FEDERATED INSURANCE SERIES, 497, 1997-04-22

FEDERATED INSURANCE SERIES
497, 1997-04-22

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FEDERATED INSURANCE SERIES

PROSPECTUS

This prospectus offers shares of eight portfolios (individually referred to
as a "Fund" or collectively as the "Funds") of Federated Insurance Series
(the "Trust"), an open-end, management investment company. Shares of the
Funds may be sold only to separate accounts of insurance companies to serve
as the investment medium for variable life insurance policies and variable
annuity contracts issued by the insurance companies. The Trust offers
interests in the following eight separate investment portfolios, each having
distinct investment objectives and policies:

* Federated American Leaders Fund II;
* Federated Growth Strategies Fund II;
* Federated Utility Fund II;
* Federated Prime Money Fund II;
* Federated Fund for U.S. Government Securities II;
* Federated High Income Bond Fund II;
* Federated International Equity Fund II; and
* Federated Equity Income Fund II.

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 BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

The separate accounts invest in one or more of the Funds in accordance with
allocation instructions received from owners of life insurance policies and
annuity contracts. Such allocation rights are described further in the
prospectus for the separate account. This prospectus contains the
information you should read and know before you invest in any of the Funds
through the variable annuity contracts and variable life insurance policies
offered by insurance companies which provide for investment in the Trust.
Keep this prospectus for future reference.

Federated High Income Bond Fund II may invest primarily in lower rated
bonds, commonly referred to as "junk bonds." Investments of this type are
subject to a greater risk of loss of principal and interest than investments
in higher rated securities. Purchasers should carefully assess the risks
associated with an investment in Federated High Income Bond Fund II.

AN INVESTMENT IN FEDERATED PRIME MONEY FUND II IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. FEDERATED PRIME MONEY FUND II ATTEMPTS TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO
ASSURANCE THAT FEDERATED PRIME MONEY FUND II WILL BE ABLE TO DO SO.

The Trust has also filed a Statement of Additional Information dated April
22, 1997, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information or to make inquiries
about a Fund, contact the Trust at the address listed in the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Trust
is maintained electronically with the SEC at Internet web site
(http://www.sec.gov).

FUND SHARES ARE AVAILABLE EXCLUSIVELY AS A POOLED FUNDING VEHICLE FOR LIFE
INSURANCE COMPANIES WRITING VARIABLE ANNUITY CONTRACTS AND VARIABLE LIFE
INSURANCE POLICIES. THIS PROSPECTUS SHOULD BE ACCOMPANIED BY THE PROSPECTUS
FOR SUCH CONTRACTS.

Prospectus dated April 22, 1997

TABLE OF CONTENTS

FINANCIAL HIGHLIGHTS -- FEDERATED AMERICAN LEADERS FUND II
1
FINANCIAL HIGHLIGHTS -- FEDERATED GROWTH STRATEGIES FUND II
2
FINANCIAL HIGHLIGHTS --
FEDERATED UTILITY FUND II 3
FINANCIAL HIGHLIGHTS --
FEDERATED PRIME MONEY FUND II 4
FINANCIAL HIGHLIGHTS -- FEDERATED FUND
FOR U.S. GOVERNMENT SECURITIES II 5
FINANCIAL HIGHLIGHTS -- FEDERATED HIGH
INCOME BOND FUND II 6
FINANCIAL HIGHLIGHTS -- FEDERATED
INTERNATIONAL EQUITY FUND II 7
GENERAL INFORMATION ON
FEDERATED INSURANCE SERIES 8
FEDERATED AMERICAN LEADERS FUND II INVESTMENT INFORMATION
8
Investment Objective 8
Investment Policies 9
Investment Limitations 10
FEDERATED GROWTH STRATEGIES FUND II INVESTMENT INFORMATION
10
Investment Objective 10
Investment Policies 10
Investment Limitations 12
FEDERATED UTILITY FUND II INVESTMENT INFORMATION
12
Investment Objective 12
Investment Policies 12
Investment Limitations 14
FEDERATED PRIME MONEY FUND II INVESTMENT INFORMATION
14
Investment Objective 14
Investment Policies 14
Investment Risks 16
Investment Limitations 16
FEDERATED FUND FOR U.S. GOVERNMENT
SECURITIES II
INVESTMENT INFORMATION 16
Investment Objective 16
Investment Policies 17
Investment Limitations 18
FEDERATED HIGH INCOME BOND FUND II INVESTMENT INFORMATION
18
Investment Objective 18
Investment Policies 18
Investment Risks 19
Investment Limitations 20
FEDERATED INTERNATIONAL EQUITY FUND II INVESTMENT INFORMATION
21
Investment Objective 21
Investment Policies 21
Investment Limitations 25
FEDERATED EQUITY INCOME FUND II INVESTMENT INFORMATION
25
Investment Objective 25
Investment Policies 26
Portfolio Turnover 28
Investment Limitations 28
Hub and Spoke" Option (Federated Equity Income Fund II Only)

28
INVESTMENT POLICIES AND PRACTICES 29
Convertible Securities 29
Repurchase Agreements 30
Restricted and Illiquid Securities 30
When-Issued and Delayed Delivery Transactions
30
Lending of Portfolio Securities 30
Variable Asset Regulations 31
State Insurance Regulations 31
NET ASSET VALUE 31
INVESTING IN THE FUNDS 31
Purchases and Redemptions 31
What Shares Cost 32
Dividends 32
FEDERATED INSURANCE SERIES INFORMATION 32
Management of Federated
Insurance Series 32
Fund Managers 33
Distribution of Fund Shares 34
Administration of the Funds 35
Brokerage Transactions 35
Expenses of Federated Equity
Income Fund II 36
SHAREHOLDER INFORMATION 36
Voting Rights 36
TAX INFORMATION 37
Federal Taxes 37
State and Local Taxes 37
PERFORMANCE INFORMATION 37
APPENDIX 38
ADDRESSES Inside Back Cover

FEDERATED AMERICAN LEADERS FUND II
FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated February 7, 1997, on the Fund's
Financial Statements for the year ended December 31, 1996, and on the
following table for each of the periods presented, is included in the Fund's
Annual Report, which is incorporated herein by reference. This table should
be read in conjunction with the Fund's Financial Statements and notes
thereto, contained in the Fund's Annual Report, which may be obtained from
the Fund.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.80 $ 9.74 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.19 0.20 0.19
Net realized and unrealized gain 2.54 3.06 (0.26)
(loss) on investments
Total from investment operations 2.73 3.26 (0.07)
LESS DISTRIBUTIONS
Distributions from net investment (0.18) (0.19) (0.19)
income
Distributions in excess of net -- (0.01) --
investment income(b)
Distributions from net realized gain (0.09) -- --
on investments
Total distributions (0.27) (0.20) (0.19)
NET ASSET VALUE, END OF PERIOD $15.26 $12.80 $ 9.74
TOTAL RETURN(C) 21.58% 33.71% (0.70)%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.85% 0.85% 0.54%*
Net investment income 1.54% 2.03% 2.58%*
Expense waiver/reimbursement(d) 0.22% 1.36% 25.42%*
SUPPLEMENTAL DATA
Net assets, end of period (000 $142,216 $48,514 $2,400
omitted)
Average commission rate paid(e) $0.0012 -- --
Portfolio turnover 90% 43% 32%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from February 1, 1994 (date of
initial public investment) to December 31, 1994. For the period from
December 9, 1993 (start of business), to January 31, 1994, the Fund had no
investment activity.

(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principals. These
distributions do not represent a return of capital for federal income tax
purposes.

(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

(e) Represents total commissions paid on portfolio securities divided by
total portfolio shares purchased or sold on which commissions were charged.
This disclosure is required for fiscal years beginning on or after September
1, 1995.

Further information about the Fund's performance is contained in the Fund's
Annual Report dated December 31, 1996, which can be obtained free of charge.

FEDERATED GROWTH STRATEGIES FUND II
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated February 7, 1997, on the Fund's
Financial Statements for the year ended December 31, 1996, and on the
following table for each of the periods presented, is included in the Fund's
Annual Report, which is incorporated herein by reference. This table should
be read in conjunction with the Fund's Financial Statements and notes
thereto, contained in the Fund's Annual Report, which my be obtained from
the Fund.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.30 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.03
Net realized and unrealized gain on investments 2.45 0.27
Total from investment operations 2.50 0.30
LESS DISTRIBUTIONS
Distributions from net investment income (0.004) --
NET ASSET VALUE, END OF PERIOD $12.80 $10.30
TOTAL RETURN(B) 24.32% 3.00%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.85% 0.85%*
Net investment income 0.55% 1.91%*
Expense waiver/reimbursement(c) 3.87% 76.95%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $16,985 $368
Average commission rate paid(d) $0.0376 --
Portfolio turnover 96% 4%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from November 9, 1995 (date of
initial public investment) to December 31, 1995.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) Represents total commissions paid on portfolio securities divided by
total portfolio shares purchased or sold on which commissions were charged.
This disclosure is required for fiscal years beginning on or after September
1, 1995.

Further information about the Fund's performance is contained in the Fund's
Annual Report dated December 31, 1996, which can be obtained free of charge.

