTIFIED

COST $44,294,525) 43,522,258
CORPORATE BONDS-8.1%

FINANCE - RETAIL-5.0%

600,000 AT&T Capital Corp., Medium
Term Note, 6.16%,

12/3/1999 601,056
3,000,000 Banco Latinoamericano SA,
Note, 7.20%, 5/15/2002 2,973,099
4,200,000 Corp Andina De Fomento,
Bond, 7.38%, 7/21/2000 4,217,850
2,000,000 Wells Fargo Co., Note,
6.50%, 9/3/2002 1,995,800
TOTAL 9,787,805

FINANCIAL INTERMEDIARIES-
0.5%

1,000,000 Lehman Brothers Holdings,
Inc., Medium Term Note,

6.38%, 3/15/2001 992,910

INSURANCE-0.5%
1,000,000 Conseco, Inc., Sr. Note,

7.88%, 12/15/2000 1,002,230

TELECOMMUNICATIONS &
CELLULAR-2.1%

4,000,000 Cox Communications, Inc.,

Note, 6.38%, 6/15/2000 4,009,160

TOTAL CORPORATE BONDS
(IDENTIFIED COST

$15,809,349) 15,792,105
GOVERNMENTS/AGENCIES-1.4%
2,767,500 Brazil, Government of,

IDU, 6.06%, 1/1/2001
(identified cost

$2,605,309) 2,687,934
<CAPTION>
PRINCIPAL

AMOUNT VALUE
<S> <C> <C>

MUTUAL FUND-4.7%

$ 1,062,025 High Yield Bond Portfolio
(identified cost

$9,950,813) $ 9,292,719
PREFERRED STOCK-0.6%

50,000 TCI Communications Fing I TR Originated PFD Secs (identified
cost

$1,310,000) 1,256,250
REPURCHASE AGREEMENT-17.4%

34,045,000 ABN AMRO, Inc., 5.45%,
dated 9/30/1999, due
10/1/1999 (at amortized

cost) 34,045,000

TOTAL INVESTMENTS
(IDENTIFIED COST

$203,105,101) 3 $ 200,872,471

</TABLE>

1 Denotes a restricted security which is subject to restrictions on resale under
Federal Securities laws. These securities have been deemed liquid based upon
criteria approved by the fund's board of directors. At September 30, 1999, these
securities amounted to $1,902,177 which represents 1.0% of net assets.

2 The repurchase agreement is fully collateralized by U.S. Treasury and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in joint
accounts with other Federated funds.

3 The cost of investments for federal tax purposes amounts to $203,108,927. The
net unrealized depreciation of investments on a federal tax basis amounts to
$2,236,456 which is comprised of $226,447 appreciation and $2,462,903
depreciation at September 30, 1999.

Note: The categories of investments are shown as a percentage of net assets
($196,031,517) at September 30, 1999.

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

SEPTEMBER 30, 1999

<TABLE>

<S> <C> <C>
ASSETS:
Investment in repurchase
agreement $ 34,045,000
Investments in securities 166,827,471
Total investments in
securities, at value
(identified cost
$203,105,101 and tax
cost $203,108,927) $ 200,872,471
Income receivable 1,471,740
Receivable for shares sold 1,137,444
Receivable for daily
variation margin 240,704
TOTAL ASSETS 203,722,359
LIABILITIES:

Payable for investments

purchased 5,511,621
Payable for shares
redeemed 1,493,756
Income distribution
payable 313,580
Accrued expenses 371,885
TOTAL LIABILITIES 7,690,842
Net assets $ 196,031,517
NET ASSETS CONSIST OF:

Paid in capital $ 197,773,899
Net unrealized
depreciation of
investments and futures
contracts (2,195,938)
Accumulated net realized
gain on investments and
futures contracts 370,056
Accumulated undistributed
net investment income 83,500
TOTAL NET ASSETS $ 196,031,517
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE:
$196,031,517 / 98,972,719
shares outstanding $1.98

</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Operations

YEAR ENDED SEPTEMBER 30, 1999

<TABLE>

<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 485,696
Interest 4,834,248
TOTAL INCOME 5,319,944
EXPENSES:

Investment advisory fee $ 447,691
Administrative personnel
and services fee 111,301
Custodian fees 8,258
Transfer and dividend
disbursing agent fees and
expenses 24,719
Directors'/Trustees' fees 2,990
Auditing fees 10,000
Legal fees 2,439
Portfolio accounting fees 52,206
Shareholder services fee 186,538
Share registration costs 79,748
Printing and postage 13,707
Insurance premiums 1,224
Taxes 255
Miscellaneous 1,148
TOTAL EXPENSES 942,224
WAIVERS AND

REIMBURSEMENTS:

Waiver of investment

advisory fee $ (258,911)
Reimbursement of other

operating expenses (109,376)

TOTAL WAIVERS AND

REIMBURSEMENTS (368,287)
Net expenses 573,937
Net investment income 4,746,007
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS:
Net realized gain on
investments and futures

contracts 370,056
Net change in unrealized
depreciation of
investments and
futures contracts (2,195,938)
Net realized and
unrealized loss on
investments and
futures contracts (1,825,882)
Change in net assets
resulting from operations $ 2,920,125

</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

<TABLE>

YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1

<S> <C> <C>
INCREASE (DECREASE) IN NET

ASSETS
OPERATIONS:

Net investment income $ 4,746,007 $ 240,399
Net realized gain on
investments and futures
contracts ($410,570 and
$45,849, respectively, as
computed for federal tax
purposes) 370,056 45,849
Net change in unrealized
depreciation of
investments and
futures contracts (2,195,938) -
CHANGE IN NET ASSETS

RESULTING FROM OPERATIONS 2,920,125 286,248
DISTRIBUTIONS TO
SHAREHOLDERS:

Distributions from net
investment income

Institutional Shares - (171,646)
Institutional Service
Shares (4,663,861) (67,399)
Distributions from net
realized gain on
investments and
futures contracts
Institutional Shares - (28,854)
Institutional Service
Shares - (1)
CHANGE IN NET ASSETS
RESULTING FROM

