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. ....................
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Post-Effective Amendment No. 26 ........................ X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 27 ................................... 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) X 60 days after filing pursuant to paragraph (a) (i)
on __________________ pursuant to paragraph (a) (i) 75 days after filing
pursuant to paragraph (a)(ii) _ on __________________ pursuant to paragraph
(a)(ii) of Rule 485.
If appropriate, check the following box:
_ This post-effective amendment designates a new effective date for a previously
filed post-effective amendment.
Copies To:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
FEDERATED EQUITY INCOME FUND II
A Portfolio of Federated Insurance Series
A mutual fund seeking to provide above average income and capital appreciation
by investing primarily in income- producing equity securities.
As with all mutual funds, the Securities and Exchange Commission 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.
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
April 20, 2000
CONTENTS
[TO BE FILED BY AMENDMENT]
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide above average income and capital
appreciation. 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 primarily in income
producing equity securities, including securities that are convertible into
common stocks. The Adviser ordinarily selects securities that have a
comparatively low volatility in share price relative to the overall equity
market and which may provide relatively high dividend income, but may also
select securities of companies that offer superior growth prospects.
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 STOCK MARKET RISKS. The value of equity securities in the Fund's portfolio
will fluctuate and, as a result, the Fund's share price may decline
suddenly or over a sustained period of time.
n INVESTMENT SYLE RISK. The Fund may employ a combination of styles that
impact its risk characteristics, such as growth and value investing. Due to
the Fund's "blend" style of investing, the Fund's share price may lag that of
other funds using a different investment style.
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
[TO BE FILED BY AMENDMENT]
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing at least 65% of its
assets in income-producing equity securities, including securities that are
convertible into common stocks. The Fund's holdings ordinarily will be in large
and middle capitalization companies. The Adviser attempts to manage the Fund so
that, on average, the Fund's portfolio yield is at least 50% greater than the
yield of the Standard & Poor's 500 Index (Index). A description of the various
types of securities in which the Fund invests, and their risks, immediately
follows the strategy discussion.
Companies with similar characteristics may be grouped together in broad
categories called sectors. The Adviser diversifies the Fund's investments,
limiting the Fund's risk exposure with respect to individual securities and
industry sectors. In attempting to remain relatively sector-neutral, and in
order to manage sector risk, the Adviser attempts to limit the Fund's exposure
to each industry sector in the Index, as a general matter, to not less than 80%
nor more than 120% of the Index's allocation to that sector.
The Adviser performs a technical review of potential issuers, looking at
criteria appropriate to the Fund's investment goals. The Adviser examines
primarily large and middle capitalization companies, which, in the Adviser's
opinion, are trading at a low valuation in relation to their historic and
current market prices, and to their expected future price based on projected
earnings. In addition, the equity securities held by the Fund will generally
have a history and an expectation of paying increasing dividends to
shareholders. The Adviser also looks for securities of companies that may offer
superior growth prospects.
Additionally, the Adviser performs traditional fundamental analysis to select
securities that exhibit the most promising long-term value for the Fund's
portfolio, as well as securities that exhibit growth characteristics. In
selecting securities, the Adviser focuses on the current financial condition of
the issuing company, in addition to examining its business and product strength,
earnings quality, competitive position, management expertise and sustainability
of current growth trends. Further, the Adviser considers current economic,
financial market, and industry factors, which may affect the issuing company. To
determine the timing of purchases of portfolio securities, the Adviser compares
the current stock price of an issuer with the Adviser's judgment as to that
stock's current and expected value based on projected future earnings. The
Adviser sells a portfolio security if it determines that the issuer's prospects
have deteriorated, or if it finds an attractive security which the Adviser deems
has superior risk and return characteristics to a security held by the Fund.
The Adviser ordinarily uses the "blend" style of investing, selecting
securities that generally have a comparatively low volatility in share price
relative to the overall equity market and which may provide relatively high
dividend income, as well as securities that may offer superior growth prospects.
When the Adviser uses a "value" style of investing, the price of the securities
held by the Fund may not, under certain market conditions, increase as rapidly
as stocks selected primarily for their growth attributes. In addition, some
securities in which the Adviser invests may have "growth" style characteristics
because the Fund is sector-neutral in its investment approach.
The Fund purchases convertible preferred stocks and convertible bonds, which
have a higher yield than common stocks, in order to increase the Fund's yield
and to generally provide a measure of protection against market declines.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash and shorter-term debt securities and similar
obligations. It may do this to minimize potential losses and maintain liquidity
to meet shareholder redemptions during adverse market conditions. This may cause
the Fund to give up greater investment returns to maintain the safety of
principal, that is, the original amount invested by shareholders.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
EQUITY SECURITIES
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 may invest.
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.
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 of a company generally
provide more income, but may pay a lower total return than that company's equity
securities.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
STOCK MARKET RISKS
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.
The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.
INVESTMENT STYLE RISK
Securities with different characteristics tend to shift in and out of favor
depending upon market and economic conditions as well as investor sentiment. A
fund may outperform other funds that employ a different style. The Fund may
employ a combination of styles that impact its risk characteristics, such as
growth and value investing. Growth stocks may be more volatile than other stocks
because they are more sensitive to investor perceptions of the issuing company's
growth of earnings potential. Growth oriented funds will typically underperform
when value investing is in favor. Value stocks are those which are out of favor
or undervalued in comparison to their peers due to adverse business developments
or other factors. Value oriented funds will typically underperform when growth
investing is in favor.
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). From
time to time the Fund may purchase foreign securities that trade in foreign
markets on days the NYSE is closed. The value of the Fund's assets may change on
days you cannot purchase or redeem Shares. 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.
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 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 marketing fees.
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 Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 176
mutual funds and separate accounts, which totaled approximately $125 billion in
assets as of December 31, 1999. Federated was established in 1955 and is one of
the largest mutual fund investment managers in the United States with
approximately 1,900 employees. More than 4,000 investment professionals make
Federated Funds available to their customers.
THE FUND'S PORTFOLIO MANAGERS ARE:
LINDA A. DUESSEL
Linda A. Duessel has been the Fund's portfolio manager since February 1997. Ms.
Duessel joined Federated in 1991 and has been a Portfolio Manager since 1995.
She became a Senior Vice President of the Fund's Adviser in January 2000 and
served as a Vice President of the Fund's Adviser from 1995 through 1999. Ms.
Duessel was a Senior Investment Analyst and an Assistant Vice President of the
Fund's Adviser from 1991 until 1995. Ms. Duessel is a Chartered Financial
Analyst and received her M.S. in Industrial Administration from Carnegie Mellon
University.
STEVEN J. LEHMAN
Steven J. Lehman has been the Fund's portfolio manager since August 1997. Mr.
Lehman joined the Fund's Adviser in May 1997 as a Portfolio Manager and Vice
President. He has been a Senior Portfolio Manager since 1998. From 1986 to May
1997, Mr. Lehman served as a Portfolio Manager, then Vice President/Senior
Portfolio Manager, at First Chicago NBD. Mr. Lehman is a Chartered Financial
Analyst; he received his M.A. from the University of Chicago.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.75% 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.
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.
FEDERATED EQUITY INCOME 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 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.
INVESTMENT COMPANY ACT FILE NO. 811-8042
CUSIP 313916801
G01298-01 (4/00)
FEDERATED EQUITY INCOME FUND II
A Portfolio of Federated Insurance Series
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Equity Income 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.
April 20, 2000
G01298-02 (4/00)
CONTENTS [CONTENTS TO BE INSERTED WHEN DOCUMENT IS RELEASED TO PRINT]
How is the Fund Organized?
Securities in Which the Fund Invests
What Do Shares Cost?
Mixed Funding and Shared Funding
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses
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).
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
EQUITY SECURITIES
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 may invest.
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. The Fund may also treat
such redeemable preferred stock as a fixed income security.
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
may invest.
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.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Yankee instruments are denominated in U.S. dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are denominated
in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the interest rate and credit risks of a zero coupon security.
