SEMI-ANNUAL REPORT
President's Message
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
Total Return Bond Fund, a portfolio of Federated Total Return Series, Inc. The
report covers the six-month period from October 1, 1998 through March 31, 1999,
and includes commentary by the fund's portfolio manager, followed by the
portfolio of investments and financial statements.
During the reporting period, the fund's diversified portfolio of high-quality,
investment grade bonds produced a total return of (0.40%) 1 for Institutional
Shares and (0.54%)1 for Institutional Service Shares. Dividends and capital
gains paid by the fund during this period totaled $0.31 per share and $0.02 per
share, respectively, for Institutional Shares and $0.29 per share and $0.02 per
share, respectively, for Institutional Service Shares. Net asset value for both
share classes declined by $0.37 to end the period at $10.53. The fund's total
net assets reached $142.3 million on the last day of the reporting period.
We appreciate your participation in the total return opportunities of Federated
Total Return Bond Fund. As always, we welcome your questions and comments.
Sincerely,
[Graphic]
Glen R. Johnson
President
May 15, 1999
1 Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
Investment Review
Federated Total Return Bond Fund represents a high quality, fixed income
portfolio combining the various fixed income asset classes. Investments are
concentrated in U.S. Treasury, government agency, and high quality, corporate
debt securities. The fund may also allocate some of its assets in the high yield
corporate and international bond sectors. 1
For the six-month reporting period ended March 31, 1999, the high quality fixed
income environment demonstrated a complete reversal of the months immediately
preceding (i.e., the summer of 1998). Recall that over the summer months, the
financial markets were reacting to a widespread global economic crisis which
included parts of Asia, Russia and Latin America. In the crisis mode, a massive
"flight to quality" created a rush of cash into U.S. Treasury securities, which
had outperformed most investments worldwide. Over the past six months, however,
confidence in global financial markets was largely restored, due in no small
part to over 100 instances of interest rate reductions by central banks around
the world. With increased liquidity and confidence came significant rebounds
into those asset classes, which had fallen sharply in value over the summer of
1998-namely global equity markets, emerging debt markets and domestic high yield
securities.
Given the rebound in the higher risk asset classes, the high quality bond
markets lost their position as a "safety net" and domestic interest rates rose
across the entire maturity spectrum. As points of reference over the six month
reporting period, the 2-year, 5-year, 10-year and 30-year treasury securities
rose 71 basis points, 88 basis points, 82 basis points and 66 basis points in
yield, respectively. Thus, the past six months was one of a negative total
return for most high quality bond sectors- treasuries, agencies and high quality
corporates. The two exceptions were the mortgage and asset-backed markets, which
did generate positive returns as prepayment fears and credit concerns,
respectively lessened significantly over the past six months.
In terms of bond sector relative performance, pure U.S. Treasuries were the
worst performers, which is typical of a strong economic growth environment.
Agencies and high grade corporates outperformed treasuries but still delivered
negative total returns.
For much of the past six months, the fund was generally slightly long of its
duration target (a negative contributor to performance) but overweight in the
corporate sector (a positive contributor to performance). In total, the negative
effects of the higher interest rate exposure (longer duration target) offset the
positive effects of higher credit exposure (corporate bond overweight) to create
a modest six-month negative return of (0.40%) 2 for Institutional Shares and
(0.54%)2 for Institutional Service Shares. This compared to the Lehman Brothers
Aggregate Bond Index,3 which had a (0.16%) return for the six-month period ended
March 31, 1999.
1 Special risks are associated with investments in high yield and international
securities.
2 Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
3 The Lehman Brothers Aggregate Bond Index is an unmanaged index measuring both
the capital price changes and income provided by the underlying universe of
securities, comprised of U.S. Treasury obligations, U.S. agency obligations,
foreign obligations, U.S. investment-grade corporate debt and mortgage-backed
obligations. Investments cannot be made in the index.
Last Meeting of Shareholders
The Annual Meeting of Shareholders of Federated Total Return Series, Inc. (the
"Corporation") was held on March 23, 1999. On January 22, 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 and the results of
their voting were as follows:
AGENDA ITEM 1
To elect Directors. 1
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
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. 18,138,428 2,290
John S. Walsh 18,138,428 2,290
</TABLE>
1 The following Directors of the Corporation continued their terms as
Directors of the Corporation: John F. Donahue, John T. Conroy, Jr., Lawrence
D. Ellis, M.D., Peter E. Madden, and Majorie P. Smuts.
AGENDA ITEM 2
To ratify the selection of Ernst & Young LLP as the Corporation's independent
auditors.
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS
<S> <C> <C>
18,110,860 215 29,642
</TABLE>
Portfolio of Investments
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-31.8%
AUTOMOTIVE-2.2%
$ 2,000,000 Dana Corp., Note, 7.00%,
3/1/2029 $ 1,953,560
1,250,000 Meritor Automotive,
Inc., Note, 6.80%,
2/15/2009 1,243,200
TOTAL 3,196,760
BANKING-1.9%
400,000 1, 2 CIBC Capital Funding LP,
Bank Guarantee, 6.40%,
12/17/2004 400,300
725,000 1, 2 Den Danske Bank Group,
Sub. Note, 7.25%,
6/15/2005 756,146
260,000 FirstBank Puerto Rico,
Sub. Note, 7.625%,
12/20/2005 256,235
550,000 GreenPoint Bank, Sr.
Note, 6.70%, 7/15/2002 555,791
100,000 National Bank of Canada,
Montreal, Sub. Note,
8.125%, 8/15/2004 105,567
350,000 Republic New York Corp.,
Sub. Note, 7.75%,
5/15/2009 383,579
300,000 Summit Bancorp, Bond,
8.40%, 3/15/2027 317,202
TOTAL 2,774,820
BEVERAGE & TOBACCO-0.4%
275,000 Anheuser-Busch Cos.,
Inc., Note, 7.00%,
9/1/2005 283,420
260,000 Philip Morris Cos.,
Inc., Deb., 6.00%,
11/15/1999 261,097
TOTAL 544,517
CABLE TELEVISION-0.6%
400,000 Continental Cablevision,
Sr. Deb., 9.50%,
8/1/2013 477,096
300,000 TKR Cable, Inc., Deb.,
10.50%, 10/30/2007 325,374
TOTAL 802,470
CHEMICALS & PLASTICS-
0.4%
500,000 Du Pont (E.I.) de Nemours
& Co., Note, 6.50%,
9/1/2002 510,840
CONSUMER PRODUCTS-0.4%
500,000 Hershey Foods Corp.,
6.95%, 8/15/2012 539,815
ECOLOGICAL SERVICES &
EQUIPMENT-1.1%
750,000 USA Waste Services,
Inc., Note, 6.125%,
7/15/2001 755,617
300,000 USA Waste Services,
Inc., Sr. Note, 7.00%,
10/1/2004 311,013
500,000 WMX Technologies, Inc.,
Deb., 8.75%, 5/1/2018 552,795
TOTAL 1,619,425
EDUCATION-0.9%
1,250,000 Boston University,
7.625%, 7/15/2097 1,322,962
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-continued
ELECTRONICS-0.7%
$ 600,000 Anixter International,
Inc., Company Guarantee,
8.00%, 9/15/2003 $ 624,792
300,000 Harris Corp., Deb.,
10.375%, 12/1/2018 317,037
TOTAL 941,829
FINANCE - AUTOMOTIVE-
0.7%
485,000 Chrysler Financial
Corp., Deb., 13.25%,
10/15/1999 507,334
500,000 Ford Motor Credit Corp.,
Unsub., 6.875%, 6/5/2001 506,066
TOTAL 1,013,400
FINANCIAL
INTERMEDIARIES-2.6%
500,000 Amvescap PLC, Sr. Note,
6.60%, 5/15/2005 495,440
400,000 Bankers Trust New York
Corp., Sub. Note, 8.25%,
5/1/2005 432,864
1,000,000 Donaldson, Lufkin and
Jenrette Securities
Corp., Sr. Note, 5.875%,
4/1/2002 997,070
400,000 FINOVA Capital Corp.,
Note, 7.40%, 6/1/2007 424,344
400,000 Green Tree Financial
Corp., Sr. Sub. Note,
10.25%, 6/1/2002 426,320
275,000 Lehman Brothers
Holdings, Inc., Note,
6.90%, 1/29/2001 277,725
250,000 Lehman Brothers
Holdings, Inc., Note,
8.50%, 8/1/2015 266,100
300,000 Salomon, Inc., Sr. Note,
7.75%, 5/15/2000 306,915
TOTAL 3,626,778
FINANCIAL SERVICES-0.2%
250,000 Associates Corp. of
North America, Sr. Note,
9.125%, 4/1/2000 258,967
FOREST PRODUCTS-2.3%
300,000 Container Corp. of
America, Sr. Note,
11.25%, 5/1/2004 318,000
1,300,000 Fort James Corp., Sr.
Note, 6.234%, 3/15/2001 1,309,256
1,500,000 Quno Corp., Sr. Note,
9.125%, 5/15/2005 1,597,305
TOTAL 3,224,561
HEALTHCARE-0.3%
500,000 1, 2 Tenet Healthcare Corp.,
Sr. Sub., 8.125%,
12/1/2008 495,000
INDUSTRIAL PRODUCTS &
EQUIPMENT-2.0%
2,185,000 Figgie International
Holdings, Inc., Sr.
Note, 9.875%, 10/1/1999 2,217,622
575,000 Southdown, Inc., Sr.
Sub. Note, 10.00%,
3/1/2006 642,913
TOTAL 2,860,535
INSURANCE-2.8%
250,000 Conseco, Inc., Note,
6.40%, 2/10/2003 242,767
250,000 Conseco, Inc., Sr. Note,
10.50%, 12/15/2004 282,705
600,000 Delphi Financial Group,
Inc., 9.31%, 3/25/2027 563,202
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-continued
INSURANCE-CONTINUED
$ 400,000 Delphi Financial Group,
Inc., Note, 8.00%,
10/1/2003 $ 410,024
300,000 1, 2 Equitable Life Assurance
SOC, Note, 7.70%,
12/1/2015 319,032
400,000 Hartford Life, Inc.,
Note, 7.10%, 6/15/2007 418,176
360,000 1, 2 Life Re Capital Trust I,
Company Guarantee,
8.72%, 6/15/2027 390,960
250,000 SunAmerica, Inc., Sr.
Note, 6.20%, 10/31/1999 251,445
1,000,000 1, 2 Union Central Life
Insurance Co., Note,
8.20%, 11/1/2026 1,070,820
TOTAL 3,949,131
LEISURE & ENTERTAINMENT-
0.9%
1,250,000 Paramount
Communications, Inc.,
Sr. Deb., 8.25%,
8/1/2022 1,327,163
MACHINERY & EQUIPMENT-
0.5%
500,000 Caterpillar, Inc., Deb.,
9.75%, 6/1/2019 528,505
250,000 Continental Airlines,
Inc., Pass Thru Cert.,
Series 1997-4 B, 6.90%,
1/2/2017 249,773
TOTAL 778,278
METALS & MINING-1.4%
450,000 Barrick Gold Corp.,
Deb., 7.50%, 5/1/2007 475,659
150,000 Inco Ltd., Note, 9.60%,
6/15/2022 156,099
1,200,000 1, 2 Normandy Finance Ltd.,
Company Guarantee,
7.50%, 7/15/2005 1,181,100
225,000 Santa Fe Pacific Gold,
Note, 8.375%, 7/1/2005 227,187
TOTAL 2,040,045
OIL & GAS-1.4%
250,000 Husky Oil Ltd., Sr. Note,
7.125%, 11/15/2006 245,285
625,000 Occidental Petroleum
Corp., Note, 8.50%,
9/15/2004 632,881
265,000 Occidental Petroleum
Corp., Sr. Note,
10.125%, 11/15/2001 286,855
250,000 Phillips Petroleum Co.,
Deb., 9.18%, 9/15/2021 272,293
515,000 Sun Co., Inc., Note,
8.125%, 11/1/1999 522,941
TOTAL 1,960,255
PHARMACEUTICAL-0.6%
480,000 American Home Products
Corp., Note, 7.70%,
2/15/2000 490,003
400,000 Lilly (Eli) & Co.,
Unsecd. Note, 6.57%,
1/1/2016 404,340
TOTAL 894,343
PRINTING & PUBLISHING-0.2%
300,000 News America Holdings,
Inc., Company Guarantee,
8.00%, 10/17/2016 325,425
REAL ESTATE-0.5%
750,000 Sun Communities, Inc.,
Medium Term Note, 6.77%,
5/16/2005 718,943
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-
continued
RETAILERS-1.6%
$ 634,931 K Mart Corp., Pass Thru
Cert., 8.54%, 1/2/2015 $ 666,367
650,000 Shopko Stores, Inc.,
8.50%, 3/15/2002 685,016
400,000 Shopko Stores, Inc., Sr.
