1933 Act File No. 33-69268
1940 Act File No. 811-8042
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. ...........................
Post-Effective Amendment No. 25 ............................... X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 26 ............................................ X
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FEDERATED INSURANCE SERIES
(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)
_ on __________________ pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i) X on April 20, 2000___
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
FEDERATED INTERNATIONAL EQUITY FUND II
A Portfolio of Federated Insurance Series
A mutual fund seeking to obtain a total return on its assets by investing
primarily in equity securities of companies based outside the United States.
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.
Fund shares are available exclusively as a funding vehicle for life insurance
companies writing variable life insurance policies and variable annuity
contracts. They are subject to investment limitations that do not apply to other
mutual funds available directly to the general public. Therefore, any comparison
of these two types of mutual funds would be inappropriate. This prospectus
should be accompanied by the prospectuses for such variable contracts.
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NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
April 20, 2000
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Contents [TO BE PROVIDED]
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RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to obtain a total return on its assets.
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 changes in market value will comprise the largest component of its
total return. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of companies based outside the U.S. The investment
adviser (Adviser) manages the Fund based on the view that international equity
markets are inefficient at pricing securities and that careful security
selection offers the best potential for superior long-term investment returns.
The Adviser uses a "bottom-up" approach to stock selection and selection of
industry and country are secondary considerations.
The Adviser attempts to purchase securities with a mix of growth and value
characteristics. Using its own quantitative process, the Adviser ranks the
future performance potential of companies by evaluating each company's earnings
potential and management quality as well as reviewing the company's financial
statements and earnings forecasts. The Adviser then evaluates the sustainability
of the company's current growth trends and potential catalysts for increased
growth. Considering this fundamental analysis, the Adviser selects the most
promising companies for the Fund's portfolio.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include: o fluctuations in the value of equity securities in foreign
securities markets, and o fluctuations in the exchange rate between the U.S.
dollar and foreign currencies.
An investment in the Fund involves additional risks such as risks of foreign
investing, sector and regional risks and Euro risks. 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.
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Risk/Return Bar Chart [To be updated]
The bar chart shows the variability of the Fund's total returns on a calendar
year-end basis. The Fund's shares are sold without a sales charge (load). The
total returns displayed above are based upon net asset value and do not reflect
the charges and expenses of a variable annuity or variable life insurance
contract. If contract charges or fees had been included, the returns shown would
have been lower. The Fund's total return for the three-month period from January
1, 2000 to March 31, 2000 was ___%. Within the period shown in the chart, the
Fund's highest quarterly return was 23.70% (quarter ended March 31, 1998). Its
lowest quarterly return was (15.87%) (quarter ended September 30, 1998).
Average Annual Total Return Table [To be updated]
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ended December 31, 1999. The table shows the Fund's total
returns averaged over a period of years relative to the Morgan Stanley Capital
International Europe, Australia, Far East Index (MSCI-EAFE), 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 its is not possible to invest directly
in an index.
Calendar Period Fund MSCI-EAFE
1 Year ___% ___%
Start of Performance1 ___% ___%
1 The Fund's start of performance date was May 8, 1995.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
<PAGE>
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of companies based outside the U.S. The Adviser
manages the Fund based on the view that international equity markets are
inefficient at pricing securities and that careful security selection offers the
best potential for superior long-term investment returns. Selection of industry
and country are secondary considerations. The Adviser emphasizes growth stocks
at a reasonable price. The market capitalization of portfolio securities is not
a determinative factor. Rather, the Adviser takes a "bottom-up" approach and
looks for companies which it perceives as being under-valued in the market
place. Using its own quantitative process, the Adviser ranks the potential
future performance of select companies. The Adviser evaluates each company's
earnings potential in light of its current valuation to narrow the list of
attractive companies. The Adviser reviews such factors as the company's
price-to-earnings ratio, enterprise value, organic growth rates, product niche
and its pricing power. The Adviser then evaluates management quality and may
meet with company representatives, company suppliers, customers, or competitors.
The Adviser also reviews the company's financial statements and forecasts of
earnings. Based on this information, the Adviser evaluates the sustainability of
the company's current growth trends and potential catalysts for increased
growth. Using this type of fundamental analysis, the Adviser selects the most
promising companies for the Fund's portfolio. The Adviser frequently identifies
benchmarks for certain securities such as price-to-earnings ratios or stock
prices. Once those benchmarks are achieved, the Adviser will often consider
selling all or a portion of the Fund's holdings to lock in profit. Holdings will
also be sold if they fail to meet performance expectations or better investment
opportunities are identified. With respect to the Fund's investments in
developed markets, companies may be grouped together in broad categories called
business sectors. The Adviser may emphasize certain business sectors in the
portfolio that exhibit stronger growth potential or higher profit margins. The
Fund will not invest more than 20% of its assets in companies located in
emerging markets. In selecting emerging markets countries in which to invest,
the Adviser reviews the country's economic outlook, its interest and inflation
rates, and the political and foreign exchange risk of investing in a particular
country. The Adviser then analyzes companies located in particular emerging
market countries.
Portfolio Turnover
The Fund actively trades its portfolio securities in an attempt to achieve
its investment objective. Active trading will cause the Fund to have an
increased portfolio turnover rate, which is likely to generate shorter-term
gains (losses) for its shareholders, which are taxed at a higher rate than
longer-term gains losses. Actively trading portfolio securities increases the
Fund's trading costs and may have an adverse impact on the Fund's
performance.
Temporary Investments
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
Foreign Securities
Foreign equity securities are securities of issuers based outside the United
States. The Fund considers an issuer to be based outside the United States
if: n it is organized under the laws of, or has a principal office located
in, another country; n the principal trading market for its securities is in
another country; or n 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 equity 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. Equity securities represent a share of an issuer's earnings
and assets, after the issuer pays its liabilities. The Fund cannot predict the
income it will receive from equity securities because issuers generally have
discretion as to the payment of any dividends or distributions. However, equity
securities offer greater potential for appreciation than many other types of
securities, because their value increases directly with the value of the
issuer's business. The following describes the types of equity securities in
which the Fund invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on common
stock. Preferred stocks may also permit the issuer to redeem the stock.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
The specific risks associated with foreign equity securities are as
follows:
Stock Market Risks
The foreign exchanges on which foreign equity securities are traded or are
listed may be less technologically developed or less regulated than those in the
U.S. possibly increasing the volatility and decreasing the efficiency of those
markets.
The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money.
The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company. However, diversification will not protect the Fund
against widespread or prolonged declines in the stock market.
Currency Risks
Exchange rates for currencies fluctuate daily. The combination of currency risk
and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
The Adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
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.
Foreign financial markets may also have fewer investor protections. Securities
in foreign markets may also be subject to taxation policies that reduce returns
for U.S. investors.
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.
Legal remedies available to investors in certain foreign countries may be more
limited than those available with respect to investments in the U.S. or in other
foreign countries.
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 financial controls and 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.
Custodial Services and Related Investment Costs
Custodial services and other costs relating to investment in international
securities markets are generally more expensive than in the U.S. Such markets
have settlement and clearance procedures that differ from those in the U.S. In
certain markets there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
such transactions. The inability of the Fund to make intended securities
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. The inability to dispose of a portfolio security
caused by settlement problems could result either in losses to the Fund due to a
subsequent decline in value of the portfolio security or could result in
possible liability to the Fund. In addition, security settlement and clearance
procedures in some emerging countries may not fully protect the Fund against
loss or theft of its assets.
Euro Risks
The Fund makes significant investments in securities denominated in the Euro,
the new single currency of the European Monetary Union (EMU). Therefore, the
exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments.
Liquidity Risks
Trading opportunities are more limited for equity securities issued by
companies located in emerging markets. This 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 may also lead to greater price
volatility.
Liquidity risk also 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.
The specific risks associated with equity securities are as follows:
SECTOR AND REGIONAL RISKS
Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may underperform other sectors or as the market as a whole. As the Adviser
allocates more of the Fund's portfolio holdings to a particular sector, or
geographic region, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that sector or
geographic region.
WHAT DO SHARES COST?
Shares can be purchased or redeemed by participating insurance companies any
day the New York Stock Exchange (NYSE) is open. Transaction requests received in
proper form are processed at the next calculated net asset value (NAV). If the
Fund purchases 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. 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 equity
securities according to the last sale price in the market in which they are
primarily traded (either a national securities exchange or the over-the-counter
market).
HOW IS THE FUND SOLD?
The Fund's Distributor, Federated Securities Corp., markets the Shares
described in this prospectus to insurance companies as funding vehicles for
variable annuity contracts and variable life insurance policies issued by the
insurance companies.
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 AND REDEEM SHARES
Shares are used solely as the investment vehicle for separate accounts of
participating insurance companies offering variable annuity contracts and
variable life insurance policies. The general public has access to the Fund only
by purchasing a variable annuity contract or variable life insurance policy
(thus becoming a contract owner). Shares are not sold directly to the general
public.
Purchase orders must be received by your participating insurance company by
4:00 p.m. (Eastern time). The order will be processed at the NAV calculated on
that day if the Fund receives from the participating insurance company: n orders
in proper form by 8:00 a.m. (Eastern time) on the next business day; and n
federal funds on the business day following the day the Fund received the order.
Participating insurance companies are responsible for properly transmitting
purchase orders and federal funds to the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
The Fund declares and pays any dividends annually. Shares of the Fund will begin
earning dividends if owned on the record date. Dividends of the Fund are
automatically reinvested in additional Shares.
TAX INFORMATION
The Fund intends to comply with variable asset diversification regulations. If
the Fund fails to comply with these regulations, contracts invested in the Fund
will not be treated as annuity, endowment, or life insurance contracts under the
Internal Revenue Code.
Contract owners should review the applicable contract prospectus for
information concerning the federal income tax treatment of their contracts and
distributions from the Fund to the separate accounts.
Contract owners are urged to consult their own tax advisers regarding the
status of their contracts under state and local tax laws.
WHO MANAGES THE FUND?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Global Investment Management Corp. The Adviser manages the
Fund's assets, including buying and selling portfolio securities. The Adviser's
address is 175 Water Street, New York, NY 10038-4965.
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:
Alexandre de Bethmann
Alexandre de Bethmann has been the Fund's portfolio manager since October 1999.
Mr. de Bethmann joined Federated in 1995 as a Senior Portfolio Manager and a
Vice President of the Fund's Adviser. Mr. de Bethmann served as Assistant Vice
President/Portfolio Manager for Japanese and Korean equities at the College
Retirement Equities Fund from 1994 to 1995. Mr. de Bethmann is a Chartered
Financial Analyst. Mr. de Bethmann received his M.B.A. in Finance from Duke
University.
Henry A. Frantzen
Henry A. Frantzen has been the Fund's portfolio manager since November 1995.
Mr. Frantzen joined Federated in 1995 as a Senior Porfolio Manager and an
Executive Vice President of the Fund's Adviser. Mr. Frantzen served as Chief
Investment Officer of international equities at Brown Brothers Harriman & Co.
from 1992 until 1995.
Advisory Fees
The Adviser receives an annual investment advisory fee of 1.00% 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. For the fiscal year ended
December 31, 1999, the Fund's Adviser earned ___% of the Fund's average net
assets.
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FINANCIAL INFORMATION
Financial Highlights
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends.
This information has been audited by Deloitte & Touche LLP, whose report,
along with the Fund's audited financial statements, is included in the Annual
Report.
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FEDERATED INTERNATIONAL EQUITY FUND II
A Portfolio of (Federated Insurance Series)
April 23, 2000
A Statement of Additional Information (SAI) dated April 20, 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 to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
<PAGE>
Investment Company Act File No. 811-8042
Cusip 313916603
G01078-01 (4/00)
FEDERATED INTERNATIONAL EQUITY FUND II
A Portfolio of Federated Insurance Series
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This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated International Equity Fund
II (Fund), dated April 20, 2000. This SAI incorporates by reference the Fund's
Annual Report. Obtain the prospectus or the Annual Report without charge by
calling 1-800-341-7400.
<PAGE>
april 20, 2000
<PAGE>
G01078-02 (4/00)
<PAGE>
Contents
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
What Do Shares Cost? 9
Mixed Funding and Shared Funding 9
How is the Fund Sold? 9
Subaccounting Services 9
Redemption in Kind 9
Massachusetts Partnership Law 10
Account and Share Information 10
Tax Information 10
Who Manages and Provides Services to the Fund? 11
How Does the Fund Measure Performance? 14
Who is Federated Investors, Inc.? 16
Financial Information 17
Investment Ratings 17
Addresses 19
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HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of Federated Insurance Series (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 15, 1993. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities. The Trust changed its name from Insurance Management
Series to Federated Insurance Series on November 14, 1995. The Fund changed its
name from International Stock Fund to Federated International Equity Fund II on
February 26, 1996. The Fund's investment adviser is Federated Global Investment
Management Corp. (Adviser). The Adviser, formerly known as Federated Global
Research Corp., changed its name effective January 7, 1999.
SECURITIES IN WHICH THE FUND INVESTS
In pursuing its investment strategy, the Fund may invest in the following
securities, in addition to those described in the Prospectus, for any purpose
that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are not traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
Receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.
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.
Interests in Other Limited Liability Companies
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
Real Estate Investment Trusts (REITs)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial real
estate market.