FEDERATED UTILITY FUND II
FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated February 7, 1997, on the Fund's
Financial Statements for the year ended December 31, 1996, and on the
following table for each of the periods presented, is included in the Fund's
Annual Report, which is incorporated herein by reference. This table should
be read in conjunction with the Fund's Financial Statements and notes
thereto, contained in the Fund's Annual Report, which may be obtained from
the Fund.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.03 $ 9.29 $ 9.48
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.42 0.45 0.34
Net realized and unrealized gain (loss)
on investments
and foreign currency 0.82 1.74 (0.19)
Total from investment operations 1.24 2.19 0.15
LESS DISTRIBUTIONS
Distributions from net investment income (0.41) (0.45) (0.34)
Distributions from net realized gain on
investments
and foreign currency transactions (0.05) -- --
Total distributions (0.46) (0.45) (0.34)
NET ASSET VALUE, END OF PERIOD $11.81 $11.03 $ 9.29
TOTAL RETURN(B) 11.56% 24.18% 1.12%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.85% 0.85% 0.60%*
Net investment income 3.92% 4.62% 4.77%*
Expense waiver/reimbursement(c) 0.51% 2.24% 54.83%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $63,558 $29,679 $974
Average commission rate paid(d) $.0402 -- --
Portfolio turnover 63% 62% 73%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from April 14, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 9,
1993 (the start of business), to April 13, 1994, net investment income was
distributed to the Fund's adviser.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report dated December 31, 1996, which can be obtained free of charge.

FEDERATED PRIME MONEY FUND II
FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated February 7, 1997, on the Fund's
Financial Statements for the year ended December 31, 1996, and on the
following table for each of the periods presented, is included in the Fund's
Annual Report, which is incorporated herein by reference. This table should
be read in conjunction with the Fund's Financial Statements and notes
thereto, contained in the Fund's Annual Report, which may be obtained from
the Fund.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.05 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.05) (0.05) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 4.75% 5.20% 0.50%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80% 0.80% 0.80%*
Net investment income 4.68% 5.12% 4.26%*
Expense waiver/reimbursement(c) 0.57% 2.69% 71.84%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $45,655 $17,838 $552
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from November 18, 1994 (date of
initial public investment) to December 31, 1994. For the period from
December 10, 1993 (start of business), to November 17, 1994, the Fund had no
public investment.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report dated December 31, 1996, which can be obtained free of charge.

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated February 7, 1997, on the Fund's
Financial Statements for the year ended December 31, 1996, and on the
following table for each of the periods presented, is included in the Fund's
Annual Report, which is incorporated herein by reference. This table should
be read in conjunction with the Fund's Financial Statements and notes
thereto, contained in the Fund's Annual Report, which may be obtained from
the Fund.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.29 $ 9.99 $ 9.99
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.59 0.54 0.27
Net realized and unrealized gain (loss) (0.18) 0.30 --
on investments
Total from investment operations 0.41 0.84 0.27
LESS DISTRIBUTIONS
Distributions from net investment income (0.57) (0.54) (0.27)
Distributions from net realized gain on (0.04) -- --
investments
Total distributions (0.61) (0.54) (0.27)
NET ASSET VALUE, END OF PERIOD $10.09 $10.29 $ 9.99
TOTAL RETURN(B) 4.20% 8.77% 2.62%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80% 0.80% 0.48%*
Net investment income 6.00% 6.00% 3.99%*
Expense waiver/reimbursement(c) 1.01% 4.81% 32.83%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $34,965 $12,264 $1,244
Portfolio turnover 97% 65% 0%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from March 29, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 8,
1993 (start of business), to March 28, 1994, net investment income was
distributed to the Fund's adviser.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report dated December 31, 1996, which can be obtained free of charge.

FEDERATED HIGH INCOME BOND FUND II
FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated February 7, 1997, on the Fund's
Financial Statements for the year ended December 31, 1996, and on the
following table for each of the periods presented, is included in the Fund's
Annual Report, which is incorporated herein by reference. This table should
be read in conjunction with the Fund's Financial Statements and notes
thereto, contained in the Fund's Annual Report, which may be obtained from
the Fund.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.79 $ 8.87 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.88 0.85 0.75
Net realized and unrealized gain (loss) 0.45 0.89 (1.12)
on investments
Total from investment operations 1.33 1.74 (0.37)
LESS DISTRIBUTIONS
Distributions from net investment income (0.88) (0.82) (0.75)
Distributions in excess of net -- -- (0.01)
investment income(d)
Total distributions (0.88) (0.82) (0.76)
NET ASSET VALUE, END OF PERIOD $10.24 $ 9.79 $ 8.87
TOTAL RETURN(B) 14.31% 20.38% (3.73%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80% 0.80% 0.41%*
Net investment income 9.23% 9.27% 9.11%*
Expense waiver/reimbursement(c) 0.59% 3.40% 10.01%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $66,043 $20,165 $1,457
Portfolio turnover 51% 48% 18%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from February 2, 1994 (date of
initial public investment) to December 31, 1994. For the period from
December 9, 1993 (the start of business), to February 1, 1994, the Fund had
no public investment.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.

Further information about the Fund's performance is contained in the Fund's
Annual Report dated December 31, 1996, which can be obtained free of charge.

FEDERATED INTERNATIONAL EQUITY FUND II
FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated February 7, 1997, on the Fund's
Financial Statements for the year ended December 31, 1996, and on the
following table for each of the periods presented, is included in the Fund's
Annual Report, which is incorporated herein by reference. This table should
be read in conjunction with the Fund's Financial Statements and notes
thereto, contained in the Fund's Annual Report, which my be obtained from
the Fund.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
ENDED
DECEMBER 31, DECEMBER
31,
1996 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.35 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.11** 0.07
Net realized and unrealized gain (loss) on
investments and
foreign currency 0.75 0.28
Total from investment operations 0.86 0.35
LESS DISTRIBUTIONS
Distributions from net investment income (0.05) --
NET ASSET VALUE, END OF PERIOD $11.16 $10.35
TOTAL RETURN(B) 8.32% 3.50%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.25% 1.22%*
Net investment income 0.89% 1.63%*
Expense waiver/reimbursement(c) 3.05% 11.42%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $17,752 $4,760
Average commission rate paid(d) $0.0030 --
Portfolio turnover 103% 34%
</TABLE>

* Computed on an annualized basis.

** Per share information presented is based upon the monthly average number
of shares outstanding.

(a) Reflects operations for the period from May 5, 1995 (date of initial
public investment) to December 31, 1995.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report dated December 31, 1996, which can be obtained free of charge.

GENERAL INFORMATION ON FEDERATED INSURANCE SERIES

The Funds are portfolios of Federated Insurance Series, which was
established as Insurance Management Series, a Massachusetts business trust,
under a Declaration of Trust dated September 15, 1993. The Declaration of
Trust permits the Trust to offer separate series of shares of beneficial
interest in separate portfolios of securities, including the Funds. The
shares in any one portfolio may be offered in separate classes. As of the
date of this prospectus, the Board of Trustees ("Trustees") have not
established separate classes of shares.

Shares of each Fund are sold only to insurance companies as funding vehicles
for variable annuity contracts and variable life insurance policies issued
by the insurance companies. Shares of each Fund are sold at net asset value
as described in the section entitled "What Shares Cost." Shares of the Funds
are redeemed at net asset value.

For purposes of this prospectus, "Federated Funds" shall mean two or more
funds for which affiliates of Federated Investors serve as investment
adviser and principal underwriter.

The Trust, which is designed to meet a variety of investment objectives,
offers shares of beneficial interest in the following eight separate
portfolios:

* Federated American Leaders Fund II -- a portfolio seeking long-term growth
of capital and income by investing in the securities of "blue-chip"
companies;

* Federated Growth Strategies Fund II -- a portfolio seeking capital
appreciation by investing in equity securities of companies with prospects
for above-average growth in earnings and dividends or companies where
significant fundamental changes are taking place;

* Federated Utility Fund II -- a portfolio seeking high current income and
moderate capital appreciation by investing primarily in a professionally
managed and diversified portfolio of equity and debt securities of utility
companies;

* Federated Prime Money Fund II -- a portfolio seeking current income
consistent with stability of principal and liquidity by investing in high
quality money market instruments;

* Federated Fund for U.S. Government Securities II -- a portfolio seeking
current income by investing in U.S. government securities;

* Federated High Income Bond Fund II -- a portfolio seeking high current
income by investing in lower-rated fixed income securities, including
preferred stocks, bonds, debentures and notes;

* Federated International Equity Fund II -- a portfolio seeking a total
return on its assets by investing in the equity securities of issuers
located in at least three different countries outside of the United States;
and

* Federated Equity Income Fund II -- a portfolio seeking above average
income and capital appreciation by investing at least 65% of its assets in
income-producing equity securities.

Each of the Funds may also invest in certain other types of securities as
further described in this prospectus.

Since the Funds use a single prospectus, it is possible that one Fund might
become liable for a misstatement in the prospectus regarding another Fund.
The Trustees considered this when approving the use of a single prospectus.

FEDERATED AMERICAN LEADERS FUND II INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The primary investment objective of the Fund is to achieve long-term growth
of capital. The Fund's secondary objective is to provide income. The
investment objectives cannot be changed without the approval of the Fund's
shareholders. While there is no assurance that the Fund will achieve its
investment objectives, it endeavors to do so by following the investment
policies described in this prospectus.

INVESTMENT POLICIES

The Fund pursues its investment objectives by investing, under normal
circumstances, at least 65% of its total assets in common stock of
"blue-chip" companies. "Blue-chip" companies generally are top-quality,
established growth companies which, in the opinion of the investment
adviser, meet one or more of the following criteria:

* industry leader with proven management capabilities;

* historical and future earnings growth rate of approximately 10% compounded
annually;

* strong balance sheet with pension liabilities funded;

* products with brand recognition and consumer acceptance;

* growing consumer-based demand with limited government sales;

* ability to meet social, political, and environmental problems;

* vigorous research effort with continuing new product flow;

* low external capital requirements; and

* not an import competitive company but possessing international
capabilities.

Unless indicated otherwise, the investment policies of the Fund may be
changed by the Trustees without the approval of shareholders. Shareholders
will be notified before any material change in these policies becomes
effective.

ACCEPTABLE INVESTMENTS. The Fund's investment approach is based on the
conviction that over the long term the economy will continue to expand and
develop and that this economic growth will be reflected in the growth of the
revenues and earnings of blue-chip companies. Given these long-term
investment horizons, the Fund will attempt to hold its portfolio securities
throughout market cycles.