DISTRIBUTIONS

TO SHAREHOLDERS (4,663,861) (267,900)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 325,135,965 8,976,726
Net asset value of shares
issued to shareholders in
payment of distributions
declared 2,839,714 84,773
Cost of shares redeemed (130,300,447) (14,014,250)
CHANGE IN NET ASSETS
RESULTING FROM

SHARE TRANSACTIONS 197,675,232 (4,952,751)
Change in net assets 195,931,496 (4,934,403)
NET ASSETS:

Beginning of period 100,021 5,034,424
End of period (including
undistributed net
investment income of
$83,500 and $1,354,

respectively) $ 196,031,517 $ 100,021

</TABLE>

1 For the period from October 3, 1997 (date of initial public investment) to
September 30, 1998.

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

SEPTEMBER 30, 1999

ORGANIZATION

Federated Total Return Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of four portfolios. The
financial statements included herein are only those of Federated Ultrashort Bond
Fund (the "Fund") (formerly, Federated Limited Duration Government Fund), a
diversified portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.

The investment objective of the Fund is to provide total return consistent with
current income.

Shareholders and/or the Board of Directors (the "Directors") approved a change
in the name of the Fund as follows:

<TABLE>

EFFECTIVE DATE NEW NAME
<S> <C>

10/27/98 Federated Ultrashort Bond Fund

</TABLE>

Previously, the Fund offered two classes of shares, Institutional Shares and
Institutional Service Shares. As of September 10, 1998, the Institutional Shares
were no longer offered. The unissued shares were subsequently reclassified as
Institutional Service Shares.

On August 20, 1998, the Directors declared a stock split. The stock split was
effected in the form of a dividend payable in shares of the Fund on October 21,
1998. The dividend consisted of 5.08 shares for one (1) share in order to
establish a $2.00 per share net asset value. All transactions in capital stock
and per share data prior to October 21, 1998 have been restated to give effect
to the split.

SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS

REPURCHASE AGREEMENTS

The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Directors. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase price on
the sale of collateral securities.

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

<TABLE>

INCREASE (DECREASE)
ACCUMULATED NET REALIZED

PAID-IN GAIN ON INVESTMENTS
CAPITAL AND FUTURES CONTRACTS

<S> <C>

$45,844 $(45,844)

</TABLE>

Net investment income, net realized gains (losses), and net assets were not
affected by this reclassification.

FEDERAL TAXES

It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income and gains. Accordingly, no provisions for
federal tax are necessary.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

FUTURES CONTRACTS

The Fund purchases and sells financial futures contracts to manage cashflows,
enhance yield, hedge against interest rate risk, and to potentially reduce
transaction costs. Upon entering into a financial futures contract with a
broker, the Fund is required to deposit in a segregated account a specified
amount of cash or U.S. government securities. Futures contracts are valued daily
and unrealized gains or losses are recorded in a "variation margin" account.
Daily, the Fund receives from or pays to the broker a specified amount of cash
based upon changes in the variation margin account. When a contract is closed,

the Fund recognizes a realized gain or loss. For the year ended September 30,
1999, the Fund had realized gains of $380,016 on futures contracts.

Futures contracts have market risks, including the risk that the change in the
value of the contract may not correlate with changes in the value of the
underlying securities.

At September 30, 1999, the Fund had outstanding futures contracts as set forth
below:

<TABLE>

UNREALIZED
APPRECIATION

EXPIRATION DATE CONTRACTS TO DELIVER/RECEIVE POSITION (DEPRECIATION)
<S> <C> <C> <C>
December 1999 75 U.S. Treasury 2-Year Note Futures Short $ 0
December 1999 35 U.S. Treasury 10-Year Note Futures Short 6,836
December 1999 55 U.S Treasury 5-Year Note Futures Short 4,028
December 1999 15 U.S. Treasury 20-Year Long Bond Futures Short 28,828
June 2001 60 90-Day Euro Dollar Futures Short 0
December 2001 60 90-Day Euro Dollar Futures Short (3,000)
NET UNREALIZED APPRECIATION ON FUTURES CONTRACTS $36,692

</TABLE>

RESTRICTED SECURITIES

Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined by the Fund's pricing
committee.

USE OF ESTIMATES

OTHER

Investment transactions are accounted for on the trade date.

CAPITAL STOCK

At September 30, 1999, par value shares ($0.001 per share) authorized were as
follows:

<TABLE>

Number of Par
Value Capital

CLASS NAME Stock Authorized
<S> <C>
Institutional Service Shares 2,000,000,000

</TABLE>

Transactions in capital stock were as follows:

<TABLE>

YEAR ENDED PERIOD ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 1
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold - - 2,428,936 $ 4,813,126
Shares issued to
shareholders in payment of
distributions declared - - 14,630 28,987
Shares redeemed - - (4,986,238) (9,894,109)
NET CHANGE RESULTING
FROM INSTITUTIONAL

SHARE TRANSACTIONS 2 - - (2,542,672) $ (5,051,996)

YEAR ENDED PERIOD ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 1
INSTITUTIONAL SERVICE

SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 162,741,803 $ 325,135,965 2,100,920 $ 4,163,600
Shares issued to
shareholders in payment of
distributions declared 1,426,095 2,839,714 28,199 55,786
Shares redeemed (65,245,181) (130,300,447) (2,079,117) (4,120,141)
NET CHANGE RESULTING FROM
INSTITUTIONAL SERVICE

SHARE TRANSACTIONS 98,922,717 $ 197,675,232 50,002 $ 99,245
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 98,922,717 $ 197,675,232 (2,492,670) $ (4,952,751)

</TABLE>

1 For the period from October 3, 1997 (date of initial public investment) to
September 30, 1998.

2 Effective September 10, 1998, the Fund no longer offers Institutional Shares.

INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE

Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.60% of the Fund's average daily net assets. The Adviser may voluntarily choose
to waive any portion of its fee and/or reimburse certain operating expenses of
the Fund. The Adviser can modify or terminate this voluntary waiver and/or
reimbursement at any time at its sole discretion.

