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FEDERATED INSURANCE SERIES
Federated American Leaders Fund II
Federated Equity Income Fund II
Federated Fund for U.S. Government Securities II Federated Growth Strategies
Fund II Federated High Income Bond Fund II Federated International Equity Fund
II Federated Prime Money Fund II Federated Quality Bond Fund II Federated Small
Cap Strategies Fund II Federated Strategic Income Fund II Federated Utility Fund
II Supplement to Prospectuses Dated: April 20, 1999 (Federated American Leaders
Fund II, Federated Equity Income Fund II, Federated Fund for U.S.
Government Securities II, Federated Growth Strategies Fund II, Federated
High Income Bond Fund II, Federated International Equity Fund II, Federated
Prime Money Fund II and Federated Utility Fund II);
April 30, 1999 (Federated Quality Bond Fund II)
May 21, 1999 (Federated Small Cap Strategies Fund II and Federated Strategic
Income Fund II)
I. At a special meeting of shareholders to be held on November 15,
1999, shareholders of the above-named Funds will be asked to vote
on the changes described below. If approved by shareholders, these
changes will take effect on or after December 1, 1999.
Shareholders will be notified if any of these changes are not
approved at the special meeting or any adjournment thereof. Please
keep this supplement for your records.
Shareholders will be asked to consider the following proposals:
(1) To elect six Trustees.
(2) To make changes to the fundamental investment policies of each
Fund (except as otherwise noted):
(a) To amend the Funds' fundamental investment policies
regarding diversification to read as follows:
"With respect to securities comprising 75% of the value of
its total assets, the Fund will not purchase securities of
any one issuer (other than cash; cash items; securities
issued or guaranteed by the government of the United
States or its agencies or instrumentalities and repurchase
agreements collateralized by such U.S. government
securities; and securities of other investment companies)
if, as a result, more than 5% of the value of its total
assets would be invested in the securities of that issuer,
or the Fund would own more than 10% of the outstanding
voting securities of that issuer."
(b) To amend the Funds' fundamental investment policies
regarding borrowing money and issuing senior securities to
read as follows:
"The Fund may borrow money, directly or indirectly, and
issue senior securities to the maximum extent permitted
under the 1940 Act."
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(c) To amend the Funds' fundamental investment policies
regarding investments in real estate to read as follows:
"The Fund may not purchase or sell real estate, provided
that this restriction does not prevent the Fund from
investing in issuers which invest, deal, or otherwise
engage in transactions in real estate or interests
therein, or investing in securities that are secured by
real estate or interests therein. The Fund may exercise
its rights under agreements relating to such securities,
including the right to enforce security interests and to
hold real estate acquired by reason of such enforcement
until that real estate can be liquidated in an orderly
manner."
(d) To amend the Funds' fundamental investment policies
regarding investments in commodities to read as follows:
"The Fund may not purchase or sell physical commodities,
provided that the Fund may purchase securities of
companies that deal in commodities."
(e) To amend the Funds' fundamental investment policies
regarding underwriting securities to read as follows:
"The Fund may not underwrite the securities of other
issuers, except that the Fund may engage in transactions
involving the acquisition, disposition or resale of its
portfolio securities, under circumstances where it may be
considered to be an underwriter under the Securities Act
of 1933."
(f) To amend the Funds' fundamental investment policies
regarding lending by the Funds to read as follows:
"The Fund may not make loans, provided that this
restriction does not prevent the Fund from purchasing debt
obligations, entering into repurchase agreements, lending
its assets to broker/dealers or institutional investors
and investing in loans, including assignments and
participation interests."
(g) To amend the Funds' fundamental investment policies
regarding concentration of the Funds' investments in the
securities of companies in the same industry to read as
follows:
For all Funds except Federated Prime Money Fund II and
Federated Utility Fund II:
"The Fund will not make investments that will result in
the concentration of its investments in the securities of
issuers primarily engaged in the same industry. Government
securities, municipal securities and bank instruments will
not be deemed to constitute an industry."