Note, 9.25%, 3/15/2022 472,108
400,000 Wal-Mart Stores, Inc.,
Unsecd. Note, 7.50%,
5/15/2004 431,056
TOTAL 2,254,547
SERVICES-0.3%
500,000 Stewart Enterprises,
Inc., Note, 6.40%,
5/1/2003 487,520
SOVEREIGN GOVERNMENT-
1.1%
1,350,000 Quebec, Province of,
11.00%, 6/15/2015 1,489,266
SURFACE TRANSPORTATION-
0.3%
400,000 Trans Ocean Container
Corp., Sr. Sub. Note,
12.25%, 7/1/2004 432,436
TECHNOLOGY SERVICES-1.4%
1,350,000 Dell Computer Corp.,
Deb., 7.10%, 4/15/2028 1,351,715
750,000 National Semiconductor
Corp., Conv. Bond,
6.50%, 10/1/2002 626,348
TOTAL 1,978,063
TELECOMMUNICATIONS &
CELLULAR-0.4%
500,000 MCI Communications
Corp., Sr. Note, 7.125%,
1/20/2000 507,440
UTILITIES-1.7%
600,000 Cincinnati Gas and
Electric Co., Note,
6.35%, 6/15/2003 603,660
100,000 National Rural Utilities
Cooperative Finance
Corp., Collateral Trust,
5.50%, 1/15/2005 98,108
1,000,000 National Rural Utilities
Cooperative Finance
Corp., Medium Term Note,
5.75%, 12/1/2008 976,870
500,000 Pacific Gas & Electric
Co., 1st Ref. Mtg.,
7.875%, 3/1/2002 527,760
170,000 Puget Sound Energy,
Inc., Medium Term Note,
7.02%, 12/1/2027 175,976
TOTAL 2,382,374
TOTAL CORPORATE BONDS
(IDENTIFIED COST
$45,306,953) 45,257,908
ASSET-BACKED SECURITIES-2.0%
STRUCTURED PRODUCT
(ABS)-1.7%
1,000,000 1, 2 125 Home Loan Owner Trust
1998-1, Class B-1,
9.26%, 2/15/2029 897,190
750,000 Citibank Credit Card
Master Trust 1997-6,
Class A, 6.323%,
8/15/2006 546,840
1,000,000 Green Tree Home Equity
Loan Trust 1999-A, Class
B2A, 7.44%, 2/15/2029 999,380
TOTAL 2,443,410
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<S> <C> <C>
ASSET-BACKED SECURITIES-continued
WHOLE LOAN-0.3%
$ 440,720 1 SMFC Trust Asset-Backed
Certificates, Series
1997-A, Class 4,
7.7191%, 1/28/2025 $ 378,041
TOTAL ASSET-BACKED
SECURITIES (IDENTIFIED
COST $2,916,770) 2,821,451
GOVERNMENT AGENCIES-4.8%
1,000,000 Federal Home Loan Bank
System, 5.785%,
3/17/2003 1,008,100
1,700,000 Federal Home Loan Bank
System, Sr. Note, 5.80%,
9/2/2008 1,687,760
175,000 Federal Home Loan
Mortgage Corp., 7.90%,
9/19/2001 185,750
390,000 Federal National
Mortgage Association,
7.50%, 2/11/2002 411,883
500,000 Federal National
Mortgage Association,
Deb., 6.75%, 7/30/2007 506,420
350,000 Federal National
Mortgage Association,
Medium Term Note, 6.71%,
7/24/2001 361,267
675,000 Private Export Funding
Corp., 7.30%, 1/31/2002 705,078
663,000 Tennessee Valley
Authority, Series 93-1,
8.625%, 11/15/2029 673,422
256,000 Tennessee Valley
Authority, Note, 8.625%,
11/15/2029 260,024
1,000,000 Tennessee Valley
Authority, Series C,
6.00%, 3/15/2013 994,230
TOTAL GOVERNMENT
AGENCIES (IDENTIFIED
COST $6,747,305) 6,793,934
MUNICIPAL SECURITIES-0.4%
525,000 Harvard University,
Revenue Bonds, 8.125%,
4/15/2007 (identified
cost $587,910) 617,332
MUTUAL FUNDS-34.9%
599,133 The High Yield Bond
Portfolio 5,643,831
4,408,888 Federated Mortgage Core
Portfolio 44,000,698
TOTAL MUTUAL FUNDS
(IDENTIFIED COST
$49,700,450) 49,644,529
U.S. TREASURY-25.0%
U.S. TREASURY BONDS-
11.7%
2,370,000 5.25%, 2/15/2029 2,242,233
1,600,000 6.00%, 2/15/2026 1,627,616
1,240,000 6.375%, 8/15/2027 1,327,036
5,500,000 7.25%, 5/15/2004 5,987,850
2,500,000 8.125%, 5/15/2021 3,175,850
1,400,000 11.625%, 11/15/2004 1,820,854
300,000 11.75%, 11/15/2014 444,126
TOTAL 16,625,565
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY-continued
U.S. TREASURY NOTES-13.3%
$ 1,750,000 5.75%, 4/30/2003 $ 1,783,828
1,800,000 6.125%, 8/15/2007 1,882,692
4,625,000 6.25%, 2/15/2003 4,793,073
575,000 6.50%, 5/15/2005 609,011
1,900,000 6.50%, 10/15/2006 2,023,918
2,250,000 7.00%, 7/15/2006 2,460,668
4,750,000 7.875%, 11/15/2004 5,332,445
TOTAL 18,885,635
TOTAL U.S. TREASURY
(IDENTIFIED COST
$35,574,560) 35,511,200
REPURCHASE AGREEMENT-1.5% 3
2,160,000 ABN AMRO, Inc., 5.05%, dated 3/31/1999, due 4/1/1999 (at
amortized cost) 2,160,000 TOTAL INVESTMENTS (IDENTIFIED COST
$142,993,948) 4 $ 142,806,354
</TABLE>
1 Denotes a restricted security which is subject to restrictions on resale under
Federal Securities laws. At March 31, 1999, these securities amounted to
$5,888,589 which represents 4.1% of net assets. Included in these amounts,
securities which have been deemed liquid amounted to $5,510,548 which represents
3.9% 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 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.
4 The cost of investments for federal tax purposes amounts to $142,993,948. The
net unrealized depreciation of investments on a federal tax basis amounts to
$187,594 which is comprised of $920,808 appreciation and $1,108,402 depreciation
at March 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($142,253,996) at March 31, 1999.
The following acronym is used throughout this portfolio:
PLC -Public Limited Company
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
Total investments in
securities, at value
(identified and tax cost
$142,993,948) $ 142,806,354
Cash 5,894
Income receivable 1,990,860
Receivable for
investments sold 952,776
Receivable for shares
sold 304,477
Deferred organizational
costs 6,340
Prepaid assets 4,888
TOTAL ASSETS 146,071,589
LIABILITIES:
Payable for investments
purchased $ 3,170,037
Income distribution
payable 647,556
TOTAL LIABILITIES 3,817,593
Net assets for
13,509,801 shares
outstanding $ 142,253,996
NET ASSETS CONSIST OF:
Paid in capital $ 141,509,322
Net unrealized
depreciation of
investments (187,594)
Accumulated net realized
gain on investments 914,927
Undistributed net
investment income 17,341
TOTAL NET ASSETS $ 142,253,996
NET ASSET VALUE,
OFFERING PRICE AND
REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$126,035,458 /
11,969,528 shares
outstanding $10.53
INSTITUTIONAL SERVICE
SHARES:
$16,218,538 / 1,540,273
shares outstanding $10.53
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 404,903
Interest 3,383,064
TOTAL INCOME 3,787,967
EXPENSES:
Investment advisory fee $ 245,705
Administrative personnel
and services fee 77,288
Custodian fees 4,190
Transfer and dividend
disbursing agent fees
and expenses 25,916
Directors'/Trustees'
fees 5,765
Auditing fees 5,490
Legal fees 1,820
Portfolio accounting
fees 29,928
Distribution services
fee-Institutional Shares 491
Distribution services
fee-Institutional
Service Shares 18,512
Shareholder services
fee-Institutional Shares 134,569
Shareholder services
fee-Institutional
Service Shares 18,987
Share registration costs 20,376
Printing and postage 7,857
Insurance premiums 1,455
Taxes 3,776
Miscellaneous 7,525
TOTAL EXPENSES 609,650
Waivers:
Waiver of investment
advisory fee $ (222,099)
Waiver of distribution
services fee-
Institutional Service
Shares (15,196)
Waiver of shareholder
services fee-
Institutional Shares (134,569)
TOTAL WAIVERS (371,864)
Net expenses 237,786
Net investment income 3,550,181
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on
investments 927,191
Net change in unrealized
appreciation of
investments (5,175,128)
Net realized and
unrealized loss on
investments (4,247,937)
Change in net assets
resulting from
operations $ (697,756)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(unaudited) ENDED
MARCH 31, SEPTEMBER 30,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS:
Net investment income $ 3,550,181 $ 2,803,451
Net realized gain on
investments ($927,191
and $289,634,
respectively, as
computed for federal tax
purposes) 927,191 289,258
Net change in unrealized
appreciation/depreciatio
n (5,175,128) 4,721,298
CHANGE IN NET ASSETS
RESULTING FROM
OPERATIONS (697,756) 7,814,007
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Institutional Shares (3,110,498) (2,331,285)
Institutional Service
Shares (420,564) (473,640)
Distributions from net
realized gains
Institutional Shares (203,782) -
Institutional Service
Shares 25,543) -
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (3,760,387) (2,804,925)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 79,763,891 70,082,146
Proceeds from shares
issued in connection
with the acquisition of
the Federated Bond Index
Fund - 32,686,566 1
Net asset value of shares
issued to shareholders
in payment of
distributions declared 913,980 758,566
Cost of shares redeemed (45,887,288) (15,603,573)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 34,790,583 87,923,705
Change in net assets 30,332,440 92,932,787
NET ASSETS:
Beginning of period 111,921,556 18,988,769
End of period (including
undistributed net
investment income of
$17,341 and
distributions in excess
of net investment income
of
$(1,778), respectively) $ 142,253,996 $ 111,921,556
</TABLE>
1 Includes $1,196,929 of unrealized appreciation at September 25, 1998, related
to the acquisition of the Federated Bond Index Fund.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MARCH 31, YEAR ENDED SEPTEMBER 30,
1999 1998 1997
<S>
NET ASSET VALUE, <C> <C> <C>
BEGINNING OF PERIOD $10.90 $10.32 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.31 0.64 0.72
Net realized and
unrealized gain (loss)
on investments (0.35 ) 0.58 0.32
TOTAL FROM INVESTMENT
OPERATIONS (0.04 ) 1.22 1.04
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.31 ) (0.64) 0.72)
Distributions from net
realized gain on
investments (0.02 ) - -
TOTAL DISTRIBUTIONS (0.33 ) (0.64) (0.72)
NET ASSET VALUE, END OF
PERIOD $10.53 $10.90 $10.32
TOTAL RETURN 1 (0.40 %) 12.21% 10.52%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.35% 2 0.32% 0.01%
Net investment income 5.81% 2 6.03% 7.15%
Expense
waiver/reimbursement 3 0.61% 2 1.09% 4.39%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $126,035 $98,496 $16,700
Portfolio turnover 79 % 75% 101%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 Computed on an annualized basis.
3 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Service Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MARCH 31, YEAR ENDED SEPTEMBER 30,
1999 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 0.29 0.61 0.69
Net realized and
unrealized gain (loss)
on investments (0.35 ) 0.58 0.32
TOTAL FROM INVESTMENT
OPERATIONS (0.06 ) 1.19 1.01
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.29 ) (0.61) (0.69)
Distributions from net
realized gain on
investments (0.02 ) - -
TOTAL DISTRIBUTIONS (0.31 ) (0.61) (0.69)
NET ASSET VALUE, END OF
PERIOD $10.53 $10.90 $10.32
TOTAL RETURN 1 (0.54 %) 11.87% 10.22%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.65% 2 0.63% 0.31%
Net investment income 5.57% 2 5.70% 6.71%
Expense
waiver/reimbursement 3 0.56% 2 1.03% 4.59%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $16,219 $13,425 $2,289
Portfolio turnover 79 % 75% 101%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 Computed on an annualized basis.
3 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MARCH 31, 1999 (UNAUDITED)
ORGANIZATION
Federated Total Return Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of four portfolios. The
financial statements included herein are only those of Federated Total Return
Bond Fund (the "Fund"), a diversified portfolio. The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares. The investment objective of the Fund is to provide
total return.
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
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
Municipal bonds are valued by an independent pricing service, taking into
consideration yield, liquidity, risk, credit quality, coupon, maturity, type of
issue, and any other factors or market data the pricing service deems relevant.
U.S. government securities, listed corporate bonds, other fixed income
securities, asset-backed securities, unlisted securities and private placement
securities are generally valued at the mean of the latest bid and asked price as
furnished by an independent pricing service. Short- term securities are valued
at the prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex- dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES
The cost incurred by the Fund with respect to registration of its shares in its
first fiscal year, excluding the initial expense of registering its shares, have
been deferred and are being amortized over a period not to exceed five years
from the Fund's commencement date.
