1933 Act File No. 33-50773
1940 Act File No. 811-7115
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. ______....................
Post-Effective Amendment No. 20 ................... X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 24 .................................... X
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FEDERATED TOTAL RETURN SERIES, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to paragraph (b) __X_ on February 18,
2000, pursuant to paragraph (b) _ _ 60 days after filing pursuant to paragraph
(a) (i) ____ on _______ pursuant to paragraph (a) (i) ____ 75 days after filing
pursuant to paragraph (a)(ii) ____ on________________ pursuant to paragraph
(a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies To:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
PROSPECTUS
Federated Ultrashort Bond Fund
A Portfolio of Federated Total Return Series, Inc.
INSTITUTIONAL SHARES
A mutual fund seeking to provide total return consistent with current income by
investing primarily in a diversified portfolio of investment grade debt
securities.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
FEBRUARY 18, 2000
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 4
What are the Fund's Investment Strategies? 5
What are the Principal Securities in Which the
Fund Invests? 7
What are the Specific Risks of Investing in the Fund? 13
What Do Shares Cost? 16
How is the Fund Sold? 16
How to Purchase Shares 17
How to Redeem Shares 18
Account and Share Information 20
Who Manages the Fund? 21
Financial Information 21
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide total return consistent with
current income. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.
The Fund's total return will consist of two components: (1) changes in the
market value of its portfolio securities (both realized and unrealized
appreciation); and (2) income received from its portfolio securities. The Fund
expects that income will comprise the largest component of its total return.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests primarily in a diversified portfolio of domestic and foreign
investment grade fixed income securities consisting principally of corporate,
government and privately issued mortgage backed and asset backed securities and
other government securities. The Fund may invest up to 35% of its portfolio in
non-investment grade fixed income securities. Federated Investment Management
Company (Adviser) seeks to enhance the Fund's performance by allocating
relatively more of its portfolio to the security type that the Adviser expects
to offer the best balance between total return and risk.
Although the value of the Fund's shares will fluctuate, the Adviser will seek to
manage the magnitude of fluctuation by limiting the Fund's dollar weighted
average modified duration to one year or less. Duration measures the price
sensitivity of a fixed income security to changes in interest rates. The Fund
may use futures, options and interest rate swaps in an effort to maintain the
Fund's targeted duration.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
* INTEREST RATE RISKS. Prices of fixed income securities generally fall
when interest rates rise.
* CREDIT RISKS. There is a possibility that issuers of securities in which the
Fund may invest may default in the payment of interest or principal on the
securities when due, which would cause the Fund to lose money.
* PREPAYMENT RISKS. When homeowners prepay their mortgages in response to lower
interest rates, the Fund will be required to reinvest the proceeds at the lower
interest rates available. Also, when interest rates fall, the price of mortgage
backed securities may not rise to as great an extent as that of other fixed
income securities.
* CALL RISKS. The Fund's performance may be adversely affected by the
possibility that an issuer of a security held by the Fund may redeem the
security prior to maturity at a price below its current market value.
* LIQUIDITY RISKS. The non-investment grade securities and complex CMOs in which
the Fund invests may be less readily marketable and may be subject to greater
fluctuation in price than other securities.
* RISKS ASSOCIATED WITH NON-INVESTMENT GRADE SECURITIES. The Fund may invest a
portion of its assets in securities rated below investment grade which may be
subject to greater interest rate, credit and liquidity risks than investment
grade securities.
* RISKS OF FOREIGN INVESTING. Because the Fund invests in securities issued by
foreign companies, the Fund's share price may be more affected by foreign
economic and political conditions, taxation policies and accounting and auditing
standards than would otherwise be the case.
* CURRENCY RISKS. Because exchange rates for currencies fluctuate daily, prices
of the foreign securities in which the Fund invests are more volatile than
prices of securities traded exclusively in the U.S.
The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
The following performance bar chart and total return table is for the Fund's
other class of shares, Institutional Service Shares. A performance bar chart and
total return table for Institutional Shares of the Fund will be provided after
Institutional Shares has been in operation for a full calendar year.
Institutional Service Shares are not offered in this prospectus. The total
returns for Institutional Service Shares are disclosed here because
Institutional Shares have only been offered since February 18, 2000.
[Graphic- SEE APPENDIX]
These total returns would be substantially similar to the annual returns for
Institutional Shares over the same period and would differ only to the extent
that the two classes do not have the same expenses. It is anticipated that
expenses of Institutional Shares will not exceed those of the Institutional
Service Shares.
The bar chart shows the variability of the Fund's Institutional Service Shares
total returns on a calendar year-end basis.
The Fund's Institutional Service Shares are sold without a sales charge (load).
The total returns displayed above are based upon net asset value.
Within the period shown in the Chart, the Fund's Institutional Service Shares
highest quarterly return was 2.30% (quarter ended September 30, 1998). Its
lowest quarterly return was 0.54% (quarter ended June 30, 1999).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Institutional Service Shares Average
Annual Total Returns for the calendar periods ended December 31, 1999. The table
shows the Fund's Institutional Service Shares total returns averaged over a
period of years relative to the Merrill Lynch 1-Year Treasury Bill Index
("ML1YT"), a broad-based market index. Total returns for the index shown do not
reflect sales charges, expenses or other fees that the SEC requires to be
reflected in the Fund's performance. Indexes are unmanaged, and it is not
possible to invest directly in an index.
<TABLE>
<CAPTION>
CALENDAR PERIOD FUND ML1YT
<S> <C> <C>
1 Year 4.61% 4.03%
Start of Performance 1 6.36% 5.21%
</TABLE>
1 The Fund's Institutional Service Shares start of performance date was May 31,
1997.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
What are the Fund's Fees and Expenses?
FEDERATED ULTRASHORT BOND FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
the Fund's Institutional Shares.
<TABLE>
<CAPTION>
SHAREHOLDER
FEES
<S>
<C>
Fees Paid Directly From Your
Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) None Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None Maximum Sales Charge
(Load) Imposed on Reinvested Dividends (and other Distributions) (as a
percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable)
None
Exchange Fee
None
ANNUAL FUND OPERATING EXPENSES (Before Waivers and Reimbursement) 1 Expenses
That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee 2
0.60%
Distribution (12b-1) Fee
None
Shareholder Services Fee 3
0.25%
Other Expenses 4
0.41%
Total Annual Fund
Operating Expenses
1.26%
1 Although not contractually obligated to do so, the Adviser expects to waive
and reimburse and the shareholder services provider expects to waive certain
amounts. These are shown below along with the net expenses the Fund expects to
pay for the fiscal year ending September 30, 2000.
Total Reimbursement and Waivers of Fund Expenses
0.91%
Total Actual Annual Fund Operating Expenses (after waivers and reimbursement)
0.35% 2 The Adviser expects to voluntarily waive a portion of the management
fee. The Adviser can terminate this voluntary waiver at any time. The management
fee the Fund expects to pay (after the anticipated voluntary waiver) is 0.25%
for the fiscal year ending September 30, 2000.
3 The Fund's Institutional Shares do not expect to pay or accrue the shareholder
services fee for the fiscal year ending September 30, 2000. 4 The Adviser
expects to voluntarily reimburse certain operating expenses of the Fund. The
Adviser can terminate this voluntary reimbursement at any time. Total other
expenses the Fund expects to pay (after the anticipated voluntary reimbursement)
is 0.10% for the fiscal year ending September 30, 2000.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Institutional Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Shares
for the time periods indicated and then redeem all of your Shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's Institutional Shares operating expenses are BEFORE
WAIVERS AND REIMBURSEMENT as estimated in the table and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
<S> <C>
1 Year $ 128
3 Years $ 400
5 Years $ 692
10 Years $ 1,523
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests in a diversified portfolio of domestic and foreign fixed income
securities, including corporate, mortgage-backed, other asset- backed and U.S.
government securities. The Fund's Adviser actively manages the Fund's portfolio
seeking to limit fluctuation in the Fund's share price due to changes in market
interest rates while selecting investments that should offer enhanced returns
based upon the Adviser's credit analysis. The Adviser limits fluctuation in the
Fund's share price by limiting the dollar-weighted average modified duration of
the Fund's portfolio to one year or less. The Adviser then seeks higher returns
through security selection than are possible in a portfolio limited exclusively
to very high credit quality securities. The Fund does not have the maturity and
credit- quality constraints of a money market fund. A description of the various
types of securities in which the Fund invests, and their risks, immediately
follows this section.
The Fund invests at least 65% of its portfolio in investment grade fixed income
securities. The Fund may invest the remainder of its portfolio in non-
investment grade fixed income securities. Investment grade securities are those
rated BBB or higher by a nationally recognized statistical rating organization
(NRSRO). The Adviser attempts to select securities offering attractive
risk-adjusted yields over comparable Treasury securities. Corporate and
asset-backed securities offer higher yields compared to Treasury securities to
compensate for their additional risks, such as credit risk. Mortgage-backed
securities, which usually have nominal credit risk, have higher yields due to
their risk that the principal will be repaid faster than expected if the
underlying mortgages are prepaid. In selecting securities, the Adviser seeks the
higher relative returns of corporate and asset-backed (including
mortgage-backed) securities, while attempting to limit or manage their
additional credit or prepayment risks.
The Adviser's investment process first allocates the Fund's portfolio among
different types of fixed income securities. The Adviser makes a greater
allocation of the Fund's portfolio to those types of securities that the Adviser
expects to offer the best balance between current income and risk and thus
offers the greatest potential for return. The allocation process is based on the
Adviser's continuing analysis of a variety of economic and market indicators in
order to arrive at what the Adviser believes the yield "spread" should be of
each security type. (The spread is the difference between the yield of a
security versus the yield of a comparable U.S. Treasury security.)
Securities are selected by weighing projected spreads against the spreads at
which the securities can currently be purchased. The Adviser also analyzes the
prepayment risks and credit risks of individual securities in order to complete
the analysis.
The Adviser attempts to manage the Fund's prepayment risk by selecting
mortgage-backed securities with characteristics that make prepayment
fluctuations less likely. Characteristics that the Adviser may consider in
selecting securities include the average interest rates of the underlying loans
and the federal agencies (if any) that support the loans. The Adviser attempts
to assess the relative returns and risks for mortgage-backed securities by
analyzing how the timing, amount and division of cash flows might change in
response to changing economic and market conditions.