COMMON STOCKS. The Fund invests primarily in common stocks of blue-chip
companies selected by the Fund's investment adviser based on the criteria
set forth above and traditional research techniques and technical factors,
including assessment of earnings and dividend growth prospects and of the
risk and volatility of the company's industry. Other factors, such as
product position or market share, will also be considered by the Fund's
investment adviser.

AMERICAN DEPOSITARY RECEIPTS. The Fund may invest in American Depositary
Receipts ("ADRs") of foreign-domiciled blue-chip companies. ADRs are trust
receipts issued by U.S. banks or trust companies representing ownership
interests in the equity securities of these companies. ADRs are U.S.
dollar-denominated and traded on U.S. securities exchanges or
over-the-counter. The value of ADRs could be affected by changes in foreign
currency exchange rates.

BANK INSTRUMENTS. Primarily to manage short-term cash, the Fund may also
invest in certificates of deposit, demand and time deposits, bankers'
acceptances, deposit notes, and other instruments of domestic and foreign
banks and other deposit institutions.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest
in the securities of other open-end investment companies and in the
securities of closed-end investment companies. Shareholders should realize
that, when the Fund invests in other investment companies, certain fund
expenses, such as custodian fees and administrative fees, may be duplicated.
The investment adviser will waive its investment advisory fee on assets
invested in securities of other Federated Funds.

TEMPORARY INVESTMENTS. For defensive purposes only, the Fund may also invest
temporarily in cash and cash items during times of unusual market conditions
and to maintain liquidity. Cash items may include short-term obligations
such as:

* commercial paper rated A-1 or A-2 by Standard & Poor's Ratings Group
("S&P"), Prime-1 or Prime-2 by Moody's Investor Service, Inc. ("Moody's"),
or F-1 or F-2 by Fitch Investors Service, Inc. ("Fitch");

* securities issued and/or guaranteed as to the payment of principal and
interest by the U.S. government or its agencies and instrumentalities; and

* repurchase agreements.

INVESTMENT LIMITATIONS

The Fund will not:

* borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set date)
or pledge securities except, under certain circumstances, the Fund may
borrow money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its total assets and pledge up to 15% of its total
assets to secure such borrowings.

The above investment limitations cannot be changed without shareholder
approval.

In addition, the Fund may purchase the investments and engage in the
investment techniques described below under "Investment Policies and
Practices."

FEDERATED GROWTH STRATEGIES FUND II INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is capital appreciation. The investment
objective cannot be changed without the approval of the Fund's shareholders.
While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the investment policies
described in this prospectus.

INVESTMENT POLICIES

The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of companies with prospects for above-average
growth in earnings and dividends or companies where significant fundamental
changes are taking place. Equity securities include common stocks, preferred
stocks, and securities (including debt securities) that are convertible into
common stocks.

ACCEPTABLE INVESTMENTS. The Fund's investment adviser selects equity
securities on the basis of traditional research techniques, including
assessment of earnings and dividend growth prospects and of the risk and
volatility of each company's business. The Fund generally invests in
companies with market capitalization of $100,000,000 or more. The
fundamental changes which the investment adviser will seek to identify in
companies include, for example, restructuring of basic businesses or
reallocations of assets which present opportunities for significant share
price appreciation. At times, the Fund will invest in securities of
companies which are deemed by the investment adviser to be candidates for
acquisition by other entities as indicated by changes in ownership, changes
in standard price-to-value ratios, and an examination of other standard
analytical indices.

The securities in which the Fund invests include, but are not limited to
common stocks, preferred stocks, convertible securities, securities of
foreign issuers, securities of other investment companies, and corporate
obligations, including bonds, debentures, notes, and warrants. In addition,
the Fund may invest in put and call options, futures, and options on
futures.

SECURITIES OF FOREIGN ISSUERS. The Fund may invest in the securities of
foreign issuers which are freely traded on United States securities
exchanges or in the over-the-counter market in the form of depositary
receipts. Securities of a foreign issuer may present greater risks in the
form of nationalization, confiscation, domestic marketability, or other
national or international restrictions.

As a matter of practice, the Fund will not invest in the securities of a
foreign issuer if any such risk appears to the investment adviser to be
substantial.

CORPORATE OBLIGATIONS. The Fund may invest up to 35% of its total assets in
bonds, debentures, notes and warrants of corporate issuers. These securities
will generally be rated "BBB" or better by S&P or "Baa" or better by Moody's
at the time of investment, or if unrated, of comparable quality. Securities
which are rated BBB by S&P or Baa by Moody's have speculative
characteristics. Changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than higher-rated bonds. The prices of fixed income securities
generally fluctuate inversely to the direction of interest rates. Downgrades
will be evaluated on a case by case basis by the investment adviser. The
investment adviser will determine whether or not the security continues to
be an acceptable investment. If not, the security will be sold. A
description of the ratings categories is contained in the Appendix to this
prospectus.

In addition, with respect to the 35% limit, the Fund may invest up to 5% of
its assets in debt obligations rated "B" or better by S&P or Moody's.

* commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's,
or F-1 or F-2 by Fitch Investors Service, Inc.;

* securities issued and/or guaranteed as to the payment of principal and
interest by the U.S. government or its agencies and instrumentalities;

* certificates of deposit, demand and time deposits, bankers' acceptances,
deposit notes, and other instruments of domestic and foreign banks and other
deposit institutions; and

* repurchase agreements.

PUT AND CALL OPTIONS. The Fund may purchase put options on stocks. These
options will be used only as a hedge to attempt to protect securities which
the Fund holds against decreases in value. The Fund may purchase these put
options as long as they are listed on a recognized options exchange and the
underlying stocks are held in its portfolio. The Fund may also write call
options on securities either held in its portfolio or which it has the right
to obtain without payment of further consideration or for which it has
segregated cash in the amount of any additional consideration. The call
options which the Fund writes and sells must be listed on a recognized
options exchange. Writing of calls by the Fund is intended to generate
income for the Fund and, thereby, protect against price movements in
particular securities in the Fund's portfolio.

Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. This requires a
secondary market on an exchange which may or may not exist for any
particular call or put option at any specific time. The absence of a liquid
secondary market also may limit the Fund's ability to dispose of the
securities underlying an option. The inability to close options also could
have an adverse impact on the Fund's ability to effectively hedge its
portfolio.

The Fund may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the
options when options on the portfolio securities held by the Fund are not
traded on an exchange. The Fund purchases and writes options only with
investment dealers and other financial institutions (such as commercial
banks or savings associations) deemed creditworthy by the Fund's adviser.

Over-the-counter options are two-party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options
are third-party contracts with standardized strike prices and expiration
dates and are purchased from a clearing corporation. Exchange-traded options
have a continuous liquid market, while over-the-counter options may not.

FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may purchase and sell
financial futures and stock index futures contracts to hedge all or a
portion of its portfolio against changes in the price of its portfolio
securities, but will not engage in futures transactions for speculative
purposes.

The Fund may also write call options and purchase put options on financial
futures and stock index futures contacts as a hedge to attempt to protect
securities in its portfolio against decreases in value.

INVESTMENT LIMITATIONS

The Fund will not:

The above investment limitations cannot be changed without shareholder
approval.

In addition, the Fund may purchase the investments and engage in the
investment techniques described below under "Investment Policies and
Practices."

FEDERATED UTILITY FUND II
INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to achieve high current income and
moderate capital appreciation. The investment objective cannot be changed
without approval of shareholders. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by following
the policies described in this prospectus.

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS. The Fund's investment approach is based on the
conviction that over the long term, the economy will continue to expand and
develop and that this economic growth will be reflected in the growth of the
revenues and earnings of utility companies. The Fund intends to achieve its
investment objective by investing in equity and debt securities of utility
companies that produce, transmit, or distribute gas and electric energy as
well as those companies that provide communications facilities, such as
telephone and telegraph companies. Under normal market conditions, the Fund
will invest at least 65% of its total assets in securities of utility
companies. The Fund may invest in convertible securities of companies. The
prices of fixed income securities fluctuate inversely to the direction of
interest rates.

COMMON STOCKS. The Fund invests primarily in common stocks of utility
companies selected by the Fund's investment adviser on the basis of
traditional research techniques, including assessment of earnings and
dividend growth prospects and of the risk and volatility of the company's
industry. However, other factors, such as product position, market share, or
profitability will also be considered by the Fund's investment adviser.

SECURITIES OF FOREIGN ISSUERS. The Fund may invest in the securities of
foreign issuers which are freely traded on United States securities
exchanges or in the over-the-counter market in the form of depositary
receipts as well as securities of foreign issuers that trade on foreign
stock exchanges. Securities of a foreign issuer may present greater risks in
the form of nationalization, confiscation, domestic marketability, or other
national or international restrictions. As a matter of practice, the Fund
will not invest in the securities of a foreign issuer if any such risk
appears to the investment adviser to be substantial.

Investing in non-U.S. securities carries substantial risks in addition to
those associated with domestic investments. In an attempt to reduce some of
these risks, the Fund diversifies its investments broadly among foreign
countries, including both developed and developing countries.

The Fund will take advantage of the unusual opportunities for higher returns
available from investing in developing countries and may invest up to 10% of
its total assets in the utility securities of such countries. These
investments carry considerably more volatility and risk because they are
associated with less mature economies and less stable political systems.

RISK CONSIDERATIONS IN DEVELOPING COUNTRIES. Securities prices in developing
countries can be significantly more volatile than in developed countries,
reflecting the greater uncertainties of investing in lesser developed
markets and economies. In particular, developing 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. Such
countries may also have restrictions on foreign ownership or prohibitions on
the repatriation of assets, and may have less protection of property rights
than developed countries.