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.
CONVERTIBLE SECURITIES
Convertible securities are convertible preferred stock or convertible bonds 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 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 securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.
The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
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 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.
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 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.
HEDGING
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different derivatives
contracts, or derivatives contracts and securities. The Fund's ability to hedge
may be limited by the costs of the derivatives contracts. The Fund may attempt
to lower the cost of hedging by entering into transactions that provide only
limited protection, including transactions that (1) hedge only a portion of its
portfolio, (2) use derivatives contracts that cover a narrow range of
circumstances or (3) involve the sale of derivatives contracts with different
terms. Consequently, hedging transactions will not eliminate risk even if they
work as intended. In addition, hedging strategies are not always successful, and
could result in increased expenses and losses to the Fund.
DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges.
In this case, the exchange sets all the terms of the contract except for the
price. Investors make payments due under their contracts through the exchange.
Most exchanges require investors to maintain margin accounts through their
brokers to cover their potential obligations to the exchange. Parties to the
contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty. Trading contracts on an exchange
also allows investors to close out their contracts by entering into offsetting
contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to interest
rate 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 financial futures contracts:
OPTIONS
Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.
The Fund may:
Buy put options on portfolio securities and financial futures contracts in
anticipation of a decrease in the value of the underlying asset.
Write call options on portfolio securities and financial futures contracts to
generate income from premiums, and in anticipation of a decrease or only limited
increase in the value of the underlying asset. If a call written by the Fund is
exercised, the Fund foregoes any possible profit from an increase in the market
price of the underlying asset over the exercise price plus the premium received.
Buy or write options to close out existing options positions. When the Fund
writes options on futures contracts, it will be subject to margin requirements
similar to those applied to futures contracts.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets.
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.
SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower.
The Fund will not have the right to vote on securities while they are on loan,
but it will terminate a loan in anticipation of any important vote. The Fund may
pay administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.
Securities lending activities are subject to interest rate risks and credit
risks.
ASSET COVERAGE
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.
INTER-FUND BORROWING AND LENDING ARRANGEMENTS
The Securities and Exchange Commission (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 of Trustees (Board), and the Board monitors the operation of the
program. Any inter-fund loan must comply with certain conditions set out in the
exemption, which are designed to assure fairness and protect all participating
funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter-fund loans may be
made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the "Repo Rate") AND more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term borrowings
(the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on
inter-fund loans is the average of the Repo Rate and the Bank Loan Rate."
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
INVESTMENT RATINGS
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.
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
STOCK MARKET RISKS
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.
The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.
RISKS RELATED TO INVESTING FOR VALUE
Due to their relatively low valuations, value stocks are typically less volatile
than growth stocks. For instance, the price of a value stock may experience a
smaller increase on a forecast of higher earnings, a positive fundamental
development, or positive market development. Further, value stocks tend to have
higher dividends than growth stocks. This means they depend less on price
changes for returns and may lag behind growth stocks in an up market.
SECTOR 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 the market as a whole. As the Adviser
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments which generally affect that sector.
LIQUIDITY RISKS
Trading opportunities are more limited for equity securities that are not widely
held. 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 of securities may also lead to an increase in
their price volatility.
Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.
OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
RISKS RELATED TO COMPANY SIZE
Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more volatile
its price. Market capitalization is determined by multiplying the number of
outstanding shares by the current market price per share.
Companies with small market capitalizations also tend to have unproven track
records, a limited product or service base and limited access to capital. These
factors also increase risks and make these companies more likely to fail than
companies with larger market capitalizations.
RISKS OF FOREIGN INVESTING
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its Adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
CURRENCY RISKS
Exchange rates for currencies fluctuate daily. The combination of currency risk
and market risk tends to make securities traded in foreign markets more volatile
than securities traded exclusively in the U.S.
The Adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
EURO RISKS
The Fund [may] make significant investments in securities denominated in the
Euro, the new single currency of the European Monetary Union (EMU). Therefore,
the exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments.
With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these countries'
ability to respond to economic downturns or political upheavals, and
consequently reduce the value of their foreign government securities.
CREDIT RISKS
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.
FIXED INCOME SECURITIES INVESTMENT RISKS
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
Many fixed income securities receive credit ratings from services such as
Standard and Poor's and Moody's Investors Service. These services assign ratings
to securities by assessing the likelihood of issuer default. Lower credit
ratings correspond to higher credit risk. If a security has not received a
rating, the Fund must rely entirely upon the Adviser's credit assessment.
Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of the security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
CALL RISKS
Call risk is the possibility that an issuer may redeem a fixed income security
before maturity (a call) at a price below its current market price. An increase
in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
LIQUIDITY RISKS
Trading opportunities are more limited for fixed income securities that have not
received any credit ratings, have received ratings below investment grade or are
not widely held. These features may make it more difficult to sell or buy a
security at a favorable price or time. Consequently, the Fund may have to accept
a lower price to sell a security, sell other securities to raise cash or give up
an investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
Liquidity risk refers to the possibility that the Fund may not be able to sell
a security or close out a derivative contract when it wants to. If this happens,
the Fund will be required to continue to hold the security or keep the position
open, and the Fund could incur losses.
OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns and
financial setbacks may affect their prices more negatively, and their trading
market may be more limited.
LEVERAGE RISKS
Leverage risk is created when an investment exposes the Fund to a level of risk
that exceeds the amount invested. Changes in the value of such an investment
magnify the Fund's risk of loss and potential for gain.
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
The Fund's investment objective is to provide above average income and capital
appreciation. 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 Investment Company Act of 1940 (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.
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
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.
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.
INVESTING IN RESTRICTED AND ILLIQUID SECURITIES
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 its policies and limitations, the Fund considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash items."
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
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.
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.
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 bank, 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. Also, 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 (such as broker-dealers or banks)may be paid fees, in
significant amounts, out of the assets of the Distributor and/or Federated
Shareholder Services Company (these fees do not come 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
and/or shareholder services, such as advertising, providing incentives to their
sales personnel, sponsoring other activities intended to promote sales, and
maintaining shareholder accounts These payments may be based upon such factors
as the number or value of Shares the investment professional sells or may sell;
the value of client assets invested; and/or 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 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 March 27, 2000, the following shareholders owned of record,
beneficially, or both 5% or more of outstanding Shares: Fortis Benefits
Insurance Co., St. Paul, MN, owned approximately 2,069,894 shares (34.84%); and
Aetna Retirement Services, Central Valuation Unit, Hartford, CT, owned
approximately 3,794,309 shares (63.85%).
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.
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 March 27, 2000, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
NAME AGGREGATE TOTAL
BIRTH DATE FROM FUND COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST
POSITION WITH FOR PAST FIVE FROM AND FUND
TRUST__________ YEARS_____________________________________FUND_____ COMPLEX______
- ---------------------
JOHN F. DONAHUE*#+ Chief Executive Officer and Director $0 $0 for the
Birth Date: July or Trustee of the Federated Fund Trust and
28, 1924 Complex; Chairman and Director, 43 other
Federated Investors Federated Investors, Inc.; Chairman, investment
Tower Federated Investment Management companies
1001 Liberty Avenue Company, Federated Global Investment in the Fund
Pittsburgh, PA Management Corp. and Passport Complex
CHAIRMAN and TRUSTEE Research, Ltd., formerly: Trustee,
Federated Investment Management
Company and Chairman and Director,
Federated Investment Management
Counseling.
- ---------------------
THOMAS G. BIGLEY Director or Trustee of the Federated $116,760.63 for
Birth Date: Fund Complex; Director, Member of $161.94 the
February 3, 1934 Executive Committee, Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; Director, 43 other
Pittsburgh, PA Robroy Industries, Inc. (coated steel investment
TRUSTEE conduits/computer storage equipment); companies
formerly: Senior Partner, Ernst & in the Fund
Young LLP; Director, MED 3000 Group, Complex
Inc. (physician practice management);
Director, Member of Executive
Committee, University of Pittsburgh.