Warrants
Warrants give the Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the expiration
date). The Fund may buy the designated securities by paying the exercise price
before the expiration date. Warrants may become worthless if the price of the
stock does not rise above the exercise price by the expiration date. This
increases the market risks of warrants as compared to the underlying security.
Rights are the same as warrants, except companies typically issue rights to
existing stockholders.
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 government of a foreign
country.
Foreign Government Securities
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples of these include, but are not limited to, the International Bank for
Reconstruction and Development (the World Bank), the Asian Development Bank, the
European Investment Bank and the Inter-American Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political unit
that are not backed by the national government's full faith and credit. Further,
foreign government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.
Agency Securities
Agency securities are issued or guaranteed by a foreign governmental agency or
other government sponsored entity acting under foreign governmental authority (a
GSE). Foreign governments support some GSEs with its full, faith and credit.
Other GSEs receive support through governmental 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.
Investors regard agency securities as having low credit risks, but not as low as
treasury 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. The credit risk of an issuer's debt security may also 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.
Convertible Securities
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.
The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.
Investment Ratings for Investment Grade Securities
The fixed income securities in which the Fund will invest will possess a minimum
credit rating of A as assigned by Standard & Poor's or A by Moody's Investors
Service, Inc., or, if unrated, judged by the Adviser to be of comparable
quality. 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 & 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.
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.
<PAGE>
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 can buy or sell futures contracts on portfolio securities or indexes
and engage in foreign currency forward contracts.
Options
Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.
The Fund may:
Write call options on portfolio securities and securities which the Fund has
the right to obtain without payment of further consideration or for which it
has segregated cash in the amount of any additional consideration 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.
Write put options on all or any portion of its portfolio of securities (to
generate income from premiums, and in anticipation of an increase or only
limited decrease in the value of the underlying asset). In writing puts, there
is a risk that the Fund may be required to take delivery of the underlying
asset when its current market price is lower than the exercise price.
Write call options and purchase put options as a hedge to attempt to protect
securities in its portfolio against decreases in value or as a hedge against
rising purchase prices of securities eligible for purchase by the Fund.
When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.
Hybrid Instruments
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference to
changes in the price of an underlying asset or by reference to another benchmark
(such as interest rates, currency exchange rates or indices). Hybrid instruments
also include convertible securities with conversion terms related to an
underlying asset or benchmark.
The risks of investing in hybrid instruments reflect a combination of the
risks of investing in securities, options, futures and currencies, and depend
upon the terms of the instrument. Thus, an investment in a hybrid instrument may
entail significant risks in addition to those associated with traditional fixed
income or convertible securities. Hybrid instruments are also potentially more
volatile and carry greater market risks than traditional instruments.
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.
<PAGE>
Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
When Issued Transactions
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, when issued
transactions create market risks for the Fund. When issued 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 market risks and credit risks.
Hedging Transactions
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 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.
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."
Asset Coverage
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its Prospectus. Additional risk factors are
outlined below.
Equity Securities Investment Risks
Risks Related to Investing for Growth
Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on a forecast of lower earnings, a negative
fundamental development, or an adverse market development. Further, growth
stocks may not pay dividends or may pay lower dividends than value stocks. This
means they depend more on price changes for returns and may be more adversely
affected in a down market compared to value stocks that pay higher dividends.
State Insurance Regulations
The Fund is intended to be a funding vehicle for variable annuity contracts and
variable life insurance policies offered by certain insurance companies. The
contracts will seek to be offered in as many jurisdictions as possible. Certain
states have regulations concerning, among other things, the concentration of
investments, sales and purchases of futures contracts, and short sales of
securities. if applicable, the Fund may be limited in its ability to engage in
such investments and to manages its portfolio with desired flexibility. The Fund
will operate in material compliance with the applicable insurance laws and
regulations of each jurisdiction in which contracts will be offered by the
insurance companies which invest in the Fund.
Variable Asset Regulations
The Fund is also subject to variable contract asset regulations prescribed by
the U.S. Treasury Department under Section 817(h) of the Internal Revenue Code.
After a one year start-up period, the regulations generally require that, as of
the end of each calendar quarter or within 30 days thereafter, no more than 55%
of the total assets of the Fund may be represented by any one investment, no
more than 70% of the total assets of the Fund may be represented by any two
investments, no more than 80% of the total assets of the Fund may be represented
by any three investments, and no more than 90% of the total assets of the Fund
may be represented by any four investments. In applying these diversification
rules, all securities of the same issuer, all interests of the same real
property project, and all interests in the same commodity are each treated as a
single investment. In the case of government securities, each government agency
or instrumentality shall be treated as a separate issuer. If the Fund fails to
achieve the diversification required by the regulations, unless relief is
obtained from the Internal Revenue Service, the contracts invested in the fund
will not be treated as annuity, endowment, or life insurance contracts.
fundamental investment objective and policies
The Fund's investment objective is to obtain a total return on its assets. The
investment objective may not be changed by the Fund's Trustees without
shareholder approval.
INVESTMENT LIMITATIONS
Diversification
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.
Borrowing Money and Issuing Senior Securities
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
Investing in Real Estate
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.
Investing in Commodities
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
Underwriting
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.
Lending
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.
Concentration
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.
<PAGE>
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.
Concentration of Investments
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." In applying the Fund's concentration restriction, (a) utility
companies will be divided according to their services (for example, gas, gas
transmission, electric and telephone will each 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.
Illiquid Securities
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.
Investing in Securities of Other Investment Companies
The Fund may invest its assets in securities of other investment companies,
including securities of affiliated investment companies, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
Purchases on Margin
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.
Pledging Assets
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
permissable borrowing or to collateral arrangements in connection with
permissable activities.
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 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.
For purposes of their policies and limitations, the Funds consider
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings association having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment to be "cash items."
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
n for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or
the over-the-counter market), if available;
n in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
n for fixed income securities, at the last sale price on a national
securities exchange, if available, otherwise, as determined by an
independent pricing service;
n 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 investment is
necessary to appraise their fair market value;
n 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
n 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.
The Fund values futures contracts and options at their 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 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.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.
WHAT DO SHARES COST?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
MIXED FUNDING AND SHARED FUNDING
Shares used as investments for both variable annuity contracts and variable life
insurance policies is called "mixed funding." Shares used as investments by
separate accounts of unaffiliated life insurance companies is called "shared
funding."
The Fund does engage in mixed funding and shared funding. Although the Fund
does not currently foresee any disadvantage to contract owners due to
differences in redemption rates, tax treatment, or other considerations
resulting from mixed funding or shared funding, the Trustees will closely
monitor the operation of mixed funding and shared funding and will consider
appropriate action to avoid material conflicts and take appropriate action in
response to any material conflicts which occur. Such action could result in one
or more participating insurance companies withdrawing their investment in the
Fund.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best- efforts basis.
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 participating insurance companies 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. Participating insurance companies 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 participating insurance company 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
<PAGE>
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.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
The insurance company separate accounts, as shareholders of the Fund, will vote
the Fund Shares held in their separate accounts at meetings of the shareholders.
Voting will be in accordance with instructions received from contract owners of
the separate accounts, as more fully outlined in the prospectus of the separate
account.
Each share of the Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All Shares of the Trust
have equal voting rights, except that in matters affecting only a particular
Fund, only Shares of that Fund or class are entitled to vote.
Trustees 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 Trust's outstanding shares
of all series entitled to vote.
As of April __, 2000, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: [To be filed by amendment]
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the
year. Book income generally consists solely of the coupon income generated by
the portfolio, whereas tax-basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year
is represented by stock or securities of foreign corporations, the Fund intends
to qualify for certain Code stipulations that would allow shareholders to claim
a foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
<PAGE>
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust'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 Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Fund for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of 12
funds and the Federated Fund Complex is comprised of 43 investment companies,
whose investment advisers are affiliated with the Fund's Adviser.
As of April __, 2000, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.
<PAGE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Name Aggregate Total
Birth Date From Fund Compensation
Address Principal Occupations Compensation From Trust
Position With Trust__________ for Past Five From Fund_____ and Fund Complex____
Years_______________________________________
John F. Donahue*#+ Chief Executive Officer and Director or Trustee of the $0 $0 for the Trust and
Birth Date: July 28, 1924 Federated Fund Complex; Chairman and Director, Federated 43 other investment
Federated Investors Tower Investors, Inc.; Chairman, Federated Investment companies
1001 Liberty Avenue Management Company, Federated Global Investment in the Fund Complex
Pittsburgh, PA Management Corp. and Passport Research, Ltd., formerly:
CHAIRMAN and TRUSTEE Trustee, Federated Investment Management Company and
Chairman and Director, Federated Investment Management
Counseling.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $116,760.63for the
Birth Date: February 3, 1934 Director, Member of Executive Committee, Children's $ Trust and
15 Old Timber Trail Hospital of Pittsburgh; Director, Robroy Industries, 43 other investment
Pittsburgh, PA Inc. (coated steel conduits/computer storage equipment); companies
TRUSTEE formerly: Senior Partner, Ernst & Young LLP; Director, in the Fund Complex
MED 3000 Group, Inc. (physician practice management);
Director, Member of Executive Committee, University of
Pittsburgh.
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $128,455.37 for the
Birth Date: June 23, 1937 President, Investment Properties Corporation; Senior $ Trust and
Grubb & Ellis/Investment Vice President, John R. Wood and Associates, Inc., 43 other investment
Properties Corporation Realtors; Partner or Trustee in private real estate companies
3201 Tamiami Trail North ventures in Southwest Florida; formerly: President, in the Fund Complex
Naples, FL Naples Property Management, Inc. and Northgate Village
TRUSTEE Development Corporation.
Nicholas P. Constantakis Director or Trustee of the Federated Fund Complex; $73,191.21for the
Birth Date: September 3, 1939 Director, Michael Baker Corporation (engineering, $ Trust and
175 Woodshire Drive construction, operations and technical services); 37 other investment
Pittsburgh, PA formerly: Partner, Andersen Worldwide SC. companies
TRUSTEE in the Fund Complex
John F. Cunningham++ Director or Trustee of some of the Federated Fund $93,190.48for the
Birth Date: March 5, 1943 Complex; Chairman, President and Chief Executive $0 Trust and
353 El Brillo Way Officer, Cunningham & Co., Inc. (strategic business 37 other investment
Palm Beach, FL consulting); Trustee Associate, Boston College; companies
TRUSTEE Director, Iperia Corp. (communications/software); in the Fund Complex
formerly: Director, Redgate Communications and EMC
Corporation (computer storage systems).
Previous Positions: Chairman of the Board and Chief
Executive Officer, Computer Consoles, Inc.; President
and Chief Operating Officer, Wang Laboratories;
Director, First National Bank of Boston; Director,
Apollo Computer, Inc.
J. Christopher Donahue*+ President or Executive Vice President of the Federated $0 for the
Birth Date: April 11, 1949 Fund Complex; Director or Trustee of some of the Funds $0 Trust and
Federated Investors Tower in the Federated Fund Complex; President, Chief 30 other investment
1001 Liberty Avenue Executive Officer and Director, Federated Investors, companies
Pittsburgh, PA Inc.; President, Chief Executive Officer and Trustee, in the Fund Complex
PRESIDENT and TRUSTEE 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 Fund Complex; $116,760.63for the
Birth Date: October 11, 1932 Professor of Medicine, University of Pittsburgh; Medical $ Trust and
3471 Fifth Avenue Director, University of Pittsburgh Medical Center - 43 other investment
Suite 1111 Downtown; Hematologist, Oncologist, and Internist, companies
Pittsburgh, PA University of Pittsburgh Medical Center; Member, in the Fund Complex
TRUSTEE National Board of Trustees, Leukemia Society of America.
Peter E. Madden Director or Trustee of the Federated Fund Complex; $109,153.60 for the
Birth Date: March 16, 1942 formerly: Representative, Commonwealth of Massachusetts $ Trust and
One Royal Palm Way General Court; President, State Street Bank and Trust 43 other investment
100 Royal Palm Way Company and State Street Corporation. companies
Palm Beach, FL in the Fund Complex
TRUSTEE Previous Positions: Director, VISA USA and VISA
International; Chairman and Director,
Massachusetts Bankers Association; Director,
Depository Trust Corporation; Director, The
Boston Stock Exchange.
Charles F. Mansfield, Jr.++ Director or Trustee of some of the Federated Fund $102,573.91 for the
Birth Date: April 10, 1945 Complex; Executive Vice President, Legal and External $0 Trust and
80 South Road Affairs, Dugan Valva Contess, Inc. (marketing, 40 other investment
Westhampton Beach, NY communications, technology and consulting); formerly: companies
TRUSTEE Management Consultant. in the Fund Complex
Previous Positions: Chief Executive Officer,
PBTC International Bank; Partner, Arthur Young &
Company (now Ernst & Young LLP); Chief Financial
Officer of Retail Banking Sector, Chase
Manhattan Bank; Senior Vice President, Marine
Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and Finance,
Frank G. Zarb School of Business, Hofstra
University.