DOLLAR ROLL TRANSACTIONS
The Fund enters into dollar roll transactions, with respect to mortgage
securities issued by GNMA, FNMA, and FHLMC, in which the Fund sells mortgage
securities to financial institutions and simultaneously agrees to accept
substantially similar (same type, coupon, and maturity) securities at a later
date at an agreed upon price. Dollar roll transactions involve "to be announced"
securities and are treated as short-term financing arrangements which will not
exceed twelve months. The Fund will use the proceeds generated from the
transactions to invest in short-term investments, which may enhance the Fund's
current yield and total return.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Board of Directors. The Fund will not
incur any registration costs upon such resales. The Fund's restricted securities
are valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.
Additional information on each restricted security held at March 31, 1999 is as
follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
SMFC Trust 2/4/1998 $421,195
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At March 31, 1999, par value shares ($0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
Number of
Par Value
Capital Stock
CLASS NAME Authorized
<S> <C>
Institutional Shares 1,000,000,000
Institutional Service Shares 1,000,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(unaudited) YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 6,100,816 $ 65,150,826 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 58,372 626,117 35,962 382,408
Shares redeemed (3,222,689) (34,254,832) (1,248,242) (13,117,236)
NET CHANGE RESULTING
FROM INSTITUTIONAL SHARE
TRANSACTIONS 2,936,499 $ 31,522,111 7,415,523 $ 77,535,412
<CAPTION>
SIX MONTHS ENDED
(unaudited) YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998
INSTITUTIONAL SERVICE
SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,383,372 $ 14,613,065 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 26,849 287,863 35,522 376,158
Shares redeemed (1,101,179) (11,632,456) (235,957) (2,486,337)
NET CHANGE RESULTING
FROM INSTITUTIONAL
SERVICE SHARE
TRANSACTIONS 309,042 $ 3,268,472 1,009,497 $ 10,388,293
NET CHANGE RESULTING
FROM SHARE TRANSACTIONS 3,245,541 $ 34,790,583 8,425,020 $ 87,923,705
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. Effective March 31, 1999, Federated Management merged
into Federated Advisers. On March 31, 1999, the name of Federated Advisers was
changed to Federated Investment Management Company ("FIM"). FIM, as investment
adviser, may voluntarily choose to waive any portion of its fee and/or reimburse
certain operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and/or reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, 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.
INTERFUND TRANSACTION
During the period ended March 31, 1999, the Fund engaged in purchase and sales
transactions with funds that have a common investment adviser (or affiliated
investment adviser), 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 $62,776,706 and $15,671,250, 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
period ended March 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $ 131,135,122
Sales $ 95,534,912
</TABLE>
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
J. CHRISTOPHER DONAHUE
JAMES E. DOWD, ESQ.
LAWRENCE D. ELLIS, M.D.
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
JOHN E. MURRAY, JR., J.D., S.J.D.
WESLEY W. POSVAR
MARJORIE P. SMUTS
Officers
JOHN F. DONAHUE
Chairman
GLEN R. JOHNSON
President
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD J. THOMAS
Treasurer
ANTHONY R. BOSCH
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not 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. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
Federated Total Return Bond Fund
SEMI-ANNUAL REPORT TO SHAREHOLDERS
MARCH 31, 1999
[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
Cusip 31428Q101
Cusip 31428Q507
G01664-01 (5/99)
[Graphic]
SEMI-ANNUAL REPORT
President's Message
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
Limited Duration Fund, a portfolio of Federated Total Return Series, Inc. The
report covers the six-month period from October 1, 1998 through March 31, 1999,
and includes commentary by the fund's portfolio manager, followed by the
portfolio of investments and financial statements.
During the reporting period, the fund's diversified portfolio of investment
grade, limited duration bonds produced a total return of 1.45% 1 for
Institutional Shares and 1.30%1 for Institutional Service Shares. Dividends paid
by the fund during this period totaled $0.31 per share for Institutional Shares
and $0.30 per share for Institutional Service Shares. Net asset value for both
share classes declined by $0.17 to end the period at $10.06. The fund's total
net assets reached $58.6 million on the last day of the reporting period.
We appreciate your participation in the conservative income opportunities of
Federated Limited Duration Fund. As always, we welcome your questions and
comments.
Sincerely,
[Graphic]
Glen R. Johnson
President
May 15, 1999
1 Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
Investment Review
Federated Limited Duration Fund represents a high quality, fixed income
portfolio combining various fixed income asset classes. 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. 1
From a total return standpoint, the first half of fiscal year 1999 can
essentially be characterized as a battle of countervailing forces which was
eventually won by the force of higher interest rates. On one hand, credit
spreads began to recover from the calamitous widening of late summer 1998; an
event which had brought some of the world's most savvy investors to their knees.
This recovery of spread product, however, was more than offset by a significant
increase in Treasury yields, especially in shorter maturity securities. In the
fourth quarter of 1998, investors moved out of short-term Treasuries as they
began to realize that not only was the global economy not coming to a
standstill, but that there was in fact quite a bit of economic steam left,
particularly in the U.S. From a low of 3.82% on October 15, 1998, the yield on
the 2-Year U.S. Treasury note steadily climbed until it reached 5.20% on March
4, finally settling in at an even 5.00% by the end of March. The net effect of
all this volatility was a relatively difficult period for the Fund, which
returned only 1.45% 2 for Institutional Shares and 1.30%2 for Institutional
Service Shares, compared to a 1.36% total return for the Merrill Lynch 1-3 Year
Government Bond Index3 and a 2.17% total return for the Merrill Lynch 1-3 Year
Corporate Bond Index.4 Two months out of the six under review witnessed negative
returns: October 1998 due to significant spread widening on the credit sensitive
portion of the portfolio, and February 1999 due to a 60 basis point increase in
Treasury yields. The Fund's significant allocation to mortgage-backed and
asset-backed securities hindered comparisons to a "corporates-only" benchmark as
discussed below.
1 Special risks are associated with investments in high yield and international
securities.
2 Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
3 The Merrill Lynch 1-3 Year Government Bond Index is an unmanaged index
tracking short-term U.S. government securities with maturities between 1 and
2.99 years. The index is produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.
Investments cannot be made in the index.
4 The Merrill Lynch 1-3 Year Corporate Bond Index is an unmanaged index tracking
investment grade corporate debt securities with maturities between 1 and 2.99
years. The index is produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.
Investments cannot be made in the index.
Once the smoke began to clear from the "credit carnage" of the late summer and
early fall, spread product slowly began to find new levels versus Treasuries.
Not all of the widening has yet been retraced, nor is it likely to be,
especially in the case of names and sectors perceived to be of lesser quality.
In general, one sees a more significant degree of "credit tiering" than existed
prior to the 1998 dislocation. There has also been differentiation across
individual sectors. For example, within the corporate universe, financials have
fared better than cyclicals, while across broad market sectors, corporates have
generally fared better than asset-backed securities (ABS). Within the
asset-backed universe, triple-A rated securities have fared better than their
non-triple-A counterparts, while individual sectors like equipment leases have
fared much better than, say, home equity loans (HELs). Even within this latter
sub-sector, there is now much more differentiation between individual issuers of
HEL-backed ABS than there had been in the past. Finally, all of this must now be
taken in the context of an economy that would appear to be late in the economic
cycle, yet which seems to show no inclination towards any significant slowdown.
In terms of asset allocation, the situation has led fund management to adopt a
middle-of-the-road portfolio with regard to credit, interest rate and prepayment
risk. There is more credit risk in the portfolio today than at the end of fiscal
1998, but not as much as there was one year ago (overall credit quality remains
at the high-single-A level). The consumer appears to be in good shape, which
bodes well for securities like well- structured home equity and manufactured
housing ABS, which have yet to show any meaningful recovery spread-wise from
1998. In addition, while economic activity remains rather robust, inflation
remains benign, which means the Federal Reserve Board is likely to neither raise
nor lower short-term interest rates over the next several months. Such an
environment would seem to be a positive for mortgage-backed paper, especially of
the credit sensitive variety. Finally, corporates should continue to provide a
relatively safe haven. Caution needs to be exercised in name selection however,
as those entities showing significant earnings slowdowns will no doubt be
punished.
Last Meeting of Shareholders
The Annual Meeting of Shareholders of Federated Total Return Series, Inc. (the
"Corporation") was held on March 23, 1999. On January 22, 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 and the results of
their voting were as follows:
AGENDA ITEM 1
To elect Directors.1
WITHHELD
AUTHORITY
FOR TO VOTE
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. 18,138,428 2,290
John S. Walsh 18,138,428 2,290
1 The following Directors of the Corporation continued their terms
as Directors of the Corporation: John F. Donahue, John T. Conroy, Jr.,
Lawrence D. Ellis, M.D., Peter E. Madden, and Majorie P. Smuts.
AGENDA ITEM 2
To ratify the selection of Ernst & Young LLP as the Corporation's independent
auditors.
FOR AGAINST ABSTENTIONS
18,110,860 215 29,642
Portfolio of Investments
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES-43.5% 1
AUTOMOBILE-11.1%
$ 903,751 AFG Receivables Trust
1996-D, Class A, 6.10%,
10/15/2001 $ 911,659
119,636 AFG Receivables Trust
1997-A, Class C, 7.20%,
10/15/2002 121,925
94,124 AFG Receivables Trust
1997-B, Class C, 7.00%,
2/15/2003 95,546
416,897 CIT RV Trust 1994-A,
Class A, 4.90%,
7/15/2009 417,118
50,000 Chase Manhattan Auto
Owner Trust 1997-A,
Class A5, 6.50%,
12/17/2001 50,902
1,000,000 Key Auto Finance Trust
1999-1, 7.08%, 1/15/2017 999,840
34,250 Nationsbank Auto Grantor
Trust, Class A, 5.85%,
6/15/2002 34,362
372,373 2 Paragon Auto Receivables
Owner Trust 1998-A,
Class B, 7.47%,
11/15/2004 356,711
854,569 2 Paragon Auto Receivables
Owner Trust 1998-B,
Class B, 7.03%,
3/15/2005 813,658
1,250,000 Paragon Auto Receivables
Owner Trust 1999-A,
Class A, 5.95%,
11/15/2005 1,261,100
50,000 Team Fleet Financing
Corp. Series 1997-1,
Class B, 7.80%,
5/15/2003 49,828
400,854 Toyota Auto Receivables
Grantor Trust 1997-A,
Class A, 6.45%,
4/15/2002 404,691
169,160 World Omni Automobile
Lease Securitization
Trust 1996-A, Class A2,
6.55%, 6/25/2002 169,430
645,567 World Omni Automobile
Lease Securitization
Trust 1997-A, Class A3,
6.85%, 6/25/2003 651,697
150,000 Yamaha Motor Master
Trust 1995-1, Class A,
6.20%, 5/15/2003 151,232
TOTAL 6,489,699
CREDIT CARD-7.5%
143,558 Banco Nacional de Mexico
S.A., Credit Card
Merchant Voucher
Receivables Master Trust
Series 1996-A, Class A1,
6.25%, 12/1/2003 143,199
250,000 Circuit City Credit Card
Master Trust 1995-1,
Class A, 6.375%,
8/15/2005 253,265
250,000 Citibank Credit Card
Master Trust 1998-1,
Class A, 5.75%,
1/15/2003 251,405
246,000 Discover Card Master
Trust 1993-1, Class B,
5.30%, 10/16/2001 246,266
215,000 Discover Card Master
Trust I 1995-2, Class A,
6.55%, 2/18/2003 218,444
260,000 First USA Credit Card
Master Trust 1997-6,
Class A, 6.42%,
3/17/2005 266,146
1,000,000 Fingerhut Master Trust
1998-2, Class A, 6.23%,
2/15/2007 1,008,700
196,600 Fleetwood Credit Corp.