- ---------------------
JOHN T. CONROY, JR. Director or Trustee of the Federated $128,455.37 for
Birth Date: June Fund Complex; President, Investment $178.14 the
23, 1937 Properties Corporation; Senior Vice Trust and
Grubb & President, John R. Wood and 43 other
Ellis/Investment Associates, Inc., Realtors; Partner or investment
Properties Trustee in private real estate companies
Corporation ventures in Southwest Florida; in the Fund
3201 Tamiami Trail formerly: President, Naples Property Complex
North Management, Inc. and Northgate Village
Naples, FL Development Corporation.
TRUSTEE
- ---------------------
NICHOLAS P. Director or Trustee of the Federated $73,191.21for
CONSTANTAKIS Fund Complex; Director, Michael Baker $161.94 the
Birth Date: Corporation (engineering, Trust and
September 3, 1939 construction, operations and technical 37 other
175 Woodshire Drive services); formerly: Partner, Andersen investment
Pittsburgh, PA Worldwide SC. companies
TRUSTEE in the Fund
Complex
- ---------------------
JOHN F. CUNNINGHAM++ Director or Trustee of some of the $93,190.48 for
Birth Date: March Federated Fund Complex; Chairman, $0 the
5, 1943 President and Chief Executive Officer, Trust and
353 El Brillo Way Cunningham & Co., Inc. (strategic 37 other
Palm Beach, FL business consulting); Trustee investment
TRUSTEE Associate, Boston College; Director, companies
Iperia Corp. in the Fund
(communications/software); formerly: Complex
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 President or Executive Vice President $0 for the
DONAHUE*+ of the Federated Fund Complex; $0 Trust and
Birth Date: April Director or Trustee of some of the 30 other
11, 1949 Funds in the Federated Fund Complex; investment
Federated Investors President, Chief Executive Officer and companies
Tower Director, Federated Investors, Inc.; in the Fund
1001 Liberty Avenue President, Chief Executive Officer and Complex
Pittsburgh, PA Trustee, Federated Investment
PRESIDENT and Management Company; Trustee, Federated
TRUSTEE 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, Director or Trustee of the Federated $116,760.63 for
M.D.* Fund Complex; Professor of Medicine, $161.94 the
Birth Date: October University of Pittsburgh; Medical Trust and
11, 1932 Director, University of Pittsburgh 43 other
3471 Fifth Avenue Medical Center - Downtown; investment
Suite 1111 Hematologist, Oncologist, and companies
Pittsburgh, PA Internist, University of Pittsburgh in the Fund
TRUSTEE Medical Center; Member, National Board Complex
of Trustees, Leukemia Society of
America.
- ---------------------
PETER E. MADDEN Director or Trustee of the Federated $109,153.60 for
Birth Date: March Fund Complex; formerly: $152.05 the
16, 1942 Representative, Commonwealth of Trust and
One Royal Palm Way Massachusetts General Court; 43 other
100 Royal Palm Way President, State Street Bank and Trust investment
Palm Beach, FL Company and State Street Corporation. companies
TRUSTEE in the Fund
Previous Positions: Director, VISA USA Complex
and VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository
Trust Corporation; Director, The
Boston Stock Exchange.
- ---------------------
CHARLES F. Director or Trustee of some of the $102,573.91 for
MANSFIELD, JR.++ Federated Fund Complex; Executive Vice $0 the
Birth Date: April President, Legal and External Affairs, Trust and
10, 1945 Dugan Valva Contess, Inc. (marketing, 40 other
80 South Road communications, technology and investment
Westhampton Beach, consulting); formerly: Management companies
NY Consultant. in the Fund
TRUSTEE 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, Director or Trustee of the Federated $128,455.37 for
JR., J.D., S.J.D.# Fund Complex; President, Law $178.14 the
Birth Date: Professor, Duquesne University; Trust
December 20, 1932 Consulting Partner, Mollica & Murray; and
President, Duquesne Director, Michael Baker Corp. 43 other
University (engineering, construction, operations investment
Pittsburgh, PA and technical services). companies
TRUSTEE in the Fund
Previous Positions: Dean and Professor Complex
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 $116,760.63 for
Birth Date: June Fund Complex; Public $161.94 the
21, 1935 Relations/Marketing/Conference Trust and
4905 Bayard Street Planning. 43 other
Pittsburgh, PA investment
TRUSTEE Previous Positions: National companies
Spokesperson, Aluminum Company of in the Fund America;
television producer; business Complex owner.
- ---------------------
JOHN S. WALSH Director or Trustee of some of the $94,536.85 for
Birth Date: Federated Fund Complex; President and $123.06 the
November 28, 1957 Director, Heat Wagon, Inc. Trust and
2007 Sherwood Drive (manufacturer of construction 39 other
Valparaiso, IN temporary heaters); President and investment
TRUSTEE Director, Manufacturers Products, Inc. companies
(distributor of portable construction in the Fund
heaters); President, Portable Heater Complex
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 $0 for the
Birth Date: October and Treasurer of some of the Funds in $0 Trust and
22, 1930 the Federated Fund Complex; Vice 42 other
Federated Investors Chairman, Federated Investors, Inc.; investment
Tower Trustee, Federated Administrative companies
1001 Liberty Avenue Services; formerly: Trustee or in the Fund
Pittsburgh, PA Director of some of the Funds in the Complex
EXECUTIVE VICE Federated Fund Complex; CEO and
PRESIDENT Chairman, Federated Administrative
Services; Vice President, Federated
Investment Management Company,
Federated Investment Counseling,
Federated Global Investment Management
Corp. and Passport Research, Ltd.;
Director and Executive Vice President,
Federated Securities Corp.; Director,
Federated Services Company; Trustee,
Federated Shareholder Services Company.
- ---------------------
JOHN W. MCGONIGLE Executive Vice President and Secretary $0 for the
Birth Date: October of the Federated Fund Complex; $0 Trust and
26, 1938 Executive Vice President, Secretary 43 other
Federated Investors and Director, Federated Investors, investment
Tower Inc.; formerly: Trustee, Federated companies
1001 Liberty Avenue Investment Management Company and in the Fund
Pittsburgh, PA Federated Investment Counseling; Complex
EXECUTIVE VICE Director, Federated Global Investment
PRESIDENT and Management Corp, Federated Services
SECRETARY Company and Federated Securities Corp.
- ---------------------
RICHARD J. THOMAS Treasurer of the Federated Fund $0 for the
Birth Date: June Complex; Senior Vice President, $0 Trust and
17, 1954 Federated Administrative Services; 43 other
Federated Investors formerly: Vice President, Federated investment
Tower Administrative Services; held various companies
1001 Liberty Avenue management positions within Funds in the Fund
Pittsburgh, PA Financial Services Division of Complex
TREASURER Federated Investors, Inc.
- ---------------------
RICHARD B. FISHER President or Vice President of some of $0 for the
Birth Date: May 17, the Funds in the Federated Fund $0 Trust and
1923 Complex; Vice Chairman, Federated 41 other
Federated Investors Investors, Inc.; Chairman, Federated investment
Tower Securities Corp.; formerly: Director companies
1001 Liberty Avenue or Trustee of some of the Funds in the in the Fund
Pittsburgh, PA Federated Fund Complex,; Executive Complex
VICE PRESIDENT Vice President, Federated Investors,
Inc. and Director and Chief Executive
Officer, Federated Securities Corp.