The economies of developing countries may be predominantly based on only a
few industries or dependent on revenues from particular commodities or on
international aid or development assistance, may be highly vulnerable to
changes in local or global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. In addition, securities markets in
developing countries may trade a small number of securities and may be
unable to respond effectively to increase in trading volume, potentially
resulting in a lack of liquidity and in volatility in the price of
securities traded on those markets. Also, securities markets in developing
countries typically offer less regulatory protection for investors.

OTHER SECURITIES. The Fund may invest in preferred stocks, corporate bonds,
notes, and warrants of these companies and in cash, U.S. government
securities, and money market instruments in proportions determined by its
investment adviser.

The Fund may also write call options on all or any portion of its portfolio
to generate income for the Fund. The Fund will write call options on
securities either held in its portfolio or for which it has the right to
obtain without payment of further consideration or for which it has
segregated cash in the amount of any additional consideration. The call
options which the Fund writes must be listed on a recognized options
exchange. 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 its Trustees.

FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures contracts to hedge all or a portion of its portfolio of
long-term debt securities against changes in interest rates. Financial
futures contracts call for the delivery of particular debt instruments
issued or guaranteed by the U.S. Treasury or by specified agencies or
instrumentalities of the U.S. government at a certain time in the future.
The seller of the contract agrees to make delivery of the type of instrument
called for in the contract and the buyer agrees to take delivery of the
instrument at the specified future time.

The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its
portfolio against decreases in value. When the Fund writes a call option on
a futures contract, it is undertaking the obligation of selling a futures
contract at a fixed price at any time during a specified period if the
option is exercised. Conversely, as purchaser of a put option on a futures
contract, the Fund is entitled (but not obligated) to sell a futures
contract at the fixed price during the life of the option.

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. When the
Fund purchases futures contracts, an amount of cash and cash equivalents,
equal to the underlying commodity value of the futures contracts (less any
related margin deposits), will be deposited in a segregated account with the
Fund's custodian (or the broker, if legally permitted) to collateralize the
position and thereby insure that the use of such futures contracts is
unleveraged.

RISKS. When the Fund uses financial futures and options on financial futures
as hedging devices, there is a risk that the prices of the securities
subject to the futures contracts may not correlate perfectly with the prices
of the securities in the Fund's portfolio. This may cause the futures
contract and any related options to react differently than the portfolio
securities to market changes. In addition, the Fund's investment adviser
could be incorrect in its expectations about the direction or extent of
market factors such as interest rate movements. In these events, the Fund
may lose money on the futures contract or option.

It is not certain that a secondary market for positions in futures contracts
or for options will exist at all times. Although the investment adviser will
consider liquidity before entering into futures and options transactions,
there is no assurance that a liquid secondary market on an exchange will
exist for any particular futures contract or option at any particular time.
The Fund's ability to establish and close out futures and options positions
depends on this secondary market.

TEMPORARY INVESTMENTS. The Fund may also invest temporarily in cash, cash
items, and short-term instruments, including notes and commercial paper, for
liquidity and during times of unusual market conditions for defensive
purposes. Cash items may include obligations such as:

* certificates of deposit (including those issued by domestic and foreign
branches of FDIC insured banks);

* obligations issued or guaranteed as to principal and interest by the U.S.
government or any of its agencies or instrumentalities; and

* repurchase agreements.

INVESTMENT LIMITATIONS

The Fund will not:
* borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set date)
or pledge securities except, under certain circumstances, the Fund may
borrow money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its total assets and pledge up to 15% of its total
assets to secure such borrowings.

The above investment limitations cannot be changed without shareholder
approval. In addition, the Fund may purchase the investments and engage in
the investment techniques described below under "Investment Policies and
Practices."

FEDERATED PRIME MONEY FUND II INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide current income consistent
with stability of principal and liquidity. The investment objective cannot
be changed without approval of shareholders. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so
by complying with the diversification and other requirements of Rule 2a-7
under the Investment Company Act of 1940 which regulates money market mutual
funds following the investment policies described in this prospectus.

INVESTMENT POLICIES

The Fund pursues its investment objective by investing exclusively in a
portfolio of money market instruments maturing in 397 days or less. The
average maturity of the money market instruments in the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less. Unless
indicated otherwise, the investment policies of the Fund may be changed by
the Trustees without the approval of shareholders. Shareholders will be
notified before any material change in these policies becomes effective.

ACCEPTABLE INVESTMENTS. The Fund invests in high-quality money market
instruments that are either rated in one of the two highest short-term
rating categories by one or more nationally recognized statistical rating
organizations ("NRSROs") or of comparable quality to securities having such
ratings. Examples of these instruments include, but are not limited to:

* domestic issues of corporate debt obligations, including variable rate
demand notes;

* commercial paper (including Canadian Commercial Paper ("CCP") and
Europaper);

* certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");

* short-term credit facilities, such as demand notes;

* asset-backed securities;

* obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities
("Government Securities");

* repurchase agreements; and

* other money market instruments.

The Fund invests only in instruments denominated and payable in U.S.
dollars.

VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
corporate debt instruments that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at its
stated principal amount plus accrued interest. Such securities typically
bear interest at a rate that is intended to cause the securities to trade at
par. The interest rate may float or be adjusted at regular intervals
(ranging from daily to annually), and is normally based on a published
interest rate or interest rate index. Most variable rate demand notes allow
the Fund to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Fund to tender the security
at the time of each interest rate adjustment or at other fixed intervals.
See "Demand Features." The Fund treats variable rate demand notes as
maturing on the later of the date of the next interest adjustment or the
date on which the Fund may next tender the security for repurchase.

BANK INSTRUMENTS. The Fund only invests in Bank Instruments either issued by
an institution having capital, surplus and undivided profits over $100
million or insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"). Bank Instruments may include Eurodollar
Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee
CDs") and Eurodollar Time Deposits ("ETDs"). The Fund will treat securities
credit enhanced by a bank as Bank Instruments.

SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing
arrangements between a corporation and an institutional lender (such as the
Fund) payable upon demand by either party. The notice period for demand
typically ranges from one to seven days, and the party may demand full or
partial payment. The Fund may also enter into, or acquire participations in,
short-term revolving credit facilities with corporate borrowers. Demand
notes and other short-term credit arrangements usually provide for floating
or variable rates of interest.

ASSET-BACKED SECURITIES. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans or
accounts receivable. The securities may take the form of beneficial interest
in a special purpose trust, limited partnership interests or commercial
paper or other debt securities issued by a special purpose corporation.
Although the securities often have some form of credit or liquidity
enhancement, payments on the securities depend predominately upon
collections of the loans and receivables held by the issuer.

CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be
credit enhanced by a guaranty, letter of credit or insurance. Any
bankruptcy, receivership, default or change in the credit quality of the
party providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the Fund
and affect its share price.

DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature may
be issued by the issuer of the underlying securities, a dealer in the
securities or by another third party, and may not be transferred separately
from the underlying security. The Fund uses these arrangements to provide
the Fund with liquidity and not to protect against changes in the market
value of the underlying securities. The bankruptcy, receivership or default
by the issuer of the demand feature, or a default on the underlying security
or other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying security
may be treated as a form of credit enhancement.

CONCENTRATION OF INVESTMENTS. The Fund may invest 25% or more of its total
assets in commercial paper issued by finance companies. The finance
companies in which the Fund intends to invest can be divided into two
categories, commercial finance companies and consumer finance companies.
Commercial finance companies are principally engaged in lending to
corporations or other businesses. Consumer finance companies are primarily
engaged in lending to individuals. Captive finance companies or finance
subsidiaries which exist to facilitate the marketing and financial
activities of their parent will, for purposes of industry concentration, be
classified by the Fund in the industry of its parent corporation.

In addition, the Fund may invest more than 25% of the value of its total
assets in cash or cash items, securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or instruments secured by
these money market instruments, such as repurchase agreements.

INVESTMENT RISKS

ECDs, ETDs, Yankee CDs, CCP, and Europaper are subject to somewhat different
risks than domestic obligations of domestic banks. Examples of these risks
include international, economic and political developments, foreign
governmental restrictions that may adversely affect the payment of principal
or interest, foreign withholding or other taxes on interest income,
difficulties in obtaining or enforcing a judgment against the issuing bank,
and the possible impact of interruptions in the flow of international
currency transactions. Different risks may also exist for ECDs, ETDs, and
Yankee CDs because the banks issuing these instruments, or their domestic or
foreign branches, are not necessarily subject to the same regulatory
requirements that apply to domestic banks, such as reserve requirements,
loan limitations, examinations, accounting, auditing, and recordkeeping, and
the public availability of information. These factors will be carefully
considered by the Fund's adviser in selecting investments for the Fund.

INVESTMENT LIMITATIONS

The Fund will not:

The above investment limitation cannot be changed without shareholder
approval.

In addition, the Fund may purchase the investments and engage in the
investment techniques described below under "Investment Policies and
Practices."

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide current income. The
investment objective cannot be changed without approval of shareholders.
While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the investment policies
described in this prospectus.

INVESTMENT POLICIES

Under normal circumstances, the Fund pursues its investment objective by
investing at least 65% of the value of its total assets in securities issued
or guaranteed as to payment of principal and interest by the U.S.
government, its agencies or instrumentalities. For purposes of this 65%
statement, the Fund will consider collateralized mortgage obligations issued
by U.S. government agencies or instrumentalities to be U.S. government
securities. Unless indicated otherwise, the investment policies of the Fund
may be changed by the Trustees without the approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.

ACCEPTABLE INVESTMENTS. The Fund invests in securities which are primary or
direct obligations of the U.S. government or its agencies or
instrumentalities, or which are guaranteed by the U.S. government, its
agencies or instrumentalities, and in certain collateralized mortgage
obligations ("CMOs"), described below, and repurchase agreements. The prices
of fixed income securities fluctuate inversely to the direction of interest
rates.