Grantor Trust 1996-B,
Class A, 6.90%,
3/15/2012 199,393
200,000 Household Affinity
Credit Card Master Trust
1993-1, Class B, 5.30%,
9/15/2000 200,150
285,000 Prime Credit Card Master
Trust 1996-1, Class A,
6.70%, 7/15/2004 290,726
1,000,000 Proffitt's Credit Card
Master Trust 1998-2,
Class B, 6.15%,
9/15/2004 1,006,620
300,000 Spiegel Master Trust
1994-B, Class A, 8.15%,
6/15/2004 306,912
TOTAL 4,391,226
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES-continued 1
HOME EQUITY LOAN-16.8%
$ 500,000 2, 3 125 Home Loan Owner Trust
1998-1, Class B-2,
12.16%, 2/15/2029 $ 435,780
109,614 Advanta Home Equity Loan
Trust 1992-1, Class A,
7.875%, 9/25/2008 111,554
454,875 Advanta Mortgage Loan
Trust 1997-1, Class A2,
7.10%, 4/25/2020 456,951
500,000 Amresco Residential
Securities Mortgage Loan
Trust 1996-1, Class A5,
7.05%, 4/25/2027 491,415
107,163 Cityscape Home Equity
Loan Trust 1996-2, Class
A2, 7.20%, 4/25/2011 107,724
1,000,000 Cityscape Home Equity
Loan Trust 1997-1, Class
M1, 7.58%, 3/25/2018 992,970
120,000 ContiMortgage Home
Equity Loan Trust 1997-
3, Class A5, 7.01%,
8/15/2013 121,672
250,000 ContiMortgage Home
Equity Loan Trust 1997-
5, Class B, 7.62%,
1/15/2029 234,532
500,000 Contimortgage Home
Equity Loan Trust 1997-
1, Class B, 7.92%,
3/15/2028 512,310
457,000 Equicredit Home Equity
Loan Trust 1997-2, Class
A7, 6.89%, 2/15/2020 464,381
500,000 Green Tree Home Equity
Loan Trust 1999-A, Class
B2A, 7.44%, 2/15/2029 499,690
1,000,000 Green Tree Home
Improvement Loan Trust
1995-C, Class B1, 7.20%,
7/15/2020 1,003,860
613,000 Green Tree Home
Improvement Loan Trust
1996-F, Class HI2,
7.70%, 11/15/2027 602,885
300,000 Green Tree Home
Improvement Loan Trust
1997-A, Class HE6,
7.16%, 3/15/2028 305,322
481,015 Green Tree Home
Improvement Loan Trust
1997-C, Class B2, 7.59%,
8/15/2028 475,671
582,550 Headlands Home Equity
Loan Trust 1998-2, Class
A3, 6.67%, 12/15/2024 582,189
500,000 Independent National
Mortgage Corp. Home
Equity 1997-A, Class BF,
7.39%, 10/25/2028 482,655
482,323 NC Finance Trust 1999-1,
Class B, 8.75%, 2/1/2017 479,308
500,000 New Century Home Equity
Loan Trust 1997-NC5,
Class B, 7.59%,
10/25/2028 466,565
250,000 2, 3 Saxon Asset Securities Trust 1998-1, Class BF2,
8.00%, 12/25/2027 209,275
500,000 Saxon Asset Securities
Trust 1999-1, Class BV1,
7.68%, 2/25/2029 496,835
128,228 TMS Home Equity Trust
1992-C, Class A1,
5.175%, 7/15/2006 128,065
95,000 TMS Home Equity Trust
1996-B, Class A7, 7.55%,
2/15/2020 97,138
80,300 UCFC Home Equity Loan
1995-A1, Class A5,
8.55%, 1/10/2020 82,968
TOTAL 9,841,715
MANUFACTURED HOUSING-4.9%
71,873 Associates Manufactured
Housing Certificates
1996-1, Class A-2,
6.05%, 6/15/2027 72,130
89,351 Green Tree Financial
Corp. 1994-1, Class A3,
6.90%, 4/15/2019 89,920
250,000 Green Tree Financial
Corp. 1996-2, Class B-1,
7.55%, 4/15/2027 254,782
174,769 Green Tree Financial
Corp. 1996-4, Class A-4,
6.80%, 6/15/2027 176,396
154,255 Green Tree Financial
Corp. 1997-3, Class A2,
6.49%, 7/15/2028 154,538
1,250,000 Green Tree Financial
Corp. 1997-3, Class B1,
7.51%, 7/15/2028 1,219,412
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES-continued 1
MANUFACTURED HOUSING-CONTINUED
$ 400,000 Oakwood Mortgage
Investors, Inc. 1997-C,
Class A2, 6.45%,
11/15/2027 $ 403,184
500,000 Vanderbilt Mortgage
Finance 1999-A, Class
2B2, 7.536%, 6/7/2016 500,600
TOTAL 2,870,962
OTHER-3.2%
364,572 Advanta Equipment
Receivables 1998-1,
Class C, 6.49%,
12/15/2006 357,510
1,000,000 Case Equipment Loan
Trust 1999-A, Class B,
8/15/2005 995,920
200,000 Centerior Energy
Receivables Master Trust
1996-1, Class A, 7.20%,
4/15/2002 204,056
200,000 Copelco Capital Funding
Corp. X 1997-A, Class A4,
6.47%, 4/20/2005 202,207
102,728 NationsCredit Grantor
Trust 1997-1, Class A,
6.75%, 8/15/2013 104,413
TOTAL 1,864,106
TOTAL ASSET-BACKED SECURITIES
(IDENTIFIED COST $25,554,412) 25,457,708
CORPORATE BONDS-18.3%
AEROSPACE & DEFENSE-0.4%
200,000 Raytheon Co., Note,
6.45%, 8/15/2002 203,348
AUTOMOBILE-0.3%
200,000 Arvin Industries, Inc.,
Note, 6.875%, 2/15/2001 200,984
BANKING-1.1%
500,000 Dayton-Hudson Corp.,
Note, 5.95%, 6/15/2000 503,270
150,000 Riggs National Corp.,
Sub. Note, 8.50%,
2/1/2006 157,017
TOTAL 660,287
CABLE TELEVISION-0.4%
200,000 TKR Cable, Inc., Deb.,
10.50%, 10/30/2007 216,916
FINANCE-1.2%
700,000 AT&T Capital Corp.,
Medium Term Note, 6.16%,
12/3/1999 705,054
FINANCE - AUTOMOTIVE-
1.7%
945,000 Ford Motor Credit Corp.,
8.55%, 4/8/2002 1,015,384
FINANCE - RETAIL-1.1%
650,000 Advanta Corp., Medium
Term Note, 6.90%,
8/4/1999 645,600
FINANCIAL
INTERMEDIARIES-3.3%
1,000,000 Donaldson, Lufkin and
Jenrette Securities
Corp., Sr. Note, 5.875%,
4/1/2002 997,070
250,000 Lehman Brothers
Holdings, Inc., Bond,
6.20%, 1/15/2002 248,125
200,000 Lehman Brothers
Holdings, Inc., Medium
Term Note, 6.00%,
2/26/2001 198,864
500,000 Lehman Brothers
Holdings, Inc., Medium
Term Note, 6.375%,
3/15/2001 499,385
TOTAL 1,943,444
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
FOOD & DRUG RETAILERS-0.9%
$ 500,000 Great Atlantic & Pacific
Tea Co., Inc., Global
Bond Deb., 7.70%,
1/15/2004 $ 500,205
FOREST PRODUCTS-1.1%
400,000 Fort James Corp., Sr.
Note, 6.234%, 3/15/2001 402,848
200,000 Quno Corp., Sr. Note,
9.125%, 5/15/2005 212,974
TOTAL 615,822
INDUSTRIAL PRODUCTS &
EQUIPMENT-1.0%
600,000 Figgie International
Holdings, Inc., Sr.
Note, 9.875%, 10/1/1999 608,958
INSURANCE-1.3%
250,000 Conseco, Inc., Note,
6.40%, 2/10/2003 242,768
250,000 HSB Group, Inc., Company
Guarantee, 5.940%,
7/15/2027 241,295
250,000 SunAmerica, Inc., Sr.
Note, 6.20%, 10/31/1999 251,445
TOTAL 735,508
METALS & MINING-0.8%
500,000 Inco Ltd., Conv. Bond,
5.75%, 7/1/2004 438,750
OIL & GAS-0.4%
250,000 Occidental Petroleum
Corp., Note, 8.50%,
9/15/2004 253,153
PRINTING & PUBLISHING-
0.1%
75,000 Valassis Communications,
Inc., Sr. Note, 9.55%,
12/1/2003 83,484
RETAILERS-0.9%
50,000 Shopko Stores, Inc.,
8.50%, 3/15/2002 52,694
500,000 Wal-Mart Stores, Inc.,
Note, 5.85%, 6/1/2000 503,565
TOTAL 556,259
TELECOMMUNICATIONS &
CELLULAR-1.7%
1,000,000 AT&T Corp., Global Bond,
5.625%, 3/15/2004 995,450
UTILITIES-0.6%
250,000 2, 3 Camuzzi Gas, Bond,
9.25%, 12/15/2001 247,500
100,000 Pennsylvania Power &
Light Co., 9.25%,
10/1/2019 104,134
TOTAL 351,634
TOTAL CORPORATE BONDS
(IDENTIFIED COST $11,065,560) 10,730,240
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COLLATERALIZED MORTGAGE
OBLIGATIONS-22.8% 1
$ 404,589 2, 3 Bayview Financial
Acquisition Trust,
Series 1998-1, Class M-
II-3, 6.387%, 5/25/2029 $ 374,876
471,365 2, 3 Bayview Financial
Acquisition Trust,
Series 1998-1, Class M-
I-1-4, 7.383%, 5/25/2029 436,013
713,914 Bear Stearns Mortgage
Securities, Inc., Series
1996-8, Class B3, 8.00%,
11/25/2027 715,056
180,255 2, 3 C-BASS ABS, LLC, Series
1997-1, Class A-1,
6.460% 2/1/2017 181,156
143,363 C-BASS ABS, LLC, Series
1998-3, Class AF, 6.50%,
1/25/2033 141,795
269,853 Countrywide Home Loans,
Series 1997-5, Class A-
3, 7.50%, 9/25/2027 272,541
1,000,000 Countrywide Home Loans,
Series 1997-6, Class A1,
6.75%, 11/25/2027 1,005,780
405,000 Federal National
Mortgage Association,
Series 1993-32, Class H,
6.00%, 3/25/2023 388,359
93,250 2, 3 GE Capital Mortgage Services, Inc., Series 1994-3, Class
B4, 6.50%,
1/25/2024 67,140
524,386 GE Capital Mortgage
Services, Inc., Series
1996-3, Class A1, 7.00%,
3/25/2026 528,581
698,589 GE Capital Mortgage
Services, Inc., Series
1998-11, Class 1A1,
6.75%, 6/25/2028 701,569
238,364 2, 3 Greenwich Capital
Acceptance, Inc.
Subordinate Mortgage
Securities Trust,
Series 1996-A, Class B,
7.592%, 6/15/2019 213,175
977,136 Headlands Mortgage
Securities Inc., Series
1997-1, Class B3, 7.75%,
3/25/2027 969,691
100,000 2, 3 KMart CMBS Financing,
Inc. Series 1997-1,
Class D, 6.063%,
3/1/2007 97,744
900,000 2, 3 Mellon Residential
Funding Corp., Series
1998-TBC1, Class B4,
6.593%, 10/25/2028 669,375
1,258,000 Mellon Residential
Funding Corp., Series
1999-TBC1, Class B4,
6.429%, 1/25/2029 935,637
250,000 2, 3 Nomura Depositor Trust
Commercial Mortgage
Pass-Thru Series 1998-
STI, Class A-3, 6.178%,
1/15/2003 240,077
500,000 2, 3 Nomura Depositor Trust
Commercial Mortgage
Pass-Thru Series 1998-
STI, Class A-5, 6.189%,
1/15/2003 459,220
694,559 Resecuritization
Mortgage Trust, Series
1998-A, Class B3,
7.903%, 10/26/2023 612,810
1,000,000 Residential Accredit
Loans, Inc., Series
1997-QS12, Class A6,
7.25%, 11/25/2027 1,006,890
62,711 Residential Accredit
Loans, Inc., Series
1996-QS8, Class A3,
7.05%, 12/25/2026 62,699
618,971 Residential Asset
Securitization Trust,
Series 1997-A2, Class
A3, 9.00%, 4/25/2027 634,538
1,000,000 Residential Asset
Securitization Trust,
Series 1997-A7, Class
A5, 7.50%, 9/25/2027 1,031,920
500,000 Residential Asset
Securitization Trust,
Series 1998-A12, Class
A1, 6.75%, 11/25/2028 503,302
941,073 Residential Funding
Mortgage Securities I,
Series 1994-S13, Class
M1, 7.00%, 5/25/2024 941,233
195,875 2 SMFC Trust Asset-Backed
Certificates, Series
1997-A, Class 4, 7.719%,
1/28/2025 168,018
TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS
(IDENTIFIED COST $13,515
,315) 13,359,195
PREFERRED STOCKS-0.4%
STEEL-0.4%
10,000 USX Capital LLC, Pfd.,
Series A (identified
cost $254,375) 250,625
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
GOVERNMENT AGENCIES-2.6%
1
$ 500,000 Federal Home Loan Bank
System, Sr. Note, 5.80%,
9/2/2008 $ 496,400
338,052 GNMA, ARM, 6.875%,
1/20/2022 344,739
242,090 GNMA, Pool 423843,
8.50%, 8/15/2026 256,161
366,641 GNMA, Pool 780360,
11.00%, 9/15/2015 410,294
TOTAL GOVERNMENT
AGENCIES (IDENTIFIED COST $1,516,977) 1,507,594
FOREIGN GOVERNMENT AGENCIES-1.2% 1
SOVEREIGN-1.2%
369,000 Brazil, Government of,
IDU, 6.0625%, 1/1/2001
(identified cost
$328,779) 338,558
150,000 Export-Import Bank
Korea, Bond, 7.10%,
3/15/2007 145,952
200,000 Korea Development Bank,
Bond, 7.125%, 9/17/2001 197,326
TOTAL FOREIGN GOVERNMENT AGENCIES 681,836
U.S. TREASURY-9.3%
2,000,000 United States Treasury
Note, 4.75%, 2/15/2004 1,969,220
250,000 United States Treasury
Note, 5.375%, 6/30/2003 251,495
500,000 United States Treasury
Note, 5.625%, 5/15/2001 506,055
1,000,000 United States Treasury
Note, 5.750%, 11/15/2000 1,011,700
245,000 United States Treasury
Note, 6.625%, 5/15/2007 264,051
1,400,000 United States Treasury
Note, 7.50%, 11/15/2001 1,480,934
TOTAL U.S. TREASURY (IDENTIFIED
COST $5,484,402) 5,483,455
REPURCHASE AGREEMENT 4-4.5%
2,625,000 ABN AMRO, Inc., 5.05%,
dated 3/31/1999, due
4/1/1999 2,625,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$60,344,820) 5 $ 60,095,653
</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 March 31, 1999, these securities amounted to
$4,969,718 which represents 8.5% of net assets. Included in these amounts,
securities which have been deemed liquid amounted to $4,801,700 which represents
8.2% of net assets.