- ---------------------
WILLIAM D. DAWSON, Chief Investment Officer of this Fund $0 for the
III and various other Funds in the $0 Trust and
Birth Date: March Federated Fund Complex; Executive Vice 27 other
3, 1949 President, Federated Investment investment
Federated Investors Counseling, Federated Global companies
Tower Investment Management Corp., Federated in the Fund
1001 Liberty Avenue Investment Management Company and Complex
Pittsburgh, PA Passport Research, Ltd.; Director,
CHIEF INVESTMENT Federated Global Investment Management
OFFICER Corp. and Federated Investment
Management Company; 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 $0 for the
Birth Date: and various other Funds in the $0 Trust and
November 28, 1942 Federated Fund Complex; Executive Vice 2 other
Federated Investors President, Federated Investment investment
Tower Counseling, Federated Global companies
1001 Liberty Avenue Investment Management Corp., Federated in the Fund
Pittsburgh, PA Investment Management Company and Complex
CHIEF INVESTMENT Passport Research, Ltd.; Director,
OFFICER Federated Global Investment Management
Corp. and Federated Investment
Management Company; 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 $0 for the
Birth Date: October and various other Funds in the $0 Trust and
22, 1945 Federated Fund Complex; Executive Vice 11 other
Federated Investors President, Federated Investment investment
Tower Counseling, Federated Global companies
1001 Liberty Avenue Investment Management Corp., Federated in the Fund
Pittsburgh, PA Investment Management Company and Complex
CHIEF INVESTMENT Passport Research, Ltd.; Director,
OFFICER Federated Global Investment Management
Corp. and Federated Investment
Management Company; 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.
</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 Trust 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 Trust.
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.
CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING
As required by SEC rules, the Fund, its Adviser, and its Distributor have
adopted codes of ethics. These codes govern securities trading activities of
investment personnel, Fund Trustees, and certain other employees. Although they
do permit these people to trade in securities, including those that the Fund
could buy, they also contain significant safeguards designed to protect the Fund
and its shareholders from abuses in this area, such as requirements to obtain
prior approval for, and to report, particular transactions.
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.
For the fiscal year ended December 31, 1999, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $83,058.56 for which the
Fund paid $66,414.56 in brokerage commissions.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS OF
THE FEDERATED FUNDS
0.150 of 1% on the first
$250million
0.125 of 1% on the next
$250million
0.100 of 1% on the next
$250million
0.075 of 1% on assets in excess
of $750million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of- pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Deloitte & Touche LLP, plans and performs
its audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED 1999 1998 1997(1)
DECEMBER31
Advisory Fee Earned $508,82$344,4$96,582
Advisory Fee Reduction 136,005195,7143,970
Brokerage Commissions 59,50233,449
Administrative Fee 125,000125,00113,358
12B-1 FEE 0 0 0
SHAREHOLDER SERVICES FEE NA NA NA
1 REFLECTS OPERATIONS FOR THE PERIOD FROM JANUARY 30, 1997 (START OF
PERFORMANCE) TO DECEMBER 31, 1997.
HOW DOES THE FUND MEASURE PERFORMANCE?
The Fund may advertise Share performance by using the SEC'sstandard 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 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 1 SINCE
PERIOD YEAR INCEPTION ON
JANUARY 30,
1997
Total NA 18.39% 18.23%
Return
Yield 1.29% 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., 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 net asset value over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the convertible
securities and fixed income funds categories in advertising and sales
literature.
DOW JONES INDUSTRIAL AVERAGE ("DJIA")
Dow Jones Industrial Average ("DJIA") represents share prices of selected
blue-chip industrial corporations as well as public utility and transportation
companies. The DJIA indicates daily changes in the average price of stocks in
any of its categories. It also reports total sales for each group of industries.
Because it represents the top corporations of America, the DJIA index is a
leading economic indicator for the stock market as a whole.
STANDARD & POOR'S RATINGS GROUP DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS
Standard & Poor's Ratings Group Daily Stock Price Index of 500 Common Stocks is
a composite index of common stocks in industry, transportation, and financial
and public utility companies which compares total returns of funds whose
portfolios are invested primarily in common stocks. In addition, the Standard &
Poor's index assumes reinvestment of all dividends paid by stocks listed on the
index. Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated, in the Standard & Poor's figures.
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.
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, 24 municipal and 1 euro-denominated
with assets approximating $34.1 billion, $35.7 billion, $13.1 billion and $115
million, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield--J. Thomas
Madden; U.S. fixed income--William D. Dawson, III; and global equities and fixed
income--Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 1,160 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of purposes, including defined benefit and defined contribution
programs, cash management, and asset/ liability management. Institutional
clients include corporations, pension funds, tax-exempt entities,
foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
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 Equity Income Fund II dated December 31, 1999.
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. LONG-TERM BOND RATING DEFINITIONS
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class. B--Bonds which are rated B generally lack characteristics
of the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. CA--Bonds which are rated CA represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C--Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short- term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue. CCC--Bonds have certain identifiable characteristics which,
if not remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time. C--Bonds are imminent default in payment of
interest or principal.
MOODY'S INVESTORS SERVICE 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-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment. FITCH-2--(Very Good
Grade) Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than the strongest issues.
ADDRESSES
FEDERATED EQUITY INCOME 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
200 Berkeley Street
Boston, MA 02116-5072
FEDERATED UTILITY FUND II
A Portfolio of Federated Insurance Series
A mutual fund seeking to provide current income and long term growth of income.
Capital appreciation is a secondary objective. The Fund will seek to achieve its
investment objectives by investing primarily in securites of utility companies.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
april 20, 2000
CONTENTS
[TO BE FILED BY AMENDMENT]
RISK/RETURN SUMMARY
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's primary investment objectives are current income and long-term growth
of income. Capital appreciation is a secondary objective. 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 objectives by investing primarily in equity
securities of companies engaged in providing utility services such as
electricity, gas and telecommunications. The Adviser seeks companies that have a
history and a likelihood of paying increasing levels of dividends as well as
companies that offer superior growth prospects that, in the Adviser's opinion,
are trading at a relatively low valuation, and therefore offer the potential for
capital appreciation.
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:
| STOCK MARKET RISKS. The value of equity securities in the Fund's portfolio
will fluctuate and, as a result, the Fund's share price may decline
suddenly or over a sustained period of time.
| SECTOR RISK. Because the Fund may allocate relatively more of its assets to
utility-related industry sectors than to other sectors, the value of utility
company equity securities in the Fund's portfolio may be adversely affected
by technological changes, shifts in consumer demands or regulatory policies,
the adequacy of rate increases and future regulatory initiatives associated
with utility companies.
| RISKS RELATING TO INVESTING FOR VALUE. The Fund generally uses a "value"
style of investing, so that the Fund's share price may lag that of other
funds using a different investment style.
| RISKS OF INVESTING IN AMERICAN DEPOSITARY RECEIPTS. Because the Fund may
invest in American Depositary Receipts issued by foreign companies, the
Fund's share price may be more affected by foreign economic and political
conditions, taxation policies and accounting and auditing standards, than
would otherwise be the case.
The Shares offered by this prospectus are not deposits or obligations of 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
[TO BE FILED BY AMENDMENT]
WHAT ARE THE FUND'S INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing, under normal market
conditions, at least 65% of its assets in equity securities (including
convertible securities) of companies that derive at least 50% of their revenues
from the provision of electricity, gas and telecommunications related services.
A description of the various types of securities in which the Fund invests, and
their risks, immediately follows the strategy discussion.
The Adviser allocates the Fund's assets among the three utility sectors
(electricity, gas and telecommunications) based in part on the Adviser's opinion
as to which sectors are, as a whole, priced at a low market valuation
("undervalued") when compared with the other sectors. In addition, the Adviser
considers such factors as the dividend paying potential and earnings growth
potential of the companies comprising each sector. In order to diversify the
Fund, the Adviser attempts to limit the Fund's exposure to each sector reflected
by the Standard & Poor's Utility and Communications Indices ("S&P Indices"), as
a general matter, to not less than 50% nor more than 200% of each Index's
allocation to that sector. The S&P Indices are unmanaged market
capitalization-weighted indices of natural gas and electric companies, and
communications companies, respectively.