The Adviser attempts to manage the Fund's credit risk by selecting securities
that make default in the payment of principal and interest less likely. The
Adviser analyzes a variety of factors, including macroeconomic analysis and
corporate earnings analysis to determine which business sectors and credit
ratings are most advantageous for investment by the Fund. In selecting
individual corporate fixed income securities, the Adviser analyzes the issuer's
business, competitive position, and general financial condition to assess
whether the security's credit risk is commensurate with its potential return. In
order to enhance returns, the Adviser may purchase lower rated securities that
provide better returns than investment grade securities, and foreign securities
that provide better returns than domestic securities. There is no assurance that
the Adviser's efforts to enhance returns will be successful.
Within the Fund's one-year portfolio duration constraint, the Adviser may
further manage interest rate risk by lengthening or shortening duration from
time-to-time based on its interest rate outlook. If the Adviser expects interest
rates to decline, it will generally lengthen the Fund's duration, and if the
Adviser expects interest rates to increase, it will generally shorten the Fund's
duration. The Adviser formulates its interest rate outlook and otherwise
attempts to anticipate changes in economic and market conditions in analyzing a
variety of factors, such as:
* current and expected U.S. growth;
* current and expected interest rates and inflation;
* the U.S. Federal Reserve Board's monetary policy; and
* changes in the supply of or demand for U.S. government securities.
There is no assurance that the Adviser's efforts to forecast market interest
rates and assess the impact of market interest rates on particular securities
will be successful.
Because the Fund will typically invest in fixed income securities with remaining
maturities greater than one year, the Fund will use futures contracts and
interest rate swaps to maintain the Fund's targeted duration.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing in assets in cash and shorter-term debt securities and similar
obligations. It may do this to minimize potential losses and maintain liquidity
to meet shareholder redemptions during adverse market conditions. This may cause
the Fund to give up greater investment returns to maintain the safety of
principal, that is, the original amount invested by shareholders.
HEDGING
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different derivatives
contracts, or derivatives contracts and securities. The Fund's ability to hedge
may be limited by the costs of the derivatives contracts. The Fund may attempt
to lower the cost of hedging by entering into transactions that provide only
limited protection, including transactions that: (1) hedge only a portion of its
portfolio; (2) use derivatives contracts that cover a narrow range of
circumstances; or (3) involve the sale of derivatives contracts with different
terms. Consequently, hedging transactions will not eliminate risk even if they
work as intended. In addition, hedging strategies are not always successful, and
could result in increased expenses and losses to the Fund.
What are the Principal Securities in Which the Fund Invests?
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the principal types of fixed income securities in which
the Fund invests.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the interest and prepayment risks of these mortgage backed securities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers.
In addition, the credit risk of an issuer's debt security may vary based on its
priority for repayment. For example, higher ranking (senior) debt securities
have a higher priority than lower ranking (subordinated) securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event of
bankruptcy, holders of senior securities may receive amounts otherwise payable
to the holders of subordinated securities. Some subordinated securities, such as
trust preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer any
payment that would reduce its capital below regulatory requirements.
MORTGAGE BACKED SECURITIES
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and prepayments from the underlying mortgages. As
a result, the holders assume all the prepayment risks of the underlying
mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
CMOs, including interests in real estate mortgage investment conduits (REMICs),
allocate payments and prepayments from an underlying pass- through certificate
among holders of different classes of mortgage backed securities. This creates
different prepayment and interest rate risks for each CMO class. The degree of
increased or decreased prepayment risks depends upon the structure of the CMOs.
However, the actual returns on any type of mortgage backed security depend upon
the performance of the underlying pool of mortgages, which no one can predict
and will vary among pools.
SEQUENTIAL CMOS
In a sequential pay CMO, one class of CMOs receives all principal payments and
prepayments. The next class of CMOs receives all principal payments after the
first class is paid off. This process repeats for each sequential class of CMO.
As a result, each class of sequential pay CMOs reduces the prepayment risks of
subsequent classes.
PRIVATELY ISSUED MORTGAGE BACKED SECURITIES
Privately issued mortgage securities (including privately issued CMOs) are
issued by private entities, rather than U.S. government agencies. These
securities involve credit risks and liquidity risks. The Fund may invest in
privately issued mortgage backed securities that are rated BBB or higher by an
NRSRO.
ASSET BACKED SECURITIES
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than 10 years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass- through certificates. Asset backed securities have prepayment
risks. Like CMOs, asset backed securities may be structured like Floaters,
Inverse Floaters, IOs and POs.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit
and banker's acceptances. Yankee instruments are denominated in
U.S. dollars and issued by U.S. branches of foreign banks. Eurodollar
instruments are denominated in U.S. dollars and issued by non-
U.S. branches of U.S. or foreign banks.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
* it is organized under the laws of, or has a principal office located in,
another country;
* the principal trading market for its securities is in another country; or
* it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
FOREIGN EXCHANGE CONTRACTS
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.
DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity and leverage risks.
OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract.
The Fund may trade in the following types of derivative contracts.
FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date, and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures contracts
are considered to be commodity contracts. Futures contracts traded OTC are
frequently referred to as forward contracts.
The Fund may buy and sell the following types of futures contracts: financial
futures, foreign currency forward contracts, and futures on securities indices.
OPTIONS
Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.
The Fund may:
* Buy put options on portfolio securities and futures contracts in anticipation
of a decrease in the value of the underlying asset; and
* Buy or write options to close out existing options positions.
The Fund may also write call options on portfolio securities and futures
contracts to generate income from premiums, and in anticipation of a decrease or
only limited increase in the value of the underlying asset. If a call written by
the Fund is exercised, the Fund foregoes any possible profit from an increase in
the market price of the underlying asset over the exercise price plus the
premium received.
The Fund may not buy or sell futures or related options if the margin deposits
and premiums paid for these securities would exceed 5% of the Fund's total
assets.
SWAPS
Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party, and
the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by a
variety of names including caps, floors, and collars. Common swap agreements
that the Fund may use include:
INTEREST RATE SWAPS
Interest rate swaps are contracts in which one party agrees to make regular
payments equal to a fixed or floating interest rate times a stated principal
amount of fixed income securities, in return for payments equal to a different
fixed or floating rate times the same principal amount, for a specific period.
For example, a $10 million LIBOR swap would require one party to pay the
equivalent of the London Interbank Offer Rate of interest (which fluctuates) on
$10 million principal amount in exchange for the right to receive the equivalent
of a stated fixed rate of interest on $10 million principal amount.
CURRENCY SWAPS
Currency swaps are contracts which provide for interest payments in different
currencies. The parties might agree to exchange the notional principal amount as
well.
INVESTMENT RATINGS FOR NON-INVESTMENT GRADE SECURITIES
Non-investment grade securities (junk bonds) are rated below BBB by a NRSRO.
These bonds have greater credit risk than investment grade securities.
INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES
The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.
What are the Specific Risks of Investing in the Fund?
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investors Service, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the Adviser's credit assessment.
Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
PREPAYMENT AND CALL RISKS
Unlike traditional fixed income securities, which pay a fixed rate of interest
until maturity (when the entire principal amount is due) payments on mortgage
backed securities include both interest and a partial payment of principal.
Partial payment of principal may be comprised of scheduled principal payments as
well as unscheduled payments from the voluntary prepayment, refinancing, or
foreclosure of the underlying loans. These unscheduled prepayments of principal
create risks that can adversely affect a Fund holding mortgage backed
securities.
For example, when interest rates decline, the values of mortgage backed
securities generally rise. However, when interest rates decline, unscheduled
prepayments can be expected to accelerate, and the Fund would be required to
reinvest the proceeds of the prepayments at the lower interest rates then
available. Unscheduled prepayments would also limit the potential for capital
appreciation on mortgage backed securities.
Conversely, when interest rates rise, the values of mortgage backed securities
generally fall. Since rising interest rates typically result in decreased
prepayments, this could lengthen the average lives of mortgage backed
securities, and cause their value to decline more than traditional fixed income
securities.
Generally, mortgage backed securities compensate for the increased risk
associated with prepayments by paying a higher yield. The additional interest
paid for risk is measured by the difference between the yield of a mortgage
backed security and the yield of a U.S. Treasury security with a comparable
maturity (the spread). An increase in the spread will cause the price of the
mortgage backed security to decline. Spreads generally increase in response to
adverse economic or market conditions. Spreads may also increase if the security
is perceived to have an increased prepayment risk or is perceived to have less
market demand.
Call risk is the possibility that an issuer may redeem a fixed income security
before maturity (a call) at a price below its current market price. An increase
in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the proceeds
in other fixed income securities with lower interest rates, higher credit risks,
or other less favorable characteristics.
LIQUIDITY RISKS
Trading opportunities are more limited for fixed income securities that have not
received any credit ratings, have received ratings below investment grade or are
not widely held.
Trading opportunities are more limited for CMOs that have complex terms or that
are not widely held. These features may make it more difficult to sell or buy a
security at a favorable price or time. Consequently, the Fund may have to accept
a lower price to sell a security, sell other securities to raise cash or give up
an investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns and
financial setbacks may affect their prices more negatively, and their trading
market may be more limited.
RISKS OF FOREIGN INVESTING
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its Adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency risks
and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
The Adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
What Do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form (as
described in the prospectus) it is processed at the next calculated net asset
value (NAV).
From time to time the Fund may purchase foreign securities that trade in foreign
markets on days the NYSE is closed. The value of the Fund's assets may change on
days you cannot purchase or redeem Shares. The Fund does not charge a front-end
sales charge. NAV is determined at the end of regular trading (normally 4:00
p.m. Eastern time) each day the NYSE is open. The Fund generally values fixed
income securities at the last sale price on a national securities exchange, if
available, otherwise, as determined by an independent pricing service.
The Fund's current NAV and public offering price may be found in the mutual
funds section of certain local newspapers under "Federated" and Institutional
Shares.
The required minimum initial investment for Fund Shares is $250,000. There is no
required minimum subsequent investment amount. An account may be opened with a
smaller amount as long as the $250,000 minimum is reached within 90 days. An
institutional investor's minimum investment is calculated by combining all
accounts it maintains with the Fund. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep in
mind that investment professionals may charge you fees for their services in
connection with your Share transactions.
How is the Fund Sold?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.
The Fund's Distributor, Federated Securities Corp., markets the Shares
described in this prospectus to accounts for which financial institutions
act in a fiduciary or agency capacity and to individuals, directly or
through investment professionals.
When the Distributor receives marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive
the next calculated NAV if the investment professional forwards the order to the
Fund on the same day and the Fund receives payment within one business day. You
will become the owner of Shares and receive dividends when the Fund receives
your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by A PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third- party checks (checks originally payable to someone
other than you or The Federated Funds).