For Federated Prime Money Fund II:
"The Fund will not make investments that will result in
the concentration of its investments in the securities of
issuers primarily engaged in the same industry, provided
that the Fund may concentrate its investments in
securities issued by companies operating in the finance
industry. Government securities, municipal securities and
bank instruments will not be deemed to constitute an
industry."
For Federated Utility Fund II:
"The Fund will not make investments that will result in
the concentration of its investments in the securities of
issuers primarily engaged in the same industry, provided
that the Fund may concentrate its investments in the
securities of issuers in the utilities industry.
Government securities, municipal securities and bank
instruments will not be deemed to constitute an industry."
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(h) To amend, and to make non-fundamental, the Funds'
fundamental investment policies regarding buying
securities on margin to read as follows:
For all Funds except Federated Fund for U.S. Government
Securities II, Federated High Income Bond Fund II and
Federated Prime Money Fund II:
"The Fund will not purchase securities on margin, provided
that the Fund may obtain short-term credits necessary for
the clearance of purchases and sales of securities, and
further provided that the Fund may make margin deposits in
connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and
other financial contracts or derivative instruments."
For Federated Fund for U.S. Government Securities II,
Federated High Income Bond Fund II and Federated Prime Money
Fund II:
"The Fund will not purchase securities on margin, provided
that the Fund may obtain short-term credits necessary for
the clearance of purchases and sales of securities."
(i) To amend, and to make non-fundamental, the Funds'
fundamental investment policies regarding pledging assets
to read as follows:
"The Fund will not mortgage, pledge, or hypothecate any of
its assets, provided that this shall not apply to the
transfer of securities in connection with any permissible
borrowing or to collateral arrangements in connection with
permissible activities."
(3) To eliminate certain fundamental investment policies of the
Funds:
(a) To remove the Funds' fundamental investment policies
prohibiting selling securities short; and
(b) To remove the following fundamental investment policy
pertaining to lending assets, subject to the approval of
the revised fundamental lending investment policy
described above (Federated American Leaders Fund II,
Federated Fund for U.S. Government Securities II,
Federated High Income Bond Fund II, Federated Prime Money
Fund II and Federated Utility Fund II only):
"In order to generate additional income, the Fund may lend
portfolio securities on a short-term or long-term basis,
or both, up to one-third of the value of total assets, to
broker/dealers, banks, or other institutional borrowers of
securities."
II. The following actions have been taken by the Board of Trustees
with regard to certain non-fundamental investment policies and
limitations of the Funds:
(1) Approved the elimination of the following non-fundamental
investment limitations of the Funds:
(a) Removed the Funds' non-fundamental investment limitations
regarding investing for control or management (for
Federated Equity Income Fund II, Federated Growth
Strategies Fund II, Federated International Equity Fund II
and Federated Small Cap Strategies Fund II only);
(b) Removed Federated Small Cap Strategies Fund II's
non-fundamental investment policy regarding the number of
companies represented in its portfolio (Federated Small
Cap Strategies Fund II only);
(c) Removed Federated Equity Income Fund II's non-fundamental
investment policy prohibiting the Fund from engaging in
arbitrage transactions (Federated Equity Income Fund II
only);
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(d) Removed the Funds' non-fundamental investment limitations
regarding purchasing put options and writing call options
(for Federated Equity Income Fund II, Federated Growth
Strategies Fund II, Federated International Equity Fund
II, Federated Small Cap Strategies Fund II, Federated
Strategic Income Fund II and Federated Utility Fund II
only):
For Federated Equity Income Fund II, Federated Growth
Strategies Fund II and Federated Utility Fund II:
"The Fund will not purchase put options on securities
unless the securities are held in the Fund's portfolio and
not more than 5% of its total assets would be invested in
premiums on open put options.
The Fund will not write call options on securities unless
the securities are held in the Fund's portfolio or unless
the Fund is entitled to them in deliverable form without
further payment or after segregating cash in the amount of
any further payment."