John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex; $128,455.37 for the
S.J.D.# President, Law Professor, Duquesne University; $ Trust
Birth Date: December 20, 1932 Consulting Partner, Mollica & Murray; Director, Michael and
President, Duquesne University Baker Corp. (engineering, construction, operations and 43 other investment
Pittsburgh, PA technical services). companies
TRUSTEE in the Fund Complex
Previous Positions: Dean and Professor of Law,
University of Pittsburgh School of Law; Dean and
Professor of Law, Villanova University School of Law.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $116,760.63 for the
Birth Date: June 21, 1935 Public Relations/Marketing/Conference Planning. $ Trust and
4905 Bayard Street 43 other investment
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum companies
TRUSTEE Company of America; television producer; business owner. in the Fund Complex
John S. Walsh Director or Trustee of some of the Federated Fund $94,536.85 for the
Birth Date: November 28, 1957 Complex; President and Director, Heat Wagon, Inc. $ Trust and
2007 Sherwood Drive (manufacturer of construction temporary heaters); 39 other investment
Valparaiso, IN President and Director, Manufacturers Products, Inc. companies
TRUSTEE (distributor of portable construction heaters); in the Fund Complex
President, Portable Heater Parts, a division of
Manufacturers Products, Inc.; Director, Walsh & Kelly,
Inc. (heavy highway contractor); formerly: Vice
President, Walsh & Kelly, Inc.
Edward C. Gonzales+* President, Executive Vice President and Treasurer of $0 for the
Birth Date: October 22, 1930 some of the Funds in the Federated Fund Complex; Vice $0 Trust and
Federated Investors Tower Chairman, Federated Investors, Inc.; Trustee, Federated 42 other investment
1001 Liberty Avenue Administrative Services; formerly: Trustee or companies
Pittsburgh, PA Director of some of the Funds in the Federated Fund in the Fund Complex
EXECUTIVE VICE PRESIDENT and Complex; CEO and Chairman, Federated Administrative
SECRETARY 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 Secretary of the Federated $0 for the
Birth Date: October 26, 1938 Fund Complex; Executive Vice President, Secretary and $0 Trust and
Federated Investors Tower Director, Federated Investors, Inc.; formerly: Trustee, 43 other investment
1001 Liberty Avenue Federated Investment Management Company and Federated companies
Pittsburgh, PA Investment Counseling; Director, Federated Global in the Fund Complex
EXECUTIVE VICE PRESIDENT and Investment Management Corp, Federated Services Company
SECRETARY and Federated Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice President $0 for the
Birth Date: June 17, 1954 - Funds Financial Services Division, Federated $0 Trust and
Federated Investors Tower Investors, Inc.; formerly: various management positions 43 other investment
1001 Liberty Avenue within Funds Financial Services Division of Federated companies
Pittsburgh, PA Investors, Inc. in the Fund Complex
TREASURER
Richard B. Fisher President or Vice President of some of the Funds in the $0 for the
Birth Date: May 17, 1923 Federated Fund Complex; Vice Chairman, Federated $0 Trust and
Federated Investors Tower Investors, Inc.; Chairman, Federated Securities Corp.; 41 other investment
1001 Liberty Avenue formerly: Director or Trustee of some of the Funds in companies
Pittsburgh, PA the Federated Fund Complex,; Executive Vice President, in the Fund Complex
VICE PRESIDENT Federated Investors, Inc. and Director and Chief
Executive Officer, Federated Securities Corp.
William D. Dawson, III Chief Investment Officer of this Fund and various other $0 for the
Birth Date: March 3, 1949 Funds in the Federated Fund Complex; Executive Vice $0 Trust and
Federated Investors Tower President, Federated Investment Counseling, Federated 27 other investment
1001 Liberty Avenue Global Investment Management Corp., Federated Investment companies
Pittsburgh, PA Management Company and Passport Research, Ltd.; in the Fund Complex
CHIEF INVESTMENT OFFICER 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.
Henry A. Frantzen Chief Investment Officer of this Fund and various other $0 for the
Birth Date: November 28, 1942 Funds in the Federated Fund Complex; Executive Vice $0 Trust and
Federated Investors Tower President, Federated Investment Counseling, Federated 2 other investment
1001 Liberty Avenue Global Investment Management Corp., Federated Investment companies
Pittsburgh, PA Management Company and Passport Research, Ltd.; in the Fund Complex
CHIEF INVESTMENT OFFICER Registered Representative, Federated Securities Corp.;
Vice President, Federated Investors, Inc.;
formerly: Executive Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Chief Investment
Officer/Manager, International Equities, Brown
Brothers Harriman & Co.; Managing Director, BBH
Investment Management Limited.
J. Thomas Madden Chief Investment Officer of this Fund and various other $0 $0 for the
Birth Date: October 22, 1945 Funds in the Federated Fund Complex; Executive Vice Trust and
Federated Investors Tower President, Federated Investment Counseling, Federated 11 other investment
1001 Liberty Avenue Global Investment Management Corp., Federated Investment companies
Pittsburgh, PA Management Company and Passport Research, Ltd.; Vice in the Fund Complex
CHIEF INVESTMENT OFFICER 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.
</TABLE>
* An asterisk denotes a Trustee who is deemed to be an interested person as
defined in the 1940 Act.
# 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, President and Trustee of
the Trust.
++ Mssrs. Cunningham and Mansfield became members of the Board of Trustees on
January 1, 2000. They did not
receive any fees as of the fiscal year end of the Fund.
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 Fund 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 Fund.
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.
<PAGE>
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. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). 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.
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
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.
<PAGE>
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
Average Aggregate Daily Net
Maximum Administrative Fee 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 $750
million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of- pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT auditors
The independent auditor for the Fund, 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 December31 1999 1998 1997
Advisory Fee Earned $_____ $474,194 $273,830
Advisory Fee Reduction ______ 223,688 273,316
Brokerage Commissions ______ 555,576 291,180
Administrative Fee ______ 125,000 125,002
Shareholder Services Fee NA NA NA
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.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. 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.
<PAGE>
Average Annual Total Returns and Yield
Total returns given for the one-year and Start of Performance periods ended
December 31, 1999. Yield is given for the 30-day period ended December 31,
1999.
30-Day Period 1 Year Start of
Performance on
May8, 1995
Total Return NA ___% ___%
Yield ___% NA NA
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi- annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
n references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
n 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;
n discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
n 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 Analytical Services, Inc.
Lipper Analytical Services, Inc., for example, makes comparative calculations
for one-month, three-month, one-year, and five-year periods which assume the
reinvestment of all capital gains distributions and income dividends.
Morgan Stanley Europe, Australia, and Far East (EAFE)
Morgan Stanley Europe, Australia, and Far East (EAFE) index is a market
capitalization weighted foreign securities index, which is widely used to
measure the performance of European, Australian, New Zealand and Far Eastern
stock markets. The index covers approximately 1,020 companies drawn from 18
countries in the above regions. The index values its securities daily in both
U.S. dollars and local currency and calculates total returns monthly. EAFE U.S.
dollar total return is a net dividend figure less Luxembourg withholding tax.
The EAFE is monitored by Capital International, S.A., Geneva, Switzerland.
Salomon Brothers World Equity Index Ex U.S.
Salomon Brothers World Equity Index Ex U.S. is a capitalization- weighted index
comprised of equities from 22 countries excluding the United States.
FT Actuaries World--Ex U.S.
FT Actuaries World--Ex U.S. index is comprised of 1,740 stocks, excluding U.S.
stocks, jointly compiled by the Financial Times Ltd., Goldman, Sachs & Co., and
NatWest Securities Ltd. in conjunction with the Institute of Actuaries and the
Faculty of Actuaries.
<PAGE>
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 manages 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 and 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 1,160institutional 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.
<PAGE>
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.
FINANCIAL INFORMATION
The Financial Statements for the Fund for the fiscal year ended December 31,
1999, are incorporated herein by reference to the Annual Report to Shareholders
of Federated International Equity Fund II dated December 31, 1999. [To be filed
by Amendment]
<PAGE>
INVESTMENT RATINGS
Standard and Poor's Long-Term Debt Rating Definitions
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong. AA--Debt rated
AA has a very strong capacity to pay interest and repay principal and differs
from the higher rated issues only in small degree. A--Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. BBB--Debt rated BBB is regarded
as having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories. BB--Debt rated BB has less near-term, vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating. B--Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating. CCC--Debt rated CCC
has a currently identifiable vulnerability to default, and is dependent upon
favorable business, financial, and economic conditions to meet timely payment of
interest and repayment of principal. In the event of adverse business,
financial, or economic conditions, it is not likely to have the capacity to pay
interest and repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or B-
rating. CC--The rating CC typically is applied to debt subordinated to senior
debt that is assigned an actual or implied CCC debt rating. C--The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC-debt rating. The C rating may be used to cover a situation
where a bankruptcy petition has been filed, but debt service payments are
continued.
Moody's Investors Service, Inc. Long-Term Bond Rating Definitions
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. AA--Bonds which are rated AA are
judged to be of high quality by all standards. Together with the AAA group, they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks appear
somewhat larger than in AAA securities. A--Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future. BAA--Bonds which are rated BAA are considered
as medium grade obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
<PAGE>
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:
n Leading market positions in well established industries. n High rates of
return on funds employed. n Conservative capitalization structure with moderate
reliance on debt and ample asset protection. n Broad margins in earning coverage
of fixed financial charges and high internal cash generation. n Well established
access to a range of financial markets and assured sources of alternate
liquidity. Prime-2--Issuers rated Prime-1 (or related supporting institutions)
have a strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Standard and Poor's Commercial Paper Ratings
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation. A-2--Capacity for
timely payment on issues with this designation is satisfactory. However, the
relative degree of safety is not as high as for issues designated A-1.
Fitch IBCA, Inc. Commercial Paper Rating Definitions
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment. FITCH-2--(Very Good
Grade) Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than the strongest issues.
<PAGE>
ADDRESSES
federated international equity fund ii
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 Global Investment Management Corp.
175 Water Street
New York, NY 10038-4965
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
125 Summer Street
Boston, MA 02110-1617
FEDERATED QUALITY BOND FUND II
A Portfolio of Federated Insurance Series
A mutual fund seeking to provide current income by investing in a diversified
portfolio of investment grade securities, which are rated in one of the four
highest categories by a nationally recognized statistical rating organization.
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.
Fund shares are available exclusively as a funding vehicle for life insurance
companies writing variable life insurance policies and variable annuity
contracts. This prospectus should be accompanied by the prospectuses for such
contracts.
<PAGE>
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
April 20, 2000
<PAGE>
Contents [TO BE PROVIDED]
<PAGE>
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide 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.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a diversified portfolio of investment grade fixed income
securities consisting primarily of corporate debt securities, U.S. government
and privately issued mortgage backed securities, and U.S. treasury and agency
securities. The Adviser seeks to enhance the Fund's performance by allocating
relatively more of its portfolio to the security type that the Adviser expects
to offer the best balance between current income and risk.
The Adviser may lengthen or shorten duration from time to time based on its
interest rate outlook, but the Fund has no set duration parameters. Duration
measures the price sensitivity of a fixed income security to changes in interest
rates.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
n Interest Rate Risk. Prices of fixed income securities generally fall
when interest rates rise.
n 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.
n
n Call and Prepayment 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.
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.
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
A performance bar chart and total returns for the Fund are not provided since
this is a new Fund and has not been in operation for a full calendar year.
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Adviser actively manages the Fund's portfolio seeking current income
within the Fund's investment policy parameters for limiting credit risk and
share price volatility attributable to interest rate risk. The Fund limits
credit risk by investing exclusively in a diversified portfolio of investment
grade fixed income securities, including corporate debt securities, U.S.
government and privately issued mortgage backed securities, and U.S. treasury
and agency securities. Investment grade securities are rated in one of the four
highest categories (BBB or higher) by a nationally recognized statistical rating
organization ("NRSRO"), or if unrated, of comparable quality as determined by
the Adviser. A description of the various types of securities in which the Fund
invests, and their risks, immediately follows this strategy section.
The Adviser may seek to change the Fund's interest rate volatility exposure,
by lengthening or shortening duration from time-to-time based on its interest
rate outlook, but the Fund has no set duration parameters. If the Adviser
expects interest rates to decline, it will generally lengthen the Fund's
duration. If the Adviser expects interest rates to increase, it will generally
shorten the Fund's duration. The Adviser formulates its interest rate outlook
and otherwise attempts to anticipate changes in economic and market conditions
by analyzing a variety of factors, such as: n current and expected U.S. growth;
n current and expected interest rates and inflation; n the Federal Reserve
Board's monetary policy; and n changes in the supply of or demand for U.S.
government securities. The Adviser seeks to enhance the Fund's current income by
selecting securities, within the Fund's credit quality range, that the Adviser
expects will offer the best relative value. In other words, in selecting
securities, the Adviser assesses whether the Fund will be adequately compensated
for assuming the risks (such as credit risk) of a particular security by
comparing the security to other securities without those risks. The Adviser
continually analyzes a variety of economic and market indicators in order to
arrive at the projected yield "spread" of each security type. (The spread is the
difference between the yield of a security versus the yield of a U.S. Treasury
security with a comparable average life.) The security's projected spread is
weighed against the security's credit risk, (in the case of corporate securities
and privately issued asset backed and mortgage backed securities) and its risk
of prepayment, (in the case of asset backed and mortgage backed securities) in
order to complete the analysis.