ADMINISTRATIVE FEE

DISTRIBUTION SERVICES FEE

The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b- 1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Service Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.25% of the average daily net assets of the
Institutional Service Shares, annually, to compensate FSC. FSC may voluntarily
choose to waive any portion of its fee. FSC can modify or terminate this
voluntary waiver at any time at its sole discretion.

SHAREHOLDER SERVICES FEE

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES

PORTFOLIO ACCOUNTING FEES

FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.

GENERAL

Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended September 30, 1999, were as follows:

<TABLE>

<S> <C>
Purchases $183,689,748
Sales $13,523,329

</TABLE>

YEAR 2000 (UNAUDITED)

CHANGE OF INDEPENDENT AUDITORS (UNAUDITED)

On May 19, 1999, the Fund's Directors upon the recommendation of the Audit
Committee of the Directors, requested and subsequently accepted the resignation
of Ernst & Young LLP ("E&Y") as the Fund's independent auditors. E&Y's report on
the Fund's financial statements for the period from October 3, 1997 (date of
initial public investment) to September 30, 1998, contained no adverse opinion
or disclaimer of opinion, nor was it qualified or modified as to uncertainty,
audit scope or accounting principles. During the period from October 3, 1997 to
September 30, 1998; (i) there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
E&Y, would have caused it to make reference to the subject matter of the
disagreements in connection with its report on the financial statements for such
period, and (ii) there were no reportable events of the kind described in Item
304(a)(1)(v) of Regulation S-K under the Securities Act of 1934, as amended.

The Fund, by action of its Directors, upon the recommendation of the Audit
Committee of the Directors, has engaged Deloitte & Touche LLP ( "D&T") as the
independent auditors to audit the Fund's financial statements for the fiscal
year ending September 30, 1999. During the period from October 3, 1997 to
September 30, 1998, neither the Fund, nor anyone on the Fund's behalf has
consulted D&T on items which (i) concerned the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Fund's financial statements or
(ii) concerned the subject of a disagreement (as defined in paragraph (a)(1)(iv)
of Item 304 of Regulation S-K) or reportable events (as described in paragraph
(a)(1)(v) of said Item 304).

Independent Auditors' Report

TO THE DIRECTORS OF FEDERATED TOTAL RETURN SERIES, INC.

AND SHAREHOLDERS OF FEDERATED ULTRASHORT BOND FUND:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Federated Ultrashort Bond Fund (the "Fund")
as of September 30, 1999, and the related statement of operations, statement of
changes in net assets and the financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets and financial highlights for the period from October 3,
1997 (date of initial public investment) to September 30, 1998 were audited by
other auditors whose report dated October 22, 1998, expressed an unqualified
opinion on those statements.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to provide reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned at September 30, 1999,
by correspondence with the custodian and brokers; where replies were not
received, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Ultrashort
Bond Fund as of September 30, 1999, the results of its operations, the changes
in its net assets and its financial highlights for the year then ended in
conformity with generally accepted accounting principles.

Deloitte & Touche LLP

Boston, Massachusetts

November 12, 1999

[Graphic]
Federated

World-Class Investment Manager

PROSPECTUS

Federated Ultrashort Bond Fund

A Portfolio of Federated Total Return Series, Inc.

INSTITUTIONAL SERVICE SHARES

NOVEMBER 30, 1999

[Graphic]
Federated

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

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Investment Company Act File No. 811-7115

Cusip 31428Q606

G02481-01 (11/99)

[Graphic]

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 prospectus for Federated Ultrashort Bond
Fund--Institutional Service Shares (Fund), dated November 30, 1999. Obtain the
prospectus and the Annual Report's Management Discussion and Analysis

without charge by calling 1-800-341-7400.

NOVEMBER 30, 1999

[Graphic]
Federated

World-Class Investment Manager
Federated Ultrashort Bond Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

G02481-02 (11/99)

[Graphic]

CONTENTS

How is the Fund Organized? 1

Securities in Which the Fund Invests 1

What Do Shares Cost? 8

How is the Fund Sold? 8

Subaccounting Services 9

Redemption in Kind 9

Account and Share Information 9

Tax Information 9

Who Manages and Provides Services to the Fund? 10

How Does the Fund Measure Performance? 13

Who is Federated Investors, Inc.? 14

Investment Ratings 15

Addresses 17

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. On August 20, 1998,
the Board of Directors approved changing the name of the Fund from
Federated Limited Duration Government Fund to Federated Ultrashort Bond
Fund.

The 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

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

CORPORATE DEBT SECURITIES

COMMERCIAL PAPER

DEMAND INSTRUMENTS

MORTGAGE BACKED SECURITIES

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

PACs, TACs and Companion Classes

IOs and POs

Floaters and Inverse Floaters

Z Classes

PRIVATELY ISSUED MORTGAGE BACKED SECURITIES

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

BANK INSTRUMENTS

CREDIT ENHANCEMENT

DERIVATIVE 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

The Fund may buy and sell the following types of futures contracts: financial
futures, foreign currency forward contracts, and futures on securities indices.

OPTIONS

The Fund may:

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

* Buy or write options to close out existing options positions.

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

INTEREST RATE SWAPS

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 NRSRO. 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 subject to credit risks.

REVERSE REPURCHASE AGREEMENTS AND BORROWING FOR LEVERAGE

DELAYED DELIVERY TRANSACTIONS

SECURITIES LENDING

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.

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.

INTER-FUND BORROWING AND LENDING ARRANGEMENTS

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

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

CREDIT RISKS

* 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.

PREPAYMENT AND CALL RISKS

* Since rising interest rates generally result in decreased prepayments of
mortgage backed securities, this could cause mortgage backed 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.

LIQUIDITY RISKS

RISKS ASSOCIATED WITH COMPLEX CMOS

LEVERAGE RISKS

RISKS OF FOREIGN INVESTING

CURRENCY RISKS

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

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

CONCENTRATION OF INVESTMENTS

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

BORROWING MONEY

DIVERSIFICATION OF INVESTMENTS

PLEDGING ASSETS

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.