In determining whether to buy a security, the Adviser may seek companies that
have a history and a likelihood of paying increasing levels of dividends, as
well as companies that offer superior growth prospects that, in the Adviser's
opinion, are trading at a relatively low valuation, and therefore offer the
potential for capital appreciation. The Adviser generally uses the "value" style
of investing, selecting securities of companies that, in the Adviser's opinion,
are trading at a lower valuation in relation to their historic and current
market prices, to industry peers, and to their expected future price based on
projected earnings, and that therefore offer the potential for capital
appreciation. Because the Adviser uses a "value" style of investing, the price
of the securities held by the Fund may not, under certain market conditions,
increase as rapidly as stocks selected primarily for their growth attributes.
However, such securities generally have lower volatility in relation to their
share price, and a higher yield, when compared with other equity securities.
In addition to evaluating the share price of an issuer, the Adviser performs
traditional fundamental analysis to select securities that exhibit the most
promising value for the Fund's portfolio. In selecting securities, the Adviser
focuses on the current financial condition of the issuing company, in addition
to examining its business, competitive position, and management expertise.
Further, the Adviser considers current economic, financial market, and industry
factors, which may affect the issuing company. To determine the timing of
purchases of portfolio securities, the Adviser compares the current stock price
of an issuer with the Adviser's judgment as to that stock's current and expected
value based on projected future earnings. The Adviser sells a portfolio security
if it determines that the issuer's prospects have deteriorated, or if it finds
an attractive security which the Adviser deems has superior risk and return
characteristics to a security held by the Fund.
The Adviser may invest up to 35%, but, as a general matter, invests up to 25%
of its assets in non-utility securities such as common stocks or convertible
securities of companies that typically are related to the utilities and
telecommunications business. These may include convertible securities of
companies which demonstrate better growth prospects than those in the
traditional utility sector. The Adviser normally purchases convertible
securities to provide total return and/or enhance the Fund's income. In
addition, the Adviser may invest a portion of the Fund's assets in securities of
companies based outside the United States, to diversify the Fund's holdings and
to gain exposure to the foreign market. Foreign holdings primarily take the form
of American Depositary Receipts, which represent interests in underlying
securities issued by a foreign company, but which are traded in the United
States. Securities of foreign companies may be more affected by foreign economic
and political conditions, taxation policies, and accounting and auditing
standards than those of United States companies.
WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?
EQUITY SECURITIES
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.
AMERICAN DEPOSITARY RECEIPTS
American Depositary Receipts (ADRs) represent interests in underlying securities
issued by a foreign company. Depositary receipts are not traded in the same
market as the underlying security. ADRs provide a way to buy shares of
foreign-based companies in the U.S. rather than in overseas markets. ADRs are
also traded in U.S. dollars, eliminating the need for foreign exchange
transactions.
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.
WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?
STOCK MARKET RISKS
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.
The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.
SECTOR RISKS
Sector risk is the possibility that a certain sector, such as the utility
sector, may underperform other sectors or the market as a whole. Utility
securities pose certain risks to investors. For instance, technological
innovations may cause existing plants, equipment or products to become less
competitive or obsolete. Energy conservation and environmental concerns may
reduce demand for services of utility companies or may impede planned growth by
such companies. Utilities which own nuclear facilities may be susceptible to
environmental and regulatory issues that could cause litigation or result in
fines being levied against the company. In addition, most utility companies in
the United States and in foreign countries are subject to government regulation
which seeks to ensure desirable levels of service and adequate capacity to meet
public demand. To this end, prices are often regulated to enable consumers to
obtain service at what is perceived to be a fair price, while attempting to
provide utility companies with a rate of return sufficient to attract capital
investment necessary for continued operation and necessary growth. Utility
companies may, therefore, be adversely affected by shifts in regulatory
policies, the adequacy of rate increases, and future regulatory initiatives.
RISKS RELATED TO INVESTING FOR VALUE
Due to their relatively low valuations, value stocks are typically less volatile
than growth stocks. For instance, the price of a value stock may experience a
smaller increase on a forecast of higher earnings, a positive fundamental
development, or positive market development. Further, value stocks tend to have
higher dividends than growth stocks. This means they depend less on price
changes for returns and may lag behind growth stocks in an up market.
RISKS OF INVESTING IN ADRS
Because the Fund may invest in ADRs issued by foreign companies, the Fund's
share price may be more affected by foreign economic and political conditions,
taxation policies, and accounting and auditing standards, than would otherwise
be the case. Foreign companies may not provide information as frequently or to
as great an extent as companies in the United States. Foreign companies may also
receive less coverage than United States companies by market analysts and the
financial press. In addition, foreign countries may lack uniform accounting,
auditing and financial reporting standards or regulatory requirements comparable
to those applicable to United States 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.
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 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:
| orders in proper form by 8:00 a.m. (Eastern time) on the next business day;
and | 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 Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 176
mutual funds and separate accounts, which totaled approximately $125 billion in
assets as of December 31, 1999. Federated was established in 1955 and is one of
the largest mutual fund investment managers in the United States with
approximately 1,900 employees. More than 4,000 investment professionals make
Federated Funds available to their customers.
THE FUND'S PORTFOLIO MANAGERS ARE:
STEVEN J. LEHMAN
Steven J. Lehman has been the Fund's Portfolio Manager since July 1997. He is
Vice President of the Fund. Mr. Lehman joined the Fund's Adviser in May 1997 as
a Portfolio Manager and Vice President. He has been a Senior Portfolio Manager
since 1998. From 1986 to May 1997, Mr. Lehman served as a Portfolio Manager,
then Vice President/Senior Portfolio Manager, at First Chicago NBD. Mr. Lehman
is a Chartered Financial Analyst; he received his M.A. from the University of
Chicago.
LINDA A. DUESSEL
Linda A. Duessel has been the Fund's Portfolio Manager since April 1995. Ms.
Duessel joined Federated in 1991and has been a Portfolio Manager since 1995. She
became a Senior Vice President of the Fund's Adviser in January 2000 and served
as a Vice President of the Fund's Adviser from 1995 through 1999. Ms. Duessel
was a Senior Investment Analyst and an Assistant Vice President of the Fund's
Adviser from 1991 until 1995. Ms. Duessel is a Chartered Financial Analyst and
received her M.S. in Industrial Administration from Carnegie Mellon University.
RICHARD J. LAZARCHIC
Richard J. Lazarchic has been a Portfolio Manager of the Fund since April 1,
1998. Mr. Lazarchic joined Federated in 1998 as a Portfolio Manager and Vice
President of the Fund's Adviser. From May 1979 through October 1997, Mr.
Lazarchic was employed with American Express Financial Corp., initially as an
Analyst and then as a Vice President/Senior Portfolio Manager. Mr. Lazarchic is
a Chartered Financial Analyst. He received his M.B.A. from Kent State
University.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0. 75% 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.
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.
[TO BE FILED BY AMENDMENT]
FEDERATED UTILITY 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 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.
INVESTMENT COMPANY ACT FILE NO. 811-8042
CUSIP 313916108
3113008A (4/00)
FEDERATED UTILITY FUND II
A Portfolio of Federated Insurance Series
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Fund for U.S. Government
Securities 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.
april 20, 2000
3113008B (4/00)
CONTENTS [CONTENTS TO BE FINALIZED UPON RELEASE TO PRINT]
How is the Fund Organized?
Securities in Which the Fund Invests
What Do Shares Cost?
Mixed Funding and Shared Funding
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Addresses
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 Utility Fund to Federated Utility Fund II on February 26, 1996. 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
EQUITY SECURITIES
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 may invest.
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. The Fund may also treat
such redeemable preferred stock as a fixed income security.
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.
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 federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.
CORPORATE DEBT SECURITIES
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 interest rate 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.
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.
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. 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.
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 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.
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:
o it is organized under the laws of, or has a principal office located in,
another country;
o the principal trading market for its securities is in another country; or
o it (or its subsidiaries) derived in its most current fiscal year at least
50% of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
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. American Depositary Receipts (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.