Corporate debt securities generally offer higher yields than U. S. government
securities to compensate for credit risk. Similarly, asset and mortgage- backed
securities generally offer higher yields versus U.S. treasury securities and
non-mortgage backed agency securities, to compensate for prepayment risk. The
Adviser invests the Fund's portfolio seeking the higher relative returns of
corporate debt securities and asset and mortgage backed securities, when
available, while maintaining appropriate portfolio diversification and
attempting to limit the associated credit or prepayment risks.
The Adviser attempts to manage the Fund's credit risk by selecting corporate
debt securities that make default in the payment of principal and interest less
likely. The Adviser uses 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 a
company's business, competitive position, and financial condition to assess
whether the security's credit risk is commensurate with its potential return.
The Adviser attempts to manage the Fund's prepayment risk by selecting
asset and mortgage backed securities with characteristics that make prepayment
less likely. Characteristics that the Adviser may consider in selecting
securities include the average interest rates of the underlying mortgages and
the federal agencies (if any) that securitize the mortgages. The Adviser
attempts to assess the relative returns and risks for mortgage backed securities
by analyzing how the timing, amount and division of cash flows might change in
response to changing economic and market conditions.
There is no assurance that the Adviser's efforts to forecast market interest
rates and assess the impact of market interest rates in particular will be
successful.
Temporary Defensive Investments
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher-quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders.
<PAGE>
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
invests.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
Agency Securities
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a Government
Sponsored Entity, or GSE). The United States supports some GSEs with its full
faith and credit. Other GSEs receive support through federal subsidies, loans or
other benefits. A few GSEs have no explicit financial support, but are regarded
as having implied support because the federal government sponsors their
activities. Agency securities are generally regarded as having low credit risks,
but not as low as treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the market 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.
<PAGE>
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.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
interest rate Risks
n 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.
n 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
n 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.
n 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.
n 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.
n Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying
other securities to implement its investment strategy.
Call and prepayment Risks
n 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.
n 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.
n 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 a 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 and yield of
mortgage backed securities. For example, during periods of declining interest
rates, prepayments can be expected to accelerate, and the Fund would be
required to reinvest the proceeds at the lower interest rates then available.
In addition, like other interest-bearing securities, the values of mortgage
backed securities generally fall when interest rates rise. Since rising
interest rates generally result in decreased prepayments of mortgage backed
securities, this could cause mortgage securities to have greater average lives
than expected and their value may decline more than other fixed income
securities. Conversely, when interest rates fall, their potential for capital
appreciation is limited due to the existence of the prepayment feature.
n 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 maturity (the spread). An
increase in the spread will cause the price of the security to decline.
Spreads generally increase in response to adverse economic or market
conditions.
WHAT DO SHARES COST?
Shares can be purchased or redeemed by participating insurance companies any
day the New York Stock Exchange (NYSE) is open. Transaction requests received in
proper form are processed at the next calculated net asset value (NAV). NAV is
determined at the end of regular trading (normally 4:00 p.m. Eastern time) each
day the NYSE is open. The Fund generally values fixed income securities at the
last sale price on a national securities exchange, if available, otherwise, as
determined by an independent pricing service.
HOW IS THE FUND SOLD?
The Fund's Distributor, Federated Securities Corp., markets the Shares
described in this prospectus to insurance companies as funding vehicles for
variable annuity contracts and variable life insurance policies issued by the
insurance companies.
When the Distributor receives marketing fees, it may pay some or all of them
to investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay up to 0.25% for
marketing fees to the Distributor and investment professionals for the sale,
distribution and customer servicing of the Fund's Shares. Because these Shares
pay marketing fees on an ongoing basis, your investment cost may be higher over
time than other shares with different sales charges and marketing fees. The Fund
is not currently paying any 12b-1 fees under the Rule 12b-1 Plan. Should the
Fund begin to pay these fees, shareholders will be notified. The Fund is not
currently paying or accruing fees under the Plan.
HOW TO PURCHASE AND REDEEM SHARES
Shares are used solely as the investment vehicle for separate accounts of
participating insurance companies offering variable annuity contracts and
variable life insurance policies. The general public has access to the Fund only
by purchasing a variable annuity contract or variable life insurance policy
(thus becoming a contract owner). Shares are not sold directly to the general
public.
Purchase orders must be received by your participating insurance company by
4:00 p.m. (Eastern time). The order will be processed at the NAV calculated on
that day if the Fund receives from the participating insurance company: n orders
in proper form by 8:00 a.m. (Eastern time) on the next business day; and n
federal funds on the business day following the day the Fund received the order.
Participating insurance companies are responsible for properly transmitting
purchase orders and federal funds to the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS AND CAPITAL GAINS
The Fund declares and pays any dividends annually. Shares of the Fund will begin
earning dividends if owned on the record date. Dividends of the Fund are
automatically reinvested in additional shares.
TAX INFORMATION
The Fund intends to comply with variable asset diversification regulations. If
the Fund fails to comply with these regulations, contracts invested in the Fund
will not be treated as annuity, endowment, or life insurance contracts under the
Internal Revenue Code.
Contract owners should review the applicable contract prospectus for
information concerning the federal income tax treatment of their contracts and
distributions from the Fund to the separate accounts.
Contract owners are urged to consult their own tax advisers regarding the
status of their contracts under state and local tax laws.
WHO MANAGES THE FUND?
The Board of Trustees 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 1,900
employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
The Fund's portfolio managers are:
Joseph M. Balestrino
Joseph M. Balestrino has been the Fund's portfolio manager since inception.
Mr. Balestrino joined Federated in 1986 and has been a Senior Portfolio Manager
and Senior Vice President of the Fund's Adviser since 1998. He was a Portfolio
Manager and a Vice President of the Fund's Adviser from 1995 to 1998. Mr.
Balestrino served as a Portfolio Manager and an Assistant Vice President of the
Adviser from 1993 to 1995. Mr. Balestrino is a Chartered Financial Analyst and
received his Master's Degree in Urban and Regional Planning from the University
of Pittsburgh.
John T. Gentry
John T. Gentry has been the Fund's portfolio manager since inception. Mr.
Gentry joined Federated in 1995 as an Investment Analyst and has been a Senior
Investment Analyst and an Assistant Vice President of the Fund's Adviser since
1997. Mr. Gentry served as a Senior Treasury Analyst at Sun Company, Inc. from
1991 to 1995. Mr. Gentry is a Chartered Financial Analyst and earned his M.B.A.,
with concentrations in Finance and Accounting, from Cornell University.
Susan M. Nason
Susan M. Nason has been the Fund's portfolio manager since inception. Ms.
Nason joined Federated in 1987 and has been a Senior Portfolio Manager and
Senior Vice President of the Fund's Adviser since 1997. Ms. Nason served as a
Portfolio Manager and Vice President of the Adviser from 1993 to 1997. Ms. Nason
is a Chartered Financial Analyst and received her M.S.I.A. concentrating in
Finance from Carnegie Mellon 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 Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends.
This information has been audited by Deloitte & Touche LLP, whose report,
along with the Fund's audited financial statements, is included in the Annual
Report.
<PAGE>
FEDERATED QUALITY BOND FUND II
A Portfolio of Federated Insurance Series
April 20, 2000
A Statement of Additional Information (SAI) dated April 20, 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 without charge and make inquiries, call the Fund at
1-800-341-7400. To obtain other information, call your investment professional
or the Fund.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Intenet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.
Investment Company Act File No. 811-8042
Cusip 313916884
G02589-01 (4/00)
FEDERATED QUALITY BOND FUND II
A Portfolio of Federated Insurance Series
<PAGE>
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Quality Bond Fund II
(Fund), dated April 20, 2000. This SAI incorporates by reference the Fund's
Annual Report. Obtain the prospectus or the Annual Report without charge by
calling 1-800-341-7400.
<PAGE>
april 20, 2000
<PAGE>
G02591-01 (4/00)
<PAGE>
Contents
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
What Do Shares Cost? 9
Mixed Funding and Shared Funding 9
How is the Fund Sold? 9
Subaccounting Services 10
Redemption in Kind 10
Massachusetts Partnership Law 10
Account and Share Information 10
Tax Information 10
Who Manages and Provides Services to the Fund? 11
How Does the Fund Measure Performance? 14
Who is Federated Investors, Inc.? 15
Investment Ratings 17
Addresses 19
<PAGE>
HOW IS THE FUND ORGANIZED?
The Fund is a diversified portfolio of Federated Insurance Series (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 15, 1993. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities. The Trust changed its name from Insurance Management
Series to Federated Insurance Series on November 14, 1995. The Fund's investment
adviser is Federated Investment Management Company (Adviser). The Adviser,
formerly known as Federated Advisers, changed its name effective March 31, 1999.
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.
<PAGE>
Surplus Notes
Surplus notes are subordinated debt instruments issued by mutual and stock
insurance companies. Mutual insurance companies generally issue surplus notes to
raise capital. Stock insurance companies primarily issue surplus notes in
transactions with affiliates. Surplus notes are treated by insurers as equity
capital, or "surplus" for regulatory reporting purposes. Surplus notes typically
are subordinated to any other debt. Capital Securities Capital securities are
subordinated securities, generally with a 30-50 year maturity and a 5-10 year
call protection. Dividend payments generally can be deferred by the issuer for
up to 5 years. These securities generally are unsecured and subordinated to all
senior debt securities of the issuer, therefore, principal and interest payments
on capital securities are subject to a greater risk of default than senior debt
securities. Step Up Perpetual Subordinated Securities Step up perpetual
subordinated securities ("step ups") generally are structured as perpetual
preferred securities (with no stated maturity) with a 10-year call option. If
the issue is not called, however, the coupon increases or "steps up," generally
150 to 250 basis points depending on the issue and its country of jurisdiction.
The step up interest rate acts as a punitive rate which would typically compel
the issuer to call the security. Thus, these securities generally are priced as
10-year securities.
Medium Term Notes and Deposit Notes
Medium Term Notes and Deposit Notes trade like commercial paper, but may have
maturities from nine months to ten years and are rated like corporate debt
obligations.Municipal Securities Municipal securities are issued by states,
counties, cities and other political subdivisions and authorities. Although many
municipal securities are exempt from federal income tax, the Fund may invest in
taxable municipal securities.
Mortgage Backed Securities
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and 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. Sequential CMOs In a sequential pay CMO, one class of CMOs receives
all principal payments and prepayments. The next class of CMOs receives all
principal payments after the first class is paid off. This process repeats for
each sequential class of CMO. As a result, each class of sequential pay CMOs
reduces the prepayment risks of subsequent classes. PACs, TACs and Companion
Classes More sophisticated CMOs include planned amortization classes (PACs) and
targeted amortization classes (TACs). PACs and TACs are issued with companion
classes. PACs and TACs receive principal payments and prepayments at a specified
rate. The companion classes receive principal payments and prepayments in excess
of the specified rate. In addition, PACs will receive the companion classes'
share of principal payments, if necessary, to cover a shortfall in the
prepayment rate. This helps PACs and TACs to control prepayment risks by
increasing the risks to their companion classes. IOs and POs CMOs may
allocate interest payments to one class (Interest Only or IOs) and principal
payments to another class (Principal Only or POs). POs increase in value when
prepayment rates increase. In contrast, IOs decrease in value when prepayments
increase, because the underlying mortgages generate less interest payments.
However, IOs tend to increase in value when interest rates rise (and prepayments
decrease), making IOs a useful hedge against interest rate risks. Floaters
and Inverse Floaters Another variant allocates interest payments between two
classes of CMOs. One class (Floaters) receives a share of interest payments
based upon a market index such as LIBOR. The other class (Inverse Floaters)
receives any remaining interest payments from the underlying mortgages. Floater
classes receive more interest (and Inverse Floater classes receive
correspondingly less interest) as interest rates rise. This shifts prepayment
and market 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.
<PAGE>
Z Classes and Residual Classes
CMOs must allocate all payments received from the underlying mortgages to some
class. To capture any unallocated payments, CMOs generally have an accrual (Z)
class. Z classes do not receive any payments from the underlying mortgages until
all other CMO classes have been paid off. Once this happens, holders of Z class
CMOs receive all payments and prepayments. Similarly, REMICs have residual
interests that receive any mortgage payments not allocated to another REMIC
class.
The degree of increased or decreased prepayment risks depends upon the
structure of the CMOs. However, the actual returns on any type of mortgage
backed security depend upon the performance of the underlying pool of mortgages,
which no one can predict and will vary among pools.
Asset Backed Securities
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than 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.
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.
Convertible Securities
Convertible securities are convertible preferred stock or convertible bonds that
the Fund has the option to exchange for equity securities of the issuer at a
specified conversion price. The option allows the Fund to realize additional
returns if the market price of the equity securities exceeds the conversion
price. For example, the Fund may hold securities that are convertible into
shares of common stock at a conversion price of $10 per share. If the market
value of the shares of common stock reached $12, the Fund could realize an
additional $2 per share by converting its securities.
Convertible preferred stock and convertible bonds pay or accrue interest or
dividends at a specified rate. The rate may be a fixed percentage of the
principal or adjusted periodically. In addition, the issuer of a convertible
bond must repay the principal amount of the bond, normally within a specified
time. Convertible preferred stock and convertible bonds provide more income than
equity securities.
The Fund treats convertible securities as fixed income securities for
purposes of its investment policies and limitations, because of their unique
characteristics.
<PAGE>
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: n it is
organized under the laws of, or has a principal office located in, another
country; n 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.
<PAGE>
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 foreign currency forward contracts and foreign
currency futures contracts.