3 Denotes a restricted security that has been deemed liquid by criteria approved
by the fund's 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 $60,344,820. The
net unrealized depreciation of investments on a federal tax basis amounts to
$249,167 which is comprised of $242,032 appreciation and $491,199 depreciation
at March 31, 1999.
Note: The categories of investments are shown as a percentage of net
assets ($58,592,513) at March 31, 1999.
The following acronyms are used throughout this portfolio:
ARM -Adjustable Rate Mortgage
GNMA -Government National Mortgage Association
LLC -Limited Liability Corporation
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$60,344,820) $ 60,095,653
Income receivable 266,630
Receivable for shares sold 189,741
Prepaid assets 3,105
TOTAL ASSETS 60,555,129
LIABILITIES:
Payable for investments
purchased $ 1,702,993
Income distribution
payable 259,623
TOTAL LIABILITIES 1,962,616
Net assets for 5,823,237
shares outstanding $ 58,592,513
NET ASSETS CONSIST OF:
Paid in capital $ 58,844,331
Net unrealized
depreciation of
investments and
translation of assets
and liabilities in
foreign currency (249,167)
Accumulated net realized
loss on investments and
foreign currency
transactions (17,504)
Undistributed net
investment income 14,853
TOTAL NET ASSETS $ 58,592,513
NET ASSET VALUE,
OFFERING PRICE AND
REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$47,778,285 / 4,748,415
shares outstanding $10.06
INSTITUTIONAL SERVICE SHARES:
$10,814,228 / 1,074,822
shares outstanding $10.06
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 10,937
Interest 1,474,438
TOTAL INCOME 1,485,375
EXPENSES:
Investment advisory fee $ 88,806
Administrative personnel
and services fee 77,288
Custodian fees 2,378
Transfer and dividend
disbursing agent fees
and expenses 24,224
Directors'/Trustees'
fees 2,753
Auditing fees 5,258
Legal fees 3,075
Portfolio accounting
fees 29,894
Distribution services
fee-Institutional
Service Shares 13,789
Shareholder services
fee-Institutional Shares 41,713
Shareholder services
fee-Institutional
Service Shares 13,789
Share registration costs 15,787
Printing and postage 6,343
Insurance premiums 593
Taxes 1,978
Miscellaneous 1,377
TOTAL EXPENSES 329,045
Waivers and
reimbursements:
Waiver of investment
advisory fee $ (88,806)
Waiver of distribution
services fee-
Institutional Service Shares (11,031)
Waiver of shareholder
services fee-
Institutional Shares (41,713)
Reimbursement of other
operating expenses (93,243)
TOTAL WAIVERS AND
REIMBURSEMENTS (234,793)
Net expenses 94,252
Net investment income 1,391,123
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS AND
FOREIGN CURRENCY:
Net realized gain on
investments and foreign
currency transactions 932
Net change in unrealized
appreciation of
investments and
translation of assets
and liabilities in
foreign currency (693,553)
Net realized and
unrealized loss on
investments and
foreign currency (692,621)
Change in net assets
resulting from
operations $ 698,502
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(unaudited) ENDED
MARCH 31, SEPTEMBER 30,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS:
Net investment income $ 1,391,123 $ 1,424,328
Net realized gain (loss)
on investments and
foreign currency
transactions ($932 and
($21,213), respectively,
as computed for federal
tax purposes) 932 (25,503)
Net change in unrealized
appreciation/depreciatio
n of investments and
translation of assets
and liabilities in
foreign currency (693,553) 385,862
CHANGE IN NET ASSETS
RESULTING FROM
OPERATIONS 698,502 1,784,687
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Institutional Shares (1,045,462) (1,028,007)
Institutional Service
Shares (326,115) (406,658)
Distributions from net
realized gains on
investments and foreign
currency transactions
Institutional Shares (2,462) (13,500)
Institutional Service
Shares (662) (4,805)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (1,374,701) (1,452,970)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 29,849,047 37,046,762
Net asset value of shares
issued to shareholders
in payment of
distributions declared 254,934 229,582
Cost of shares redeemed (12,959,308) (5,797,404)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 17,144,673 31,478,940
Change in net assets 16,468,474 31,810,657
NET ASSETS:
Beginning of period 42,124,039 10,313,382
End of period (including
undistributed net
investment income of
$14,853 and
distributions in excess
of net investment income
of ($4,693), respectively) $ 58,592,513 $ 42,124,039
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MARCH 31, YEAR ENDED SEPTEMBER 30,
1999 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 0.31 0.70 0.66
Net realized and
unrealized gain (loss)
on investments and
foreign currency (0.17) 0.12 0.14
TOTAL FROM INVESTMENT
OPERATIONS 0.14 0.82 0.80
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.31) (0.70) (0.65)
Distributions from net
realized gain on
investments and foreign
currency transactions 0.00 1 (0.02) (0.02)
TOTAL DISTRIBUTIONS (0.31) (0.72) (0.67)
NET ASSET VALUE, END OF
PERIOD $10.06 $10.23 $10.13
TOTAL RETURN 2 1.45% 7.85% 8.27%
RATIOS TO AVERAGE
NET ASSETS:
Expenses 0.35% 3 0.32% 0.00%
Net investment income 6.37% 3 6.31% 6.47%
Expense
waiver/reimbursement 4 1.07% 3 1.95% 8.74%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $47,778 $30,219 $7,589
Portfolio turnover 33% 64% 109%
</TABLE>
1 Amount represents less than $0.01 per share.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
4 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Service Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited) YEAR ENDED
MARCH 31, SEPTEMBER 30,
1999 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 0.30 0.67 0.63
Net realized and
unrealized gain (loss)
on investments and
foreign currency (0.17) 0.12 0.15
TOTAL FROM INVESTMENT
OPERATIONS 0.13 0.79 0.78
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.30) (0.67) (0.63)
Distributions from net
realized gain on
investments and
foreign currency
transactions 0.00 1 (0.02) (0.02)
TOTAL DISTRIBUTIONS (0.30) (0.69) (0.65)
NET ASSET VALUE, END OF
PERIOD $10.06 $10.23 $10.13
TOTAL RETURN 2 1.30% 7.53% 8.10%
RATIOS TO AVERAGE
NET ASSETS:
Expenses 0.65% 3 0.62% 0.29%
Net investment income 6.01% 3 6.03% 6.31%
Expense
waiver/reimbursement 4 1.02% 3 1.94% 14.52%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $10,814 $11,905 $2,724
Portfolio turnover 33% 64% 109%
</TABLE>
1 Amount represents less than $0.01 per share.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
4 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MARCH 31, 1999 (UNAUDITED)
ORGANIZATION
Federated Total Return Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of four portfolios. The
financial statements included herein are only those of Federated Limited
Duration Fund (the "Fund"), a diversified portfolio. The financial statements of
the other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares. The investment objective of the Fund is to provide
total return.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
U.S. government securities, listed corporate bonds, other fixed income 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 sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market value.
With respect to valuation of foreign securities, trading in foreign cities may
be completed at times which vary from the closing of the New York Stock
Exchange. Therefore foreign securities are valued at the latest closing price on
the exchange on which they are traded prior to the closing of the New York Stock
Exchange. Foreign securities quoted in foreign currencies are translated into
U.S. Dollars at the foreign exchange rate in effect at noon, eastern time, on
the day the value of the foreign security is determined.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex- dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
Additionally, net capital losses of $8,983 attributable to security transactions
incurred after September 30, 1998, are treated as arising on the first day of
the Fund's next taxable year.
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, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $5,965, 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 $5,965
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
FOREIGN EXCHANGE CONTRACTS
The Fund may enter into foreign currency commitments for the delayed delivery of
securities or foreign currency exchange transactions. Purchase contracts are
used to acquire exposure to foreign currencies; whereas, contracts to sell are
used to hedge the Fund's securities against currency fluctuations. Risks may
rise upon entering these transactions from potential inability of counterparts
to meet the terms of their commitments and from unanticipated movements in
security prices or foreign exchange rates. The foreign currency transactions are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded for financial statement purposes as unrealized until the
settlement date.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies ("FC") are translated into
U.S. dollars based on the rate of exchange of such currencies against U.S.
dollars on the date of valuation. Purchases and sales of securities, income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. Differences between income and expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investment.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sale of
FCs, currencies gains or losses realized between the trade and settlement dates
on securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Board of Directors. The Fund will not
incur any registration costs upon such resales. The Fund's restricted securities
are valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.
Additional information on each restricted security held at March 31, 1999 is as
follows:
SECURITY ACQUISITION DATE ACQUISITION COST
SMFC Trust 2/4/1998 $187,198
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At March 31, 1999, par value shares ($0.001 per share) authorized were as
follows:
NUMBER OF
PAR VALUE
CAPITAL STOCK
CLASS NAME AUTHORIZED
Institutional Shares 1,000,000,000
Institutional Service Shares 1,000,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,406,834 $ 24,230,978 2,568,633 $ 26,072,998
Shares issued to
shareholders in payment
of distributions
declared 13,282 134,168 13,782 140,038
Shares redeemed (626,754) (6,304,857) (376,449) (3,821,931)
NET CHANGE RESULTING
FROM INSTITUTIONAL
SHARE TRANSACTIONS 1,793,362 $ 18,060,289 2,205,966 $ 22,391,105
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998
INSTITUTIONAL SERVICE
SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 558,707 $ 5,618,069 1,080,982 $ 10,973,764
Shares issued to
shareholders in payment
of distributions
declared 11,948 120,766 8,803 89,544
Shares redeemed (660,022) (6,654,451) (194,467) (1,975,473)
NET CHANGE RESULTING
FROM INSTITUTIONAL
SERVICE
SHARE TRANSACTIONS (89,367) $ (915,616) 895,318 $ 9,087,835
NET CHANGE RESULTING
FROM SHARE TRANSACTIONS 1,703,995 $ 17,144,673 3,101,284 $ 31,478,940
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. Effective March 31, 1999, Federated Management merged
into Federated Advisers. On March 31, 1999, the name of Federated Advisers was
changed to Federated Investment Management Company ("FIM"). FIM, as investment
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
period ended March 31, 1999, were as follows:
Purchases $34,219,191
Sales $14,442,057
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
J. CHRISTOPHER DONAHUE
JAMES E. DOWD, ESQ.
LAWRENCE D. ELLIS, M.D.
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
JOHN E. MURRAY, JR., J.D., S.J.D.
WESLEY W. POSVAR
MARJORIE P. SMUTS
Officers
JOHN F. DONAHUE
Chairman
GLEN R. JOHNSON
President
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD J. THOMAS
Treasurer
ANTHONY R. BOSCH
Assistant Secretary
Mutual funds are not deposits or obligations of any bank, are not guaranteed by
any bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other government
agency. Investment in mutual funds involves investment risk, including the
possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
Federated Limited Duration Fund
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
MARCH 31, 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
Cusip 31428Q408
Cusip 31428Q309
G01998-06 (5/99)
[Graphic]
SEMI-ANNUAL REPORT
President's Message
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
Ultrashort Bond Fund, a portfolio of Federated Total Return Series, Inc. The
report covers the six-month period from October 1, 1998 through March 31, 1999,
and includes commentary by the fund's portfolio manager, followed by the
portfolio of investments and financial statements.
On October 27, 1998, Federated Limited Duration Government Fund was renamed
Federated Ultrashort Bond Fund. In addition, the fund's investment policies were
changed to focus on a competitive level of current income, with a low level of
principal volatility. Also, the fund's investment parameters were broadened to
include all types of debt obligations. Although individual securities may have a
duration exceeding one year, the weighted average duration of the portfolio will
be maintained under one year at all times.
These changes will allow the fund to respond to a strong demand from
institutional investors for a fund that pursues higher yields than money market
funds generally offer, with the potential for modest principal fluctuation in
exchange for modest credit risk.
During the reporting period, the fund's Board of Directors approved a
dividend-payable in shares of the fund-that consisted of approximately 5 shares
for 1 share in order to establish a $2.00 per share net asset value, a level
that is the industry standard for this type of fund. As a result, the fund's net
asset value ended the period at $2.01 per share. During the reporting period,
the fund produced a total return of 3.67%. 1 Dividends paid by the fund during
this period totaled $0.09 per share. The fund's total net assets reached $44.5
million on the last day of the reporting period.