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 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.

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.

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;

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

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.

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

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

SUPPLEMENTAL PAYMENTS

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

Redemption in Kind

Account and Share Information

VOTING RIGHTS

As of November 12, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Institutional Service
Shares: Charles Schwab & Co., Inc., San Francisco, CA, 8.78%; and Federated

Services Corp., Pittsburgh, PA, 9.72%.

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

Who Manages and Provides Services to the Fund?

BOARD OF DIRECTORS

As of November 12, 1999, the Fund's Board and Officers as a group owned less
than 1% of the Fund's outstanding Institutional Service Shares.

<TABLE>

NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*#+ Chief Executive Officer $0 $0 for the Corporation and
Birth Date: July 28, 1924 and Director or Trustee of 54 other investment
Federated Investors Tower the Federated Fund companies in the
1001 Liberty Avenue Complex; Chairman and Fund Complex
Pittsburgh, PA Director, Federated
CHARIMAN AND DIRECTOR Investors, Inc.; Chairman
and Trustee, Federated Investment
Management Company; Chairman and
Director, Federated Investment
Counseling, and Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.

THOMAS G. BIGLEY Director or Trustee of $1,087.15 $113,860.22 for the
Birth Date: February 3, 1934 the Federated Fund Corporation and
15 Old Timber Trail Complex; Director, Member 54 other investment
Pittsburgh, PA of Executive Committee, companies in the

DIRECTOR Children's Hospital of Fund Complex
Pittsburgh; Director,

Robroy Industries, Inc.
(coated steel conduits/
computer storage
equipment); 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 $1,196.04 $125,264.48 for the
Birth Date: June 23, 1937 Federated Fund Complex; Corporation and
Wood/Commercial Dept. President, Investment 54 other investment
John R. Wood Associates, Inc. Realtors Properties Corporation; companies in the
3255 Tamiami Trail North Senior Vice President, Fund Complex
Naples, FL John R. Wood and
DIRECTOR Associates, Inc.,
Realtors; Partner or
Trustee in private real
estate ventures in
Southwest Florida;
formerly: President,
Naples Property
Management, Inc. and
Northgate Village
Development Corporation.
NICHOLAS CONSTANTAKIS Director or Trustee of the $1,087.15 $47,958.02 for the
Birth Date: September 3, 1939 Federated Fund Complex; Corporation and
175 Woodshire Drive formerly: Partner, 29 other investment
Pittsburgh, PA Andersen Worldwide SC. companies in the
DIRECTOR Fund Complex
JOHN F. CUNNINGHAM Director or Trustee of some $570.74 $0 for the Corporation and
Birth Date: March 5, 1943 of the Federated Fund 46 other investment
353 El Brillo Way Complex; Chairman, companies in the
Palm Beach, FL President and Chief Fund Complex
DIRECTOR Executive Officer,
Cunningham & Co., Inc.
(strategic business
consulting) ; Trustee
Associate, Boston College;
Director, Iperia Corp.
(communications/software);
formerly: 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.
J. CHRISTOPHER DONAHUE*+ President or Executive $0 $0 for the
Birth Date: April 11, 1949 Vice President of the Corporation and
Federated Investors Tower Federated Fund Complex; 16 other investment
1001 Liberty Avenue Director or Trustee of some companies in the
Pittsburgh, PA of the Funds in the Fund Complex

EXECUTIVE VICE PRESIDENT Federated Fund Complex;
AND DIRECTOR President, Chief Executive

Officer and Director, Federated
Investors, Inc.; President and Trustee,
Federated Investment Management
Company; President and Trustee,
Federated Investment Counseling;
President and Director, Federated
Global Investment Management Corp.;
President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services
Company; Director, Federated Services
Company.

LAWRENCE D. ELLIS, M.D.* Director or Trustee of the $1,087.15 $113,860.22 for the
Birth Date: October 11, 1932 Federated Fund Complex; Corporation and
3471 Fifth Avenue Professor of Medicine, 54 other investment
Suite 1111 University of Pittsburgh; companies in the
Pittsburgh, PA Medical Director, Fund Complex
DIRECTOR University of Pittsburgh
Medical Center - Downtown;
Hematologist, Oncologist, and
Internist, University of Pittsburgh
Medical Center; Member, National Board
of Trustees, Leukemia Society of
America.

NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
PETER E. MADDEN Director or Trustee of the $989.03 $113,860.22 for the
Birth Date: March 16, 1942 Federated Fund Complex; Corporation and
One Royal Palm Way formerly: Representative, 54 other investment
100 Royal Palm Way Commonwealth of companies in the
Palm Beach, FL Massachusetts General Fund Complex
DIRECTOR Court; President, State
Street Bank and Trust
Company and State
Street Corporation.
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, JR. Director or Trustee of some $600.16 $0 for the
Birth Date: April 10, 1945 of the Federated Fund Corporation and
80 South Road Complex; Management 50 other investment
Westhampton Beach, NY Consultant. companies in the
DIRECTOR Previous Positions: Chief Fund Complex
Executive Officer, PBTC International
Bank; Partner, Arthur Young & Company
(now Ernst & Young LLP); 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., J.D., S.J.D.# Director or Trustee of $1,171.83 $113,860.22 for the
Birth Date: December 20, 1932 the Federated Fund Corporation and
President, Duquesne University Complex; President, Law 54 other investment
Pittsburgh, PA Professor, Duquesne companies in the
DIRECTOR University; Consulting Fund Complex

MARJORIE P. SMUTS Director or Trustee of the $1,087.15 $113,860.22 for the
Birth Date: June 21, 1935 Federated Fund Complex; Corporation and
4905 Bayard Street Public Relations/ 54 other investment
Pittsburgh, PA Marketing/Conference companies in the
DIRECTOR Planning. Fund Complex
Previous Positions:
National Spokesperson,
Aluminum Company of
America; television
producer; business owner.