Options
Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.The Fund may: n Buy call
options on foreign currency futures contracts, financial futures contracts and
on foreign currencies in anticipation of an increase in the value of the
underlying asset;
n Buy put options on foreign currency futures contracts, financial futures
contracts and on foreign currencies in anticipation of a decrease in the value
of the underlying asset; and
n Buy or write options to close out existing options positions.
The Fund may also write call options on foreign currencies and on financial
futures contracts to generate income from premiums, and in anticipation of a
decrease or only limited increase in the value of the underlying asset. If a
call written by the Fund is exercised, the Fund foregoes any possible profit
from an increase in the market price of the underlying asset over the exercise
price plus the premium received.
The Fund may also write put options on financial futures contracts to generate
income from premiums, and in anticipation of an increase or only limited
decrease in the value of the underlying asset. In writing puts, there is a risk
that the Fund may be required to take delivery of the underlying asset when its
current market price is lower than the exercise price.
When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.
<PAGE>
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.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
Delayed Delivery Transactions
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.
Dollar Rolls
Dollar rolls are transactions where the Fund sells mortgage backed securities
with a commitment to buy similar, but not identical, mortgage backed securities
on a future date at a lower price. Normally, one or both securities involved are
TBA mortgage backed securities. Dollar rolls are subject to interest rate risks
and credit risks.
Securities Lending
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower.
The Fund will not have the right to vote on securities while they are on loan,
but it will terminate a loan in anticipation of any important vote. The Fund may
pay administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.
Securities lending activities are subject to interest rate risks and credit
risks.
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."
Asset Coverage
In order to secure its obligations in connection with derivative contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting derivative contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on derivative contracts or special
transactions.
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.
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. It
should be noted that investment companies incur certain expenses, such as
management fees, and, therefore, any investment by the Fund in shares of other
investment companies may be subject to such duplicate expenses.
<PAGE>
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
Fixed Income Securities Investment Risks
Interest Rate Risks
n 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.
n 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
n 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.
n 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.
n 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.
n Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying
other securities to implement its investment strategy.
Call and Prepayment Risks
n 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.
n 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.
n Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate mortgages
when mortgage rates fall. This results in the prepayment of mortgage backed
securities with higher interest rates. Conversely, prepayments due to
refinancings decrease when mortgage rates increase. This extends the life of
mortgage backed securities with lower interest rates. Other economic factors
can also lead to increases or decreases in prepayments. Increases in
prepayments of high interest rate mortgage backed securities, or decreases in
prepayments of lower interest rate mortgage backed securities, may reduce
their yield and price. These factors, particularly the relationship between
interest rates and mortgage prepayments makes the price of mortgage backed
securities more volatile than many other types of fixed income securities with
comparable credit risks.
n Mortgage backed securities generally compensate for greater prepayment risk by
paying a higher yield. The difference between the yield of a mortgage backed
security and the yield of a U.S. Treasury security with a comparable maturity
(the spread) measures the additional interest paid for risk. Spreads may
increase generally in response to adverse economic or market conditions. A
security's spread may also increase if the security is perceived to have an
increased prepayment risk or perceived to have less market demand. An increase
in the spread will cause the price of the security to decline.
<PAGE>
The Fund may have to reinvest the proceeds of mortgage prepayments in other
fixed income securities with lower interest rates, higher prepayment risks, or
other less favorable characteristics. n
<PAGE>
Liquidity Risks
n 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.
n 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.
n 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.
n OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
n
n
Risks Associated with Complex CMOs
CMOs with complex or highly variable prepayment terms, such as companion
classes, IOs, POs, Inverse Floaters and residuals, generally entail greater
market, prepayment and liquidity risks than other mortgage backed securities.
For example, their prices are more volatile and their trading market may be more
limited.
Currency Risks
n 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.
n 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.
Leverage Risks
n 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.
n Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
State Insurance Regulations
The Fund is intended to be a funding vehicle for variable annuity contracts and
variable life insurance policies offered by certain insurance companies. The
contracts will seek to be offered in as many jurisdictions as possible. Certain
states have regulations concerning, among other things, the concentration of
investments, sales and purchases of futures contracts, and short sales of
securities. if applicable, the Fund may be limited in its ability to engage in
such investments and to manages its portfolio with desired flexibility. The Fund
will operate in material compliance with the applicable insurance laws and
regulations of each jurisdiction in which contracts will be offered by the
insurance companies which invest in the Fund.
Variable Asset Regulations
The Fund is also subject to variable contract asset regulations prescribed by
the U.S. Treasury Department under Section 817(h) of the Internal Revenue Code.
After a one year start-up period, the regulations generally require that, as of
the end of each calendar quarter or within 30 days thereafter, no more than 55%
of the total assets of the Fund may be represented by any one investment, no
more than 70% of the total assets of the Fund may be represented by any two
investments, no more than 80% of the total assets of the Fund may be represented
by any three investments, and no more than 90% of the total assets of the Fund
may be represented by any four investments. In applying these diversification
rules, all securities of the same issuer, all interests of the same real
property project, and all interests in the same commodity are each treated as a
single investment. In the case of government securities, each government agency
or instrumentality shall be treated as a separate issuer. If the Fund fails to
achieve the diversification required by the regulations, unless relief is
obtained from the Internal Revenue Service, the contracts invested in the fund
will not be treated as annuity, endowment, or life insurance contracts.
fundamental investment objective and policies
The Fund's investment objective is to provide current income. The investment
objective may not be changed by the Fund's Trustees 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. The deposit or payment by the
Fund of initial or variation margin in connection with futures contracts or
related options transactions is not considered the purchase of a security on
margin.
<PAGE>
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may borrow money
and engage in reverse repurchase agreements in amounts up to one-third of the
value of its total assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary or emergency
measure to facilitate management of the portfolio by enabling the Fund to meet
redemption requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any securities while
borrowings in excess of 5% of the value of the Fund's total assets are
outstanding.
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 the lesser of the dollar amounts
borrowed or 15% of the value of total assets at the time of the borrowing. For
purposes of this limitation, the following are not deemed to be pledges: margin
deposits for the purchase and sale of futures contracts and related options, and
segregation or collateral arrangements made in connection with options
activities or the purchase of securities on a when-issued basis.
Investing in Real Estate
The Fund will not buy or sell real estate, including limited partnership
interests, although it may invest in the securities of companies whose business
involves the purchase or sale of real estate or in securities which are secured
by real estate or interests in real estate.
Investing in Commodities
The Fund will not purchase or sell commodities, commodity contracts or commodity
futures contracts except to the extent that the Fund may engage in transactions
involving futures contracts and related options.
Underwriting
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of restricted securities which the Fund may purchase pursuant to its
investment objective, policies and limitations.
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 government of the United
States or 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. Also, the
Fund will not acquire more than 10% of the outstanding voting securities of any
one issuer.
Concentration of Investments
The Fund will not invest 25% or more of the value of its total assets in any one
industry except that the Fund may invest 25% or more of the value of its total
assets in securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities, and repurchase agreements collateralized by such
securities.
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio securities up to
one-third of the value of its total assets. This shall not prevent the Fund from
purchasing or holding U.S. government obligations, money market instruments,
variable rate demand notes, bonds, debentures, notes, certificates of
indebtedness, or other debt securities, entering into repurchase agreements, or
engaging in other transactions where permitted by the Fund's investment
objective, policies and limitations.
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 investment
limitations, however, may be changed by the Board without shareholder approval
Shareholders will be notified before any material changes in these limitations
becomes effective.
Illiquid Securities
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.
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. For purposes of its policies and limitations, the Fund
considers certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items."
<PAGE>
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
n for fixed income securities, at the last sale price on a national
securities exchange, if available, otherwise, as determined by an independent
pricing service;
n 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;
n 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
n 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.
MIXED FUNDING AND SHARED FUNDING
Shares used as investments for both variable annuity contracts and variable life
insurance policies is called "mixed funding." Shares used as investments by
separate accounts of unaffiliated life insurance companies is called "shared
funding."
The Fund does engage in mixed funding and shared funding. Although the Fund
does not currently foresee any disadvantage to contract owners due to
differences in redemption rates, tax treatment or other considerations resulting
from mixed funding or shared funding, the Trustees will closely monitor the
operation of mixed funding and shared funding and will consider appropriate
action to avoid material conflicts and take appropriate action in response to
any material conflicts which occur. Such action could result in one or more
participating insurance companies withdrawing their investment in the Fund.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
RULE 12B-1 PLAN
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.
<PAGE>
SUBACCOUNTING SERVICES
Certain participating insurance companies 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. Participating insurance companies 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 participating insurance company 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.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
The insurance company separate accounts, as shareholders of the Fund, will vote
the Fund Shares held in their separate accounts at meetings of the shareholders.
Voting will be in accordance with instructions received from contract owners of
the separate accounts, as more fully outlined in the prospectus of the separate
account.
Each share of the Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All Shares of the Trust
have equal voting rights, except that in matters affecting only a particular
Fund, only Shares of that Fund or class are entitled to vote.
Trustees 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 Trust's outstanding shares
of all series entitled to vote.
As of April , 2000, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares:
[To be filed by amendment]
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
Trust's other portfolios will be separate from those realized by the Fund.
The Fund is entitled to a loss carry-forward, which may reduce the taxable
income or gain that the Fund would realize, and to which the shareholder would
be subject, in the future.
<PAGE>
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust'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 Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Fund for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of 12
funds and the Federated Fund Complex is comprised of 43 investment companies,
whose investment advisers are affiliated with the Fund's Adviser.
As of April , 2000, the Fund's Board and Officers as a group owned less
than 1% of the Fund's outstanding Shares.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Name Aggregate Total
Birth Date From Fund Compensation
Address Principal Occupations Compensation From Trust
Position With Trust__________ for Past Five From Fund_____ and Fund Complex____
Years_______________________________________
John F. Donahue*#+ Chief Executive Officer and Director or Trustee of the $0 $0 for the Trust and
Birth Date: July 28, 1924 Federated Fund Complex; Chairman and Director, Federated 43 other investment
Federated Investors Tower Investors, Inc.; Chairman, Federated Investment companies
1001 Liberty Avenue Management Company, Federated Global Investment in the Fund Complex
Pittsburgh, PA Management Corp. and Passport Research, Ltd., formerly:
CHAIRMAN and TRUSTEE Trustee, Federated Investment Management Company and
Chairman and Director, Federated Investment Management
Counseling.
Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $116,760.63for the
Birth Date: February 3, 1934 Director, Member of Executive Committee, Children's $ Trust and
15 Old Timber Trail Hospital of Pittsburgh; Director, Robroy Industries, 43 other investment
Pittsburgh, PA Inc. (coated steel conduits/computer storage equipment); companies
TRUSTEE formerly: Senior Partner, Ernst & Young LLP; Director, in the Fund Complex
MED 3000 Group, Inc. (physician practice management);
Director, Member of Executive Committee, University of
Pittsburgh.
John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $128,455.37 for the
Birth Date: June 23, 1937 President, Investment Properties Corporation; Senior $ Trust and
Grubb & Ellis/Investment Vice President, John R. Wood and Associates, Inc., 43 other investment
Properties Corporation Realtors; Partner or Trustee in private real estate companies
3201 Tamiami Trail North ventures in Southwest Florida; formerly: President, in the Fund Complex
Naples, FL Naples Property Management, Inc. and Northgate Village
TRUSTEE Development Corporation.
Nicholas P. Constantakis Director or Trustee of the Federated Fund Complex; $73,191.21for the
Birth Date: September 3, 1939 Director, Michael Baker Corporation (engineering, $ Trust and
175 Woodshire Drive construction, operations and technical services); 37 other investment
Pittsburgh, PA formerly: Partner, Andersen Worldwide SC. companies
TRUSTEE in the Fund Complex
John F. Cunningham++ Director or Trustee of some of the Federated Fund $93,190.48for the
Birth Date: March 5, 1943 Complex; Chairman, President and Chief Executive $0 Trust and
353 El Brillo Way Officer, Cunningham & Co., Inc. (strategic business 37 other investment
Palm Beach, FL consulting); Trustee Associate, Boston College; companies
TRUSTEE Director, Iperia Corp. (communications/software); in the Fund Complex
formerly: Director, Redgate Communications and EMC
Corporation (computer storage systems).
Previous Positions: Chairman of the Board and Chief
Executive Officer, Computer Consoles, Inc.; President
and Chief Operating Officer, Wang Laboratories;
Director, First National Bank of Boston; Director,
Apollo Computer, Inc.
J. Christopher Donahue*+ President or Executive Vice President of the Federated $0 for the
Birth Date: April 11, 1949 Fund Complex; Director or Trustee of some of the Funds $0 Trust and
Federated Investors Tower in the Federated Fund Complex; President, Chief 30 other investment
1001 Liberty Avenue Executive Officer and Director, Federated Investors, companies
Pittsburgh, PA Inc.; President, Chief Executive Officer and Trustee, in the Fund Complex
PRESIDENT and TRUSTEE 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 Fund Complex; $116,760.63for the
Birth Date: October 11, 1932 Professor of Medicine, University of Pittsburgh; Medical $ Trust and
3471 Fifth Avenue Director, University of Pittsburgh Medical Center - 43 other investment
Suite 1111 Downtown; Hematologist, Oncologist, and Internist, companies
Pittsburgh, PA University of Pittsburgh Medical Center; Member, in the Fund Complex
TRUSTEE National Board of Trustees, Leukemia Society of America.