Thank you for participating in the conservative income opportunities of the new
Federated Ultrashort Bond Fund. As always, we welcome your questions and
comments.
Sincerely,
[Graphic]
Glen R. Johnson
President
May 15, 1999
1 Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
Investment Review
Federated 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. 1
This report represents the initial semi-annual report for the fund in its
current configuration. Federated Ultrashort Bond Fund was previously named
Federated Limited Duration Government Fund. The fund adopted its current name
and investment objective as of October 27, 1998.
From a total return standpoint, the first quarter of 1999 can essentially be
characterized as a battle of countervailing forces which was eventually won by
the force of higher interest rates. While credit spreads began to recover from
the calamitous widening of late summer 1998, unless one maintained a very low
level of interest rate sensitivity, the benefit was more than offset by a
significant increase in Treasury yields, especially in shorter maturity
securities. The short effective duration posture of Federated Ultrashort Bond
Fund enabled it to "win the battle" by capturing more of the upside of tighter
credit spreads than it lost from higher interest rates. The net result was a
total return of 3.67% 2 for the six-month reporting period (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 2.17% for the Lipper Ultrashort Debt category3 and 1.90% on the
Merrill Lynch 1-Year U.S. Treasury Bill Index4 over the reporting period.
1 Special risks are associated with investments in high yield and international
securities.
2 Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
3 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. Lipper figures do not reflect sales
charges.
4 The Merrill Lynch 1-Year U.S. Treasury Bill Index is an unmanaged index
tracking 1 year U.S. government securities. The index is produced by Merrill
Lynch, Pierce, Fenner & Smith, Inc. Investments cannot be made in an index.
The portfolio of the fund during the reporting period was invested heavily in
asset-backed securities ("ABS") (47% of fund assets were invested in ABS at
March 31, 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 AAA-rated securities with
spreads over Treasuries well in excess of two hundred basis points. While
spreads on some of the purchased securities have tightened rather dramatically
since the fourth quarter of 1998, the ABS sector remains an attractive one for
the short duration investor. Non-agency mortgage backed securities also
comprised a significant portion of portfolio assets (approximately 30% at March
31, 1999). Corporates comprised a smaller proportion of fund assets
(approximately 10% at March 31, 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.
Because management is reasonably constructive in its outlook for U.S. interest
rates, the fund's effective duration is being maintained at around 0.90 years,
which is relatively close to the one-year maximum allowed by the fund's
investment policy. While the fund does not directly seek any significant capital
appreciation, the maintenance of more duration rather than less makes for a
better match between the duration of the fund's underlying portfolio (which was
actually 1.60 years at March 31, 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 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
The Annual Meeting of Shareholders of Federated Total Return Series, Inc. (the
"Corporation") was held on March 23, 1999. On January 22, 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 and the results of
their voting were as follows:
AGENDA ITEM 1
To elect Directors. 1
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
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. 18,138,428 2,290
John S. Walsh 18,138,428 2,290
</TABLE>
1 The following Directors of the Corporation continued their terms as
Directors of the Corporation: John F. Donahue, John T. Conroy, Jr.,
Lawrence D. Ellis, M.D., Peter E. Madden, and Majorie P. Smuts.
AGENDA ITEM 2
To ratify the selection of Ernst & Young LLP as the Corporation's independent
auditors.
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS
<S> <C> <C>
18,110,860 215 29,642
</TABLE>
Portfolio of Investments
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
ASSET-BACKED SECURITIES-
46.7%
AUTOMOBILE-2.9%
$ 1,000,000 Ford Credit Auto Loan
Master Trust 1995-1 A,
Class A, 6.50%,
8/15/2002 $ 1,015,240
250,000 Household Automobile
Revolving Trust I 1998-
1, Class B1, 6.30%,
5/17/2005 249,765
TOTAL 1,265,005
HOME EQUITY LOAN-30.0%
750,000 1 125 Home Loan Owner Trust
1998-1A, Class B2,
12.16%, 2/15/2029 653,670
935,920 AFG Receivables Trust
1996-B, Class A, 6.60%,
4/15/2001 946,421
2,010,751 AFG Receivables Trust
1996-D, Class A, 6.10%,
10/15/2001 2,028,345
500,000 Amresco Residential
Securities Mortgage Loan
Trust 1996-1,
Class A5, 7.05%,
4/25/2027 491,415
1,000,000 Chase Funding Mortgage
Loan 1999-1, Class IIB,
7.6875%, 6/25/2028 1,000,000
1,000,000 Cityscape Home Equity
Loan Trust 1997-1, Class
A4, 7.23%, 3/25/2018 1,002,500
250,000 ContiMortgage Home
Equity Loan Trust 1997-5,
Class B, 7.62%, 1/15/2029 234,532
1,000,000 ContiMortgage Home
Equity Loan Trust 1997-1,
Class A7, 7.32%, 9/15/2021 1,018,220
800,000 Countrywide Asset-Backed
Certificates 1999-1,
Class BV, 7.68%,
2/25/2029 769,312
300,000 EQCC Home Equity Loan
Trust 1995-4, Class A4,
6.95%, 3/15/2012 304,968
907,000 EQCC Home Equity Loan
Trust 1997-2, Class A7,
6.89%, 2/15/2020 921,648
853,332 First Plus Home Loan
Trust 1997-2, Class A4,
6.64%, 4/10/2023 853,110
250,000 Green Tree Financial
Corp. 1995-3, Class B1,
7.85%, 8/15/2025 255,142
250,000 Green Tree Home
Improvement Loan Trust
1995-C, Class B1, 7.20%,
7/15/2020 250,965
220,000 Green Tree Home
Improvement Loan Trust
1997-E, Class HEA,
6.61%, 1/15/2029 223,750
339,821 Headlands Home Equity
Loan Trust 1998-2, Class
A3, 6.67%, 12/15/2024 339,610
482,323 NC Finance Trust 1999-1,
Class B, 8.75%, 2/1/2017 479,308
362,569 NationsCredit Grantor
Trust 1997-1, Class A,
6.75%, 8/15/2013 368,515
800,000 Saxon Asset Securities
Trust 1999-1, Class BV1,
7.68%, 5/25/2029 794,936
35,000 The Money Store Home
Equity Trust 1996-B,
Class A7, 7.55%, 2/15/2020 35,788
85,485 The Money Store Home
Equity Trust 1992-C,
Class A1, 5.175%, 7/15/2006 85,376
40,000 The Money Store Home
Equity Trust 1995-C,
Class A3, 6.55%, 9/15/2021 40,306
70,000 The Money Store Home
Equity Trust 1997-D,
Class AV2, 6.49%,
10/15/2026 70,877
190,000 The Money Store Home
Equity Trust 1998-B,
Class AF4, 6.115%,
6/15/2021 188,737
TOTAL 13,357,451
MANUFACTURED HOUSING-
12.4%
1,502,206 Green Tree Financial
Corp. 1993-4, Class B1,
7.20%, 1/15/2019 1,500,389
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
ASSET-BACKED SECURITIES-
continued
MANUFACTURED HOUSING-
CONTINUED
$ 200,000 Green Tree Financial
Corp. 1994-5, Class A4,
7.95%, 11/15/2019 $ 206,946
500,000 Green Tree Financial
Corp. 1994-7, Class A6,
8.95%, 3/15/2020 538,395
1,120,000 Green Tree Financial
Corp. 1996-10, Class A4,
6.42%, 11/15/2028 1,131,760
500,000 Green Tree Financial
Corp. 1997-3, Class B1,
7.51%, 7/15/2028 487,765
450,000 Green Tree Financial
Corp. 1997-4, Class A4,
6.65%, 2/15/2029 456,426
481,250 Indymac Manufactured
Housing Contract 1997-1,
Class A3, 6.61%, 2/25/2028 484,884
211,500 Vanderbilt Mortgage
Finance 1995-B, Class
A3, 6.675%, 5/7/2006 212,584
500,000 Vanderbilt Mortgage
Finance 1999-A, Class
2B2, 7.536%, 6/7/2016 500,600
TOTAL 5,519,749
OTHER-1.4%
527,235 Green Tree Recreational
Equipment & Consumer
Trust Series 1996-A,
Class B, 5.95%, 2/15/2018 508,287
124,970 Green Tree Recreational
Equipment & Consumer
Trust Series 1997-B,
Class A1, 6.55%, 7/15/2028 125,413
TOTAL 633,700
TOTAL ASSET-BACKED
SECURITIES (IDENTIFIED
COST $23,166,908) 20,775,905
COLLATERALIZED MORTGAGE
OBLIGATIONS-29.8%
WHOLE LOAN-29.8%
783,150 1 Bayview Financial
Acquisition Trust 1998-1,
Class M-I-1, 7.52%,
5/25/2029 764,793
491,006 1 Bayview Financial
Acquisition Trust 1998-1,
Class M-II-2,
5.68688%, 5/25/2029 464,310
633,075 Bear Stearns Mortgage
Securities, Inc. 1996-8,
Class B3, 8.00%,
11/25/2027 634,088
334,513 C-BASS ABS, LLC Series
1998-3, Class AF, 6.50%,
1/25/2033 330,854
139,718 GE Capital Mortgage
Services, Inc. 1998-11,
Class 1A1, 6.75%,
6/25/2028 140,314
962,114 Greenwich Capital
Acceptance 1994-C, Class
B1, 6.6624%, 3/31/2010 966,545
100,000 1 Mellon Residential
Funding Corp 1998-TBC1,
Class B4, 6.59258%,
10/25/2028 74,375
943,472 Norwest Asset Securities
Corp. 1998-2, Class A1,
6.50%, 2/25/2028 939,122
714,389 Resecuritization
Mortgage Trust 1998-A,
Class B3, 7.8985%,
10/26/2023 612,810
1,000,000 Residential Accredit
Loans, Inc., 1997-QS12,
Class A6, 7.25%,
11/25/2027 1,006,890
250,000 Residential Accredit
Loans, Inc., 1998-QS14,
Class A1, 6.75%,
10/25/2028 250,933
500,000 Residential Asset
Securitization Trust
1998-A12, Class A1,
6.75%, 11/25/2028 503,303
857,835 Residential Asset
Securitization Trust
1998-A5, Class A1,
6.75%, 6/25/2028 863,514
970,164 Residential Asset
Securitization Trust
1998-A6, Class IA7,
6.75%, 7/25/2028 976,504
1,411,610 Residential Funding
Mortgage Securities I
Inc., 1994-S13, Class
M1, 7.00%, 5/25/2024 1,411,850
1,303,691 Residential Funding
Mortgage Securities I
1995-S4, Class M1,
8.00%, 4/25/2010 1,328,435
1,500,000 Residential Funding
Mortgage Securities I
1996-S1, Class A11,
7.10%, 1/25/2026 1,510,485
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<S> <C> <C>
COLLATERALIZED MORTGAGE
OBLIGATIONS-continued
WHOLE LOAN-CONTINUED
$ 489,069 Residential Funding
Mortgage Securities I
1996-S25, Class M3,
7.75%, 12/25/2026 $ 495,026
TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS
(IDENTIFIED COST $10,990,733) 13,274,151
CORPORATE BONDS-9.9%
CABLE TELEVISION-2.4%
1,000,000 Continental Cablevision,
Sr. Sub. Deb., 11.00%,
6/1/2007 1,059,510
FINANCE - RETAIL-3.0%
600,000 AT&T Capital Corp.,
Medium Term Note, 6.16%,
12/3/1999 604,332
500,000 Advanta Corp., Medium
Term Note, 6.90%, 8/4/1999 496,615
250,000 Corp Andina De Fomento,
Bond, 7.375%, 7/21/2000 251,260
TOTAL 1,352,207
FINANCIAL
INTERMEDIARIES-2.2%
1,000,000 Lehman Brothers
Holdings, Inc., Medium
Term Note, 6.375%,
3/15/2001 998,770
INSURANCE-2.3%
1,000,000 Conseco, Inc., Sr. Note,
7.875%, 12/15/2000 1,012,990
TOTAL CORPORATE BONDS
(IDENTIFIED COST
$4,427,327) 4,423,477
GOVERNMENTS/AGENCIES-
0.3%
123,000 Brazil, Government of,
IDU, 6.0625%, 1/1/2001
(identified cost
$107,994) 112,853
MUTUAL FUND-5.9%
279,230 The High Yield Bond
Portfolio (identified
cost $2,620,094) 2,630,344
REPURCHASE AGREEMENTS-
30.6% 2
7,000,000 ABN AMRO, Inc., 5.05%,
dated 3/31/1999, due
4/1/1999 7,000,000
6,595,000 Societe Generale, New
York, 4.95%, dated
3/31/1999, due 4/1/1999 6,595,000
TOTAL REPURCHASE
AGREEMENTS (AT AMORTIZED
COST) 13,595,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$54,908,056) 3 $ 54,811,730
</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 March 31, 1999, these
securities amounted to $1,957,148 which represents 4.4% of net assets.