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund at 1-800-341-7400 once you have
completed the appropriate authorization form for telephone transactions. If you
call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern
time) you will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund does not issue share certificates.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a capital gain distribution,
you will pay the full price for the Shares and then receive a portion of the
price back in the form of a taxable distribution, whether or not you reinvest
the distribution in Shares. Therefore, you should consider the tax implications
of purchasing Shares shortly before the Fund declares a capital gain. Contact
your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state and local tax liability.
Who Manages the Fund?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 176 mutual
funds and separate accounts, which totaled approximately $125 billion in assets
as of December 31, 1999. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
THE FUND'S PORTFOLIO MANAGERS ARE:
RANDALL S. BAUER
Randall S. Bauer has been the Fund's Portfolio Manager since October 1998
and is the overall manager of the Fund. Mr. Bauer joined Federated in 1989
and has been a Portfolio Manager and a Vice President of the Fund's Adviser
since 1994. Mr. Bauer is a Chartered Financial Analyst and received his
M.B.A. in Finance from Pennsylvania State University.
ROBERT E. CAULEY
Robert E. Cauley has been the Fund's Portfolio Manager since October 1998
and manages the mortgage backed securities asset category for the Fund.
Mr. Cauley joined Federated in 1996 as a Senior Investment Analyst and an
Assistant Vice President of the Fund's Adviser and has been a
Portfolio Manager since 1997. Mr. Cauley has been a Vice President of the
Adviser since 1999. Mr. Cauley was a member of the Asset-Backed Structuring
Group at Lehman Brothers Holding, Inc. from 1994 to 1996. Mr. Cauley earned
his M.S.I.A., concentrating in Finance and Economics, from Carnegie Mellon
University.
PAIGE WILHELM
Paige Wilhelm has been the Fund's Portfolio Manager since October 1998 and
manages the money market instruments category for the Fund. Ms. Wilhelm
joined Federated in 1985 and has been a Vice President of the Fund's
Adviser since January 1997. She served as an Assistant Vice President of
the Fund's Adviser from July 1994 to December 1996 and as an Investment
Analyst from July 1991 through June 1994. Ms. Wilhelm earned her M.B.A.
from Duquesne University.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.60% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
Financial Information
FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's other
class of shares, Institutional Service Shares financial performance for its past
five fiscal years, or since inception, if the life of the Fund is shorter. Some
of the information is presented on a per share basis. Total returns represent
the rate an investor would have earned (or lost) on an investment in the Fund,
assuming reinvestment of any dividends and capital gains.
This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in Fund's
Institutional Service Shares prospectus.
Financial Highlights-Institutional Service Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1 1998 2, 3
<S> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $2.00 $1.99
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.12 4 0.10
Net realized and unrealized
gain (loss) on investments
and futures contracts 0.01 5 0.03
TOTAL FROM INVESTMENT
OPERATIONS 0.13 0.13
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.15) (0.11)
Distributions from net
realized gain on investments
and futures contracts - (0.01)
Total distributions (0.15) (0.12)
NET ASSET VALUE, END OF
PERIOD $1.98 $2.00
TOTAL RETURN 6 5.32% 6.75%
RATIOS TO AVERAGE NET ASSETS:
Expenses 7 1.26% 7.39% 8
Net investment income
(net operating loss) 7 5.87% (1.65%) 8
Expenses (after waivers
and reimbursements) 0.77% 0.56% 8
Net investment income
(after waivers and
reimbursements) 6.36% 5.18% 8
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $196,032 $100
Portfolio turnover 20% 501%
</TABLE>
1 For the year ended September 30, 1999, the Fund was audited by Deloitte &
Touche LLP. Each of the previous years were audited by other auditors.
2 Reflects operations for the period from October 3, 1997 (date of initial
public investment) to September 30, 1998.
3 Per share amounts have been restated to reflect a share dividend.
4 Per share amount is based on the average number of shares outstanding.
5 The amount shown in this caption for a share outstanding does not correspond
with the aggregate net realized and unrealized loss on investments and futures
contracts for the year ended due to the timing of sales and repurchases of Fund
shares in relation to fluctuating market values of the investments of the Fund.
6 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
7 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
8 Computed on an annualized basis.
[Graphic]
Federated
World-Class Investment Manager
PROSPECTUS
Federated Ultrashort Bond Fund
A Portfolio of Federated Total Return Series, Inc.
INSTITUTIONAL SHARES
FEBRUARY 18, 2000
A Statement of Additional Information (SAI) dated February 18, 2000, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report's Management Discussion and Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and
other information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341- 7400.
You can obtain information about the Fund (including the SAI) by writing or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942- 8090 for
information on the Public Reference Room's operations and copying charges.
[Graphic]
Federated
Federated Ultrashort Bond Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-7115
Cusip 31428Q___
25145 (2/00)
[Graphic]
FEDERATED ULTRASHORT BOND FUND
A Portfolio of Federated Total Return Series, Inc.
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Ultrashort Bond
Fund-Institutional Shares and Institutional Service Shares (Fund), dated
February 18, 2000. Obtain the prospectus and the Annual Report's Management
Discussion and Analysis without charge by calling 1-800-341-7400.
february 18, 2000
G025145 (2/00)
CONTENTS
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
What Do Shares Cost? 8
How is the Fund Sold? 8
Subaccounting Services 9
Redemption in Kind 9
Account and Share Information 9
Tax Information 9
Who Manages and Provides Services to the Fund? 10
How Does the Fund Measure Performance? 13
Who is Federated Investors, Inc.? 14
Investment Ratings 15
Addresses 17
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of Federated Total Return Series, Inc.
(Corporation). The Corporation is an open-end, management investment company
that was established under the laws of the State of Maryland on October 11,
1993. The Corporation may offer separate series of shares representing interests
in separate portfolios of securities. The Corporation changed its name from
Insight Institutional Series, Inc. to Federated Total Return Series, Inc. on
March 21, 1995. On August 20, 1998, the Board of Directors approved changing the
name of the Fund from Federated Limited Duration Government Fund to Federated
Ultrashort Bond Fund. The Board of Directors (the Board) has established two
classes of shares of the Fund, known as Institutional Shares and Institutional
Service Shares (Shares). This SAI relates to both classes of Shares. The Fund's
investment adviser is Federated Investment Management Company (Adviser).
Effective March 31, 1999, Federated Management, former Adviser to the Fund,
became Federated Investment Management Company (formerly, Federated Advisers).
SECURITIES IN WHICH THE FUND INVESTS
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
invests.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the interest rate and prepayment risks of these mortgage backed
securities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers.
In addition, the credit risk of an issuer's debt security may vary based on
its priority for repayment. For example, higher ranking (senior) debt securities
have a higher priority than lower ranking (subordinated) securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event of
bankruptcy, holders of senior securities may receive amounts otherwise payable
to the holders of subordinated securities. Some subordinated securities, such as
trust preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer any
payment that would reduce its capital below regulatory requirements.
Commercial Paper
Commercial paper is an issuer's obligation with a maturity of less than nine
months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default. The short
maturity of commercial paper reduces both the market and credit risks as
compared to other debt securities of the same issuer.
Demand Instruments
Demand instruments are corporate debt securities that the issuer must repay upon
demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year.
MORTGAGE BACKED SECURITIES
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and prepayments from the underlying mortgages. As
a result, the holders assume all the prepayment risks of the underlying
mortgages.
Collateralized Mortgage Obligations (CMOs)
CMOs, including interests in real estate mortgage investment conduits (REMICs),
allocate payments and prepayments from an underlying pass-through certificate
among holders of different classes of mortgage backed securities. This creates
different prepayment and market risks for each CMO class. The degree of
increased or decreased prepayment risks depends upon the structure of the CMOs.
However, the actual returns on any type of mortgage backed security depend upon
the performance of the underlying pool of mortgages, which no one can predict
and will vary among pools.
SEQUENTIAL CMOS
In a sequential pay CMO, one class of CMOs receives all principal payments and
prepayments. The next class of CMOs receives all principal payments after the
first class is paid off. This process repeats for each sequential class of CMO.
As a result, each class of sequential pay CMOs reduces the prepayment risks of
subsequent classes.
PACS, TACS AND COMPANION CLASSES
More sophisticated CMOs include planned amortization classes (PACs) and targeted
amortization classes (TACs). PACs and TACs are issued with companion classes.
PACs and TACs receive principal payments and prepayments at a specified rate.
The companion classes receive principal payments and prepayments in excess of
the specified rate. In addition, PACs will receive the companion classes' share
of principal payments, if necessary, to cover a shortfall in the prepayment
rate. This helps PACs and TACs to control prepayment risks by increasing the
risks to their companion classes.
IOS AND POS
CMOs may allocate interest payments to one class (Interest Only or IOs) and
principal payments to another class (Principal Only or POs). POs increase in
value when prepayment rates increase. In contrast, IOs decrease in value when
prepayments increase, because the underlying mortgages generate less interest
payments. However, IOs tend to increase in value when interest rates rise (and
prepayments decrease), making IOs a useful hedge against market risks.
FLOATERS AND INVERSE FLOATERS
Another variant allocates interest payments between two classes of CMOs. One
class (Floaters) receives a share of interest payments based upon a market index
such as LIBOR. The other class (Inverse Floaters) receives any remaining
interest payments from the underlying mortgages. Floater classes receive more
interest (and Inverse Floater classes receive correspondingly less interest) as
interest rates rise. This shifts prepayment and interest rate risks from the
Floater to the Inverse Floater class, reducing the price volatility of the
Floater class and increasing the price volatility of the Inverse Floater class.
Z CLASSES
CMOs must allocate all payments received from the underlying mortgages to some
class. To capture any unallocated payments, CMOs generally have an accrual (Z)
class. Z classes do not receive any payments from the underlying mortgages until
all other CMO classes have been paid off. Once this happens, holders of Z class
CMOs receive all payments and prepayments.
PRIVATELY ISSUED MORTGAGE BACKED SECURITIES
Privately issued mortgage securities (including privately issued CMOs) are
issued by private entities, rather than U.S. government agencies. These
securities involve credit risks and liquidity risks. The Fund may invest in
privately issued mortgage backed securities that are rated BBB or higher by a
NRSRO.
ASSET BACKED SECURITIES
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities have prepayment
risks. Like CMOs, asset backed securities may be structured like Floaters,
Inverse Floaters, IOs and POs.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the market and credit risks of a zero coupon security. A zero coupon
step-up security converts to a coupon security before final maturity.