Peter E. Madden Director or Trustee of the Federated Fund Complex; $109,153.60 for the
Birth Date: March 16, 1942 formerly: Representative, Commonwealth of Massachusetts $ Trust and
One Royal Palm Way General Court; President, State Street Bank and Trust 43 other investment
100 Royal Palm Way Company and State Street Corporation. companies
Palm Beach, FL in the Fund Complex
TRUSTEE Previous Positions: Director, VISA USA and VISA
International; Chairman and Director,
Massachusetts Bankers Association; Director,
Depository Trust Corporation; Director, The
Boston Stock Exchange.
Charles F. Mansfield, Jr.++ Director or Trustee of some of the Federated Fund $102,573.91 for the
Birth Date: April 10, 1945 Complex; Executive Vice President, Legal and External $0 Trust and
80 South Road Affairs, Dugan Valva Contess, Inc. (marketing, 40 other investment
Westhampton Beach, NY communications, technology and consulting); formerly: companies
TRUSTEE Management Consultant. in the Fund Complex
Previous Positions: Chief Executive Officer,
PBTC International Bank; Partner, Arthur Young &
Company (now Ernst & Young LLP); Chief Financial
Officer of Retail Banking Sector, Chase
Manhattan Bank; Senior Vice President, Marine
Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and Finance,
Frank G. Zarb School of Business, Hofstra
University.
John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex; $128,455.37 for the
S.J.D.# President, Law Professor, Duquesne University; $ Trust
Birth Date: December 20, 1932 Consulting Partner, Mollica & Murray; Director, Michael and
President, Duquesne University Baker Corp. (engineering, construction, operations and 43 other investment
Pittsburgh, PA technical services). companies
TRUSTEE in the Fund Complex
Previous Positions: Dean and Professor of Law,
University of Pittsburgh School of Law; Dean and
Professor of Law, Villanova University School of Law.
Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $116,760.63 for the
Birth Date: June 21, 1935 Public Relations/Marketing/Conference Planning. $ Trust and
4905 Bayard Street 43 other investment
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum companies
TRUSTEE Company of America; television producer; business owner. in the Fund Complex
John S. Walsh Director or Trustee of some of the Federated Fund $94,536.85 for the
Birth Date: November 28, 1957 Complex; President and Director, Heat Wagon, Inc. $ Trust and
2007 Sherwood Drive (manufacturer of construction temporary heaters); 39 other investment
Valparaiso, IN President and Director, Manufacturers Products, Inc. companies
TRUSTEE (distributor of portable construction heaters); in the Fund Complex
President, Portable Heater Parts, a division of
Manufacturers Products, Inc.; Director, Walsh & Kelly,
Inc. (heavy highway contractor); formerly: Vice
President, Walsh & Kelly, Inc.
Edward C. Gonzales+* President, Executive Vice President and Treasurer of $0 for the
Birth Date: October 22, 1930 some of the Funds in the Federated Fund Complex; Vice $0 Trust and
Federated Investors Tower Chairman, Federated Investors, Inc.; Trustee, Federated 42 other investment
1001 Liberty Avenue Administrative Services; formerly: Trustee or companies
Pittsburgh, PA Director of some of the Funds in the Federated Fund in the Fund Complex
EXECUTIVE VICE PRESIDENT and Complex; CEO and Chairman, Federated Administrative
SECRETARY 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 Secretary of the Federated $0 for the
Birth Date: October 26, 1938 Fund Complex; Executive Vice President, Secretary and $0 Trust and
Federated Investors Tower Director, Federated Investors, Inc.; formerly: Trustee, 43 other investment
1001 Liberty Avenue Federated Investment Management Company and Federated companies
Pittsburgh, PA Investment Counseling; Director, Federated Global in the Fund Complex
EXECUTIVE VICE PRESIDENT and Investment Management Corp, Federated Services Company
SECRETARY and Federated Securities Corp.
Richard J. Thomas Treasurer of the Federated Fund Complex; Vice President $0 for the
Birth Date: June 17, 1954 - Funds Financial Services Division, Federated $0 Trust and
Federated Investors Tower Investors, Inc.; formerly: various management positions 43 other investment
1001 Liberty Avenue within Funds Financial Services Division of Federated companies
Pittsburgh, PA Investors, Inc. in the Fund Complex
TREASURER
Richard B. Fisher President or Vice President of some of the Funds in the $0 for the
Birth Date: May 17, 1923 Federated Fund Complex; Vice Chairman, Federated $0 Trust and
Federated Investors Tower Investors, Inc.; Chairman, Federated Securities Corp.; 41 other investment
1001 Liberty Avenue formerly: Director or Trustee of some of the Funds in companies
Pittsburgh, PA the Federated Fund Complex,; Executive Vice President, in the Fund Complex
VICE PRESIDENT Federated Investors, Inc. and Director and Chief
Executive Officer, Federated Securities Corp.
William D. Dawson, III Chief Investment Officer of this Fund and various other $0 for the
Birth Date: March 3, 1949 Funds in the Federated Fund Complex; Executive Vice $0 Trust and
Federated Investors Tower President, Federated Investment Counseling, Federated 27 other investment
1001 Liberty Avenue Global Investment Management Corp., Federated Investment companies
Pittsburgh, PA Management Company and Passport Research, Ltd.; in the Fund Complex
CHIEF INVESTMENT OFFICER 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.
Henry A. Frantzen Chief Investment Officer of this Fund and various other $0 for the
Birth Date: November 28, 1942 Funds in the Federated Fund Complex; Executive Vice $0 Trust and
Federated Investors Tower President, Federated Investment Counseling, Federated 2 other investment
1001 Liberty Avenue Global Investment Management Corp., Federated Investment companies
Pittsburgh, PA Management Company and Passport Research, Ltd.; in the Fund Complex
CHIEF INVESTMENT OFFICER Registered Representative, Federated Securities Corp.;
Vice President, Federated Investors, Inc.;
formerly: Executive Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Chief Investment
Officer/Manager, International Equities, Brown
Brothers Harriman & Co.; Managing Director, BBH
Investment Management Limited.
J. Thomas Madden Chief Investment Officer of this Fund and various other $0 $0 for the
Birth Date: October 22, 1945 Funds in the Federated Fund Complex; Executive Vice Trust and
Federated Investors Tower President, Federated Investment Counseling, Federated 11 other investment
1001 Liberty Avenue Global Investment Management Corp., Federated Investment companies
Pittsburgh, PA Management Company and Passport Research, Ltd.; Vice in the Fund Complex
CHIEF INVESTMENT OFFICER 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.
</TABLE>
* An asterisk denotes a Trustee who is deemed to be an interested person as
defined in the 1940 Act.
# 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, President and Trustee of
the Trust.
++ Mssrs. Cunningham and Mansfield became members of the Board of Trustees on
January 1, 2000. They did not receive any fees as of the fiscal year end of
the Fund.
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 Fundor 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 Fund.
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. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). 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.
<PAGE>
Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
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.
<PAGE>
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
Average Aggregate Daily Net
Maximum Adminstrative Fee 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.
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.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. 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 Start of Performance period ended December 31,
1999. Yield is given for the 30-day period ended December 31, 1999.
30-Day Period Start of
Performance on
April 28, 1999
Total Return NA ___%
Yield ___% NA
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.
<PAGE>
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:
n references to ratings, rankings and financial publications and/or
performance comparisons of Shares to certain indices;
n 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;
n discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
n 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 Analytical Services, Inc.
Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in over a specific period of time. From time to time,
the Fund will quote its Lipper ranking in the "short-term investment grade debt
funds" category in advertising and sales literature.
The Lehman Brothers Corporate Index
The Lehman Brothers Corporate Index includes bonds issued by corporations and
Yankee issues. The Corporate Index is subdivided into industrial, finance,
utility and Yankee sectors, and had a total market value of $793.2 billion as of
December 31, 1995. It also includes publicly issued U.S. corporate and Yankee
debentures and secured notes that meet the maturity, liquidity and quality
guidelines. Securities with normal call and put provisions and sinking funds are
also included.
Morningstar, Inc.
Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Lehman Brothers Intermediate Government/Corporate Bond Index
Lehman Brothers Intermediate Government/Corporate Bond Index is an unmanaged
index comprised of all the bonds issued by the Lehman Brothers
Government/Corporate Bond Index with maturities between 1 and 9.99 years. Total
return is based on price appreciation/depreciation and income as a percentage of
the original investment. Indices are rebalanced monthly by market
capitalization.
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.
<PAGE>
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 28 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 manages 9
mortgage-backed, 11 government/agency and 16 government money market mutual
funds, with assets approximating $4.7 billion, $1.6billion 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 and 24municipal 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.
<PAGE>
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.
FINANCIAL INFORMATION
The Financial Statements for the Fund for the fiscal year ended December 31,
1999, are incorporated herein by reference to the Annual Report to Shareholders
of Federated Quality Bond Fund II dated December 31, 1999. [To be filed by
amendment]
<PAGE>
INVESTMENT RATINGS
Standard and Poor's Long-Term Debt Rating Definitions
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong. AA--Debt rated
AA has a very strong capacity to pay interest and repay principal and differs
from the higher rated issues only in small degree. A--Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. BBB--Debt rated BBB is regarded
as having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories. BB--Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating. B--Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating. CCC--Debt rated CCC
has a currently identifiable vulnerability to default, and is dependent upon
favorable business, financial and economic conditions to meet timely payment of
interest and repayment of principal. In the event of adverse business, financial
or economic conditions, it is not likely to have the capacity to pay interest
and repay principal. The CCC rating category is also used for debt subordinated
to senior debt that is assigned an actual or implied B or B- rating. CC--The
rating CC typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC debt rating. C--The rating C typically is
applied to debt subordinated to senior debt which is assigned an actual or
implied CCC- debt rating. The C rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are continued.
Moody's Investors Service, Inc. Long-Term Bond Rating Definitions
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. AA--Bonds which are rated AA are
judged to be of high quality by all standards. Together with the AAA group, they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks appear
somewhat larger than in AAA securities. A--Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future. BAA--Bonds which are rated BAA are considered
as medium grade obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. BA--Bonds which are BA are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
<PAGE>
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:
n Leading market positions in well established industries.
n High rates of return on funds employed.
n Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
n Broad margins in earning coverage of fixed financial charges
and high internal cash generation.
n Well established access to a range of financial markets and
assured sources of alternate
liquidity.
Prime-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Standard and Poor's Commercial Paper Ratings
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation. A-2--Capacity for
timely payment on issues with this designation is satisfactory. However, the
relative degree of safety is not as high as for issues designated A-1.
Fitch IBCA, Inc. Commercial Paper Rating Definitions
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment. FITCH-2--(Very Good
Grade) Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than the strongest issues.
<PAGE>
ADDRESSES
Federated Quality Bond Fund II
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
125 Summer Street
Boston, MA 02110-1617
PART C. OTHER INFORMATION.
Item 23. Exhibits:
(a) Conformed copy of Amended and Restated
Declaration of Trust of the Registrant (Amendment
#1 to the Declaration of Trust); (3)
(i) Conformed copy of Amendment #2 to the Declaration of
Trust; (17)
(ii) Conformed copy of Amendment #3 to the Declaration of
Trust; (17)
(iii) Conformed copy of Amendment #4 to the Declaration of
Trust; (17)
(iv) Conformed copy of Amendment #5 to the Declaration of
Trust; (10)
(v) Conformed copy of Amendment #6 to the
Declaration of Trust; (11)
(vi) Conformed copy of Amendment #7 to the
Declaration of Trust; (17) (vii) Form of
Amendment #8 to the Declaration of Trust;
(20)
(b) Copy of By-Laws; (2)
(i) Copy of Amendment No. 1 to the By-Laws; (19)
(ii)Copy of Amendment No. 2 to the By-Laws; (19)
(iii)Copy of Amendment No. 3 to the By-Laws;(19)
(c) (i) Copy of Specimen Certificate for Shares of Beneficial
Interest of Federated American Leaders Fund II; (15)
(ii) Copy of Specimen Certificate for Shares of Beneficial
Interest of Federated Utility Fund II; (15)
(iii) Copy of Specimen Certificate for
Shares of Beneficial Interest of
Federated Fund for U.S. Government
Securities II; (15)
(iv) Copy of Specimen Certificate for Shares of Beneficial
Interest of Federated High Income Bond Fund II; (15)
(v) Copy of Specimen Certificate for Shares of Beneficial
Interest of Federated Prime Money Fund II; (15)
(vi) Copy of Specimen Certificate for Shares of Beneficial
Interest of Federated International Equity Fund II; (4)
+ All exhibits have been filed electronically.
(2) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed April 29, 1994. (File Nos. 33-69268 and
811-8042).
(3) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed August 23, 1994. (File Nos. 33-69268 and
811-8042).
(4) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed January 19, 1995. (File Nos. 33-69268
and 811-8042).
(10) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed February 16, 1996. (File Nos. 33-69268
and 811-8042).
(11) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed March 28, 1996. (File Nos. 33-69268 and
811-8042).
(15) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed July 31, 1997. (File Nos. 33-69268 and
811-8042).