For Federated International Equity Fund II:
"The Fund will not write call options on securities unless
the securities are held in the Fund's portfolio or the
Fund is entitled to them in deliverable form without
further payment or the Fund has segregated cash in the
amount of further payments. The Fund will not purchase put
options on securities unless the securities or an
offsetting call option is held in the Fund's portfolio.
The Fund may also purchase, hold, or sell (i) contracts
for future delivery of securities or currencies and (ii)
warrants granted by the issuer of the underlying
securities."
For Federated Small Cap Strategies Fund II:
"The Fund will not write call options on securities unless
the securities are held in the Fund's portfolio or unless
the Fund is entitled to them in deliverable form without
further payment or after segregating cash in the amount of
any further payment."
For Federated Strategic Income Fund II:
"The Fund may not write or purchase options, except that
the Fund may write covered call options and secured put
options on up to 25% of its net assets and may purchase
put and call options, provided that no more than 5% of the
fair market value of its net assets may be invested in
premiums on such options."
(2) Approved the elimination of the following undertakings for the
Funds:
For all Funds except Federated Equity Income Fund II,
Federated Quality Bond Fund II, Federated Strategic Income
Fund II and Federated Small Cap Strategies Fund II:
"The Fund has no present intention to borrow money in excess
of 5% of the value of its net assets during the coming fiscal
year."
For Federated Equity Income Fund II:
"The Fund has no present intention to borrow money, invest in
reverse repurchase agreements, pledge securities, or sell
securities short in excess of 5% of the value of its total
assets in the coming fiscal year."
For Federated Quality Bond Fund II:
"The Fund has no present intent to borrow money in the
coming fiscal year."
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For Federated Strategic Income Fund II:
"The Fund has no present intent to borrow money, pledge
securities, or invest in reverse repurchase agreements in
excess of 5% of the value of its total assets in the coming
fiscal year. In addition, the Fund expects to lend not more
than 5% of its total assets in the coming fiscal year."
For Federated Small Cap Strategies Fund II:
"The Fund has no present intent to borrow money or pledge
securities in excess of 5% of the value of its total assets in
the coming fiscal year."
(3) Approved revisions to the following non-fundamental investment
policies of the Funds:
(a) Approved revisions to the Funds' non-fundamental
investment policies regarding investments in illiquid
securities to read as follows (for all Funds except
Federated Small Cap Strategies Fund II):
For all Funds except Federated Prime Money Fund II:
"The Fund will not purchase securities for which there is
no readily available market, or enter into repurchase
agreements or purchase time deposits maturing in more than
seven days, if immediately after and as a result, the
value of such securities would exceed, in the aggregate,
15% of the Fund's net assets."
For Federated Prime Money Fund II:
"The Fund will not purchase securities for which there is
no readily available market, or enter into repurchase
agreements or purchase time deposits maturing in more than
seven days, if immediately after and as a result, the
value of such securities would exceed, in the aggregate,
10% of the Fund's net assets."
(b) Approved revisions to Federated Growth Strategies Fund
II's non-fundamental investment policies to provide that
the Fund will invest primarily in common stock of
companies with market capitalizations above $100 million
at the time of purchase (for Federated Growth Strategies
Fund II only).
(c) Approved revisions to the Funds non-fundamental investment
policies specifying that the Funds' investment adviser, in
managing each Fund and in determining the amount of the
Funds' assets to invest in a particular security, will
limit the Funds' exposure to the major categories that
comprise the S&P 500 Index (for Federated Growth
Strategies Fund II) or the S&P 600 Small Cap Index (for
Federated Small Cap Strategies Fund II) (for Federated
Growth Strategies Fund II and Federated Small Cap
Strategies Fund II only).