There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs are
the most common forms of stripped zero coupon securities. In addition, some
securities give the issuer the option to deliver additional securities in place
of cash interest payments, thereby increasing the amount payable at maturity.
These are referred to as pay-in-kind or PIK securities.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Yankee instruments are denominated in U.S. dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are denominated
in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges.
In this case, the exchange sets all the terms of the contract except for the
price. Investors make payments due under their contracts through the exchange.
Most exchanges require investors to maintain margin accounts through their
brokers to cover their potential obligations to the exchange. Parties to the
contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty. Trading contracts on an exchange
also allows investors to close out their contracts by entering into offsetting
contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity and leverage risks.
OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract.
The Fund may trade in the following types of derivative contracts.
FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date, and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures contracts
are considered to be commodity contracts. Futures contracts traded OTC are
frequently referred to as forward contracts.
The Fund may buy and sell the following types of futures contracts: financial
futures, foreign currency forward contracts, and futures on securities indices.
OPTIONS
Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.
The Fund may:
o Buy put options on portfolio securities and futures contracts in
anticipation of a decrease in the value of the underlying asset; and
o Buy or write options to close out existing options positions. The Fund may
also write call options on portfolio securities and futures contracts to
generate income from premiums, and in anticipation of a decrease or only
limited increase in the value of the underlying asset. If a call written by
the Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise
price plus the premium received.
The Fund may not buy or sell futures or related options if the margin deposits
and premiums paid for these securities would exceed 5% of the Fund's total
assets.
SWAPS
Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party, and
the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by a
variety of names including caps, floors, and collars. Common swap agreements
that the Fund may use include:
Interest Rate Swaps
Interest rate swaps are contracts in which one party agrees to make regular
payments equal to a fixed or floating interest rate times a stated principal
amount of fixed income securities, in return for payments equal to a different
fixed or floating rate times the same principal amount, for a specific period.
For example, a $10 million LIBOR swap would require one party to pay the
equivalent of the London Interbank Offer Rate of interest (which fluctuates) on
$10 million principal amount in exchange for the right to receive the equivalent
of a stated fixed rate of interest on $10 million principal amount.
Caps and Floors
Caps and Floors are contracts in which one party agrees to make payments only if
an interest rate or index goes above (Cap) or below (Floor) a certain level in
return for a fee from the other party.
Total Return Swaps
Total return swaps are contracts in which one party agrees to make payments of
the total return from the underlying asset during the specified period, in
return for payments equal to a fixed or floating rate of interest or the total
return from another underlying asset.
INVESTMENT RATINGS FOR NON-INVESTMENT GRADE SECURITIES
Non-investment grade securities (junk bonds) are rated below BBB by a NRSRO.
These bonds have greater credit risk than investment grade securities.
INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES
The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more NRSRO. For example, Standard and Poor's, a
rating service, assigns ratings to investment grade securities (AAA, AA, A, and
BBB) based on their assessment of the likelihood of the issuer's inability to
pay interest or principal (default) when due on each security. Lower credit
ratings correspond to higher credit risk. If a security has not received a
rating, the Fund must rely entirely upon the Adviser's credit assessment that
the security is comparable to investment grade. If a security is downgraded
below the minimum quality grade discussed above, the Adviser will reevaluate the
security, but will not be required to sell it.
SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS AND BORROWING FOR LEVERAGE
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase. The
Fund may borrow an amount up to one-third of the Fund's net assets (exclusive of
such borrowings) for leverage purposes.
DELAYED DELIVERY TRANSACTIONS
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.
SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower.
The Fund will not have the right to vote on securities while they are on loan,
but it will terminate a loan in anticipation of any important vote. The Fund may
pay administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.
Securities lending activities are subject to interest rate and credit risks.
ASSET COVERAGE
In order to secure its obligations in connection with special transactions, the
Fund will either own the underlying assets, enter into an offsetting transaction
or set aside readily marketable securities with a value that equals or exceeds
the Fund's obligations. Unless the Fund has other readily marketable assets to
set aside, it cannot trade assets used to secure such obligations entering into
an offsetting derivative contract or terminating a special transaction. This may
cause the Fund to miss favorable trading opportunities or to realize losses on
special transactions.
INTER-FUND BORROWING AND LENDING ARRANGEMENTS
The SEC has granted an exemption that permits the Fund and all other funds
advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend
and borrow money for certain temporary purposes directly to and from other
Federated funds. Participation in this inter-fund lending program is voluntary
for both borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program according to
procedures approved by the Fund's Board, and the Board monitors the operation of
the program. Any inter-fund loan must comply with certain conditions set out in
the exemption, which are designed to assure fairness and protect all
participating funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the "Repo Rate") AND more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term borrowings
(the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on
inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
The Fund may invest in mortgage backed and high yield securities primarily by
investing in another investment company (which is not available for general
investment by the public) that owns those securities and that is advised by an
affiliate of the Adviser. This other investment company is managed independently
of the Fund and may incur additional administrative expenses. Therefore, any
such investment by the Fund may be subject to duplicate expenses. However, the
Adviser believes that the benefits and efficiencies of this approach should
outweigh the potential additional expenses. The Fund may also invest in such
securities directly.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in the prospectus. Additional risk factors are
outlined below.
INTEREST RATE RISKS
o Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates
rise, prices of fixed income securities fall. However, market factors, such
as the demand for particular fixed income securities, may cause the price of
certain fixed income securities to fall while the prices of other securities
rise or remain unchanged.
o Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.
CREDIT RISKS
o Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Fund will lose money.
o Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the Adviser's credit
assessment. Fixed income securities generally compensate for greater credit
risk by paying interest at a higher rate. The difference between the yield of
a security and the yield of a U.S. Treasury security with a comparable
maturity (the spread) measures the additional interest paid for risk. Spreads
may increase generally in response to adverse economic or market conditions.
A security's spread may also increase if the security's rating is lowered, or
the security is perceived to have an increased credit risk. An increase in
the spread will cause the price of the security to decline. Credit risk
includes the possibility that a party to a transaction involving the Fund
will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
PREPAYMENT AND CALL RISKS
o Unlike traditional fixed income securities, which may pay a fixed rate of
interest until maturity, when the entire principal amount is due, payments on
mortgage backed securities include both interest and partial payment of
principal. This partial payment of principal may be comprised of a scheduled
principal payment as well as an unscheduled payment from the voluntary
prepayment, refinancing, or foreclosure of the underlying loans. These
unscheduled payments of principal can adversely affect the price or yield of
mortgage backed securities. For example, during periods of declining interest
rates, prepayments can be expected to accelerate, and the Fund would be
required to reinvest the proceeds at the lower interest rates then available.
In addition, like other interest-bearing securities, the values of mortgage
backed securities generally fall when interest rates rise.
o Since rising interest rates generally result in decreased prepayments of
mortgage backed securities, this could cause mortgage backed securities to
have greater average lives than expected and their value may decline more
than other fixed income securities. Conversely, when interest rates fall,
their potential for capital appreciation is limited due to the existence of
the prepayment feature.
o Generally, mortgage backed securities compensate for greater prepayment risk
by paying a higher yield. The additional interest paid for risk is measured
by the difference between the yield of a mortgage backed security and the
yield of a U.S. Treasury security with a comparable weighted average life
(the spread). An increase in the spread will cause the price of the security
to decline. Spreads may generally increase in response to adverse economic or
market conditions.
o Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its current market price.
An increase in the likelihood of a call may reduce the security's price.
o If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
LIQUIDITY RISKS
o Liquidity risk refers to the possibility that the Fund may not be able to
sell a security when it wants to. If this happens, the Fund will be required
to continue to hold the security, and the Fund could incur losses.
o Trading opportunities are more limited for CMOs that have complex terms or
that are not widely held. These features may make it more difficult to sell
or buy a security at a favorable price or time. Consequently, the Fund may
have to accept a lower price to sell a security, sell other securities to
raise cash or give up an investment opportunity, any of which could have a
negative effect on the Fund's performance. Infrequent trading of securities
may also lead to an increase in their price volatility.
RISKS ASSOCIATED WITH COMPLEX CMOS
o CMOs with complex terms, such as companion classes, IOs, POs, and Inverse
Floaters, generally entail greater market, prepayment and liquidity risks
than other mortgage backed securities. For example, their prices are more
volatile and their trading market may be more limited.
LEVERAGE RISKS
o Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
RISKS OF FOREIGN INVESTING
o Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
o Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the United
States. Foreign companies may also receive less coverage than United States
companies by market analysts and the financial press. In addition, foreign
countries may lack uniform accounting, auditing and financial reporting
standards or regulatory requirements comparable to those applicable to U.S.
companies. These factors may prevent the Fund and its Adviser from obtaining
information concerning foreign companies that is as frequent, extensive and
reliable as the information available concerning companies in the United
States.
o Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
CURRENCY RISKS
o Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
o The Adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
o Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns
and financial setbacks may affect their prices more negatively, and their
trading market may be more limited.
FUNDAMENTAL INVESTMENT OBJECTIVE
The Fund's investment objective is to provide total return consistent with
current income. The investment objective may not be changed by the Fund's
Directors without shareholder approval.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for clearance
of purchases and sales of portfolio securities.
CONCENTRATION OF INVESTMENTS
The Fund will not acquire more than 25% of its total assets in securities of
issuers having their principal business activities in the same industry.
BORROWING MONEY
The Fund will not borrow money, except to the extent permitted under the 1940
Act (which currently limits borrowings to no more than 33A% of the value of the
Fund's total assets). For purposes of this investment restriction, the entry
into options, forward contracts, futures contracts, including those related to
indices, options on futures contracts or indices, and dollar roll transactions
shall not constitute borrowing.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities issued by any one issuer (other than cash,
cash items, or securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, and repurchase agreements collateralized by such
securities) if, as a result, more than 5% of the value of its total assets would
be invested in the securities of that issuer, and will not acquire more than 10%
of the outstanding voting securities of any one issuer.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may mortgage, pledge, or hypothecate
assets having a market value not exceeding 10% of the value of total assets at
the time of the borrowing.
LENDING CASH OR SECURITIES
The Fund will not lend any assets except portfolio securities. (This will not
prevent the purchase or holding of bonds, debentures, notes, certificates of
indebtedness or other debt securities of an issuer, repurchase agreements or
other transactions which are permitted by the Fund's investment objective and
policies or Articles of Incorporation).
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities, except as permitted by its investment
objective and policies.
THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD AND BY
THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING SECURITIES," AS DEFINED BY THE
INVESTMENT COMPANY ACT OF 1940 (1940 ACT). THE FOLLOWING LIMITATIONS, HOWEVER,
MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL. SHAREHOLDERS WILL BE
NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS BECOMES EFFECTIVE.