JOHN S. WALSH Director or Trustee of some $570.74 $0 for the
Birth Date: November 28, 1957 of the Federated Fund Corporation and
2007 Sherwood Drive Complex; President and 48 other investment
Valparaiso, IN Director, Heat Wagon, Inc. companies in the
DIRECTOR (manufacturer of Fund Complex
construction temporary
heaters); President and
Director, Manufacturers
Products, Inc.
(distributor of 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 $0 $0 for the
Birth Date: May 2, 1929 Securities Corp. Corporation and
Federated Investors Tower 8 other investment
1001 Liberty Avenue companies in the
Pittsburgh, PA Fund Complex

PRESIDENT

EDWARD C. GONZALES Trustee or Director of some $0 $0 for the
Birth Date: October 22, 1930 of the Funds in the Corporation and 1
Federated Investors Tower Federated Fund Complex; other investment company
1001 Liberty Avenue President, Executive Vice in the Fund Complex
Pittsburgh, PA President and Treasurer of
EXECUTIVE VICE PRESIDENT some of the Funds in the
Federated Fund Complex; Vice Chairman,
Federated Investors, Inc.; Vice
President, Federated Investment
Management Company, Federated
Investment 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 $0 $0 for the
Birth Date: October 26, 1938 and Secretary of the Corporation and
Federated Investors Tower Federated Fund Complex; 54 other investment
1001 Liberty Avenue Executive Vice President, companies in the
Pittsburgh, PA Secretary, and Director, Fund Complex
EXECUTIVE VICE PRESIDENT AND SECRETARY Federated Investors, Inc.;
Trustee, Federated
Investment Management
Company and Federated
Investment Counseling;
Director, Federated Global
Investment Management
Corp., Federated Services
Company and Federated
Securities Corp.
RICHARD J. THOMAS Treasurer of the Federated $0 $0 for the
Birth Date: June 17, 1954 Fund Complex; Vice Corporation and
Federated Investors Tower President - Funds 54 other investment
1001 Liberty Avenue Financial Services companies in the
Pittsburgh, PA Division, Federated Fund Complex

TREASURER Investors, Inc.; formerly:
various management
positions within Funds
Financial Services
Division of Federated
Investors, Inc.

NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
WILLIAM D. DAWSON, III Chief Investment Officer $0 $0 for the
Birth Date: March 3, 1949 of this Fund and various Corporation and
Federated Investors Tower other Funds in the 41 other investment
1001 Liberty Avenue Federated Fund Complex; companies in the
Pittsburgh, PA Executive Vice President, Fund Complex
CHIEF INVESTMENT OFFICER Federated Investment
Counseling, Federated Global Investment
Management Corp., Federated Investment
Management Company and Passport
Research, Ltd.; Registered
Representative, 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 $0 $0 for the Corporation and
Birth Date: November 3, 1954 Vice President of the 3 other investment
Federated Investors Tower Corporation. companies in the
1001 Liberty Avenue Mr. Balestrino joined Fund Complex
Pittsburgh, PA Federated in 1986 and has
VICE PRESIDENT 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.

</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 1, 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.

OTHER RELATED SERVICES

BROKERAGE TRANSACTIONS

On September 30, 1999, the Fund owned securities of the following regular
broker/dealer: Lehman Brothers Holdings, Inc. with a market value of
$992,910.

ADMINISTRATOR

<TABLE>

MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS

<S> <C>

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

</TABLE>

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

shareholders.

INDEPENDENT AUDITORS

FEES PAID BY THE FUND FOR SERVICES

<TABLE>

FOR THE YEAR ENDED SEPTEMBER 30 1999 1998 1
<S> <C> <C>
Advisory Fee Earned $ 447,691 $ 17,399
Advisory Fee Reduction 258,911 17,399
Brokerage Commissions 0 0
Administrative Fee 111,301 143,535
12B-1 FEE

Institutional Service Shares 0 --

SHAREHOLDER SERVICES FEE

Institutional Service Shares 186,538 --

</TABLE>

1 For the period October 3, 1997 (date of initial public investment) to
September 30, 1998.

How Does the Fund Measure Performance?

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

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

<TABLE>

START OF PERFORMANCE

SHARE CLASS 30-DAY PERIOD 1 YEAR ON MAY 31, 1997
<S> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES:

Total Return NA 5.32% 6.46%
Yield 6.22% 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.

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

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

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

* 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 Fund; and

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

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

LIPPER ULTRASHORT BOND FUND AVERAGE

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

Salomon Smith Barney U.S. Treasury Benchmarks (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.

MERRILL LYNCH 1-YEAR TREASURY INDEX

Merrill Lynch 1-Year Treasury Index is an unmanaged index tracking 1-year U.S.
Government securities.

MERRILL LYNCH 1-3 YEAR U.S. TREASURY INDEX

Who is Federated Investors, Inc.?

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

EQUITY FUNDS

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

MONEY MARKET FUNDS

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

FEDERATED CLIENTS OVERVIEW

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

INSTITUTIONAL CLIENTS

BANK MARKETING

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.

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:

* Leading market positions in well-established industries;

* High rates of return on funds employed;

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

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

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

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

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.

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

Deloitte & Touche LLP

200 Berkeley Street

Boston, MA 02116

MANAGEMENT DISCUSSION AND ANALYSIS

Federated Ultrashort Bond Fund

Annual Report For One-Year Period Ended September 30, 1999

Federated Ultrashort Bond Fund represents an average investment grade quality
fixed income portfolio having an effective duration not to exceed one year.
Investments are concentrated in corporate, asset-backed and mortgage backed debt
securities. The fund may also allocate a combined 25 percent of assets, in
either or both of the high yield corporate and international bond sectors.

This report represents the initial annual report for the Fund in its current
configuration. The fund was previously named Federated Limited Duration
Government Fund. The fund adopted its current name and investment objective as
of October 27, 1998.