(4) Approved the adoption of the following non-fundamental
investment policies for the Funds:
(a) Adopted a policy pertaining to investing in futures and
options that reads as follows (for Federated American
Leaders Fund II only):
"The Fund may buy and sell stock index futures; buy call
options on portfolio securities in anticipation of an
increase in the value of the underlying asset; buy put
options on portfolio securities 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
to generate income from premiums, and in anticipation of a
decrease or only limited increase in the value of the
underlying asset; and may also write put options on
portfolio securities to generate income from premiums, and
in anticipation of an increase or only limited decrease in
the value of the underlying asset."
(b) Adopted a policy pertaining to investing in zero coupon
securities that reads as follows (for Federated High
Income Bond Fund II only):
"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."
(c) Adopted a policy providing that Federated Strategic Income
Fund II may purchase call options on securities indices
and U.S. Treasury securities (for Federated Strategic
Income Fund II only).
(5) Approved the adoption of the following non-fundamental
investment limitations pertaining to concentration for the
Funds:
For all Funds except Federated Prime Money Fund II and
Federated Utility Fund II:
"(a) utility companies will be divided according to their
services (for example, gas, gas transmission, electric and
telephone will be considered a separate industry); (b)
financial service companies will be classified according to
the end users of their services (for example, automobile
finance, bank finance and diversified finance will each be
considered a separate industry); and (c) asset-backed
securities will be classified according to the underlying
assets securing such securities. To conform to the current
view of the SEC staff that only domestic bank instruments may
be excluded from industry concentration limitations, as a
matter of non-fundamental policy, the Fund will not exclude
foreign bank instruments from industry concentration
limitation tests so long as the policy of the SEC remains in
effect. In addition, investments in bank instruments, and
investments in certain industrial development bonds funded by
activities in a single industry, will be deemed to constitute
investment in an industry, except when held for temporary
defensive purposes. The investment of more than 25% of the
value of the Fund's total assets in any one industry will
constitute `concentration.'"
For Federated Prime Money Fund II:
"(a) utility companies will be divided according to their
services (for example, gas, gas transmission, electric and
telephone will be considered a separate industry); and (b)
asset-backed securities will be classified according to the
underlying assets securing such securities. To conform to the
current view of the SEC staff that only domestic bank
instruments may be excluded from industry concentration
limitations, as a matter of non-fundamental policy, the Fund
will not exclude foreign bank instruments from industry
concentration limitation tests so long as the policy of the
SEC remains in effect. In addition, investments in certain
industrial development bonds funded by activities in a single
industry will be deemed to constitute investment in an
industry, except when held for temporary defensive purposes.
The investment of more than 25% of the value of the Fund's
total assets in any one industry will constitute
`concentration.'"
For Federated Utility Fund II:
"(a) financial service companies will be classified according
to the end users of their services (for example, automobile
finance, bank finance and diversified finance will each be
considered a separate industry); and (b) asset-backed
securities will be classified according to the underlying
assets securing such securities. To conform to the current
view of the SEC staff that only domestic bank instruments may
be excluded from industry concentration limitations, as a
matter of non-fundamental policy, the Fund will not exclude
foreign bank instruments from industry concentration
limitation tests so long as the policy of the SEC remains in
effect. In addition,
<PAGE>
investments in bank instruments, and investments in certain
industrial development bonds funded by activities in a single
industry, will be deemed to constitute investment in an
industry, except when held for temporary defensive purposes.
The investment of more than 25% of the value of the Fund's
total assets in any one industry will constitute
`concentration.'"
(6) Approved the adoption of the following non-fundamental
investment limitation for each Fund when applying its
commodities restriction:
"As a matter of non-fundamental operating policy, for purposes
of the commodities policy, investments in transactions
involving futures contracts and options, forward currency
contracts, swap transactions and other financial contracts
that settle by payment of cash are not deemed to be
investments in commodities."
October 1, 1999
Federated Investors
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Cusip 313916306 Cusip 313916702 Cusip 313916108 Cusip 313916504 Cusip 313916603
Cusip 313916405 Cusip 313916207 Cusip 313916801 Cusip 313916884 Cusip 313916876
Cusip 313916868 G02727-02 (10/99)