INVESTING IN RESTRICTED AND ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid securities,
including certain restricted securities not determined to be liquid under
criteria established by the Directors, non-negotiable time deposits, and
repurchase agreements providing for settlement in more than seven days after
notice.
Except with respect to borrowing money, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction.
As a matter of operating policy, the Fund will not purchase any securities
while borrowings in excess of 5% of its total assets are outstanding.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o for fixed income securities, at the last sale price on a national
securities exchange, if available, otherwise, as determined by an
independent pricing service;
o futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of
trading on such exchanges. Options traded in the over-the-counter market
are generally valued according to the mean between the last bid and the
last asked price for the option as provided by an investment dealer or
other financial institution that deals in the option. The Board may
determine in good faith that another method of valuing such investments is
necessary to appraise their fair market value;
o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that
short-term obligations with remaining maturities of less than 60 days at
the time of purchase may be valued at amortized cost or at fair market
value as determined in good faith by the Board; and
o for all other securities at fair value as determined in good faith by the
Board. Prices provided by independent pricing services may be determined
without relying exclusively on quoted prices and may consider institutional
trading in similar groups of securities, yield, quality, stability, risk,
coupon rate, maturity, type of issue, trading characteristics, and other
market data or factors. From time to time, when prices cannot be obtained
from an independent pricing service, securities may be valued based on
quotes from broker/dealers or other financial institutions that trade the
securities.
WHAT DO SHARES COST?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
The NAV for each class of Shares may differ due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
RULE 12B-1 PLAN--INSTITUTIONAL SERVICE SHARES
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related
or shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
SUBACCOUNTING SERVICES
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the 1940 Act,
the Fund is obligated to pay Share redemptions to any one shareholder in cash
only up to the lesser of $250,000 or 1% of the net assets represented by such
Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving the portfolio securities and selling them
before their maturity could receive less than the redemption value of the
securities and could incur certain transaction costs.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of the Corporation
have equal voting rights, except that in matters affecting only a particular
Fund or class, only Shares of that Fund or class are entitled to vote.
Directors may be removed by the Board or by shareholders at a special meeting.
A special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote.
As of February 1, 2000, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Institutional Service Shares:
Charles Schwab & Co., Inc., San Francisco, CA, 8.97%; Trust Company of St.
Joseph, St. Joseph, MO, 9.96%; and Federated Services Corp., Pittsburgh, PA,
10.16%.
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of four funds and the Federated Fund Complex is
comprised of 43 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.
As of February 1, 2000, the Fund's Board and Officers as a group owned less
than 1% of the Fund's outstanding Institutional Service Shares.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME BIRTH DATE ADDRESS PRINCIPAL OCCUPATIONS FOR PAST FIVE AGGREGATE TOTAL
POSITION WITH CORPORATION YEARS COMPENSATICOMPENSATION
FROM FROM
CORPORATIOCORPORATION
AND FUND
COMPLEX
JOHN F. DONAHUE*# Chief Executive Officer and Director $0 $0 for the
Birth Date: July 28, 1924 or Trustee of the Federated Fund Corporation
Federated Investors Tower Complex; Chairman and Director, and 43
1001 Liberty Avenue Federated Investors, Inc.; Chairman, other
Pittsburgh, PA Federated Investment Management investment
CHARIMAN AND DIRECTOR Company, Federated Global Investment companies
Management Corp. and Passport in the Fund
Research, Ltd. ; formerly: Trustee, Complex
Federated Investment Management
Company and Chairman and Director,
Federated Investment Counseling.
THOMAS G. BIGLEY Director or Trustee of theFederated $1,087.15 $116,760.63
Birth Date: February 3, Fund Complex; Director, Member of for the
1934 Executive Committee, Children's Corporation
15 Old Timber Trail Hospital of Pittsburgh; Director, and 43
Pittsburgh, PA Robroy Industries, Inc. (coated other
DIRECTOR steel conduits/computer storage investment
equipment); formerly: Senior companies
Partner, Ernst & Young LLP; in the Fund
Director, MED 3000 Group, Inc. Complex
(physician practice management);
Director, Member of Executive
Committee, University of Pittsburgh.
JOHN T. CONROY, JR. Director or Trustee of the Federated $1,196.04 $128,455.37
Birth Date: June 23, 1937 Fund Complex; President, Investment for the
Grubb & Ellis/Investment Properties Corporation; Senior Vice Corporation
Properties Corporation President, JohnR.Wood and and 43
3255 Tamiami Trail North Associates, Inc., Realtors; Partner other
Naples, FL or Trustee in private real estate investment
DIRECTOR ventures in Southwest Florida; companies
formerly: President, Naples Property in the Fund
Management, Inc. and Northgate Complex
Village Development Corporation.
NICHOLAS CONSTANTAKIS Director or Trustee of the Federated $1,087.15 $73,191.21
Birth Date: September 3, Fund Complex; formerly: Partner, for the
1939 Andersen Worldwide SC. Corporation
175 Woodshire Drive and 37
Pittsburgh, PA other
DIRECTOR investment
companies
in the Fund
Complex
JOHN F. CUNNINGHAM Director or Trustee of some of the $570.74 $93,190.48
Birth Date: March 5, 1943 Federated Fund Complex; Chairman, for the
353 El Brillo Way President and Chief Executive Corporation
Palm Beach, FL Officer, Cunningham & Co., Inc. and 37
DIRECTOR (strategic business consulting) ; other
Trustee Associate, Boston College; investment
Director, Iperia Corp. companies
(communications/software); formerly: in the Fund
Director, Redgate Communications and Complex
EMC Corporation (computer storage
systems). Previous Positions:
Chairman of the Board and Chief
Executive Officer, Computer
Consoles, Inc.; President and Chief
Operating Officer, Wang
Laboratories; Director, First
National Bank of Boston; Director,
Apollo Computer, Inc.
J.CHRISTOPHER DONAHUE* President or Executive Vice $0 $0 for the
Birth Date: April 11, 1949 President of the Federated Fund Corporation
Federated Investors Tower Complex; Director or Trustee of some and 30
1001 Liberty Avenue of the Funds in the Federated Fund other
Pittsburgh, PA Complex; President, Chief Executive investment
EXECUTIVE VICE PRESIDENT Officer and Director, Federated companies
AND DIRECTOR Investors, Inc.; President, Chief in the Fund
Executive Officer and Trustee, Complex
Federated Investment Management
Company; Trustee, Federated
Investment Counseling; President,
Chief Executive Officer and
Director, Federated Global
Investment Management Corp.;
President and Chief Executive
Officer, Passport Research, Ltd.;
Trustee, Federated Shareholder
Services Company; Director,
Federated Services Company;
formerly: President, Federated
Investment Counseling.
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated $1,087.15 $116,760.63
Birth Date: October 11, Fund Complex; Professor of Medicine, for the
1932 University of Pittsburgh; Medical Corporation
3471 Fifth Avenue Suite Director, University of Pittsburgh and 43
1111 Medical Center Downtown; other
Pittsburgh, PA Hematologist, Oncologist, and investment
DIRECTOR Internist, University of Pittsburgh companies
Medical Center; Member, National in the Fund
Board of Trustees, Leukemia Society Complex
of America.
PETER E. MADDEN Director or Trustee of the Federated $989.03 $109,153.60
Birth Date: March 16, 1942 Fund Complex; formerly: for the
One Royal Palm Way Representative, Commonwealth of Corporation
100 Royal Palm Way Massachusetts General Court; and 43
Palm Beach, FL President, State Street Bank and other
DIRECTOR Trust Company and State investment
StreetCorporation. Previous companies
Positions: Director, VISA USA and in the Fund
VISA International; Chairman and Complex
Director, Massachusetts Bankers
Association; Director, Depository
Trust Corporation; Director, The
Boston StockExchange.
CHARLES F. MANSFIELD, JR. Director or Trustee of some of the $600.16 $102,573.91
Birth Date: April 10, 1945 Federated Fund Complex; Management for the
80 South Road Consultant. Previous Positions: Corporation
Westhampton Beach, NY Chief Executive Officer, PBTC and 40
DIRECTOR International Bank; Partner, Arthur other
Young & Company (now Ernst & Young investment
LLP); Chief Financial Officer of companies
Retail Banking Sector, Chase in the Fund
Manhattan Bank; Senior Vice Complex
President, Marine Midland Bank; Vice
President, Citibank; Assistant
Professor of Banking and Finance,
Frank G. Zarb School of Business,
Hofstra University.
JOHN E. MURRAY, JR., J.D., Director or Trustee of theFederated $1,171.83 $128,455.37
S.J.D.# Fund Complex; President, Law for the
Birth Date: December 20, Professor, Duquesne University; Corporation
1932 Consulting Partner, Mollica & and 43
President, Duquesne Murray; Director, Michael Baker other
University Corp. (engineering, construction, investment
Pittsburgh, PA operations and technical services). companies
DIRECTOR Previous Positions: Dean and in the Fund
Professor of Law, University of Complex
Pittsburgh School of Law; Dean and
Professor of Law, Villanova
University School of Law.
MARJORIE P. SMUTS Director or Trustee of the Federated $1,087.15 $116,760.63
Birth Date: June 21, 1935 Fund Complex; Public for the
4905 Bayard Street Relations/Marketing/Conference Corporation
Pittsburgh, PA Planning. Previous Positions: and 43
DIRECTOR National Spokesperson, Aluminum other
Company of America; television investment
producer; business owner. companies
in the Fund
Complex
JOHN S. WALSH Director or Trustee of some of the $570.74 $94,536.85
Birth Date: November 28, Federated Fund Complex; President for the
1957 and Director, Heat Wagon, Inc. Corporation
2007 Sherwood Drive (manufacturer of construction and 39
Valparaiso, IN temporary heaters); President and other
DIRECTOR Director, Manufacturers Products, investment
Inc. (distributor of portable companies
construction heaters); President, in the Fund
Portable Heater Parts, a division of Complex
Manufacturers Products, Inc.;
Director, Walsh & Kelly, Inc. (heavy
highway contractor); formerly: Vice
President, Walsh & Kelly, Inc.