In what proved to be a very stormy fiscal 1999, the fund provided a safe haven
for the fixed income investor. Yields rose at a rate not seen in five years, and
credit spreads widened from May until the end of the fiscal year. To wit, during
the period under review, the one-year Treasury bill ranged in yield from a low
of 3.85% to a high of 5.29%, a range of 144 basis points, while the two-year
treasury ranged from 3.82% to 5.78%, a range of 196 basis points. Credit spreads
on three-year, AAA-rated credit card asset-backed securities (ABS), which had
been under 30 basis points in mid-1997, widened to over 100 basis points in
August 1999. Throughout all the volatility, the fund maintained a net asset
value range of only three cents, from $1.98 to $2.01, while generally providing
a current yield well in excess of 6%. The net result was a total return of 5.32%
for the period under review (including a period from October 1, 1998 until
October 27, 1998 when the fund's assets were invested solely in repurchase
agreements and other cash equivalents). This compared with a return of 4.28% for
the Lipper Ultrashort Debt category and 4.26% for the Merrill Lynch 1-Year U.S.
Treasury Bill Index over the same period.

The portfolio of the fund during the period under review was invested heavily in
asset-backed securities (48% of fund assets were invested in ABS at September
30, 1999), as the "credit carnage" of the late summer and early fall of 1998 had
left this sector particularly attractive to a fund with a "clean portfolio
slate." The fund was able to purchase short duration, AAA-rated securities with
spreads over Treasuries well in excess of 200 basis points early in the period
under review, and was generally able to purchase highly rated asset-backed
securities at very attractive spreads and yields. While the higher-rated portion
of the ABS market has tightened, widened, then stabilized over the course of the
fund's fiscal year, the subordinate portion of the market has behaved
differently. Spreads in this sub-sector never really tightened that much in the
spring, yet still widened significantly again in the summer and early fall. The
net result is that this portion of the portfolio materially underperformed its
higher-rated ABS counterpart for the year, and also underperformed the corporate
and MBS allocations. This sector is expected to do better in the coming year, so
there has been no reduction of exposure, though marginal cash flows have been
deployed into other sectors perceived as having better short-term return
characteristics (such as AAA-rated ABS and higher rated corporates). Non-agency
mortgage backed exposure has been reduced over the past several months (from
approximately 30% of the portfolio at March 31, 1999 to just under 22% at
September 30, 1999), but if interest rates are perceived as having peaked,
exposure will once again be raised to take advantage of increasing prepayments
on mortgages purchased at a discount (with yields having increased over the past
several months, a large majority of the MBS universe is now trading below par).
Corporates comprise a smaller proportion of fund assets (approximately 15% at
September 30, 1999) because these tend to be more "total return oriented" (i.e.,
more of the security's value comes from its ability to increase in price if
interest rates fall than from the current coupon payment). In an "ultrashort"
duration portfolio like that of the fund, management attempts to derive most of
the return from the current yield rather than price appreciation, as the latter
would only show up in a higher net asset value. Management attempts to keep the
movement of the net asset value to a minimum, though of course there are no
guarantees this can be done. Finally, the cash balance of the fund is being
maintained at an abnormally high level (over 15% of the fund at fiscal year-end,
versus a normal range of approximately 5% - 8%) in order to accommodate any
unforeseen activity which might be precipitated by "Y2K" concerns, though
management perceives no problem in this regard.

Throughout the course of the fiscal year, fund management had been reasonably
constructive in its outlook for U.S. interest rates, a position which turned out
to be incorrect. The average effective duration of the fund was generally
maintained at between 0.80 and 0.90 years (0.82 years at September 30, 1999),
relatively close to the one-year maximum allowed by prospectus. Despite fund
management's constructive view on the real level of interest rates, negative
market momentum has made a positive view on yield levels akin to "standing in
front of the train," and duration has been taken in somewhat to the 0.65 - 0.70
year range since year-end. On the other hand, the market has very recently begun
to buy into the latest economic data releases showing benign inflationary
conditions. If the data continue in such a vein, and the market's reaction
continues to be a receptive one, a reestablishment of the prior 0.80 - 0.90 year
range may not be far off. The maintenance of a longer duration rather than a
shorter one makes for a better match between the duration of the fund's
underlying securities portfolio (which was actually 1.6 years at September 30,
1999) and the ultimate effective duration of the fund. The difference between
the two is that the fund's effective duration includes the use of a short
position in exchange-traded U.S. Treasury and Eurodollar futures contracts
(generally known as an "interest-rate hedge"), whereas the underlying
portfolio's duration is calculated without including the effect of the hedge.
The longer duration of the underlying portfolio enables the fund to generate
more current yield by buying securities having maturities of greater than one
year, while the maintenance of the hedge mitigates the interest rate risk
associated with holding those securities. If the view of management dictates a
shorter duration profile, the fund's effective duration can be reduced by either
reducing the duration of the underlying portfolio or by increasing the amount of
the hedge.

LAST MEETING OF SHAREHOLDERS

AGENDA ITEM 1

To elect Directors. 1

<TABLE>

WITHHELD
AUTHORITY

</TABLE>

1 The following Directors of the Corporation continued their terms: John F.
Donahue, John T. Conroy, Lawrence D. Ellis, M.D., Peter E. Madden, and
Marjorie P. Smuts.

AGENDA ITEM 2

To ratify the selection of Ernst & Young LLP as the Corporation's independent
auditors.

The results of shareholders voting were as follows:

<TABLE>

ABSTENTIONS

AND BROKER

FOR AGAINST NON-VOTES
<S> <C> <C>
18,110,860 215 29,642

</TABLE>

INSTITUTIONAL SERVICE SHARES

GROWTH OF $10,000 INVESTED IN FEDERATED ULTRASHORT BOND FUND

[Graphic] - See Appendix 2

<TABLE>

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED SEPTEMBER 30, 1999
<S> <C>

1 Year 5.32%
Start of Performance (5/31/97) 6.46%

</TABLE>

The graph below illustrates the hypothetical investment of $10,000 1 in the
Federated Ultrashort Bond Fund (Institutional Service Shares) (the "Fund") from
May 31, 1997 (start of performance) to September 30, 1999 compared to the
Merrill Lynch 1-Year Treasury Bill Index (ML1YT) and the Merrill Lynch

1-3 Year U.S. Treasury Index (ML13TRI).2 , 3

Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.