HEDGING
Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different derivatives
contracts, or derivatives contracts and securities. The Fund's ability to hedge
may be limited by the costs of the derivatives contracts. The Fund may attempt
to lower the cost of hedging by entering into transactions that provide only
limited protection, including transactions that: (1) hedge only a portion of its
portfolio; (2) use derivatives contracts that cover a narrow range of
circumstances; or (3) involve the sale of derivatives contracts with different
terms. Consequently, hedging transactions will not eliminate risk even if they
work as intended. In addition, hedging strategies are not always successful, and
could result in increased expenses and losses to the Fund.
DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges.
In this case, the exchange sets all the terms of the contract except for the
price. Investors make payments due under their contracts through the exchange.
Most exchanges require investors to maintain margin accounts through their
brokers to cover their potential obligations to the exchange. Parties to the
contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty. Trading contracts on an exchange
also allows investors to close out their contracts by entering into offsetting
contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to interest
rate 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 will enter into futures contracts directly only when it desires to
exercise a financial futures put option in its portfolio rather than either
closing out the option or allowing it to expire. The Fund will only purchase
puts on financial futures contracts which are traded on a nationally recognized
exchange.
OPTIONS
Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.
The Fund may:
o buy put options on financial futures contracts, including index futures, in
anticipation of a decrease in the value of the underlying asset;
o buy put options, including OTC options, on portfolio securities in
anticipation of a decrease in the value of the underlying asset;
o buy or write options to close out existing options positions; and
o The Fund may also write call options on portfolio securities to generate
income from premiums, and in anticipation of a decrease or only limited
increase in the value of the underlying asset. If a call written by the
Fund is exercised, the Fund foregoes any possible profit from an increase
in the market price of the underlying asset over the exercise price plus
the premium received.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
Although the Fund reserves the right to write covered call options on its
entire portfolio, it will not write such options on more than 25% of its total
assets unless a higher limit is authorized by the Board.
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.
SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower.
The Fund will not have the right to vote on securities while they are on loan,
but it will terminate a loan in anticipation of any important vote. The Fund may
pay administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.
Securities lending activities are subject to interest rate risks and credit
risks.
ASSET COVERAGE
In order to secure its obligations in connection with special transactions, the
Fund will either own the underlying assets, enter into an offsetting transaction
or set aside readily marketable securities with a value that equals or exceeds
the Fund's obligations. Unless the Fund has other readily marketable assets to
set aside, it cannot trade assets used to secure such obligations entering into
an offsetting derivative contract or terminating a special transaction. This may
cause the Fund to miss favorable trading opportunities or to realize losses on
special transactions.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
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.
INTER-FUND BORROWING AND LENDING ARRANGEMENTS
The Securities and Exchange Commission 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 of
Trustees (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."
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 I NVESTMENT RI SKS
SECTOR RISKS
| Sector risk is the possibility that a certain sector, such as the utility
sector, may under perform other sectors or the market as a whole. Utility
securities pose certain risks to investors. For instance, technological
innovations may cause existing plants, equipment or products to become less
competitive or obsolete. Energy conservation and environmental concerns may
reduce demand for services of utility companies or may impede planned growth
by such companies. Utilities which own nuclear facilities may be susceptible
to environmental and regulatory issues that could cause litigation or result
in fines being levied against the company. In addition, most utility
companies in the United States and in foreign countries are subject to
government regulation which seeks to ensure desirable levels of service and
adequate capacity to meet public demand. To this end, prices are often
regulated to enable consumers to obtain service at what is perceived to be a
fair price, while attempting to provide utility companies with a rate of
return sufficient to attract capital investment necessary for continued
operation and necessary growth. Utility companies may, therefore, be
adversely affected by shifts in regulatory policies, the adequacy of rate
increases, and future regulatory initiatives.
RISKS RELATED TO INVESTING FOR VALUE
| Due to their relatively low valuations, value stocks are typically less
volatile than growth stocks. For instance, the price of a value stock may
experience a smaller increase on a forecast of higher earnings, a positive
fundamental development, or positive market development. Further, value
stocks tend to have higher dividends than growth stocks. This means they
depend less on price changes for returns and may lag behind growth stocks in
an up market.
RISKS RELATED TO COMPANY SIZE
| Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of its outstanding shares by the current market price per share.
| Companies with smaller market capitalizations also tend to have unproven
track records, a limited product or service base and limited access to
capital. These factors also increase risks and make these companies more
likely to fail than companies with larger market capitalizations.
RISKS OF FOREIGN INVESTING
| Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
| Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the United
States. Foreign companies may also receive less coverage than United States
companies by market analysts and the financial press. In addition, foreign
countries may lack uniform accounting, auditing and financial reporting
standards or regulatory requirements comparable to those applicable to U.S.
companies. These factors may prevent the Fund and its Adviser from obtaining
information concerning foreign companies that is as frequent, extensive and
reliable as the information available concerning companies in the United
States.
| Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
CURRENCY RISKS
| Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
| The Adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.
EURO RISKS
| The Fund may make significant investments in securities denominated in the
Euro, the new single currency of the European Monetary Union (EMU).
Therefore, the exchange rate between the Euro and the U.S. dollar will have a
significant impact on the value of the Fund's investments.
| With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these countries'
ability to respond to economic downturns or political upheavals, and
consequently reduce the value of their foreign government securities.
RISKS OF INVESTING IN EMERGING MARKET COUNTRIES
| Securities issued or traded in emerging markets generally entail greater
risks than securities issued or traded in developed markets. For example,
their prices may be significantly more volatile than prices in developed
countries. Emerging market economies may also experience more severe
downturns (with corresponding currency devaluations) than developed
economies.
| Emerging market countries may have relatively unstable governments and may
present the risk of nationalization of businesses, expropriation,
confiscatory taxation or, in certain instances, reversion to closed market,
centrally planned economies.
CREDIT RISKS
| 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.
FIXED INCOME INVESTMENT RI SKS
INTEREST RATE RISKS
| Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates
rise, prices of fixed income securities fall. However, market factors, such
as the demand for particular fixed income securities, may cause the price of
certain fixed income securities to fall while the prices of other securities
rise or remain unchanged.
| Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.
CREDIT RISKS
| Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Fund will lose money.
| Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the Adviser's credit
assessment.
| Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable maturity
(the spread) measures the additional interest paid for risk. Spreads may
increase generally in response to adverse economic or market conditions. A
security's spread may also increase if the security's rating is lowered, or
the security is perceived to have an increased credit risk. An increase in
the spread will cause the price of the security to decline.
| Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying
other securities to implement its investment strategy.
CALL RISKS
| Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its current market price.
An increase in the likelihood of a call may reduce the security's price.
| If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
LIQUIDITY RISKS
| Trading opportunities are more limited for fixed income securities that have
not received any credit ratings, have received ratings below investment grade
or are not widely held. Trading opportunities are more limited for CMOs that
have complex terms or that are not widely held. These features may make it
more difficult to sell or buy a security at a favorable price or time.
Consequently, the Fund may have to accept a lower price to sell a security,
sell other securities to raise cash or give up an investment opportunity, any
of which could have a negative effect on the Fund's performance. Infrequent
trading of securities may also lead to an increase in their price volatility.
| Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security or close out a derivative contract when it wants to. If
this happens, the Fund will be required to continue to hold the security or
keep the position open, and the Fund could incur losses.
| OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
SECTOR RISKS
| Utility securities pose certain risks to investors. For instance,
technological innovations may cause existing plants, equipment or products to
become less competitive or obsolete. Energy conservation and environmental
concerns may reduce demand for services of utility companies or may impede
planned growth by such companies. Utilities which own nuclear facilities may
be susceptible to environmental and regulatory issues that could cause
litigation or result in fines being levied against the company. In addition,
most utility companies in the United States and in foreign countries are
subject to government regulation which seeks to ensure desirable levels of
service and adequate capacity to meet public demand. To this end, prices are
often regulated to enable consumers to obtain service at what is perceived to
be a fair price, while attempting to provide utility companies with a rate of
return sufficient to attract capital investment necessary for continued
operation and necessary growth. Utility companies may, therefore, be
adversely affected by shifts in regulatory policies, the adequacy of rate
increases, and future regulatory initiatives.