GLEN R. JOHNSON President of some of the Funds in $0 $0 for the
Birth Date: May 2, 1929 the Federated Fund Complex; Staff Corporation
Federated Investors Tower member, Federated Securities Corp.; and 21
1001 Liberty Avenue formerly: Trustee or Director of other
Pittsburgh, PA some of the Funds in the Federated investment
PRESIDENT Fund Complex. companies
in the Fund
Complex
EDWARD C. GONZALES President, Executive Vice President $0 $0 for the
Birth Date: October 22, and Treasurer of some of the Funds Corporation
1930 in the Federated Fund Complex; Vice and 42
Federated Investors Tower Chairman, Federated Investors, Inc.; other
1001 Liberty Avenue Trustee, Federated Administrative investment
Pittsburgh, PA Services; formerly: Trustee or company in
EXECUTIVE VICE PRESIDENT Director of some of the Funds in the the Fund
Federated Fund Complex; CEO and Complex
Chairman, Federated Administrative
Services; Vice President, Federated
Investment Management Company,
Federated Investment Counseling,
Federated Global Investment
Management Corp. and Passport
Research, Ltd.; Director and
Executive Vice President, Federated
Securities Corp.; Director,
Federated Services Company; Trustee,
Federated Shareholder Services
Company.
JOHN W. MCGONIGLE Executive Vice President and $0 $0 for the
Birth Date: October 26, Secretary of the Federated Fund Corporation
1938 Complex; Executive Vice President, and 43
Federated Investors Tower Secretary and Director, Federated other
1001 Liberty Avenue Investors, Inc.; formerly: Trustee, investment
Pittsburgh, PA Federated Investment Management companies
EXECUTIVE VICE PRESIDENT Company and Federated Investment in the Fund
AND SECRETARY Counseling; Director, Federated Complex
Global Investment Management Corp,
Federated Services Company and
Federated Securities Corp.
RICHARD J.THOMAS Treasurer of the Federated Fund $0 $0 for the
Birth Date: June 17, 1954 Complex; Vice President - Funds Corporation
Federated Investors Tower Financial Services Division, and 43
1001 Liberty Avenue Federated Investors, Inc.; formerly: other
Pittsburgh, PA various management positions within investment
TREASURER Funds Financial Services Division of companies
Federated Investors, Inc. in the Fund
Complex
WILLIAM D. DAWSON, III Chief Investment Officer of this $0 $0 for the
Birth Date: March 3, 1949 Fund and various other Funds in the Corporation
Federated Investors Tower Federated Fund Complex; Executive and 27
1001 Liberty Avenue Vice President, Federated Investment other
Pittsburgh, PA Counseling, Federated Global investment
CHIEF INVESTMENT OFFICER Investment Management Corp., companies
Federated Investment Management in the Fund
Company and Passport Research, Ltd.; Complex
Registered Representative, Federated
Securities Corp.; Portfolio Manager,
Federated Administrative Services;
Vice President, Federated Investors,
Inc.; formerly: Executive Vice
President and Senior Vice President,
Federated Investment Counseling
Institutional Portfolio Management
Services Division; Senior Vice
President, Federated Investment
Management Company and Passport
Research, Ltd.
JOSEPH M. BALESTRINO Joseph M. Balestrino is Vice $0 $0 for the
Birth Date: November 3, President of the Corporation. Corporation
1954 Mr.Balestrino joined Federated in and 3 other
Federated Investors Tower 1986 and has been a Senior Portfolio investment
1001 Liberty Avenue Manager and Senior Vice President of companies
Pittsburgh, PA the Fund's Adviser since 1998. He in the Fund
VICE PRESIDENT was a Portfolio Manager and a Vice Complex
President of the Fund's Adviser from 1995 to 1998.
Mr.Balestrino served as a Portfolio Manager and an
Assistant Vice President of the Adviser from 1993
to 1995. Mr.Balestrino is a Chartered Financial
Analyst and received his Master's Degree in Urban
and Regional Planning from the University of
Pittsburgh.
</TABLE>
* AN ASTERISK DENOTES A DIRECTOR WHO IS DEEMED TO BE AN INTERESTED PERSON AS
DEFINED IN THE INVESTMENT COMPANY ACT OF 1940.
# A POUND SIGN DENOTES A MEMBER OF THE BOARD'S EXECUTIVE COMMITTEE, WHICH
HANDLES THE BOARD'S RESPONSIBILITIES BETWEEN ITS MEETINGS.
+ MR. DONAHUE IS THE FATHER OF J. CHRISTOPHER DONAHUE, EXECUTIVE VICE PRESIDENT
AND DIRECTOR OF THE CORPORATION.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Corporation or any Fund shareholder for
any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Corporation.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms which have sold or
are selling Shares of the Fund and other funds distributed by the Distributor
and its affiliates. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Fund's Board.
On September 30, 1999, the Fund owned securities of the following regular
broker/dealer: Lehman Brothers Holdings, Inc. with a market value of $992,910.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS OF
THE FEDERATED FUNDS
0.150 of 1% on the first
$250million
0.125 of 1% on the next
$250million
0.100 of 1% on the next
$250million
0.075 of 1% on assets in excess
of $750million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Deloitte & Touche LLP, plans and performs
its audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED SEPTEMBER30 1999 19981
Advisory Fee Earned $447,691 17,399 $
Advisory Fee Reduction 258,911 17,399
Brokerage Commissions 0 0
Administrative Fee 111,301 143,535
12B-1 FEE
Institutional Service Shares 0
SHAREHOLDER SERVICES FEE
Institutional Service Shares 186,538
1 FOR THE PERIOD OCTOBER 3, 1997 (DATE OF INITIAL PUBLIC INVESTMENT) TO
SEPTEMBER 30, 1998.
INSTITUTIONAL SHARES WERE NOT OFFERED UNTIL FEBRUARY 22, 2000 . Fees are
allocated among classes based on their pro rata share of Fund assets, except for
marketing (Rule 12b-1) fees and shareholder services fees, which are borne only
by the applicable class of Shares.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns are given for the one-year and Start of Performance periods ended
September 30, 1999.
Yield are given for the 30-day period ended September 30, 1999.
SHARE CLASS 30-DAY 1 START OF
PERIOD YEAR PERFORMANCE
ON MAY 31,
1997
INSTITUTIONAL
SERVICE
SHARES:
Total Return NA 5.32%6.46%
Yield 6.22% NA NA
INSTITUTIONAL SHARES WERE NOT OFFERED UNTIL FEBRUARY 22, 2000.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
When Shares of a Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi- annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Fund; and
o information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete
view of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
LIPPER ULTRASHORT BOND FUND AVERAGE
Lipper Ultrashort Bond Fund Average ranks funds that invest 65% of their assets
in investment grade debt issues and maintain a portfolio dollar-weighted average
maturity between 91 and 365 days.
SALOMON SMITH BARNEY U.S. TREASURY BENCHMARK (ON-THE-RUN) INDEXES Salomon Smith
Barney U.S. Treasury Benchmarks (on-The- Run) Indexes is composed of total
returns for the current 1-year, 2-year, 3-year, 5-year, 10-year and 30-year
on-the-run Treasury that has been in existence for the entire month.
MERRILL LYNCH 1-YEAR TREASURY INDEX
Merrill Lynch 1-Year Treasury Index is an unmanaged index tracking 1-year U.S.
Government securities.
MERRILL LYNCH 1-3 YEAR U.S. TREASURY INDEX
Merrill Lynch 1-3 Year U.S. Treasury Index is an unmanaged index tracking
short-term U.S. Government securities with maturities between 1 and 2.99 years.
The index is produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.
WHO IS FEDERATED INVESTORS, INC.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1999, Federated managed 12 bond
funds with approximately $2.0 billion in assets and 24 money market funds with
approximately $13.1 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 29 years' experience. As of
December 31, 1999, Federated managed 53 equity funds totaling approximately
$18.3 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1999, Federated managed 13
money market funds and 29 bond funds with assets approximating $35.7 billion and
$7.7 billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 27 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1999, Federated managed 9
mortgage backed, 11 government/agency and 16 government money market mutual
funds, with assets approximating $4.7 billion, $1.6 billion and $34.1 billion,
respectively. Federated trades approximately $450 million in U.S. government and
mortgage backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.8 billion in government funds within
these maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1999, Federated managed more than $83.0 billion in assets across 54 money market
funds, including 16 government, 13 prime, 24 municipal and 1 euro-denominated
with assets approximating $34.1 billion, $35.7 billion, $13.1 billion and $115
million, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income - William D. Dawson, III; and global equities and
fixed income - Henry A. Frantzen. The Chief Investment Officers are Executive
Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 1,160 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of purposes, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax exempt entities, foundations/
endowments, insurance companies, and investment and financial advisers. The
marketing effort to these institutional clients is headed by John B. Fisher,
President, Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide - we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country - supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
INVESTMENT RATINGS
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong. AA--Debt rated
AA has a very strong capacity to pay interest and repay principal and differs
from the higher-rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating. B--Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating. CCC--Debt rated CCC
has a currently identifiable vulnerability to default, and is dependent upon
favorable business, financial, and economic conditions to meet timely payment of
interest and repayment of principal. In the event of adverse business,
financial, or economic conditions, it is not likely to have the capacity to pay
interest and repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or B-
rating. CC--The rating CC typically is applied to debt subordinated to senior
debt that is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS AAA--Bonds
which are rated AAA are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as gilt edged.
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium- grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class. B--Bonds which are rated B generally lack characteristics
of the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. CA--Bonds which are rated CA represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C--Bonds which are rated C are the lowest-rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue. CCC--Bonds have certain identifiable characteristics which,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time. C--Bonds are imminent default in payment of
interest or principal.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
o Leading market positions in well-established industries; o High rates of
return on funds employed;
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-2--Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment. FITCH-2--(Very Good
Grade) Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than the strongest issues.
Addresses
FEDERATED ULTRASHORT BOND FUND
Institutional Shares
Institutional Service Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
APPENDIX
FEDERATED ULTRASHORT BOND FUND - INSTITUTIONAL SERVICE SHARES
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Institutional Service Shares of Federated Ultrashort
Bond Fund as of the calendar year-end for two years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 2.00% up to 8.00%.
The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1999. The light gray shaded chart features two distinct vertical bars shaded
in charcoal, and visually representing by height the total return percentages
for the calendar year stated directly at its base. The calculated total return
percentage for the Institutional Service Shares for the calendar year is
stated directly at the bottom of the bar, for the calendar year 1998and 1999.
The percentage noted are -7.15% and 4.61%, respectively.
ITEM 23. EXHIBITS.