2 The repurchase agreements are fully collateralized by U.S. Treasury 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 The cost of investments for federal tax purposes amounts to $54,908,056. The
net unrealized depreciation of investments on a federal tax basis amounts to
$96,326 which is comprised of $81,307 appreciation and $177,633 depreciation at
March 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($44,475,472) at March 31, 1999.
The following acronym is used throughout this portfolio:
LLC -Limited Liability Corporation
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in
repurchase agreements $ 13,595,000
Investments in
securities 41,216,730
Total investments in
securities, at value
(identified and tax cost
$54,908,056) $ 54,811,730
Cash 10,904
Income receivable 334,260
Receivable for shares
sold 1,601,537
Receivable for daily
variation margin 80,991
TOTAL ASSETS 56,839,422
LIABILITIES:
Payable for investments
purchased $ 12,197,761
Income distribution
payable 161,136
Accrued expenses 5,053
TOTAL LIABILITIES 12,363,950
Net assets for
22,155,030 shares
outstanding $ 44,475,472
NET ASSETS CONSIST OF:
Paid in capital $ 44,404,289
Net unrealized
depreciation of
investments and futures
contracts (123,576)
Accumulated net realized
gain on investments and
futures contracts 190,681
Undistributed net
investment income 4,078
TOTAL NET ASSETS $ 44,475,472
NET ASSET VALUE,
OFFERING PRICE AND
REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SERVICE
SHARES:
$44,475,472 / 22,155,030
shares outstanding $2.01
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 34,866
Interest 459,589
TOTAL INCOME 494,455
EXPENSES:
Investment advisory fee $ 40,694
Administrative personnel
and services fee 48,631
Custodian fees 1,447
Transfer and dividend
disbursing agent fees
and expenses 8,946
Directors'/Trustees' fees 852
Auditing fees 4,402
Legal fees 2,130
Portfolio accounting fees 19,806
Shareholder services fee 16,956
Share registration costs 19,596
Printing and postage 13,064
Insurance premiums 2,130
Miscellaneous 1,704
TOTAL EXPENSES 180,358
WAIVERS AND REIMBURSEMENTS:
Waiver of investment
advisory fee $ (40,694)
Reimbursement of other
operating expenses (109,388)
TOTAL WAIVERS AND
REIMBURSEMENTS (150,082)
Net expenses 30,276
Net investment income 464,179
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FUTURES CONTRACTS:
Net realized gain on
investments and futures
contracts 144,837
Net change in unrealized
depreciation of investments
and futures (123,576)
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND
FUTURES CONTRACTS 21,261
Change in net assets
resulting from operations $ 485,440
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
(unaudited) ENDED
MARCH 31, SEPTEMBER 30,
1999 1998 1
<S> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS:
Net investment income $ 464,179 $ 240,399
Net realized gain on
investments and futures
contracts ($144,837 and
$45,849, respectively,
as computed for federal
tax purposes) 144,837 45,849
Net change in unrealized
depreciation of investments
and futures contracts (123,576) -
CHANGE IN NET ASSETS
RESULTING FROM
OPERATIONS 485,440 286,248
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net
investment income
Institutional Shares - (171,646)
Institutional Service Shares (461,455) (67,399)
Distributions from net
realized gains
Institutional Shares - (28,854)
Institutional Service
Shares - (1)
CHANGE IN NET ASSETS
RESULTING FROM DISTRIBUTIONS
TO SHAREHOLDERS (461,455) (267,900)
SHARE TRANSACTIONS:
Proceeds from sale of shares 69,906,573 8,976,726
Net asset value of shares
issued to shareholders
in payment of
distributions declared 119,270 84,773
Cost of shares redeemed (25,674,377) (14,014,250)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 44,351,466 (4,952,751)
Change in net assets 44,375,451 (4,934,403)
NET ASSETS:
Beginning of period 100,021 5,034,424
End of period (including
undistributed net investment
income of $4,078 and $1,354,
respectively) $ 44,475,472 $ 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
Financial Highlights-Institutional Service Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
(unaudited) ENDED
MARCH 31, SEPTEMBER 30,
1999 1998 1
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.16 $10.09
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.11 0.52
Net realized and
unrealized gain (loss)
on investments and
futures contracts (8.17) 0.13
TOTAL FROM INVESTMENT
OPERATIONS (8.06) 0.65
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.09) (0.52)
Distributions from net
realized gain on
investments - (0.06)
TOTAL DISTRIBUTIONS (0.09) (0.58)
NET ASSET VALUE, END OF
PERIOD $ 2.01 $10.16
TOTAL RETURN 2 3.67% 6.75%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.45% 3 0.56% 3
Net investment income 6.83% 3 5.18% 3
Expense
waiver/reimbursement 4 2.21% 3 6.83% 3
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $44,475 $100
Portfolio turnover 14% 501%
</TABLE>
1 Reflects operations for the period from October 3, 1997 (date of initial
public investment) to September 30, 1998.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
4 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MARCH 31, 1999 (UNAUDITED)
ORGANIZATION
Federated Total Return Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of four portfolios. The
financial statements included herein are only those of Federated Ultrashort 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 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>
<CAPTION>
EFFECTIVE DATE NEW NAME
<S> <C>
10/27/1998 Federated Ultrashort Bond Fund
</TABLE>
Previously, the Fund provided 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.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
U.S. government securities are generally valued at the mean of the latest bid
and asked price as furnished by an independent pricing service. Short- term
securities are valued at the prices provided by an independent pricing service.
However, short-term securities with remaining maturities of sixty days or less
at the time of purchase may be valued at amortized cost, which approximates fair
market value. Investments in other open-end regulated investment companies are
valued at net asset value.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Directors. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase price on
the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex- dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income and gains. Accordingly, no provisions for
federal tax are necessary.
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.
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 period ended March 31,
1999, the Fund had realized gains of $143,242 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 March 31, 1999, the Fund had outstanding futures contracts as set forth
below:
<TABLE>
<CAPTION>
Unrealized
EXPIRATION CONTRACTS TO Appreciation
DATE DELIVER/RECEIVE Position (Depreciation)
<S> <C> <C> <C>
June 1999 3 U.S. Treasury Long Bond Futures Short $ 656
June 1999 11 U.S. Treasury 10 Year Note Futures Short (2,406)
June 1999 12 U.S. Treasury 5 Year Note Futures Short (6,750)
June 1999 40 U.S.Treasury 2 Year Note Futures Short (18,750)
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON FUTURES CONTRACTS $(27,250)
</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
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At March 31, 1999, par value shares ($0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
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>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
MARCH 31, 1999 SEPTEMBER 30,1998 1
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold - - 478,137 $ 4,813,126
Shares issued to
shareholders in payment
of distributions declared - - 2,880 28,987
Shares redeemed - - (981,543) (9,894,109)
NET CHANGE RESULTING
FROM INSTITUTIONAL
SHARE TRANSACTIONS - - (500,526) $ (5,051,996)
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998 1
INSTITUTIONAL SERVICE
SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 34,861,510 $ 69,906,573 413,567 $ 4,163,600
Shares issued to
shareholders in payment
of
distributions declared 59,526 119,270 5,551 55,786
Shares redeemed (12,775,849) (25,674,377) (409,305) (4,120,141)
NET CHANGE RESULTING
FROM INSTITUTIONAL
SERVICE SHARE
TRANSACTIONS 22,145,187 $ 44,351,466 9,813 $ 99,245
NET CHANGE RESULTING
FROM SHARE TRANSACTIONS 22,145,187 $ 44,351,466 (490,713) $ (4,952,751)
</TABLE>
1 For the period from October 3, 1997 (date of initial public investment) to
September 30, 1998.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser, receives for its services
an annual investment advisory fee equal to 0.60% of the Fund's average daily net
assets. Effective March 31, 1999, Federated Management merged into Federated
Advisers. On March 31, 1999, the name of Federated Advisers was changed to
Federated Investment Management Company (the "Adviser"). 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
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
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 Institutional Service Shares 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.
INTERFUND TRANSACTIONS
During the period ended March 31, 1999, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment adviser), common Director/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 $3,136,719 and $296,174, 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, for the period ended
March 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $43,427,765
Sales $ 2,124,317
</TABLE>
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
J. CHRISTOPHER DONAHUE
JAMES E. DOWD, ESQ.
LAWRENCE D. ELLIS, M.D.
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
JOHN E. MURRAY, JR., J.D., S.J.D.
WESLEY W. POSVAR
MARJORIE P. SMUTS
Officers
JOHN F. DONAHUE
Chairman
GLEN R. JOHNSON
President
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD J. THOMAS
Treasurer
ANTHONY R. BOSCH
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not 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. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
Federated Ultrashort Bond Fund
(Formerly, Federated Limited Duration Government Fund)
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
MARCH 31, 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
Cusip 31428Q606
G02603-01 (5/99)
[Graphic]
SEMI-ANNUAL REPORT
President's Message
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
Mortgage Fund, a portfolio of Federated Total Return Series, Inc. The report
covers the six-month period from October 1, 1998 through March 31, 1999, and
includes commentary by the fund's portfolio manager, followed by the portfolio
of investments and financial statements.
During the reporting period, the fund's diversified portfolio of U.S. government
mortgage-backed securities produced a net total return of 2.56% 1 for
Institutional Shares and 2.41%1 for Institutional Service Shares. Dividends paid
by the fund during this period totaled $0.34 per share for Institutional Shares
and $0.32 per share for Institutional Service Shares. The fund's total net
assets reached $10.7 million.
We appreciate your continued confidence in Federated Mortgage Fund. As always,
we welcome your questions and comments.
Sincerely,
[Graphic]
Glen R. Johnson
President
May 15, 1999
1 Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares when redeemed, may be worth more or less than their original
cost.
Investment Review
Federated Mortgage 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.
During the semi-annual reporting period, the U.S. Treasury market went through
two distinct time periods. The first three months saw incredible volatility as
investors sought to disengage from the markets, given concerns over Russia and
Latin America, and flee to the perceived safety of U.S. Treasury securities.
This headlong rush for liquidity at any price caused U.S. Treasury yields to
reach generational lows. During this time, the yield on the 30-year U.S.
Treasury declined to 4.72%.
As the second half of the reporting period began, investors began to wonder
whether or not emerging market woes would be sufficient to slow the U.S. economy
and if the Federal Reserve Board (the "Fed") would respond by increasing
interest rates. U.S. economic activity continued at a brisk pace. Driving the
U.S. economy was rapid consumer spending being fueled by the surging stock
market. Healthy wage gains from a strong job market gave consumers the
confidence to spend not only what they take home but also some of the continuing
gains that the rising stock market gave them. In addition to strong economic
growth, nervousness about inflation crept back into the market through higher
oil prices and a rising dollar. This overall strength and concern of possible
increases in inflation reawakened fears of tightening by the Fed. As the second
half of the reporting period began, the Fed was waiting for clearer signals from
leading indicators of growth and inflation. The combination of more moderate
wage and price data, a stronger dollar and rising bond yields, slowing money
growth and lingering global uncertainties kept Fed policy on hold. These issues
coupled with wide spreads in other fixed income securities caused investors to
sell U.S. Treasuries and buy higher yielding alternatives such as
mortgage-backed securities.
The impact to the mortgage-backed market from these events pushed mortgage
spreads over Treasuries to ten-year wides. Liquidity concerns, and not
prepayment fears, drove the widening in mortgage spreads. Fortunately, this
proved to be a short-lived phenomenon as investors realized the potential for
investing in the mortgage asset class during this time of turmoil. During this
reporting period, the spread relationship between U.S. Treasuries and mortgages
tightened by over 70 basis points. Increasing interest rates, declining
volatility and diminished prepayment fears contributed to the strong
performance. With increasing interest rates, the 30-year mortgage commitment
rate rose above 7% for the first time since last summer. Given the last year of
near record low mortgage rates and record high refinancing activity, there is
limited refinancing demand remaining in the mortgage market at these current
rate levels. The effect of this increase in mortgage rates should lead to a
declining supply of mortgage securities as refinancing activity subsides. This
reduced supply should contribute to further spread tightening in the mortgage
market. Another factor which bodes well for the performance of the mortgage
market in the second half of the year will be continued demand from the Federal
Home Loan Mortgage Corporation ("FHLMC") and the Federal National Mortgage
Association ("FNMA"). Both agencies have increased purchase commitments above
last year's pace for the same time period. Finally, even with the tremendous
spread tightening mortgages have experienced, they are still attractive versus
U.S. Treasuries on a historical basis. Given the view that U.S. Treasury yields
are range bound, this should further enhance the attractiveness of the
mortgage-backed sector.
On March 24, 1999, Norwest Mortgage and FHLMC announced a business alliance.
There are three important features of this alliance. The first is that Norwest
will sell 100% of its conforming mortgages to FHLMC. The second feature is that
FHLMC will automatically accept mortgages approved by Norwest's proprietary
automated underwriting system. Finally, the two companies will share information
on assessing credit risk. As the nation's leading mortgage lender, Norwest is
projected to originate roughly $40 billion in fixed rate conforming loans in
1999. In the past, approximately $23 billion of these loans would have ended up
as FNMA mortgage securities and about $17 billion as FHLMC securities. Given
this alliance, about $17 billion of Norwest originated loans may end up
transferring from FNMA to FHLMC securities in 1999. FHLMC securities have
typically traded below their fair value versus FNMA due to perceived liquidity
differences. Increased issuance of FHLMC securities could alter these
perceptions and result in improved trading levels for FHLMC securities. It
remains to be seen if this alliance remains unique or is the beginning of a
trend whereby originators will closely align themselves with one of the
agencies.