The U.S. government securities in which the Fund invests include:

* direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds;

* notes, bonds and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of the
United States;

* notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and

* notes, bonds and discount notes of other U.S. government instrumentalities
supported only by the credit of the instrumentalities.

Some obligations issued or guaranteed by agencies or instrumentalities of
the U.S. government are backed by the full faith and credit of the U.S.
Treasury. No assurances can be given that the U.S. government will provide
financial support to other agencies or instrumentalities, since it is not
obligated to do so. These instrumentalities are supported by:

* the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;

* the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or

* the credit of the agency or instrumentality.

The Fund may also invest in CMOs which are rated AAA by an NRSRO and which
are issued by private entities such as investment banking firms and
companies related to the construction industry. The CMOs in which the Fund
may invest may be: (i) privately issued securities which are collateralized
by pools of mortgages in which each mortgage is guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S.
government; (ii) privately issued securities which are collateralized by
pools of mortgages in which payment of principal and interest are guaranteed
by the issuer and such guarantee is collateralized by U.S. government
securities; and (iii) other privately issued securities in which the
proceeds of the issuance are invested in mortgage-backed securities and
payment of the principal and interest are supported by the credit of an
agency or instrumentality of the U.S. government. The mortgage-related
securities provide for a periodic payment consisting of both interest and
principal. The interest portion of these payments will be distributed by the
Fund as income, and the capital portion will be reinvested.

Mortgage-backed securities may be subject to certain prepayment risks
because the underlying mortgage loans may be prepaid without penalty or
premium. Prepayment risks on mortgage-backed securities tend to increase
during periods of declining interest rates because many borrowers refinance
their mortgages to take advantage of favorable rates. At the time the Fund
reinvests the proceeds, it may receive a rate of interest which is actually
lower than the rate of interest paid on those securities.

INVESTMENT LIMITATIONS

The Fund will not:

The above investment limitations cannot be changed without shareholder
approval.

In addition, the Fund may purchase the investments and engage in the
investment techniques described below under "Investment Policies and
Practices."

FEDERATED HIGH INCOME BOND FUND II INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to seek high current income. The
investment objective cannot be changed without approval of shareholders.
While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the investment policies
described in this prospectus.

INVESTMENT POLICIES

Unless stated otherwise, the Trustees can change the investment policies
without the approval of shareholders. Shareholders will be notified before
any material change becomes effective. The Fund endeavors to achieve its
objective by investing primarily in a professionally managed, diversified
portfolio of fixed income securities. The fixed income securities in which
the Fund intends to invest are lower-rated corporate debt obligations, which
are commonly referred to as "junk bonds." Some of these fixed income
securities may involve equity features. Capital growth will be considered,
but only when consistent with the investment objective of high current
income.

ACCEPTABLE INVESTMENTS. The Fund invests at least 65% of its assets in
lower-rated fixed income bonds. Under normal circumstances, the Fund will
not invest more than 10% of the value of its total assets in equity
securities. The fixed income securities in which the Fund invests include,
but are not limited to:

* preferred stocks;

* bonds;

* debentures;

* notes;

* equipment lease certificates; and

* equipment trust certificates.

The securities in which the Fund may invest are generally rated BBB or lower
by S&P or Fitch or Baa or lower by Moody's, or are not rated but are
determined by the Fund's investment adviser to be of comparable quality.
Securities which are rated BBB or lower by S&P or Fitch or Baa or lower by
Moody's have speculative characteristics. Changes in economic conditions or
other circumstances are more likely to lead to weakened capacity to make
principal and interest payments than highly rated bonds. A description of
the rating categories is contained in the Appendix to this combined
prospectus. There is no lower limit with respect to rating categories for
securities in which the Fund may invest. See "Investment Risks" below.

FOREIGN SECURITIES. The Fund may invest in foreign securities, including
foreign securities not publicly traded in the United States, which may
include any of the types of securities described above (see "Acceptable
Investments"). Investments in foreign securities, particularly those of
non-governmental issuers, involve considerations which are not ordinarily
associated with investments in domestic issuers. These considerations
include the possibility of expropriation, the unavailability of financial
information or the difficulty of interpreting financial information prepared
under foreign accounting standards, less liquidity and more volatility in
foreign securities markets, the impact of political, social, or diplomatic
developments, and the difficulty of assessing economic trends in foreign
countries. It may also be more difficult to enforce contractual obligations
abroad than would be the case in the United States because of differences in
the legal systems. Transaction costs in foreign securities may be higher.
The adviser will consider these and other factors before investing in
foreign securities and will not make such investments unless, in its
opinion, such investments will meet the Fund's standards and objectives.

TEMPORARY INVESTMENTS. The Fund may invest temporarily in cash and
short-term obligations for defensive purposes during times of unusual market
conditions. Short-term obligations may include:

* certificates of deposit;

* commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's,
or F-1 or F-2 by Fitch and variable rate demand master notes;

* short-term notes;

* obligations issued or guaranteed as to principal and interest by the U.S.
government or any of its agencies or instrumentalities; and

* repurchase agreements.

INVESTMENT RISKS

The prices of fixed income securities fluctuate inversely to the direction
of interest rates.

The corporate debt obligations in which the Fund invests are usually not in
the three highest rating categories of the nationally recognized statistical
rating organizations (AAA, AA, or A for S&P or Fitch and Aaa, Aa or A for
Moody's), but are in the lower rating categories or are unrated but are of
comparable quality and are regarded as having predominately speculative
characteristics. Lower-rated or unrated bonds are commonly referred to as
"junk bonds." There is no minimal acceptable rating for a security to be
purchased or held in the Fund's portfolio, and the Fund may, from to time,
purchase or hold securities rated in the lowest rating category and may
include bonds in default. A description of the rating categories is
contained in the Appendix to this prospectus.

Lower-rated securities will usually offer higher yields than higher-rated
securities. However, there is more risk associated with these investments.
This is because of reduced creditworthiness and increased risk of default.
Lower-rated securities generally tend to reflect short-term corporate and
market developments to a greater extent than higher-rated securities which
react primarily to fluctuations in the general level of interest rates.
Short-term corporate and market developments affecting the prices or
liquidity of lower-rated securities could include adverse news affecting
major issuers, underwriters, or dealers in lower-rated securities. In
addition, since there are fewer investors in lower-rated securities, it may
be harder to sell the securities at an optimum time. As a result of these
factors, lower-rated securities tend to have more price volatility and carry
more risk to principal and income than higher-rated securities.

An economic downturn may adversely affect the value of some lower-rated
bonds. Such a downturn may especially affect highly leveraged companies or
companies in cyclically sensitive industries, where deterioration in a
company's cash flow may impair its ability to meet its obligation to pay
principal and interest to bondholders in a timely fashion. From time to
time, as a result of changing conditions, issuers of lower-rated bonds may
seek or may be required to restructure the terms and conditions of the
securities they have issued. As a result of these restructurings, holders of
lower-rated securities may receive less principal and interest than they had
bargained for at the time such bonds were purchased.

In the event of a restructuring, the Fund may bear additional legal or
administrative expenses in order to maximize recovery from an issuer.

The secondary trading market for lower-rated bonds is generally less liquid
than the secondary trading market for higher-rated bonds. In 1989,
legislation was enacted that requires federally insured savings associations
to divest their holdings of lower-rated bonds by 1994. The reduction of the
number of institutions empowered to purchase and hold lower-rated bonds
could have an adverse impact on the overall liquidity of the market. Adverse
publicity and the perception of investors relating to issuers, underwriters,
dealers or underlying business conditions, whether or not warranted by
fundamental analysis, may also affect the price or liquidity of lower-rated
bonds. On occasion, therefore, it may become difficult to price or dispose
of a particular security in the portfolio.

The Fund may, from time to time, own zero coupon bonds or pay-in-kind
securities. A zero coupon bond makes no periodic interest payments and the
entire obligation becomes due only upon maturity. Pay-in-kind securities
make periodic payments in the form of additional securities (as opposed to
cash). The price of zero coupon bonds and pay-in-kind securities are
generally more sensitive to fluctuations in interest rates than are
conventional bonds. Additionally, federal tax law requires that interest on
zero coupon bonds and pay-in-kind securities be reported as income to the
Fund even though the Fund received no cash interest until the maturity or
payment date of such securities.

Many corporate debt obligations, including many lower-rated bonds, permit
the issuers to call the security and thereby redeem their obligations
earlier than the stated maturity dates. Issuers are more likely to call
bonds during periods of declining interest rates. In these cases, if the
Fund owns a bond which is called, the Fund will receive its return of
principal earlier than expected and would likely be required to reinvest the
proceeds at lower interest rates, thus reducing income to the Fund.

AS A PERCENTAGE OF TOTAL
MARKET VALUE OF BOND
HOLDINGS AS OF
DECEMBER 31, 1996
CREDIT RATING RATED
BB & BBB 17.0%
B 73.0%
CCC 4.0%
D 0.1%
Not Rated 5.9%
Total 100.0%

REDUCING RISKS OF LOWER-RATED SECURITIES. The Fund's investment adviser
believes that the risks of investing in lower-rated securities can be
reduced. The professional portfolio management techniques used by the Fund
to attempt to reduce these risks include:

CREDIT RESEARCH. The Fund's investment adviser will perform its own credit
analysis in addition to using recognized rating agencies and other sources,
including discussions with the issuer's management, the judgment of other
investment analysts, and its own informed judgment. The adviser's credit
analysis will consider the issuer's financial soundness, its responsiveness
to changes in interest rates and business conditions, and its anticipated
cash flow, interest, or dividend coverage and earnings. In evaluating an
issuer, the adviser places special emphasis on the estimated current value
of the issuer's assets rather than historical cost.