(a) (i) Conformed copy of Articles of Incorporation;
(ii) Conformed copy of Articles of Amendment of Articles of
Incorporation; (2)
(b) Copy of By-Laws; (1)
(c) Copy of Specimen Certificate for Shares of Capital Stock of
the Registrant; (10)
(d) (i) Copy of Investment Advisory Contract and conformed
copies of Exhibits A and B of Investment Advisory
Contract; (7)
(ii) Conformed copies of Exhibits D and E of Investment
Advisory Contract; (11)
(iii) Conformed copy of Exhibit F of Investment
Advisory Contract; +
(e) (i) Copy of Distributor's Contract and Conformed copies
of Exhibits A, B, C, and D to Distributor's Contract;(4)
(ii) Copy of Distributor's Contract and Conformed copies of
Exhibits E and F to Distributor's Contract; (10)
(iii) Conformed copies of Exhibits G and H to Distributor's
Contract; (11)
(iv) The Registrant hereby incorporates the conformed copy of the
specimen Mutual Funds Sales and Service Agreement; Mutual Funds Service
Agreement; and Plan Trustee/Mutual Funds Service Agreement from Item 24(b)(6) of
the Cash Trust Series II Registration Statement on Form N-1A, filed with the
Commission on July 24, 1995. (File Numbers 33-38550 and 811-6269);
(f) Not Applicable;
(g) (i) Conformed copy of the Custodian Agreement of the
Registrant; (4)
(ii) Conformed Copy of Fee Schedule to the Custodian
Agreement of the Registrant; (13)
- -------------------------------------------------
+ All exhibits have been filed electronically.
(1) Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed October 25, 1993. (File Nos. 33-50773 and
811-7115)
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed December 21, 1993. (File Nos. 33-50773
and 811-7115)
(4) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed May 27, 1994. (File Nos. 33-50773 and
811-7115)
(7) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 on Form N-1A filed June 6, 1995. (File Nos. 33-50773 and
811-7115)
(10) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed November 27, 1996. (File Nos. 33-50773
and 811-7115)
(11) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed March 31, 1997. (File Nos. 33-50773 and
811-7115)
(13) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed November 26, 1997. (File Nos. 33-50773
and 811-7115)
(h) (i) Conformed copy of Fund Accounting Services,
Administrative Services, Transfer Agency Services,
and Custody Services Procurement Agreement of the
Registrant; (13)
(ii) Conformed copy of Administrative Services Agreement; (4) (iii)
Conformed copy of Exhibit B of Funds Participating in
Services Agreement; (15)
(iv) The responses described in Item 24(b)(6) are hereby
incorporated by reference;
(v) Conformed Copy of Amended and Restated Shareholder
Services Agreement of the Registrant; (13)
(i) Conformed copy of Opinion and Consent of Counsel as to
legality of shares being registered; (2)
(j) Conformed copy of Consent of Independent Auditors;+ (k) Not
Applicable; (l) Conformed copy of Initial Capital Understanding; (3) (m)
(i) Conformed copy of Distribution Plan including Exhibits
A and B; (11)
(ii) Conformed copy of Exhibits C to Distribution Plan;(10) (iii)
Conformed copy of Exhibit D and E to Distribution
Plan; (11)
(iv) The responses described in Item 24(b)(6) are hereby
incorporated by reference;
(n) Copies of Financial Data Schedules; (not included per footnote 60 of
Release No. 33-7684)
(o) The Registrant hereby incorporates the conformed copy of the
specimen Multiple Class Plan from Item 24(b)(18) of the World
Investment Series, Inc. Registration Statement on Form N-1A, filed
with the Commission on January 26, 1996. (File Nos. 33-52149
and 811-07141);
- ----------------------------------
+ All exhibits have been filed electronically.
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed December 21, 1993. (File Nos. 33-50773
and 811-7115)
(3) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 on Form N-1A filed January 13, 1994. (File Nos. 33-50773
and 811-7115)
(4) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed May 27, 1994. (File Nos. 33-50773 and
811-7115)
(10) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed November 27, 1996. (File Nos. 33-50773
and 811-7115)
(11) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed March 31, 1997. (File Nos. 33-50773 and
811-7115)
(13) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed November 26, 1997. (File Nos. 33-50773
and 811-7115)
(15) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed August 28, 1998. (File Nos. 33-50773
and 811-7115)
(16) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed November 29, 1999. (File Nos. 33-50773
and 811-7115)
(p) (i) Conformed copy of Power of Attorney; ((16)) (ii) Conformed copy
of Limited Power of Attorney; (10) (iii) Conformed copy of Power of
Attorney for William D.
Dawson; ((16))
Item 24. Persons Controlled by or Under Common Control with the Fund:
None
Item 25. Indemnification: (1)
Item 26. Business and Other Connections of Investment Adviser:
For a description of the other business of the investment adviser, see
the section entitled "Who Manages the Fund?" in Part A. The
affiliations with the Registrant of four of the Trustees and one of the
Officers of the investment adviser are included in Part B of this
Registration Statement under "Who Manages and Provides Services to the
Fund?" The remaining Trustees of the investment adviser and, in
parentheses, their principal occupations are: Thomas R. Donahue, (Chief
Financial Officer, Federated Investors, Inc.), 1001 Liberty Avenue,
Pittsburgh, PA, 15222-3779 and Mark D. Olson (Partner, Wilson, Halbrook
& Bayard), 107 W. Market Street, Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Joseph M. Balestrino
David A. Briggs
Jonathan C. Conley
Deborah A. Cunningham
Michael P. Donnelly
Linda A. Duessel
Mark E. Durbiano
James E. Grefenstette
Jeffrey A. Kozemchak
Sandra L. McInerney
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Bernard A. Picchi
Peter Vutz
Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
Randall S. Bauer
G. Andrew Bonnewell
Micheal W. Casey
Robert E. Cauley
Alexandre de Bethmann
B. Anthony Delserone, Jr.
Donald T. Ellenberger
Eamonn G. Folan
Kathleen M. Foody-Malus
Thomas M. Franks
Marc Halperin
John W. Harris
Patricia L. Heagy
Susan R. Hill
William R. Jamison
Constantine J. Kartsonas
Robert M. Kowit
Richard J. Lazarchic
Steven J. Lehman
Marian R. Marinack
Christopher Matyszewski
William M. Painter
Jeffrey A. Petro
Keith J. Sabol
Frank Semack
Aash M. Shah
Michael W. Sirianni, Jr.
Christopher Smith
Edward J. Tiedge
Leonardo A. Vila
Paige M. Wilhelm
Lori A. Wolff
George B. Wright
Assistant Vice Presidents: Catherine A. Arendas
Arminda Aviles
Nancy J. Belz
James R. Crea, Jr.
Karol M. Krummie
Lee R. Cunningham, II
James H. Davis, II
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
Gary E. Falwell
John T. Gentry
Nikola A. Ivanov
Nathan H. Kehm
John C. Kerber
Grant K. McKay
Natalie F. Metz
Thomas Mitchell
Joseph M. Natoli
Trent Nevills
Bob Nolte
Mary Kay Pavuk
John Quartarolo
Rae Ann Rice
Roberto Sanchez-Dahl, Sr.
Sarath Sathkumara
James W. Schaub
John Sidawi
Matthew K. Stapen
Diane R. Startari
Diane Tolby
Timothy G. Trebilcock
Leonarda A. Vila
Steven J. Wagner
Secretary: G. Andrew Bonnewell
Treasurer: Thomas R. Donahue
Assistant Secretaries: C. Grant Anderson
Karen M. Brownlee
Leslie K. Ross
Assistant Treasurer: Denis McAuley, III
The business address of each of the Officers of the investment adviser
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh,
Pennsylvania 15222-3779. These individuals are also officers of a
majority of the investment advisers to the investment companies in the
Federated Fund Complex described in Part B of this Registration
Statement.
ITEM 27. PRINCIPAL UNDERWRITERS:
(a)..Federated Securities Corp. the Distributor for shares of the Fund, acts as
principal underwriter for the following open- end investment companies,
including the Registrant:
Cash Trust Series II; Cash Trust Series, Inc.; CCB Funds; Edward D. Jones &
Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund,
Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Core
Trust; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated
Fixed Income Securities, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Insurance Series; Federated Investment
Series Funds, Inc.; Federated Managed Allocation Portfolios; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated
Municipal Securities Income Trust; Federated Short-Term Municipal Trust;
Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; FirstMerit Funds; Hibernia Funds;
Independence One Mutual Funds; Intermediate Municipal Trust; International
Series, Inc.; Marshall Funds, Inc.; Money Market Obligations Trust; Regions
Funds; RIGGS Funds; SouthTrust Funds; Tax-Free Instruments Trust; The Wachovia
Funds; The Wachovia Municipal Funds; Vision Group of Funds, Inc.; and World
Investment Series, Inc.;
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH FUND
Richard B. Fisher Chairman, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Arthur L. Cherry Director, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales --
Federated Investors Tower and Director,
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary --
Federated Investors Tower and Treasurer,
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer and --
Federated Investors Tower Director,
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ronald M. Petnuch Senior Vice President,
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew W. Brown Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark Carroll Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Steven R. Cohen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert J. Deuberry Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark A. Gessner Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Tad Gullickson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Dayna C. Haferkamp Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President,
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher A. Layton Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael H. Liss Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Amy Michalisyn Vice President,
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peter III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Larry Sebbens Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Segura Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert W. Bauman Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Donald C. Edwards Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John T. Glickson Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kirk A. Montgomery Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy S. Johnson Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Victor R. Siclari Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley III Assistant Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(c) Not applicable
Item 28. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following
locations:
Registrant Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Federated Services Company Federated Investors Tower
Transfer Agent, Dividend 1001 Liberty Avenue
Disbursing Agent and Pittsburgh, PA 15222-3779
Portfolio Recordkeeper
Federated Administrative Federated Investors Tower
Services 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Management Federated Investors Tower
Investment Adviser 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
State Street Bank and P.O. Box 8600
Trust Company Boston, MA 02266-8600
Custodian
Item 29. Management Services: Not applicable.
Item 30. Undertakings:
Registrant hereby undertakes to comply with the provisions of Section
16(c) of the 1940 Act with respect to the removal of Directors and the
calling of special shareholder meetings by shareholders.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED TOTAL RETURN SERIES,
INC. certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Pittsburgh and Commonwealth of Pennsylvania, on
the 15th day of February, 2000.
FEDERATED TOTAL RETURN SERIES, INC.