This report must be preceded or accompanied by the Fund's prospectus dated
November 30, 1999, and, together with financial statements contained therein,
constitutes the Fund's annual report.

1 The Fund's performance assumes the reinvestment of all dividends and
distributions. The ML1YT and the ML13TRI have been adjusted to reflect
reinvestment of dividends on securities in the indices.

2 The ML1YTI and the ML13TRI are not adjusted to reflect sales charges,
expenses, or other fees that the Securities and Exchange Commission requires to
be reflected in the Fund's performance. The indices are unmanaged.

3 The Fund's Adviser has elected to change the benchmark index from the ML13TRI
to the ML1YT because the ML1YT is more representative of the securities in which
the Fund invests.

[Graphic]
Federated

World Class Investment Manager
Federated Ultrashort Bond Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Cusip 31428Q606

G02603-02 (11/99)

[Graphic]

APPENDIX

FEDERATED MORTGAGE FUND - INSTITUTIONAL SHARES

The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant. The Institutional Shares of Federated Mortgage Fund are represented by
a solid line, whereas the Lehman Brothers Mortgage-Backed Securities Index
(LBMBSI) is represented by a dotted line and the Lipper U.S. Mortgage Fund
Category (LUSMFC) is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a hypothetical $100,000
investment in the Institutional Shares of the Federated Mortgage Fund, the
LBMBSI and LUSMFC for the period from May 31, 1997 (Start of Performance) to
September 30, 1999. The "y" axis reflect the cost of the investment. The "x"
axis reflects computation periods from the ending value of the hypothetical
investment in the Institutional Shares of Federated Mortgage Fund as compared to
the LBMBSI and the LUSMFC; the ending values are $117,434, $115,674, and
$113,573, respectively. Beneath the list of components that correspond to the
line graph is the following total return data for the Institutional Shares of
Federated Mortgage Fund: total return figures for the one year and start of
performance average annual total returns. The corresponding total return figures
are as follows: 3.20% and 7.12%, respectively.

FEDERATED MORTGAGE FUND - INSTITUTIONAL SERVICE SHARES

The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant. The Institutional Service Shares of Federated Mortgage Fund are
represented by a solid line, whereas the Lehman Brothers Mortgage-Backed
Securities Index (LBMBSI) is represented by a dotted line and the Lipper U.S.
Mortgage Fund Category (LUSMFC) is represented by a broken line. The line graph
is a visual representation of a comparison of change in value of a hypothetical
$25,000 investment in the Institutional Service Shares of the Federated Mortgage
Fund, the LBMBSI and LUSMFC for the period from May 31, 1997 (Start of
Performance) to September 30, 1999. The "y" axis reflect the cost of the
investment. The "x" axis reflects computation periods from the ending value of
the hypothetical investment in the Institutional Shares of Federated Mortgage
Fund as compared to the LBMBSI and the LUSMFC; the ending values are $29,170,
$28,918, and $28,393, respectively. Beneath the list of components that
correspond to the line graph is the following total return data for the
Institutional Service Shares of Federated Mortgage Fund: total return figures
for the one year and start of performance average annual total returns. The
corresponding total return figures are as follows: 2.89% and 6.82%,
respectively.

FEDERATED TOTAL RETURN BOND FUND - INSTITUTIONAL SHARES

The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant. The Institutional Shares of Federated Total Return Bond Fund are
represented by a solid line, whereas the Lehman Brothers Aggregate Bond Index
(LBABI) is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a hypothetical $100,000
investment in the Institutional Shares of the Federated Total Return Bond Fund
and the LBABI for the period from October 1, 1996 (Start of Performance) to
September 30, 1999. The "y" axis reflect the cost of the investment. The "x"
axis reflects computation periods from the ending value of the hypothetical
investment in the Institutional Shares of Federated Total Return Bond Fund as
compared to the LBABI; the ending values are $123,445 and $121,885,
respectively. Beneath the list of components that correspond to the line graph
is the following total return data for the Institutional Shares of Federated
Total Return Bond Fund: total return figures for the one year and start of
performance average annual total returns. The corresponding total return figures
are as follows: (0.63%) and 7.27%, respectively.

FEDERATED TOTAL RETURN BOND FUND - INSTITUTIONAL SERVICE SHARES

The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant. The Institutional Service Shares of Federated Total Return Bond Fund
are represented by a solid line, whereas the Lehman Brothers Aggregate Bond
Index (LBABI) is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a hypothetical $25,000
investment in the Institutional Service Shares of the Federated Total Return
Bond Fund and the LBABI for the period from October 1, 1996 (Start of
Performance) to September 30, 1999. The "y" axis reflect the cost of the
investment. The "x" axis reflects computation periods from the ending value of
the hypothetical investment in the Institutional Service Shares of Federated
Total Return Bond Fund as compared to the LBABI; the ending values are $30,592
and $30,471, respectively. Beneath the list of components that correspond to the
line graph is the following total return data for the Institutional Service
Shares of Federated Total Return Bond Fund: total return figures for the one
year and start of performance average annual total returns. The corresponding
total return figures are as follows: (0.93%) and 6.96%, respectively.

FEDERATED ULTRASHORT BOND FUND - INSTITUTIONAL SERVICE SHARES

The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant. The Institutional Service Shares of Federated Ultrashort Bond Fund are
represented by a solid line, whereas the Merrill Lynch 1-Year Treasury Bill
Index (ML1YT) is represented by a dotted line and the Merrill Lynch 1-3 Year
U.S. Treasury Index (ML13TRI) is represented by a broken line. The line graph is
a visual representation of a comparison of change in value of a hypothetical
$10,000 investment in the Institutional Service Shares of the Federated
Ultrashort Bond Fund and the ML1YT and ML13TRI for the period from May 31, 1997
(Start of Performance) to September 30, 1999. The "y" axis reflect the cost of
the investment. The "x" axis reflects computation periods from the ending value
of the hypothetical investment in the Institutional Service Shares of Federated
Ultrashort Bond Fund as compared to the ML1YT and ML13TRI; the ending values are
$11,573, $11,329 and $11,441, respectively. Beneath the list of components that
correspond to the line graph is the following total return data for the
Institutional Service Shares of Federated Ultrashort Bond Fund: total return
figures for the one year and start of performance average annual total returns.
The corresponding total return figures are as follows: 5.32% and 6.46%,
respectively.