DIVERSIFICATION. The Fund invests in securities of many different issuers,
industries, and economic sectors to reduce portfolio risk.

ECONOMIC ANALYSIS. The Fund's adviser will analyze current developments and
trends in the economy and in the financial markets. When investing in
lower-rated securities, timing and selection are critical, and analysis of
the business cycle can be important.

INVESTMENT LIMITATIONS

The Fund will not:

The above investment limitations cannot be changed without shareholder
approval. However, the following investment limitation may be changed
without shareholder approval. Shareholders will be notified before any
material change in this limitation becomes effective.

The Fund will not:

* invest more than 15% of its net asset in illiquid securities.

In addition, the Fund may purchase the investments and engage in the
investment techniques described below under "Investment Policies and
Practices."

FEDERATED INTERNATIONAL EQUITY FUND II INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The Fund's investment objective is to obtain a total return on its assets.
The investment objective cannot be changed without the approval of the
Fund's shareholders. While there is no assurance that the Fund will achieve
its investment objective, it attempts to do so by following the investment
policies described in this prospectus.

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS. The Fund will attempt to achieve its objective by
investing at least 65% of its assets (and under normal market conditions
substantially all of its assets) in equity securities of issuers located in
at least three different countries outside of the United States. The Fund's
investment approach is based on the premise that investing in such non-U.S.
securities provides three potential benefits over investing solely in U.S.
securities: (1) the opportunity to invest in foreign issuers believed to
have superior growth potential; (2) the opportunity to invest in foreign
countries with economic policies or business cycles different from those of
the U.S.; and (3) the opportunity to reduce portfolio volatility to the
extent that securities markets inside and outside the U.S. do not move in
harmony. The Fund may purchase sponsored or unsponsored American Depositary
Receipts ("ADRs"), Global Depositary Receipts ("GDRs"), and European
Depositary Receipts ("EDRs"); corporate and government fixed income
securities of issuers outside of the U.S.; convertible securities; and
options and financial futures contracts. In addition, the Fund may enter
into forward commitments, repurchase agreements, foreign currency
transactions; and maintain reserves in foreign or U.S. money market
instruments.

Unless otherwise indicated, the investment policies may be changed by the
Trustees without shareholder approval. Shareholders will be notified before
any material change to these policies becomes effective.

DEPOSITARY RECEIPTS. The Fund may purchase sponsored or unsponsored ADRs,
GDRs, and EDRs (collectively, "Depositary Receipts"). ADRs are Depositary
Receipts typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs and
GDRs are typically issued by foreign banks or trust companies, although they
also may be issued by U.S. banks or trust companies, and evidence ownership
of underlying securities issued by either a foreign or a U.S. corporation.
Generally, Depositary Receipts in registered form are designed for use in
the U.S. securities market and Depositary Receipts in bearer form are
designed for use in securities markets outside the U.S. Depositary Receipts
may not necessarily be denominated in the same currency as the underlying
securities into which they may be converted. Ownership of unsponsored
Depositary Receipts may not entitle the Fund to financial or other reports
from the issuer of the underlying security, to which it would be entitled as
the owner of sponsored Depositary Receipts.

FIXED INCOME SECURITIES. At the date of this prospectus, the Fund has
committed its assets primarily to dividend-paying equity securities of
established companies that appear to have growth potential. However, as a
temporary defensive position, the Fund may shift its emphasis to fixed
income securities, warrants, or other obligations of foreign companies or
governments, if they appear to offer potential higher return. Fixed income
securities include preferred stock, bonds, notes, or other debt securities
which are investment grade or higher, as described below. The prices of
fixed income securities fluctuate inversely to the direction of interest
rates.

The debt securities in which the Fund will invest will possess a minimum
credit rating of BBB as assigned by S&P or Baa by Moody's, or, if unrated,
will be judged by the Fund's adviser to be of comparable quality. Because
the average quality of the Fund's portfolio investments should remain
constantly between AAA and BBB, the Fund may avoid the adverse consequences
that may arise for some debt securities in difficult economic circumstances.
Downgraded securities will be evaluated on a case by case basis by the
adviser. The adviser will determine whether or not the security continues to
be an acceptable investment. If not, the security will be sold. A
description of the ratings categories is contained in the Appendix to the
Statement of Additional Information.

OPTIONS AND FINANCIAL FUTURES CONTRACTS. The Fund may purchase put and call
options, financial futures contracts, and options on financial futures
contracts. In addition, the Fund may write (sell) put and call options with
respect to securities in the Fund's portfolio.

FORWARD COMMITMENTS. Forward commitments are contracts to purchase
securities for a fixed price at a date beyond customary settlement time. The
Fund may enter into these contracts if liquid securities in amounts
sufficient to meet the purchase price are segregated on the Fund's records
at the trade date and maintained until the transaction has been settled.
Risk is involved if the value of the security declines before settlement.
Although the Fund enters into forward commitments with the intention of
acquiring the security, it may dispose of the commitment prior to settlement
and realize a short-term profit or loss.

MONEY MARKET INSTRUMENTS. The Fund may invest in foreign and U.S. money
market instruments, including interest-bearing call deposits with banks,
government obligations, certificates of deposit, banker's acceptances,
commercial paper, short-term corporate debt securities, and repurchase
agreements. The commercial paper in which the Fund invests will be rated A-1
by S&P or P-1 by Moody's. These investments may be used to temporarily
invest cash received from the sale of Fund shares, to establish and maintain
reserves for temporary defensive purposes, or to take advantage of market
opportunities. Investments in the World Bank, Asian Development Bank, or
Inter-American Development Bank are not anticipated.

FOREIGN CURRENCY TRANSACTIONS. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or
cash basis at prevailing rates or through forward foreign currency exchange
contracts.

The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or
exchange control regulations. Such changes could unfavorably affect the
value of Fund assets which are denominated in foreign currencies, such as
foreign securities or funds deposited in foreign banks, as measured in U.S.
dollars. Although foreign currency exchanges may be used by the Fund to
protect against a decline in the value of one or more currencies, such
efforts may also limit any potential gain that might result from a relative
increase in the value of such currencies and might, in certain cases, result
in losses to the Fund. Further, the Fund may be affected either unfavorably
or favorably by fluctuations in the relative rates of exchange between the
currencies of different nations. Cross-hedging transactions by the Fund
involve the risk of imperfect correlation between changes in the values of
the currencies to which such transactions relate and changes in the value of
the currency or other asset or liability that is the subject of the hedge.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN
CURRENCIES. A forward foreign currency exchange contract ("forward
contract") is an obligation to purchase or sell an amount of a particular
currency at a specific price and on a future date agreed upon by the
parties.

Generally, no commission charges or deposits are involved. At the time the
Fund enters into a forward contract, Fund assets with a value equal to the
Fund's obligation under the forward contract are segregated on the Fund's
records and are maintained until the contract has been settled. The Fund
will not enter into a forward contract with a term of more than one year.
The Fund will generally enter into a forward contract to provide the proper
currency to settle a securities transaction at the time the transaction
occurs ("trade date"). The period between the trade date and settlement date
will vary between 24 hours and 30 days, depending upon local custom.

The Fund may also protect against the decline of a particular foreign
currency by entering into a forward contract to sell an amount of that
currency approximating the value of all or a portion of the Fund's assets
denominated in that currency ("hedging"). The success of this type of
short-term hedging strategy is highly uncertain due to the difficulties of
predicting short-term currency market movements and of precisely matching
forward contract amounts and the constantly changing value of the securities
involved. Although the adviser will consider the likelihood of changes in
currency values when making investment decisions, the adviser believes that
it is important to be able to enter into forward contracts when it believes
the interests of the Fund will be served. The Fund will not enter into
forward contracts for hedging purposes in a particular currency in an amount
in excess of the Fund's assets denominated in that currency. No more than
30% of the Fund's assets will be committed to forward contracts for hedging
purposes at any time. (This restriction does not include forward contracts
entered into to settle securities transactions.)

The Fund may purchase and write put and call options on foreign currencies
for the purpose of protecting against declines in the U.S. dollar value of
foreign currency-denominated portfolio securities and against increases in
the U.S. dollar cost of such securities to be acquired. As in the case of
other kinds of options, however, the writing of an option on a foreign
currency constitutes only a partial hedge, up to the amount of the premium
received, and the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an effective
hedge against fluctuations in exchange rates although, in the event of rate
movements adverse to the Fund's position, it may forfeit the entire amount
of the premium plus related transaction costs. Options on foreign currencies
to be written or purchased by the Fund are traded on U.S. and foreign
exchanges or over-the-counter.

RISKS ASSOCIATED WITH FINANCIAL FUTURES CONTRACTS AND OPTIONS ON FINANCIAL
FUTURES CONTRACTS. When the Fund uses futures and options on futures as
hedging devices, there is a risk that the prices of the securities subject
to the futures contracts may not correlate with the prices of the securities
in the Fund's portfolio. This may cause the futures contract and any related
options to react differently than the portfolio securities to market
changes. In addition, the Fund's adviser could be incorrect in its
expectations about the direction or extent of market factors such as
interest or currency exchange rate movements. In these events, the Fund may
lose money on the futures contract or option. Also, it is not certain that a
secondary market for positions in futures contracts or for options will
exist at all times. Although the Fund's adviser will consider liquidity
before entering into such transactions, there is no assurance that a liquid
secondary market on an exchange or otherwise will exist for any particular
futures contract or option at any particular time. The Fund's ability to
establish and close out futures and options positions depends on this
secondary market.

RISKS ASSOCIATED WITH NON-U.S. SECURITIES. Investing in non-U.S. securities
carries substantial risks in addition to those associated with domestic
investments. In an attempt to reduce some of these risks, the Fund
diversifies its investments broadly among foreign countries, including both
developed and developing countries. At least three different countries will
always be represented.