BY: /s/ C. Grant Anderson
C. Grant Anderson, Assistant Secretary
Attorney in Fact for John F. Donahue
February 15, 2000
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ C. Grant Anderson Attorney In Fact February 15, 2000
C. Grant Anderson For the Persons
ASSISTANT SECRETARY Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
Glen R. Johnson* President
J. Christopher Donahue* Executive Vice President
and Director
Edward C. Gonzales* Executive Vice President
John W. McGonigle* Executive Vice President
and Secretary
Richard J. Thomas* Treasurer
Thomas G. Bigley* Director
John T. Conroy, Jr.* Director
Nicholas P. Constantakis* Director
John F. Cunningham* Director
Lawrence D. Ellis, M.D.* Director
Peter E. Madden* Director
Charles F. Mansfield, Jr.* Director
John E. Murray, Jr.* Director
Marjorie P. Smuts* Director
John S. Walsh* Director
* By Power of Attorney
Exhibit d(iii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
EXHIBIT F
to the
Investment Advisory Contract
Federated Ultrashort Bond Fund
For all services rendered by Adviser hereunder, the above-named Fund of
the Corporation shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment advisory
fee equal to .60 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of .60 of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 1st day of October, 1998.
Federated Management
By /S/ STEPHEN A. KEEN
Name: Stephen A. Keen
Title: Vice President
Federated Total Return Series, Inc.
By: /S/ J. CHRISTOPHER DONAHUE
Name: J. Christopher Donahue
Title: Executive Vice President
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, dated as of March 31, 1999, that Federated
Total Return Series, Inc., a corporation duly organized under the laws of the
state of Maryland (the "Corporation"), does hereby nominate, constitute and
appoint Federated Investment Management Company, a business trust duly organized
under the laws of the state of Delaware (the "Adviser"), to act hereunder as the
true and lawful agent and attorney-in-fact of the Corporation, acting on behalf
of each of the series portfolios for which the Adviser acts as investment
adviser shown on Schedule 1 attached hereto and incorporated by reference herein
(each such series portfolio being hereinafter referred to as a "Fund" and
collectively as the "Funds"), for the specific purpose of executing and
delivering all such agreements, instruments, contracts, assignments, bond
powers, stock powers, transfer instructions, receipts, waivers, consents and
other documents, and performing all such acts, as the Adviser may deem necessary
or reasonably desirable, related to the acquisition, disposition and/or
reinvestment of the funds and assets of a Fund of the Corporation in accordance
with Adviser's supervision of the investment, sale and reinvestment of the funds
and assets of each Fund pursuant to the authority granted to the Adviser as
investment adviser of each Fund under that certain investment advisory contract
dated March 22, 1995 by and between the Adviser and the Corporation (such
investment advisory contract, as may be amended, supplemented or otherwise
modified from time to time is hereinafter referred to as the "Investment
Advisory Contract").
The Adviser shall exercise or omit to exercise the powers and authorities
granted herein in each case as the Adviser in its sole and absolute discretion
deems desirable or appropriate under existing circumstances. The Corporation
hereby ratifies and confirms as good and effectual, at law or in equity, all
that the Adviser, and its officers and employees, may do by virtue hereof.
However, despite the above provisions, nothing herein shall be construed as
imposing a duty on the Adviser to act or assume responsibility for any matters
referred to above or other matters even though the Adviser may have power or
authority hereunder to do so. Nothing in this Limited Power of Attorney shall be
construed (i) to be an amendment or modifications of, or supplement to, the
Investment Advisory Contract, (ii) to amend, modify, limit or denigrate any
duties, obligations or liabilities of the Adviser under the terms of the
Investment Advisory Contract or (iii) exonerate, relieve or release the Adviser
any losses, obligations, penalties, actions, judgments and suits and other
costs, expenses and disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against the Adviser (x) under the terms of
the Investment Advisory Contract or (y) at law, or in equity, for the
performance of its duties as the investment adviser of any of the Funds.
The Corporation hereby agrees to indemnify and save harmless the Adviser
and its Trustees, officers and employees (each of the foregoing an "Indemnified
Party" and collectively the "Indemnified Parties") against and from any and all
losses, obligations, penalties, actions, judgments and suits and other costs,
expenses and disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against an Indemnified Party, other than as a
consequence of gross negligence or willful misconduct on the part of an
Indemnified Party, arising out of or in connection with this Limited Power of
Attorney or any other agreement, instrument or document executed in connection
with the exercise of the authority granted to the Adviser herein to act on
behalf of the Corporation, including without limitation the reasonable costs,
expenses and disbursements in connection with defending such Indemnified Party
against any claim or liability related to the exercise or performance of any of
the Adviser's powers or duties under this Limited Power of Attorney or any of
the other agreements, instruments or documents executed in connection with the
exercise of the authority granted to the Adviser herein to act on behalf of the
Corporation, or the taking of any action under or in connection with any of the
foregoing. The obligations of the Corporation under this paragraph shall survive
the termination of this Limited Power of Attorney with respect to actions taken
by the Adviser on behalf of the Corporation during the term of this Limited
Power of Attorney. No Fund shall have any joint or several obligation with any
other Fund to reimburse or indemnify an Indemnified Party for any action, event,
matter or occurrence performed or omitted by or on behalf of the Adviser in its
capacity as agent or attorney-in-fact of Corporation acting on behalf of any
other Fund hereunder.
Any person, partnership, corporation or other legal entity dealing with
the Adviser in its capacity as attorney-in-fact hereunder for the Corporation is
hereby expressly put on notice that the Adviser is acting solely in the capacity
as an agent of the Corporation and that any such person, partnership,
corporation or other legal entity must look solely to the Corporation in
question for enforcement of any claim against the Corporation, as the Adviser
assumes no personal liability whatsoever for obligations of the Corporation
entered into by the Adviser in its capacity as attorney-in-fact for the
Corporation.
Each person, partnership, corporation or other legal entity which deals
with a Fund of the Corporation through the Adviser in its capacity as agent and
attorney-in-fact of the Corporation, is hereby expressly put on notice (i) that
all persons or entities dealing with the Corporation must look solely to the
assets of the Fund of the Corporation on whose behalf the Adviser is acting
pursuant to its powers hereunder for enforcement of any claim against the
Corporation, as the Directors, officers and/or agents of such Corporation, the
shareholders of the various classes of shares of the Corporation and the other
Funds of the Corporation assume no personal liability whatsoever for obligations
entered into on behalf of such Fund of the Corporation, and (ii) that the
rights, liabilities and obligations of any one Fund are separate and distinct
from those of any other Fund of the Corporation.
The execution of this Limited Power of Attorney by the Corporation acting
on behalf of the several Funds shall not be deemed to evidence the existence of
any express or implied joint undertaking or appointment by and among any or all
of the Funds. Liability for or recourse under or upon any undertaking of the
Adviser pursuant to the power or authority granted to the Adviser under this
Limited Power of Attorney under any rule of law, statute or constitution or by
the enforcement of any assessment or penalty or by legal or equitable
proceedings or otherwise shall be limited only to the assets of the Fund of the
Corporation on whose behalf the Adviser was acting pursuant to the authority
granted hereunder.
The Corporation hereby agrees that no person, partnership, corporation or
other legal entity dealing with the Adviser shall be bound to inquire into the
Adviser's power and authority hereunder and any such person, partnership,
corporation or other legal entity shall be fully protected in relying on such
power or authority unless such person, partnership, corporation or other legal
entity has received prior written notice from the Corporation that this Limited
Power of Attorney has been revoked. This Limited Power of Attorney shall be
revoked and terminated automatically upon the cancellation or termination of the
Investment Advisory Contract between the Corporation and the Adviser. Except as
provided in the immediately preceding sentence, the powers and authorities
herein granted may be revoked or terminated by the Corporation at any time
provided that no such revocation or termination shall be effective until the
Adviser has received actual notice of such revocation or termination in writing
from the Corporation.
This Limited Power of Attorney constitutes the entire agreement between
the Corporation and the Adviser, may be changed only by a writing signed by both
of them, and shall bind and benefit their respective successors and assigns;
provided, however, the Adviser shall have no power or authority hereunder to
appoint a successor or substitute attorney in fact for the Corporation.
This Limited Power of Attorney shall be governed and construed in
accordance with the laws of the Commonwealth of Pennsylvania without reference
to principles of conflicts of laws. If any provision hereof, or any power or
authority conferred upon the Adviser herein, would be invalid or unexercisable
under applicable law, then such provision, power or authority shall be deemed
modified to the extent necessary to render it valid or exercisable while most
nearly preserving its original intent, and no provision hereof, or power or
authority conferred upon the Adviser herein, shall be affected by the invalidity
or the non-exercisability of another provision hereof, or of another power or
authority conferred herein.
This Limited Power of Attorney may be executed in as many identical
counterparts as may be convenient and by the different parties hereto on
separate counterparts. This Limited Power of Attorney shall become binding on
the Corporation when the Corporation shall have executed at least one
counterpart and the Adviser shall have accepted its appointment by executing
this Limited Power of Attorney. Immediately after the execution of a counterpart
original of this Limited Power of Attorney and solely for the convenience of the
parties hereto, the Corporation and the Adviser will execute sufficient
counterparts so that the Adviser shall have a counterpart executed by it and the
Corporation, and the Corporation shall have a counterpart executed by the
Corporation and the Adviser. Each counterpart shall be deemed an original and
all such taken together shall constitute but one and the same instrument, and it
shall not be necessary in making proof of this Limited Power of Attorney to
produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the Corporation has caused this Limited Power of
Attorney to be executed by its duly authorized officer as of the date first
written above.
FEDERATED TOTAL RETURN SERIES, INC.
By: /S/ JOSEPH M. BALESTRINO
Name: Joseph M. Balestrino
Title: Vice President
Accepted and agreed to this
31st day of March, 1999
FEDERATED INVESTMENT MANAGEMENT COMPANY
By: /S/ G. ANDREW BONNEWELL
Name: G. Andrew Bonnewell
Title: Vice President
Schedule 1
to Limited Power of Attorney
dated as of March 31, 1999
by Federated Total Return Series, Inc.
(the Corporation "), acting on
behalf of each of the series portfolios
listed below, and appointing
Federated Investment Management Company
the attorney-in-fact of the
Corporation
LIST OF SERIES PORTFOLIOS
Federated Limited Duration Fund
Federated Mortgage Fund
Federated Total Return Bond Fund
Federated Ultrashort Bond Fund
Exhibit j under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Shareholders of
Federated Ultrashort Bond Fund:
We consent to the use in Post-Effective Amendment No. 20 of Federated Ultrashort
Bond Fund of our report dated November 12, 1999 incorporated by reference into
the Statement of Additional Information and to the reference to us under the
heading "Financial Highlights" in the Prospectus.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
February 14, 2000