LEVERAGE RISKS
| Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
| Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns
and financial setbacks may affect their prices more negatively, and their
trading market may be more limited.
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.
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.
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,
provided that the Fund may concentrate its investments in the securities of
issuers in the utilities industry. Government securities, municipal securities
and bank instruments will not be deemed to constitute an industry.
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.
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.
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.
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 Investment Company Act of 1940 (1940
Act).
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.
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
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
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.
INVESTING IN RESTRICTED AND ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid securities,
including, among others, repurchase agreements providing for settlement more
than seven days after notice, over-the-counter options and certain restricted
securities not determined to be liquid under criteria established by the
Trustees.
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. 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.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities, unless the securities are
held in the Fund's portfolio and not more than 5% of the Fund's total assets
would be invested in premiums on open put option positions.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities are
held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the amount
of any further payment.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."
Except with respect to borrowing money, if a percentage limitations 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. The Fund did not borrow money, sell securities short, or
invest in reverse repurchase agreements in excess of 5% of the value of its
total assets during the last fiscal year and has no present intent to do so in
the coming fiscal year. Short selling may accelerate the recognition of gains.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
| for fixed income securities, at the last sale price on a national
securities exchange, if available, otherwise, as determined by an
independent pricing service;
| for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that
short-term obligations with remaining maturities of less than 60 days at
the time of purchase may be valued at amortized cost or at fair market
value as determined in good faith by the Board; and
| for all other securities at fair value as determined in good faith by the
Board. Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
WHAT DO SHARES COST?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
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 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 _______, 2000, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: [TO BE PROVIDED]
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.
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 _______, 2000, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.
<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 YEARS FROM FUND AND FUND COMPLEX
- ------------------- ------------------- --------- ----------------
- ---------------------
JOHN F. DONAHUE*#+ Chief Executive Officer and Director $0 $0 for the
Birth Date: July or Trustee of the Federated Fund Trust and
28, 1924 Complex; Chairman and Director, 43 other
Federated Investors Federated Investors, Inc.; Chairman, investment
Tower Federated Investment Management companies
1001 Liberty Avenue Company, Federated Global Investment in the Fund
Pittsburgh, PA Management Corp. and Passport Complex
CHAIRMAN AND TRUSTEE Research, Ltd., formerly: Trustee,
Federated Investment Management
Company and Chairman and Director,
Federated Investment Management
Counseling.
- ---------------------
THOMAS G. BIGLEY Director or Trustee of the Federated $116,760.63 for
Birth Date: Fund Complex; Director, Member of $196.92 the
February 3, 1934 Executive Committee, Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; Director, 43 other
Pittsburgh, PA Robroy Industries, Inc. (coated steel investment
TRUSTEE conduits/computer storage equipment); companies
formerly: Senior Partner, Ernst & in the Fund
Young LLP; Director, MED 3000 Group, Complex
Inc. (physician practice management);
Director, Member of Executive
Committee, University of Pittsburgh.
- ---------------------
JOHN T. CONROY, JR. Director or Trustee of the Federated $128,455.37 for
Birth Date: June Fund Complex; President, Investment $216.66 the
23, 1937 Properties Corporation; Senior Vice Trust and
Grubb & President, John R. Wood and 43 other
Ellis/Investment Associates, Inc., Realtors; Partner or investment
Properties Trustee in private real estate companies
Corporation ventures in Southwest Florida; in the Fund
3201 Tamiami Trail formerly: President, Naples Property Complex
North Management, Inc. and Northgate Village
Naples, FL Development Corporation.
TRUSTEE
- ---------------------
NICHOLAS P. Director or Trustee of the Federated $73,191.21for
CONSTANTAKIS Fund Complex; Director, Michael Baker $196.92 the
Birth Date: Corporation (engineering, Trust and
September 3, 1939 construction, operations and technical 37 other
175 Woodshire Drive services); formerly: Partner, Andersen investment
Pittsburgh, PA Worldwide SC. companies
TRUSTEE in the Fund
Complex
- ---------------------
JOHN F. CUNNINGHAM++ Director or Trustee of some of the $93,190.48 for
Birth Date: March Federated Fund Complex; Chairman, $0 the
5, 1943 President and Chief Executive Officer, Trust and
353 El Brillo Way Cunningham & Co., Inc. (strategic 37 other
Palm Beach, FL business consulting); Trustee investment
TRUSTEE Associate, Boston College; Director, companies
Iperia Corp. in the Fund
(communications/software); formerly: Complex
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 President or Executive Vice President $0 for the
DONAHUE*+ of the Federated Fund Complex; $0 Trust and
Birth Date: April Director or Trustee of some of the 30 other
11, 1949 Funds in the Federated Fund Complex; investment
Federated Investors President, Chief Executive Officer and companies
Tower Director, Federated Investors, Inc.; in the Fund
1001 Liberty Avenue President, Chief Executive Officer and Complex
Pittsburgh, PA Trustee, Federated Investment
PRESIDENT AND Management Company; Trustee, Federated
TRUSTEE 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, Director or Trustee of the Federated $116,760.63 for
M.D.* Fund Complex; Professor of Medicine, $196.92 the
Birth Date: October University of Pittsburgh; Medical Trust and
11, 1932 Director, University of Pittsburgh 43 other
3471 Fifth Avenue Medical Center - Downtown; investment
Suite 1111 Hematologist, Oncologist, and companies
Pittsburgh, PA Internist, University of Pittsburgh in the Fund
TRUSTEE Medical Center; Member, National Board Complex
of Trustees, Leukemia Society of
America.
- ---------------------
PETER E. MADDEN Director or Trustee of the Federated $109,153.60 for
Birth Date: March Fund Complex; formerly: $185.36 the
16, 1942 Representative, Commonwealth of Trust and
One Royal Palm Way Massachusetts General Court; 43 other
100 Royal Palm Way President, State Street Bank and Trust investment
Palm Beach, FL Company and State Street Corporation. companies
TRUSTEE in the Fund
Previous Positions: Director, VISA USA Complex
and VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository
Trust Corporation; Director, The
Boston Stock Exchange.
- ---------------------
CHARLES F. Director or Trustee of some of the $102,573.91 for
MANSFIELD, JR.++ Federated Fund Complex; Executive Vice $0 the
Birth Date: April President, Legal and External Affairs, Trust and
10, 1945 Dugan Valva Contess, Inc. (marketing, 40 other
80 South Road communications, technology and investment
Westhampton Beach, consulting); formerly: Management companies
NY Consultant. in the Fund
TRUSTEE 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, Director or Trustee of the Federated $128,455.37 for
JR., J.D., S.J.D.# Fund Complex; President, Law $216.66 the
Birth Date: Professor, Duquesne University; Trust
December 20, 1932 Consulting Partner, Mollica & Murray; and
President, Duquesne Director, Michael Baker Corp. 43 other
University (engineering, construction, operations investment
Pittsburgh, PA and technical services). companies
TRUSTEE in the Fund
Previous Positions: Dean and Professor Complex
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 $116,760.63 for
Birth Date: June Fund Complex; Public $196.92 the
21, 1935 Relations/Marketing/Conference Trust and
4905 Bayard Street Planning. 43 other
Pittsburgh, PA investment
TRUSTEE Previous Positions: National companies
Spokesperson, Aluminum Company of in the Fund America;
television producer; business Complex owner.