The Fund occasionally takes advantage of the unusual opportunities for
higher returns available from investing in developing countries. These
investments, however, carry considerably more volatility and risk because
they are associated with less mature economies and less stable political
systems.

CURRENCY RISKS. Because the Fund may purchase securities denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates could affect the Fund's net asset value; the value of interest earned;
gains and losses realized on the sale of securities; and net investment
income and capital gain, if any, to be distributed to shareholders by the
Fund. If the value of a foreign currency rises against the U.S. dollar, the
value of the Fund assets denominated in that currency will increase;
correspondingly, if the value of a foreign currency declines against the
U.S. dollar, the value of Fund assets denominated in that currency will
decrease.

FOREIGN COMPANIES. Other differences between investing in non-U.S. and U.S.
securities include:

* less publicly available information about foreign companies;

* the lack of uniform financial accounting standards applicable to foreign
companies;

* less readily available market quotations on foreign companies;

* differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;

* differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;

* generally lower foreign stock market volume;

* the likelihood that foreign securities may be less liquid or more
volatile;

* foreign brokerage commissions may be higher;

* unreliable mail service between countries; and

* political or financial changes which adversely affect investments in some
countries.

U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as
the Fund. Investors are advised that when such policies are instituted, the
Fund will abide by them.

SHORT SALES. The Fund intends to sell securities short from time to time,
subject to certain restrictions. A short sale occurs when a borrowed
security is sold in anticipation of a decline in its price. If the decline
occurs, shares equal in number to those sold short can be purchased at the
lower price. If the price increases, the higher price must be paid. The
purchased shares are then returned to the original lender. Risk arises
because no loss limit can be placed on the transaction. When the Fund enters
into a short sale, assets equal to the market price of the securities sold
short or any lesser price at which the Fund can obtain such securities, are
segregated on the Fund's records and maintained until the Fund meets its
obligations under the short sale.

DEVELOPING/EMERGING MARKETS. The economics of individual emerging countries
may differ favorably from the U.S. economy in such respects as growth of
gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Further, the economics of developing countries generally are heavily
dependent on international trade and, accordingly, have been, and may
continue to be, adversely affected by trade barriers, exchange controls,
managed adjustments in relative currency values and other protectionist
measures imposed or negotiated by the countries with which they trade. These
economies also have been, and may continue to be, adversely affected by
economic conditions in the countries with which they trade.

Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging countries, and the extent of foreign
investment in certain debt securities and domestic companies may be subject
to limitation in other emerging countries. Foreign ownership limitations
also may be imposed by the charters of individual companies in emerging
countries to prevent, among other concerns, violation of foreign investment
limitations.

Repatriation of investment income, capital and the proceeds of sales by
foreign investors may require governmental registration and/or approval in
some emerging countries. The Fund could be adversely affected by delays in,
or a refusal to grant, any required governmental registration or approval
for such repatriation. Any investment subject to such repatriation controls
will be considered illiquid if it appears reasonably likely that this
process will take more than seven days.

With respect to any emerging country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries
or the value of the Fund's investments in those countries. In addition, it
may be difficult to obtain and enforce a judgment in a court outside of the
U.S.

INVESTMENT LIMITATIONS
The Fund will not:

* with respect to 75% of the value of its total assets, invest more than 5%
of the value of its total assets in the securities (other than securities
issued or guaranteed by the government of the U.S. or its agencies or
instrumentalities) of any one issuer, or acquire more than 10% of the
outstanding voting securities of any one issuer;

* sell securities short except under strict limitations;

* borrow money or pledge securities except, under certain circumstances, the
Fund may borrow up to one-third of the value of its total assets and pledge
its assets to secure such borrowings; or

* permit margin deposits for financial futures contracts held by the Fund,
plus premiums paid by it for open options on financial futures contracts, to
exceed 5% of the fair market value of the Fund's total assets, after taking
into account the unrealized profits and losses on the contracts.

The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.

The Fund will not:

* invest more than 15% of the value of its net assets in illiquid
securities, including securities not determined by the Trustees to be
liquid, repurchase agreements with maturities longer than seven days after
notice, and certain over-the-counter options.

In addition, the Fund may purchase the investments and engage in the
investment techniques described below under "Investment Policies and
Practices."

PORTFOLIO TURNOVER. Although the Fund does not intend to invest for the
purpose of seeking short-term profits, securities in its portfolio will be
sold whenever the Fund's investment adviser believes it is appropriate to do
so in light of the Fund's investment objective, without regard to the length
of time a particular security may have been held. It is not anticipated that
the portfolio trading engaged in by the Fund will result in its annual rate
of portfolio turnover exceeding 200%. A portfolio turnover rate of 100%
would occur, for example, if all the securities in the Fund's portfolio were
replaced once in a period of one year. The Fund's rate of portfolio turnover
may exceed that of certain other mutual funds with the same investment
objective. A higher rate of portfolio turnover involves correspondingly
greater brokerage commissions and other expenses which must be borne
directly by the Fund and, thus, indirectly by its shareholders. In addition,
a high rate of portfolio turnover may result in the realization of larger
amounts of capital gains which, when distributed to the Fund's shareholders,
are taxable to them. Nevertheless, transactions for the Fund's portfolio
will be based only upon investment considerations and will not be limited by
any other considerations when the Fund's investment adviser deems it
appropriate to make changes in the Fund's portfolio.

FEDERATED EQUITY INCOME FUND II INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide above average income and
capital appreciation. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.

INVESTMENT POLICIES

The investment policies described below may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.

ACCEPTABLE INVESTMENTS. The Fund attempts to achieve its objectives by
investing at least 65% of its assets in income-producing equity securities.
Equity securities include common stocks, preferred stocks, and securities
(including debt securities) that are convertible into common stocks. The
portion of the Fund's total assets invested in common stocks, preferred
stocks, and convertible securities will vary according to the Fund's
assessment of market and economic conditions and outlook.

The Fund's stock selection emphasizes those common stocks in each sector
that have good value, attractive yield, and dividend growth potential. The
Fund will utilize convertible securities because such securities typically
offer high yields and good potential for capital appreciation.

ZERO COUPON CONVERTIBLE SECURITIES. Zero coupon convertible securities are
debt securities which are issued at a discount to their face amount and do
not entitle the holder to any periodic payments of interest prior to
maturity. Rather, interest earned on zero coupon convertible securities
accretes at a stated yield until the security reaches its face amount at
maturity. Zero coupon convertible securities are convertible into a specific
number of shares of the issuer's common stock. In addition, zero coupon
convertible securities usually have put features that provide the holder
with the opportunity to sell the bonds back to the issuer at a stated price
before maturity. Generally, the prices of zero coupon convertible securities
may be more sensitive to market interest rate fluctuations than conventional
convertible securities.

Federal income tax law requires the holder of a zero coupon convertible
security to recognize income from the security prior to the receipt of cash
payments. To maintain its qualification as a regulated investment company
and avoid liability of federal income taxes, the Fund will be required to
distribute income accrued from zero coupon convertible securities which it
owns, and may have to sell portfolio securities (perhaps at disadvantageous
times) in order to generate cash to satisfy these distribution requirements.

TEMPORARY INVESTMENTS. The Fund may also invest temporarily, in amounts of
35% or less of the Fund's assets, in cash and cash items during times of
unusual market conditions to maintain liquidity. Cash items may include the
following short-term obligations:

* commercial paper and Europaper (dollar denominated commercial paper issued
outside the United States);

* instruments of domestic and foreign banks and savings associations (such
as certificates of deposit, demand and time deposits, savings shares, and
bankers' acceptances); or

* obligations of the U.S. government or its agencies or instrumentalities;
repurchase agreements; and other short-term instruments.

PUT AND CALL OPTIONS. The Fund may purchase put options on its portfolio
securities. These options will be used as a hedge to attempt to protect
securities which the Fund holds against decreases in value. The Fund may
also write call options on all or any portion of its portfolio to generate
income for the Fund. The Fund will write call options on securities either
held in its portfolio or for which it has the right to obtain without
payment of further consideration or for which it has segregated cash in the
amount of any additional consideration.
The Fund may generally purchase and write over-the-counter options on
portfolio securities in negotiated transactions with the buyers or writers
of the options since options on the portfolio securities held by the Fund
are not traded on an exchange. The Fund purchases and writes options only
with investment dealers and other financial institutions (such as commercial
banks or savings associations) deemed creditworthy by the adviser.

Over-the-counter options are two party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options
are third party contracts with standardized strike prices and expiration
dates and are purchased from a clearing corporation. Exchange-traded options
have a continuous liquid market while over-the-counter options may not. The
Fund will not buy call options or write put options without further
notification to shareholders.

FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures contracts to hedge all or a portion of its portfolio
against changes in interest rates. Financial futures contracts call for the
delivery of particular debt instruments at a certain time in the future. The
seller of the contract agrees to make delivery of the type of instrument
called for in the contract and the buyer agrees to take delivery of the
instrument at the specified future time.

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. When the
Fund purchases futures contracts, an amount of cash and U.S. Treasury
securities, equal to the underlying commodity value of the futures contracts
(less any related margin deposits), will be deposited in a segregated
account with the Fund's custodian (or the broker, if legally permitted) to
collateralize the position and thereby insure that the use of such futures
contract is unleveraged.

RISKS. When the Fund uses financial futures and options on financial futures
as hedging devices, much depends on the ability of the portfolio manager to
predict market conditions based upon certain economic analysis and factors.
There is a risk that the prices of the securities subject to the futures
contracts may not correlate perfectly with the prices of the securities in
the Fund's portfolio. This may cause the futures contract and any related
options to react differently than the portfolio securities to market
changes. In addition, the portfolio manager could be incorrect in its
expectations about the direction or extent of market factors such as
interest rate movements. In these events, the Fund may lose money on the
futures contract or option.