(17) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on Form N-1A filed April 22, 1998. (File Nos. 33-69268 and
811-8042).
(19) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed February 18, 1999. (File Nos. 33- 69268
and 811-8042).
(20) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed April 20, 1999. (File Nos. 33-69268 and
811-8042).
<PAGE>
(vii)Copy of Specimen Certificate for Shares of Beneficial Interest of
Federated Growth Strategies Fund II; (15)
(viii)Copy of Specimen Certificate for Shares of Beneficial Interest of
Federated Equity Income Fund II; (15)
(d) Conformed copy of Investment Advisory Contract between the Registrant and
Federated Advisers;(3)
(i) Conformed copy of Exhibit A to Investment Advisory Contract; (3)
(ii) Conformed copy of Exhibit B to Investment Advisory Contract; (3)
(iii) Conformed copy of Exhibit C to Investment Advisory Contract; (3)
(iv) Conformed copy of Exhibit D to Investment Adivsory Contract; (3)
(v) Conformed copy of Exhibit E to Investment Adivsory Contract; (3)
(vi) Conformed copy of Exhibit F to Investment Advisory Contract; (6)
(vii) Conformed copy of Exhibit G to the Trust's present investment
advisory contract to add Federated Growth Strategies Fund II
(formerly, Growth Stock Fund); (10)
(viii)Conformed copy of Exhibit H to the
Trust's present investment advisory
contract to add Federated Equity
Income Fund II; (12)
(ix) Conformed copy of Exhibit I to the
Trust's present investment advisory
contract to add Federated Quality
Bond Fund II; (20)
(x) Conformed copy of Exhibit J to the
Trust's present investment advisory
contract to add Federated Small Cap
Strategies Fund II; +
(xi) Conformed copy of Exhibit K to the
Trust's present investment advisory
contract to add Federated Strategic
Income Fund II; +
+ All exhibits have been filed electronically.
(3) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed August 23, 1994. (File Nos. 33-69268 and
811-8042).
(6) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed April 3, 1995. (File Nos. 33-69268 and
811-8042).
(10) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed February 16, 1996. (File Nos. 33-69268
and 811-8042).
(12) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed February 10, 1997. (File Nos. 33-69268
and 811-8042).
(15) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed July 31, 1997. (File Nos. 33-69268 and
811-8042).
(20) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed April 20, 1999. (File Nos. 33-69268 and
811-8042).
<PAGE>
(d1) Conformed copy of Investment Advisory Contract between the Registrant and
Federated Global Research Corp. with respect to Federated International
Equity Fund II; (10)
(d2) Conformed copy of Sub-Advisory Agreement between Federated Advisers and
Federated Global Research Corp. with respect to Federated Utilty Fund II;
(17)
(d3) Conformed copy of Sub-Advisory Agreement between Federated Investment
Management Company and Federated Global Investment Management Corp. with
respect to Federated Strategic Income Fund II; +
(i) Conformed copy of Exhibit A to
Investment Advisory Contract; (10) (e) Conformed copy
of Distributor's Contract; (3)
(i) Conformed copy of Exhibit A to
Distributor's Contract; (3) (ii) Conformed
copy of Exhibit B to Distributor's Contract;
(3) (iii) Conformed copy of Exhibit C to
Distributor's Contract; (3) (iv) Conformed
copy of Exhibit D to Distributor's Contract;
(3) (v) Conformed copy of Exhibit E to
Distributor's Contract; (3) (vi) Conformed
copy of Exhibit F to Distributor's Contract;
(7) (vii) Conformed copy of Exhibit G to
Distributor's Contract; (10) (viii)Conformed
copy of Exhibit H to Distributor's Contract;
(12) (ix) Conformed copy of Exhibit I to
Distributor's Contract; (20) (x) Conformed
copy of Exhibit J to Distributor's Contract;
+ (xi) Conformed copy of Exhibit K to
Distributor's Contract; +
(f) Not Applicable;
(g) Conformed copy of Custodian Contract; (7)
(i) Conformed copy of Domestic Custody
Fee Schedule; (17)
(h) (i) Conformed copy of Amended and
Restated Agreement for Fund
Accounting Services, Aministrative
Services, Transfer Agency Services,
and Custody Services Procurement;
(19)
+ All exhibits have been filed electronically.
(3) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed August 23, 1994. (File Nos. 33-69268 and
811-8042).
(7) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed April 21, 1995. (File Nos. 33-69268 and
811-8042).
(10) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed February 16, 1996. (File Nos. 33-69268
and 811-8042).
(12) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed February 10, 1997. (File Nos. 33-69268
and 811-8042).
(17) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on Form N-1A filed April 22, 1998. (File Nos. 33-69268 and
811-8042).
(19) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed February 18, 1999. (File Nos. 33- 69268
and 811-8042).
(20) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed April 20, 1999. (File Nos. 33-69268 and
811-8042).
<PAGE>
(ii) Conformed copy of Amended and Restated
Shareholder Services Agreement; (16)
(i) Conformed copy of Opinion and Consent of Counsel
as to legality of shares being registered; (2)
(j) Consent of Independent Auditors (to be filed
by
amendment);
(k) Not Applicable;
(l) Conformed copy of Initial Capital Understanding;(2)
(m) Conformed Copy of Distribution Plan of the
Registrant; (12)
(i) Conformed copy of Exhibit B to the
Distribution Plan of the Registrant with respect
to Federated Quality Bond
Fund II; (20)
(ii) Conformed copy of Exhibit C to the Distribution
Plan of the Registrant with respect to Federated
Small Cap Strategies
Fund II; +
(iii) Conformed copy of Exhibit D to the Distribution
Plan of the Registrant with respect to Federated
Strategic Income Fund
Fund II; +
(n) Not applicable;
(o) Conformed copy of Power of Attorney; (21)
(i) Conformed copy of Powers of Attorney for
Richard J. Thomas, Treasurer; John S. Walsh,
Trustee; and J. Thomas Madden, William D. Dawson, III
and Henry A. Frantzen, Chief Investment Officers.(18)
(ii) Conformed copy of Powers of Attorney for John F.
Cunningham, Charles F. Mansfield, Jr., John S. Walsh,
Trustees; Henry A. Frantzen, J. Thomas Madden, William
D. Dawson, Chief Investment Officers. (21)
Item 24. Persons Controlled by or Under Common Control with Registrant:
None
Item 25. Indemnification: (1)
+ All exhibits have been filed electronically.
(1) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed December 10, 1993. (File Nos. 33-69268
and 811-8042).
(2) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed April 29, 1994. (File Nos. 33-69268 and
811-8042).
(12) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed February 10, 1997. (File Nos. 33-69268
and 811-8042).
(16) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed March 9, 1998. (File Nos. 33-69268 and
811-8042).
(18) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed February 5, 1999. (File Nos. 33-69268
and 811-8042).
(20) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed April 20, 1999. (File Nos. 33-69268 and
811-8042).
(21) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 on Form N-1A filed February 2, 2000. (File Nos. 33- 69268
and 811-8042).
<PAGE>
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
<PAGE>
Item 26. Business and Other Connections of Investment Adviser (continued):
Vice Presidents 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.
<PAGE>
Item 27. Principal Underwriters:
(a)......Federated Securities Corp. the Distributor for shares of the
Registrant, 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.;
<TABLE>
<CAPTION>
<S> <C> <C>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard B. Fisher Chairman, Vice President
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
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
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
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
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
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
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
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
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
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
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
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
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
</TABLE>
(c) Not applicable
Item 28. Location of Accounts and Records:
All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of
the following locations:
<TABLE>
<CAPTION>
<S> <C>
Registrant Federated Investors
Tower 1001 Liberty
Avenue Pittsburgh, PA
15222-3779 (Notices
should be sent to the
Agent for Service at
above address)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Transfer Agent, Dividend
Disbursing Agent and
Portfolio Recordkeeper
Federated Services Federated Investors Tower
Company 1001 Liberty Avenue
Administrator Pittsburgh, PA 15222-3779
Federated Investment Federated Investors Tower
Management Company 1001 Liberty Avenue
Investment Adviser Pittsburgh, PA 15222-3779
Federated Global Investment 175 Water Street
Management Corp. New York, NY 10038-4965
Investment Adviser
State Street Bank and P.O. Box 8600
---------------------
Trust Company Boston, MA 02266-8600
Custodian
</TABLE>
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
Trustees and the calling of special shareholder meetings by
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED INSURANCE SERIES, has
duly caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Pittsburgh
and Commonwealth of Pennsylvania, on the 17th day of February, 2000.
FEDERATED INSURANCE SERIES
BY: /s/ C. Grant Anderson
C. Grant Anderson, Assistant Secretary
Attorney in Fact for John F. Donahue
February 17, 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:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME TITLE DATE
By: /s/ C. Grant Anderson
C. Grant Anderson Attorney In Fact February 17, 2000
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
J. Christopher Donahue* President and Trustee
Richard J. Thomas* Treasurer
(Principal Financial and
Accounting Officer)
Henry A. Frantzen* Chief Investment Officer
William D. Dawson, III* Chief Investment Officer
J. Thomas Madden* Chief Investment Officer
Thomas G. Bigley* Trustee
Nicholas P. Constantakis* Trustee
John T. Conroy, Jr.* Trustee
John F. Cunningham* Trustee
Lawrence D. Ellis, M.D.* Trustee
Peter E. Madden* Trustee
Charles F. Mansfield, Jr. Trustee
John E. Murray, Jr.* Trustee
Marjorie P. Smuts* Trustee
John S. Walsh* Trustee
* By Power of Attorney
</TABLE>
Exhibit (d)(x) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
EXHIBIT J
to the
Investment Advisory Contract
FEDERATED INSURANCE SERIES
Federated Small Cap Strategies Fund II
For all services rendered by Adviser hereunder, the above-named Fund of
the Trust shall pay to Adviser and Adviser agrees to accept as full compensation
for all services rendered hereunder, an annual investment advisory fee equal to
.75 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 0.75 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 June, 1999.
Federated Investment Management Company
By: /s/ G. Andrew Bonnewell
Name: G. Andrew Bonnewell
Title: Vice President
Federated Insurance Series
By: /s/ J. Christopher Donahue
Name: J. Christopher Donahue
Title: President
Exhibit (d) (xi) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
EXHIBIT K
to the
Investment Advisory Contract
FEDERATED INSURANCE SERIES
Federated Strategic Income Fund II
For all services rendered by Adviser hereunder, the above-named Fund of
the Trust shall pay to Adviser and Adviser agrees to accept as full compensation
for all services rendered hereunder, an annual investment advisory fee equal to
.85 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 0.85 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 June, 1999.
Federated Investment Management Company
By: /s/ G. Andrew Bonnewell
Name: G. Andrew Bonnewell
Title: Vice President
Federated Insurance Series
By: /s/ J. Christopher Donahue
Name: J. Christopher Donahue
Title: President
exhibit (d)(d3) under form n-1a
Exhibit 10 under item 601/reg s-k
FEDERATED INSURANCE SERIES
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made between Federated Investment Management Company,
a Delaware business trust (hereinafter referred to as "Adviser") and Federated
Global Investment Management Corp., a Delaware corporation having its principal
place of business in New York, New York (hereinafter referred to as the
"Sub-Adviser").
WITNESSETH:
That the parties hereto, intending to be legally bound hereby agree as
follows:
1. Sub-Adviser hereby agrees to furnish to Adviser in its capacity as
investment adviser to Federated Strategic Income Fund II (the "Fund"), a
portfolio of Federated Insurance Series ("Trust"), such investment advice,
statistical and other factual information, as may from time to time be
reasonably requested by Adviser for the Fund which may be offered in one or more
classes of shares ("Classes").
2. For its services under this Agreement, Sub-Adviser shall receive
from Adviser an annual fee ("the Sub-Advisory Fee"), as set forth in the
exhibits hereto. In the event that the fee due from the Trust to the Adviser on
behalf of the Fund is reduced in order to meet expense limitations imposed on
the Fund by state securities laws or regulations, the Sub-Advisory Fee shall be
reduced by one-half of said reduction in the fee due from the Trust to the
Adviser on behalf of the Fund.
Notwithstanding any other provision of this Agreement, the Sub-Adviser
may from time to time and for such periods as it deems appropriate, reduce its
compensation (and, if appropriate, assume expenses of the Fund or Class of the
Fund) to the extent that the Fund's expenses exceed such lower expense
limitation as the Sub-Adviser may, by notice to the Trust on behalf of the Fund,
voluntarily declare to be effective.
3. This Agreement shall begin for a Fund on the date that the parties
execute an exhibit to this Agreement relating to such Fund and shall continue in
effect for a Fund for two years from the date of its execution and from year to
year thereafter, subject to the provisions for termination and all of the other
terms and conditions hereof if: (a) such continuation shall be specifically
approved at least annually by the vote of a majority of the Trustees of the
Trust, including a majority of the Trustees who are not parties to this
Agreement or interested persons of any such party (other than as Trustees of the
Trust) cast in person at a meeting called for that purpose; and (b) Adviser
shall not have notified the Trust in writing at least sixty (60) days prior to
the anniversary date of this Agreement in any year thereafter that it does not
desire such continuation with respect to the Fund.