- ---------------------
JOHN S. WALSH Director or Trustee of some of the $94,536.85 for
Birth Date: Federated Fund Complex; President and $148.59 the
November 28, 1957 Director, Heat Wagon, Inc. Trust and
2007 Sherwood Drive (manufacturer of construction 39 other
Valparaiso, IN temporary heaters); President and investment
TRUSTEE Director, Manufacturers Products, Inc. companies
(distributor of portable construction in the Fund
heaters); President, Portable Heater Complex
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 $0 for the
Birth Date: October and Treasurer of some of the Funds in $0 Trust and
22, 1930 the Federated Fund Complex; Vice 42 other
Federated Investors Chairman, Federated Investors, Inc.; investment
Tower Trustee, Federated Administrative companies
1001 Liberty Avenue Services; formerly: Trustee or in the Fund
Pittsburgh, PA Director of some of the Funds in the Complex
EXECUTIVE VICE Federated Fund Complex; CEO and
PRESIDENT Chairman, Federated Administrative
Services; Vice President, Federated
Investment Management Company,
Federated Investment Counseling,
Federated Global Investment Management
Corp. and Passport Research, Ltd.;
Director and Executive Vice President,
Federated Securities Corp.; Director,
Federated Services Company; Trustee,
Federated Shareholder Services Company.
- ---------------------
JOHN W. MCGONIGLE Executive Vice President and Secretary $0 for the
Birth Date: October of the Federated Fund Complex; $0 Trust and
26, 1938 Executive Vice President, Secretary 43 other
Federated Investors and Director, Federated Investors, investment
Tower Inc.; formerly: Trustee, Federated companies
1001 Liberty Avenue Investment Management Company and in the Fund
Pittsburgh, PA Federated Investment Counseling; Complex
EXECUTIVE VICE Director, Federated Global Investment
PRESIDENT AND Management Corp, Federated Services
SECRETARY Company and Federated Securities Corp.
- ---------------------
RICHARD J. THOMAS Treasurer of the Federated Fund $0 for the
Birth Date: June Complex; Vice President - Funds $0 Trust and
17, 1954 Financial Services Division, Federated 43 other
Federated Investors Investors, Inc.; formerly: various investment
Tower management positions within Funds companies
1001 Liberty Avenue Financial Services Division of in the Fund
Pittsburgh, PA Federated Investors, Inc. Complex
TREASURER
- ---------------------
RICHARD B. FISHER President or Vice President of some of $0 for the
Birth Date: May 17, the Funds in the Federated Fund $0 Trust and
1923 Complex; Vice Chairman, Federated 41 other
Federated Investors Investors, Inc.; Chairman, Federated investment
Tower Securities Corp.; formerly: Director companies
1001 Liberty Avenue or Trustee of some of the Funds in the in the Fund
Pittsburgh, PA Federated Fund Complex,; Executive Complex
VICE PRESIDENT Vice President, Federated Investors,
Inc. and Director and Chief Executive
Officer, Federated Securities Corp.
- ---------------------
WILLIAM D. DAWSON, Chief Investment Officer of this Fund $0 for the
III and various other Funds in the $0 Trust and
Birth Date: March Federated Fund Complex; Executive Vice 27 other
3, 1949 President, Federated Investment investment
Federated Investors Counseling, Federated Global companies
Tower Investment Management Corp., Federated in the Fund
1001 Liberty Avenue Investment Management Company and Complex
Pittsburgh, PA Passport Research, Ltd.; Registered
CHIEF INVESTMENT Representative, Federated Securities
OFFICER 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 $0 for the
Birth Date: and various other Funds in the $0 Trust and
November 28, 1942 Federated Fund Complex; Executive Vice 2 other
Federated Investors President, Federated Investment investment
Tower Counseling, Federated Global companies
1001 Liberty Avenue Investment Management Corp., Federated in the Fund
Pittsburgh, PA Investment Management Company and Complex
CHIEF INVESTMENT Passport Research, Ltd.; Registered
OFFICER 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 $0 for the
Birth Date: October and various other Funds in the $0 Trust and
22, 1945 Federated Fund Complex; Executive Vice 11 other
Federated Investors President, Federated Investment investment
Tower Counseling, Federated Global companies
1001 Liberty Avenue Investment Management Corp., Federated in the Fund
Pittsburgh, PA Investment Management Company and Complex
CHIEF INVESTMENT Passport Research, Ltd.; Vice
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.
CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING
As required by SEC rules, the Fund, its Adviser, and its Distributor have
adopted codes of ethics. These codes govern securities trading activities of
investment personnel, Fund Trustees, and certain other employees. Although they
do permit these people to trade in securities, including those that the Fund
could buy, they also contain significant safeguards designed to protect the Fund
and its shareholders from abuses in this area, such as requirements to obtain
prior approval for, and to report, particular transactions.
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.
For the fiscal year ended, December 31, 1999, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $610,963.65 for which the
Fund paid $475,362.81 in brokerage commissions.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS OF
THE FEDERATED FUNDS
0.150 of 1% on the first
$250million
0.125 of 1% on the next
$250million
0.100 of 1% on the next
$250million
0.075 of 1% on assets in excess
of $750million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Deloitte & Touche LLP, plans and performs
its audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED 1999 1998 1997
DECEMBER31
Advisory Fee Earned $ $ $
Advisory Fee Reduction $ $ $
Brokerage Commissions $ $ $
Administrative Fee $ $ $
SHAREHOLDER SERVICES NA NA N/A
FEE
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 one-year, five-year and Start of Performance
periods ended December 31, 1999.
Yield is given for the 30-day period ended December 31, 1999.
30-DAY1 5 START OF
PERIODYEAR YEARS PERFORMANCE
ON MARCH 28,
1994
Total NA % % %
Return
Yield % NA 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:
|.....references to ratings, rankings and financial publications and/or
performance comparisons of Shares to certain indices;
| charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
| discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and
| information about the mutual fund industry from sources such as the
Investment Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete
view of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
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 income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the growth and
income funds category in advertising and sales literature.
LEHMAN BROTHERS MORTGAGE INDEX
Lehman Brothers Mortgage Index covers the mortgage backed pass-through
securities of the Government National Mortgage Association, the Federal National
Mortgage Association, and the Federal Home Loan Mortgage Corporation.
LEHMAN BROTHERS GOVERNMENT INDEX
Lehman Brothers Government Index includes the Treasury and Agency Indices. The
Treasury component includes public obligations of the U.S. Treasury that have
remaining maturities of more than one year. The Agency component includes both
callable and noncallable agency securities, quasi-federal corporations, and
corporate or foreign debt guaranteed by the U.S. government.
LEHMAN BROTHERS MORTGAGE BACKED SECURITIES INDEX
Lehman Brothers Mortgage Backed Securities Index includes 15- and 30-year
fixed-rate securities backed by mortgage pools of the Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), and
Federal National Mortgage Corporation (FNMA). Graduated payment mortgages (GPMs)
and balloons are included in the index.
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.
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 1,160 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of purposes, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies and investment and financial
advisers. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
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 Utility Fund II dated December 31, 1999.
ADDRESSES
FEDERATED UTILITY 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
200 Berkeley Street
Boston, MA 02116-5072
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).
(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; (22)
(xi) Conformed copy of Exhibit K to the Trust's present
investment advisory contract to add Federated
Strategic Income Fund II; (22)
+ 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).
(22) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 on Form N-1A filed February 17, 2000. (File Nos. 33-69268
and 811-8042).
(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; (22)
(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;
(22)
(xi) Conformed copy of Exhibit K to Distributor's Contract;
(22)
(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).
(22) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 on Form N-1A filed February 17, 2000. (File Nos. 33-69268
and 811-8042).
(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; (22)
(iii) Conformed copy of Exhibit D to the Distribution
Plan of the Registrant with respect to Federated
Strategic Income Fund Fund II; (22)
(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).
(22) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 on Form N-1A filed February 17, 2000. (File Nos. 33-69268
and 811-8042).
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
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.
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.;
(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
(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
(c) Not applicable
Item 28. LOCATION OF ACCOUNTS AND RECORDS:
--------------------------------
All accounts and records required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following
locations:
REGISTRANT Federated Investors 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
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.
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 30th day of March, 2000.
FEDERATED INSURANCE SERIES
BY: /s/ C. Grant Anderson
C. Grant Anderson, Assistant Secretary
Attorney in Fact for John F. Donahue
March 30, 2000
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
---- ----- ----
By: /s/ C. Grant Anderson
C. Grant Anderson Attorney In Fact March 30, 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