The current portfolio strategy targets an effective duration of 2.9 years, which
is neutral to the Lehman Brothers Mortgage-Backed Securities Index. 1 As of
March 31, 1999, the fund recorded net assets of $10.7 million with an average
30-day net yield as calculated under SEC guidelines of 6.37%2 for Institutional
Shares and 6.11%2 for Institutional Service Shares based upon a net asset value
of $10.03. The fund's net total rate of return for the semi-annual period ended
March 31, 1999 was 2.56% for the Institutional Shares and 2.41% for the
Institutional Service Shares.2 This compares to 1.79% for the Lehman Brothers
Mortgage Index and 0.58% for the Merrill Lynch 2-Year Treasury Index.3
1 The Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index
composed of all fixed securities issued by GNMA, FNMA and FHLMC, including GNMA
Graduated payment mortgages. Investments cannot be made in an index.
2 Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
3 The Merrill Lynch 2-Year Treasury Index is an unmanaged index tracking 2 year
U.S. government securities. The index is produced by Merrill Lynch, Pierce,
Fenner & Smith, Inc. Investments cannot be made in an index.
Last Meeting of Shareholders
The Annual Meeting of Shareholders of Federated Total Return Series, Inc. (the
"Corporation") was held on March 23, 1999. On January 22, 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 and the results of
their voting were as follows:
AGENDA ITEM 1
To elect Directors. 1
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
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 as
Directors of the Corporation: John F. Donahue, John T. Conroy, Jr.,
Lawrence D. Ellis, M.D., Peter E. Madden, and Majorie P. Smuts.
AGENDA ITEM 2
Agenda Item 2: To ratify the selection of Ernst & Young LLP as the
Corporation's independent auditors.
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS
<S> <C> <C>
18,110,860 215 29,642
</TABLE>
Portfolio of Investments
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES-
0.9%
HOME EQUITY LOANS-0.9%
$ 100,000 Green Tree Home Equity
Loan Trust 1999, Class
B2A, 7.440%, 2/15/2029
(identified cost
$99,998) $ 99,938
LONG-TERM OBLIGATIONS-
98.4%
FEDERAL HOME LOAN
MORTGAGE CORPORATION-
25.0%
1,797,278 6.500%, 9/1/2028 1,789,981
851,860 7.500%, 6/1/2027 875,814
TOTAL 2,665,795
FEDERAL HOME LOAN
MORTGAGE CORPORATION
REMIC-10.5%
250,000 Series 2031-BO,
(Principal Only),
2/20/2028 196,875
398,978 Series 197-PO,
(Principal Only),
4/1/2028 273,739
2,301,614 Series 2097-S, 2.574%,
(Interest Only),
11/15/2028 92,065
1,700,000 Series 2139-IO, 6.500%,
(Interest Only),
10/15/2026 378,250
265,178 Series 2030-PE, 7.000%,
(Interest Only),
2/15/2028 88,172
325,000 Series 2081-ED, 7.500%,
(Interest Only),
8/15/2028 84,500
TOTAL 1,113,601
FEDERAL NATIONAL
MORTGAGE ASSOCIATION-
25.0%
2,063,486 6.000%, 1/1/2014 -
2/1/2029 2,020,995
99,999 6.500%, 2/1/2029 99,530
521,156 8.000%, 12/1/2026 542,003
TOTAL 2,662,528
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION-
36.5%
99,874 6.000%, 11/15/2028 97,034
1,431,413 6.500%, 5/15/2024 -
2/15/2029 1,428,937
2,327,527 7.000%, 11/15/2028 -
1/15/2029 2,363,161
TOTAL 3,889,132
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM OBLIGATIONS-
continued
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION
REMIC-1.4%
$ 200,000 Series 97-17 PO,
(Principal Only),
12/20/2027 $ 156,188
TOTAL LONG-TERM
OBLIGATIONS (IDENTIFIED
COST $10,470,384) 10,487,244
REPURCHASE AGREEMENT-
4.1% 1
435,000 ABN AMRO, Inc., 5.050%,
dated 3/31/1999, due
4/1/1999 (at amortized
cost) 435,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$11,005,382) 2 $ 11,022,182
</TABLE>
1 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 joint
accounts with other Federated funds.
2 The cost of investments for federal tax purposes amounts to $11,005,382. The
net unrealized appreciation of investments on a federal tax basis amounts to
$16,800 which is comprised of $67,715 appreciation and $50,915 depreciation at
March 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($10,654,160) at March 31, 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
MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$11,005,382) $ 11,022,182
Income receivable 48,938
Cash 32,950
Prepaid expenses 1,122
TOTAL ASSETS 11,105,192
LIABILITIES:
Payable for investments
purchased $ 398,124
Income distribution
payable 52,908
TOTAL LIABILITIES 451,032
Net assets for 1,062,152
shares outstanding $ 10,654,160
NET ASSETS CONSIST OF:
Paid in capital $ 10,620,967
Net unrealized
appreciation of
investments 16,800
Accumulated net realized
gain on investments 16,393
TOTAL NET ASSETS $ 10,654,160
NET ASSET VALUE,
OFFERING PRICE AND
REDEMPTION PROCEEDS PER
SHARE
INSTITUTIONAL SHARES:
$10,621,209 / 1,058,867
shares outstanding $10.03
INSTITUTIONAL SERVICE
SHARES:
$32,951 / 3,285 shares
outstanding $10.03
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar
roll expense of $608) $ 214,351
EXPENSES:
Investment advisory fee $ 12,335
Administrative personnel
and services fee 77,288
Custodian fees 1,929
Transfer and dividend
disbursing agent fees
and expenses 25,013
Directors'/Trustees'
fees 1,419
Auditing fees 3,634
Portfolio accounting
fees 27,959
Distribution services
fee-Institutional
Service Shares 18
Shareholder services
fee-Institutional Shares 7,692
Shareholder services
fee-Institutional
Service Shares 18
Share registration costs 11,399
Printing and postage 11,561
Insurance premiums 1,465
TOTAL EXPENSES 181,730
WAIVERS AND
REIMBURSEMENTS:
Waiver of investment
advisory fee $ (12,335)
Waiver of distribution
services fee-
Institutional Service
Shares (15)
Waiver of shareholder
services fee-
Institutional Shares (7,691)
Reimbursement of other
operating expenses (152,416)
TOTAL WAIVERS AND
REIMBURSEMENTS (172,457)
Net expenses 9,273
Net investment income 205,078
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on
investments 30,105
Net change in unrealized
depreciation of
investments (53,274)
Net realized and
unrealized loss on
investments (23,169)
Change in net assets
resulting from
operations $ 181,909
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(unaudited) ENDED
MARCH 31, SEPTEMBER 30,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS:
Net investment income $ 205,078 $ 488,461
Net realized gain (loss)
on investments ($30,105
and $(13,712),
respectively, as
computed for federal tax
purposes) 30,105 (3,683)
Net change in unrealized
depreciation (53,274) (75,797)
CHANGE IN NET ASSETS
RESULTING FROM
OPERATIONS 181,909 408,981
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Institutional Shares (198,876) (488,300)
Institutional Service
Shares (438) (161)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (199,314) (488,461)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 6,588,690 5,156,650
Net asset value of shares
issued to shareholders
in payment of
distributions declared 34,268 46,227
Cost of shares redeemed (1,190,642) (5,034,414)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 5,432,316 168,463
Change in net assets 5,414,911 88,983
NET ASSETS:
Beginning of period 5,239,249 5,150,266
End of period $ 10,654,160 $ 5,239,249
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MARCH 31, YEAR ENDED SEPTEMBER 30,
1999 1998 1997 1
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.11 $10.26 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.34 0.95 0.25
Net realized and
unrealized gain (loss)
on investments (0.08) (0.15) 0.26
TOTAL FROM INVESTMENT
OPERATIONS 0.26 0.80 0.51
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.34) (0.95) (0.25)
NET ASSET VALUE, END OF
PERIOD $10.03 $10.11 $10.26
TOTAL RETURN 2 2.56% 8.25% 5.12%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.30% 4 0.26% 0.00% 4
Net investment income 6.65% 4 9.42% 7.37% 4
Expense
waiver/reimbursement 3 5.59% 4 7.22% 12.25% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $10,621 $5,224 $5,145
Portfolio turnover 86% 147% 9%
</TABLE>
1 Reflects operations for the period from May 31, 1997 (start of performance) to
September 30, 1997.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Service Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MARCH 31, YEAR ENDED SEPTEMBER 30,
1999 1998 1997 1
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.11 $10.26 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.32 0.92 0.24
Net realized and
unrealized gain (loss)
on investments (0.08) (0.15) 0.26
TOTAL FROM INVESTMENT
OPERATIONS 0.24 0.77 0.50
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.32) (0.92) (0.24)
NET ASSET VALUE, END OF
PERIOD $10.03 $10.11 $10.26
TOTAL RETURN 2 2.41% 7.93% 5.07%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.60% 4 0.48% 0.00% 4
Net investment income 6.39% 4 6.62% 7.76% 4
Expense
waiver/reimbursement 3 5.71% 4 8.52% 14.14% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $33 $15 $5
Portfolio turnover 86% 147% 9%
</TABLE>
1 Reflects operations for the period from May 31, 1997 (start of performance) to
September 30, 1997.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MARCH 31, 1999 (UNAUDITED)
ORGANIZATION
Federated Total Return Series, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of four portfolios. The
financial statements included herein are only those of Federated 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.
The Board of Directors (the "Directors") approved changing the name from
Federated Government Fund to the Federated Mortgage Fund. This change was
effective as of June 30, 1998.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
U.S. government securities are generally valued at the mean of the latest bid
and asked price as furnished by an independent pricing service. Short- term
securities are valued at the prices provided by an independent pricing service.
However, short-term securities with remaining maturities of 60 days or less at
the time of purchase may be valued at amortized cost, which approximates fair
market value.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Directors. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase price on
the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex- dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
At September 30, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $13,712, 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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DOLLAR ROLL TRANSACTIONS
The Fund enters into dollar roll transactions, with respect to mortgage
securities issued by GNMA, FHLMC 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
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At March 31, 1999, par value shares ($0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
NUMBER OF
PAR VALUE
CAPITAL STOCK
SHARE CLASS NAME AUTHORIZED
<S> <C>
Institutional Shares 1,000,000,000
Institutional Service Shares 1,000,000,000
TOTAL SHARES AUTHORIZED 2,000,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 656,162 $ 6,566,168 508,001 $ 5,141,650
Shares issued to
shareholders in payment
of distributions
declared 3,364 33,937 4,581 46,199
Shares redeemed (117,580) (1,185,393) (496,925) (5,029,318)
NET CHANGE RESULTING
FROM INSTITUTIONAL
SHARE TRANSACTIONS 541,946 $ 5,414,712 15,657 $ 158,531
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998
INSTITUTIONAL SERVICE
SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,246 $ 22,522 1,494 $ 15,000
Shares issued to
shareholders in payment
of distributions
declared 33 331 3 28
Shares redeemed (520) (5,249) (494) (5,096)
NET CHANGE RESULTING
FROM INSTITUTIONAL
SERVICE SHARE
TRANSACTIONS 1,759 $ 17,604 1,003 $ 9,932
NET CHANGE RESULTING
FROM SHARE TRANSACTIONS 543,705 $ 5,432,316 16,660 $ 168,463
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser, receives for its services
an annual investment advisory fee equal to 0.40% of the Fund's average daily net
assets. Effective March 31, 1999, Federated Management merged into Federated
Advisers. On March 31, 1999, the name of Federated Advisers was changed to
Federated Investment Management Company (the "Adviser"). The Adviser may
voluntarily choose to waive any portion of its fee and/or reimburse certain
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and/or reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, 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. FSC may
voluntarily choose to waive any portion of its fee. FSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services 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.
INTERFUND TRANSACTIONS
During the period ended March 31, 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 $173,867 and $1,385,217, 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
period ended March 31, 1999, were as follows:
Purchases $ 10,828,656
Sales $ 5,388,565
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
J. CHRISTOPHER DONAHUE
JAMES E. DOWD, ESQ.
LAWRENCE D. ELLIS, M.D.
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
JOHN E. MURRAY, JR., J.D., S.J.D.
WESLEY W. POSVAR
MARJORIE P. SMUTS
Officers
JOHN F. DONAHUE
Chairman
GLEN R. JOHNSON
President
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD J. THOMAS
Treasurer
ANTHONY R. BOSCH
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not 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. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
Federated Mortgage Fund
(Formerly, Federated Government Fund)
SEMI-ANNUAL REPORT TO SHAREHOLDERS
MARCH 31, 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
Cusip 31428Q887
Cusip 31428Q804
G02367-01 (5/99)
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