4. Notwithstanding any provision in this Agreement, it may be
terminated at any time without the payment of any penalty: (a) by the Trustees
of the Trust or by a vote of a majority of the outstanding voting securities (as
defined in Section 2(a)(42) of the Act) of the Fund on sixty (60) days' written
notice to Sub-Adviser; or (b) by Sub-Adviser or Adviser upon 120 days' written
notice to the other party to the Agreement.
5. This Agreement shall automatically terminate:
(a) in the event of its assignment (as defined in the Investment
Company Act of 1940); or
(b) in the event of termination of the Investment Advisory
Contract for any reason whatsoever.
6. So long as both Adviser and Sub-Adviser shall be legally qualified
to act as an investment adviser to the Fund, neither Adviser nor Sub-Adviser
shall act as an investment adviser (as such term is defined in the Investment
Company Act of 1940) to the Fund except as provided herein and in the Investment
Advisory Contract or in such other manner as may be expressly agreed between
Adviser and Sub-Adviser.
Provided, however, that if the Adviser or Sub-Adviser shall resign
prior to the end of any term of this Agreement or for any reason be unable or
unwilling to serve for a successive term which has been approved by the Trustees
of the Trust pursuant to the provisions of Paragraph 3 of this Agreement or
Paragraph 6 of the Investment Advisory Contract, the remaining party,
Sub-Adviser or Adviser as the case may be, shall not be prohibited from serving
as an investment adviser to such Fund by reason of the provisions of this
Paragraph 6.
7. This Agreement may be amended from time to time by agreement of the
parties hereto provided that such amendment shall be approved both by the vote
of a majority of Trustees of the Trust, including a majority of Trustees who are
not parties to this Agreement or interested persons, as defined in Section
2(a)(19) of the Investment Company Act of 1940, of any such party at a meeting
called for that purpose, and, where required by Section 15(a)(2) of the Act, by
the holders of a majority of the outstanding voting securities (as defined in
Section 2(a)(42) of the Investment Company Act of 1940) of the Fund.
<PAGE>
Exhibit A
Federated Insurance Series
Federated Strategic Income Fund II
Sub-Advisory Contract
For all services rendered by Sub-Adviser hereunder, Sub-Adviser shall
receive from the Adviser an allocable portion of each Fund's investment advisory
fee. Such allocation shall be based on the amount of foreign securities which
Sub-Adviser is managing for each Fund. The Sub-Advisory Fee shall be accrued
daily, and paid daily as set forth in the Primary Advisory Contract dated
December 1, 1993.
This Exhibit duly incorporates by reference the Sub-Advisory Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on their behalf by their duly authorized officers this 1st day of June,
1999.
FEDERATED INVESTMENT
MANAGEMENT COMPANY
By: /s/ G. Andrew Bonnewell
Name: G. Andrew Bonnewell
Title: Vice President
FEDERATED GLOBAL INVESTMENT
MANAGEMENT CORP.
By: /s/ J. Christopher Donahue
Name: J. Christopher Donahue
Title: President
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, dated as of June 1, 1999, that
Federated Insurance Series, a Trust duly organized under the laws of the
Commonwealth of Massachusetts (the "Trust"), does hereby nominate, constitute
and appoint Federated Global Investment Management Corp., a corporation duly
organized under the laws of the Delaware (the "Subadviser"), to act hereunder as
the true and lawful agent and attorney-in-fact of the Trust, acting on behalf of
each of the series portfolios for which the Subadviser 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 Subadviser may deem
necessary or reasonably desirable, related to the acquisition, disposition
and/or reinvestment of the funds and assets of a Fund of the Trust in accordance
with Subadviser's supervision of the investment, sale and reinvestment of the
funds and assets of each Fund pursuant to the authority granted to the
Subadviser as investment adviser of each Fund under that certain subadvisory
contract dated June 1, 1999 by and between the Subadviser and the Trust (such
subadvisory contract, as may be amended, supplemented or otherwise modified from
time to time is hereinafter referred to as the "Subadvisory Contract").
The Subadviser shall exercise or omit to exercise the powers and
authorities granted herein in each case as the Subadviser in its sole and
absolute discretion deems desirable or appropriate under existing circumstances.
The Trust hereby ratifies and confirms as good and effectual, at law or in
equity, all that the Subadviser, 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 Subadviser to act or assume responsibility
for any matters referred to above or other matters even though the Subadviser
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 Subadvisory Contract, (ii) to amend, modify, limit or
denigrate any duties, obligations or liabilities of the Subadviser under the
terms of the Subadvisory Contract or (iii) exonerate, relieve or release the
Subadviser 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 Subadviser (x) under the
terms of the Subadvisory Contract or (y) at law, or in equity, for the
performance of its duties as the investment adviser of any of the Funds.
The Trust hereby agrees to indemnify and save harmless the Subadviser
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 Subadviser herein to act on
behalf of the Trust, 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
Subadviser'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 Subadviser herein to act on behalf of
the Trust, or the taking of any action under or in connection with any of the
foregoing. The obligations of the Trust under this paragraph shall survive the
termination of this Limited Power of Attorney with respect to actions taken by
the Subadviser on behalf of the Trust 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 Subadviser in its
capacity as agent or attorney-in-fact of Trust acting on behalf of any other
Fund hereunder.
Any person, partnership, Trust or other legal entity dealing with the
Subadviser in its capacity as attorney-in-fact hereunder for the Trust is hereby
expressly put on notice that the Subadviser is acting solely in the capacity as
an agent of the Trust and that any such person, partnership, Trust or other
legal entity must look solely to the Trust in question for enforcement of any
claim against the Trust, as the Subadviser assumes no personal liability
whatsoever for obligations of the Trust entered into by the Subadviser in its
capacity as attorney-in-fact for the Trust.
Each person, partnership, Trust or other legal entity which deals with
a Fund of the Trust through the Subadviser in its capacity as agent and
attorney-in-fact of the Trust, is hereby expressly put on notice (i) that all
persons or entities dealing with the Trust must look solely to the assets of the
Fund of the Trust on whose behalf the Subadviser is acting pursuant to its
powers hereunder for enforcement of any claim against the Trust, as the
Directors, officers and/or agents of such Trust, the shareholders of the various
classes of shares of the Trust and the other Funds of the Trust assume no
personal liability whatsoever for obligations entered into on behalf of such
Fund of the Trust, and (ii) that the rights, liabilities and obligations of any
one Fund are separate and distinct from those of any other Fund of the Trust.
The execution of this Limited Power of Attorney by the Trust 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
Subadviser pursuant to the power or authority granted to the Subadviser 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
Trust on whose behalf the Subadviser was acting pursuant to the authority
granted hereunder.
The Trust hereby agrees that no person, partnership, Trust or other
legal entity dealing with the Subadviser shall be bound to inquire into the
Subadviser's power and authority hereunder and any such person, partnership,
Trust or other legal entity shall be fully protected in relying on such power or
authority unless such person, partnership, Trust or other legal entity has
received prior written notice from the Trust 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 Subadvisory Contract
between the Trust and the Subadviser. Except as provided in the immediately
preceding sentence, the powers and authorities herein granted may be revoked or
terminated by the Trust at any time provided that no such revocation or
termination shall be effective until the Subadviser has received actual notice
of such revocation or termination in writing from the Trust.
This Limited Power of Attorney constitutes the entire agreement between
the Trust and the Subadviser, 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 Subadviser shall have no power or authority hereunder to
appoint a successor or substitute attorney in fact for the Trust.
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 Subadviser 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 Subadviser 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 Trust when the Trust shall have executed at least one counterpart and the
Subadviser 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 Trust and the Subadviser will execute sufficient counterparts so that the
Subadviser shall have a counterpart executed by it and the Trust, and the Trust
shall have a counterpart executed by the Trust and the Subadviser. 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 Trust has caused this Limited Power of Attorney
to be executed by its duly authorized officer as of the date first written
above.
FEDERATED INSURANCE SERIES
By: /s/ Richard B. Fisher
Name: Richard B. Fisher
Title: Vice President
Accepted and agreed to June 1, 1999
FEDERATED GLOBAL INVESTMENT
MANAGEMENT CORP.
By: /s/ J. Christopher Donahue
Name: J. Christopher Donahue
Title: President
<PAGE>
Schedule 1
to Limited Power of Attorney
dated as of June 1, 1999
by Federated Insurance
(the Trust "), acting on
behalf of each of the series portfolios
listed below, and appointing
Federated Global Investment Management Corp.
the attorney-in-fact of the
Trust
List of Series Portfolios
Federated Strategic Income Fund II
Exhibit (e)(x) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Exhibit J
to the
Distributor's Contract
Federated Insurance Series
Federated Small Cap Strategies Fund II
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated December 1, 1993, between Federated Insurance
Series and Federated Securities Corp. with respect to the Class of shares set
forth above.
1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class ("Shares").
Pursuant to this appointment, FSC is authorized to select a group of financial
institutions ("Financial Institutions") to sell Shares at the current offering
price thereof as described and set forth in the respective prospectuses of the
Trust.
2. During the term of this Agreement, the Trust will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the annual rate
of .25% of the average aggregate net asset value of the Shares held during the
month. For the month in which this Agreement becomes effective or terminates,
there shall be an appropriate proration of any fee payable on the basis of the
number of days that the Agreement is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems
appropriate reduce its compensation to the extent any Class' expenses exceed
such lower expense limitation as FSC may, by notice to the Trust, voluntarily
declare to be effective.
4. FSC will enter into separate written agreements with various firms
to provide certain of the services set forth in Paragraph 1 herein. FSC, in its
sole discretion, may pay Financial Institutions a periodic fee in respect of
Shares owned from time to time by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid shall be determined
from time to time by FSC in its sole discretion.
5. FSC will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts expended hereunder including amounts paid to
Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the Distributor's
Contract dated December 1, 1993 between Federated Insurance Series and Federated
Securities Corp., Federated Insurance Series executes and delivers this Exhibit
on behalf of Federated Small Cap Strategies Fund II, first set forth in this
Exhibit.
Witness the due execution hereof this 1st day of June, 1999.
FEDERATED INSURANCE SERIES
By: /s/ J. Christopher Donahue
Name: J. Christopher Donahue
Title: President
<PAGE>
FEDERATED SECURITIES CORP.
By: /s/ David M. Taylor
Name: David M. Taylor
Title: Executive Vice President
Exhibit (e)(xi) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Exhibit K
to the
Distributor's Contract
Federated Insurance Series
Federated Strategic Income Fund II
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated December 1, 1993, between Federated Insurance
Series and Federated Securities Corp. with respect to the Class of shares set
forth above.
1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the above-listed Class ("Shares").
Pursuant to this appointment, FSC is authorized to select a group of financial
institutions ("Financial Institutions") to sell Shares at the current offering
price thereof as described and set forth in the respective prospectuses of the
Trust.
2. During the term of this Agreement, the Trust will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the annual rate
of .25% of the average aggregate net asset value of the Shares held during the
month. For the month in which this Agreement becomes effective or terminates,
there shall be an appropriate proration of any fee payable on the basis of the
number of days that the Agreement is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems
appropriate reduce its compensation to the extent any Class' expenses exceed
such lower expense limitation as FSC may, by notice to the Trust, voluntarily
declare to be effective.
4. FSC will enter into separate written agreements with various firms
to provide certain of the services set forth in Paragraph 1 herein. FSC, in its
sole discretion, may pay Financial Institutions a periodic fee in respect of
Shares owned from time to time by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid shall be determined
from time to time by FSC in its sole discretion.
5. FSC will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts expended hereunder including amounts paid to
Financial Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the Distributor's
Contract dated December 1, 1993 between Federated Insurance Series and Federated
Securities Corp., Federated Insurance Series executes and delivers this Exhibit
on behalf of Federated Strategic Income Fund II, first set forth in this
Exhibit.
Witness the due execution hereof this 1st day of June, 1999.
FEDERATED INSURANCE SERIES
By: /s/ J. Christopher Donahue
Name: J. Christopher Donahue
Title: President
<PAGE>
FEDERATED SECURITIES CORP.
By: /s/ David M. Taylor
Name: David M. Taylor
Title: Executive Vice President
Exhibit (m)(ii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
EXHIBIT C
to the
Distribution Plan
Federated Insurance Series
Federated Small Cap Strategies Fund II
This Distribution Plan is adopted by between Federated Insurance
Series with respect to the Class of Shares of the Federated Small Cap
Strategies Fund II set forth above.
In compensation for the services provided pursuant to this Plan,
FSC will be paid a monthly fee computed at the annual rate of .25% of
the average aggregate net asset value of Federated Small Cap Strategies
Fund II held during the month.
Witness the due execution hereof this 1st day of June, 1999.
Federated Insurance Series
By:/s/ J. Christopher Donahue
Name: J. Christopher Donahue
Title: President
Exhibit (m)(iii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
EXHIBIT D
to the
Distribution Plan
Federated Insurance Series
Federated Strategic Income Fund II
This Distribution Plan is adopted by between Federated Insurance
Series with respect to the Class of Shares of the Federated Strategic
Income Fund II set forth above.
In compensation for the services provided pursuant to this Plan,
FSC will be paid a monthly fee computed at the annual rate of .25% of
the average aggregate net asset value of Federated Strategic Income
Fund II held during the month.
Witness the due execution hereof this 1st day of June, 1999.
Federated Insurance Series
By: /s/ J. Christopher Donahue
Name: J. Christopher Donahue
Title: President