FEDERATED LIMITED DURATION FUND - INSTITUTIONAL SHARES

The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant. The Institutional Shares of Federated Limited Duration Fund are
represented by a solid line, whereas the Merrill Lynch 1-3 Year U.S. Treasury
Index (ML13TRI) is represented by a dotted line, the Merrill Lynch 1-3 Year
Corporate Index (ML13CI) is represented by a broken line and the Lipper Short
Investment Grade Debt Funds Average (LSIGDA) is represented by a dashed line.
The line graph is a visual representation of a comparison of change in value of
a hypothetical $100,000 investment in the Institutional Shares of the Federated
Limited Duration Fund and the ML13TRI, ML13CI and LSIGDA for the period from
October 1, 1996 (Start of Performance) to September 30, 1999. The "y" axis
reflect the cost of the investment. The "x" axis reflects computation periods
from the ending value of the hypothetical investment in the Institutional Shares
of Federated Limited Duration Fund as compared to the ML13TRI, ML13CI and
LSIGDA; the ending values are $120,132, $119,125, $120,767 and $117,021,
respectively. Beneath the list of components that correspond to the line graph
is the following total return data for the Institutional Shares of Federated
Limited Duration Fund: total return figures for the one year and start of
performance average annual total returns. The corresponding total return figures
are as follows: 2.88% and 6.30%, respectively.

FEDERATED LIMITED DURATION FUND - INSTITUTIONAL SERVICE SHARES

The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant. The Institutional Service Shares of Federated Limited Duration Fund
are represented by a solid line, whereas the Merrill Lynch 1-3 Year U.S.
Treasury Index (ML13TRI) is represented by a dotted line, the Merrill Lynch 1-3
Year Corporate Index (ML13CI) is represented by a broken line and the Lipper
Short Investment Grade Debt Funds Average (LSIGDA) is represented by a dashed
line. The line graph is a visual representation of a comparison of change in
value of a hypothetical $25,000 investment in the Institutional Service Shares
of the Federated Limited Duration Fund and the ML13TRI, ML13CI and LSIGDA for
the period from October 1, 1996 (Start of Performance) to September 30, 1999.
The "y" axis reflect the cost of the investment. The "x" axis reflects
computation periods from the ending value of the hypothetical investment in the
Institutional Service Shares of Federated Limited Duration Fund as compared to
the ML13TRI, ML13CI and LSIGDA; the ending values are $29,807, $29,781, $30,192
and $29,255, respectively. Beneath the list of components that correspond to the
line graph is the following total return data for the Institutional Service
Shares of Federated Limited Duration Fund: total return figures for the one year
and start of performance average annual total returns. The corresponding total
return figures are as follows: 2.57% and 6.03%, respectively.

APPENDIX

FEDERATED ULTRASHORT BOND FUND

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 Federated Ultrashort
Bond Fund as of the calendar year-end for one year.

The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 2.00% up to 8.00%.

The `x' axis represents calculation periods from the earliest 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 bars 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 Institutional Service Shares for the calendar year is stated
directly at the bottom of the bar, for the calendar year 1998. The percentage
noted is -7.15%.

FEDERATED LIMITED DURATION FUND

RISK/RETURN BAR CHART AND TABLE - INSTITUTIONAL SHARES

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares of Federated Limited Duration Fund
as of the calendar year-end for each of two years.

The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 2.00% up to 8.00%.

The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features two distinct vertical bars, each
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 Institutional Shares for each calendar year is
stated directly at the bottom of each respective bar, for the calendar years
1997 through1998. The percentages noted are 7.64% and 6.37%, respectively.

RISK/RETURN BAR CHART AND TABLE - INSTITUTIONAL SERVICE SHARES

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares of Federated Limited
Duration Fund as of the calendar year-end for each of two years.

The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 2.00% up to 8.00%.

The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features two distinct vertical bars, each
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 Institutional Service Shares for each calendar
year is stated directly at the bottom of each respective bar, for the calendar
years 1997 through1998. The percentages noted are 7.39% and 6.06%, respectively.

FEDERATED MORTGAGE FUND

RISK/RETURN BAR CHART AND TABLE - INSTITUTIONAL SHARES

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

The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 2.00% up to 8.00%.

The `x' axis represents calculation periods from the earliest 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 Institutional Shares for the calendar year is stated directly
at the bottom of the bar, for the calendar year 1998. The percentage noted is
7.58%.

RISK/RETURN BAR CHART AND TABLE - INSTITUTIONAL SERVICE SHARES

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

The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 2.00% up to 8.00%.

The `x' axis represents calculation periods from the earliest 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 Institutional Service Shares for the calendar year is stated
directly at the bottom of the bar, for the calendar year 1998. The percentage
noted is 7.26%.

FEDERATED TOTAL RETURN BOND FUND

RISK/RETURN BAR CHART AND TABLE - INSTITUTIONAL SHARES

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Shares of Federated Total Return Bond Fund
as of the calendar year-end for each of two years.

The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 4.00% up to 12.00%.

The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features two distinct vertical bars, each
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 Institutional Shares for each calendar year is
stated directly at the bottom of each respective bar, for the calendar years
1997 through1998. The percentages noted are 10.58% and 9.23%, respectively.

RISK/RETURN BAR CHART AND TABLE - INSTITUTIONAL SERVICE SHARES

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares of Federated Total Return
Bond Fund as of the calendar year-end for each of two years.

The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 4.00% up to 12.00%.

The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features two distinct vertical bars, each
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 Institutional Service Shares for each calendar
year is stated directly at the bottom of each respective bar, for the calendar
years 1997 through1998. The percentages noted are 10.25% and 8.91%,
respectively.