It is not certain that a secondary market for positions in futures contracts
or for options will exist at all times. Although the portfolio manager will
consider liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will
exist for any particular futures contract or option at any particular time.
The Fund's ability to establish and close out futures and options positions
depends on this secondary market.

FOREIGN SECURITIES. The Fund reserves the right to invest in foreign
securities which are traded publicly in the United States. Investments in
foreign securities, particularly those of non-governmental issuers, involve
considerations which are not ordinarily associated with investments in
domestic issuers. These considerations include the possibility of
expropriation, the unavailability of financial information or the difficulty
of interpreting financial information prepared under foreign accounting
standards, less liquidity and more volatility in foreign securities markets,
the impact of political, social, or diplomatic developments, and the
difficulty of assessing economic trends in foreign countries. It may also be
more difficult to enforce contractual obligations abroad than would be the
case in the United States because of differences in the legal systems.
Transaction costs in foreign securities may be higher. The adviser will
consider these and other factors before investing in foreign securities and
will not make such investments unless, in its opinion, such investments will
meet the Fund's standards and objectives. The Fund will only purchase
securities issued in U.S. dollar denominations.

HIGH-YIELD CORPORATE DEBT OBLIGATIONS. The Fund may invest up to 35% of the
value of its total assets in corporate debt obligations that are not
investment grade bonds or are not rated but are determined by the adviser to
be of comparable quality. Securities which are rated BBB or lower by
Standard & Poor's or Baa or lower by Moody's either have speculative
characteristics or are speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligations, however
rated or unrated bonds are commonly referred to as "junk bonds." A
description of the rating categories is contained in the Appendix to this
prospectus. There is no lower limit with respect to rating categories for
securities in which the Fund may invest.

Corporate debt obligations that are not determined to be investment grade
are high-yield, high-risk bonds, typically subject to greater market
fluctuations and greater risk of loss of income and principal due to an
issuer's default. To a greater extent than investment grade bonds, lower
rated bonds tend to reflect short-term corporate, economic and market
developments, as well as investor perceptions of the issuer's credit
quality. In addition, lower rated bonds may be more difficult to dispose of
or to value than high-rated, lower-yielding bonds. The Fund does not intend
to invest more than 5% of its assets in corporate debt obligations that are
not investment-grade bonds (excluding securities convertible into equity
securities) during the current fiscal year.

The adviser attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer as
well as by monitoring broad economic trends and corporate and legislative
developments.

PORTFOLIO TURNOVER

Securities in the Fund's portfolio will be sold whenever the adviser
believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may
have been held. The adviser to the Fund does not anticipate that portfolio
turnover will result in adverse tax consequences. Any such trading will
increase the Fund's portfolio turnover rate and transaction costs.

INVESTMENT LIMITATIONS

The Fund will not:

* borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set date)
or pledge securities except that under certain circumstances the Fund may
borrow up to one-third of the value of its total assets and pledge up to 10%
of the value of its total assets to secure such borrowings;

* sell securities short except, under strict limitations, it may maintain
open short positions so long as not more than 10% of the value of its net
assets is held as collateral for those positions;

* invest more than 5% of the value of its total assets in securities of one
issuer (except cash and cash items, repurchase agreements, and U.S.
government obligations) or acquire more than 10% of any class of voting
securities of any issuer; or

* purchase portfolio instruments if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry.

The Fund will not:

* commit more than 5% of the value of its total assets to premiums on open
put option positions.

In addition, the Fund may purchase the investments and engage in the
investment techniques described below under "Investment Policies and
Practices."

HUB AND SPOKE" OPTION (FEDERATED EQUITY INCOME FUND II ONLY)

If the Trustees determine it to be in the best interest of the Federated
Equity Income Fund II and its shareholders, the Fund may in the future seek
to achieve its investment objective by investing all of its assets in
another investment company having the same investment objective and
substantially the same investment policies and restrictions as those
applicable to the Fund. It is expected that any such investment company
would be managed in substantially the same manner as the Fund.

The initial shareholder of the Fund (which is an affiliate of Federated
Securities Corp.) voted to vest authority to use this investment structure
in the sole discretion of the Trustees. No further approval of shareholders
is required. Shareholders will receive at least 30 days prior notice of any
such investment.

In making its determination, the Trustees will consider, among other things,
the benefits to shareholders and/or the opportunity to reduce costs and
achieve operational efficiencies. Although it is expected that the Trustees
will not approve an arrangement that is likely to result in higher costs, no
assurance is given that costs will remain the same or be materially reduced
if this investment structure is implemented.

INVESTMENT POLICIES AND PRACTICES

The following investment policies and practices, unless indicated otherwise,
may be changed without approval of shareholders.

CONVERTIBLE SECURITIES

Federated American Leaders Fund II, Federated Growth Strategies Fund II,
Federated Utility Fund II, Federated International Equity Fund II and
Federated Equity Income Fund II may invest in convertible securities.
Convertible securities are fixed income securities which may be exchanged or
converted into a predetermined number of the issuer's underlying common
stock at the option of the holder during a specified time period.
Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and
warrants or a combination of the features of several of these securities.
The Funds (with the exception of Federated International Equity Fund II)
invest in convertible bonds rated "B" or higher by S&P or Moody's at the
time of investment or, if unrated, of comparable quality. If a convertible
bond is rated below "B" according to the characteristics set forth hereafter
after a Fund has purchased it, the Fund is not required to drop the
convertible bond from the portfolio but will consider appropriate action.
With respect to Federated International Equity Fund II, the Fund will invest
in convertible securities that are rated, at the time of purchase,
investment grade by a nationally recognized statistical rating organization
or, if unrated, of comparable quality as determined by the investment
adviser. The investment characteristics of each convertible security vary
widely, which allows convertible securities to be employed for different
investment objectives.

Bonds rated "BBB" or lower by S&P or "Baa" or lower by Moody's have
speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to weakened capacity to make principal
and interest payments than higher rated bonds.

Convertible bonds and convertible preferred stocks are fixed income
securities that generally retain the investment characteristics of fixed
income securities until they have been converted but also react to movements
in the underlying equity securities. The holder is entitled to receive the
fixed income of a bond or the dividend preference of a preferred stock until
the holder elects to exercise the conversion privilege. Usable bonds are
corporate bonds that can be used in whole or in part, customarily at full
face value, in lieu of cash to purchase the issuer's common stock. When
owned as part of a unit along with warrants, which are options to buy the
common stock, they function as convertible bonds, except that the warrants
generally will expire before the bond's maturity. Convertible securities are
senior to equity securities and, therefore, have a claim to assets of the
corporation prior to the holders of common stock in the case of liquidation.
However, convertible securities are generally subordinated to similar
nonconvertible securities of the same company. The interest income and
dividends from convertible bonds and preferred stocks provide a stable
stream of income with generally higher yields than common stocks, but lower
than nonconvertible securities of similar quality. A Fund will exchange or
convert the convertible securities held in its portfolio into shares of the
underlying common stock in instances in which, in the investment adviser's
opinion, the investment characteristics of the underlying common shares will
assist the Fund in achieving its investment objective. Otherwise, a Fund
will hold or trade the convertible securities. In selecting convertible
securities for a Fund, the Fund's adviser evaluates the investment
characteristics of the convertible security as a fixed income instrument and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, the Fund's adviser considers numerous factors,
including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and practices.

In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed income
security) or its "conversion value" (i.e., its value upon conversion into
its underlying common stock). As a fixed income security, a convertible
security tends to increase in market value when interest rates decline and
tends to decrease in value when interest rates rise. However, the price of a
convertible security is also influenced by the market value of the
security's underlying common stock. The price of a convertible security
tends to increase as the market value of the underlying stock rises, whereas
it tends to decrease as the market value of the underlying stock declines.
While no security's investment is without some risk, investments in
convertible securities generally entail less risk than investments in the
common stock of the same issuer.

REPURCHASE AGREEMENTS

All of the Funds will engage in repurchase agreements. Repurchase agreements
are arrangements in which banks, broker/dealers, and other recognized
financial institutions sell U.S. government securities or other securities
to a Fund and agree at the time of sale to repurchase them at a mutually
agreed upon time and price. Such Fund or its custodian will take possession
of the securities subject to repurchase agreements and these securities will
be marked to market daily. To the extent that the original seller does not
repurchase the securities from a Fund, such Fund could receive less than the
repurchase price on any sale of such securities. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition of
such securities by the Fund might be delayed pending court action. The Funds
believe that, under the regular procedures normally in effect for custody of
a Fund's portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of a Fund and allow retention or
disposition of such securities. The Funds will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are found by each Fund's adviser to be creditworthy
pursuant to guidelines established by the Trustees.

RESTRICTED AND ILLIQUID SECURITIES

Each Fund may invest in restricted securities. This policy is not applicable
to commercial paper issued under Section 4(2) of the Securities Act of 1933.
Restricted securities are any securities in which these Funds may otherwise
invest pursuant to their respective investment objectives and policies but
which are subject to restriction on resale under federal securities law. To
the extent restricted securities are deemed to be illiquid, the Funds will
limit their purchase, including non-negotiable time deposits, repurchase
agreements providing for settlement in more than seven days after notice,
over-the-counter options and certain restricted securities determined by the
Trustees not to be liquid, to 15% of the net assets of each Fund (10% with
respect to Federated Prime Money Fund II). Federated High Income Bond Fund
II will limit investments in illiquid securities, including certain
restricted securities not determined by the Trustees to be liquid and
repurchase agreements providing for settlement in more than seven days after
notice, to 15% of the value of its total assets.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Funds may purchase portfolio securities on a when-issued or delayed
delivery basis. These transactions are arrangements in which a Fund
purchases securities with payment and delivery scheduled for a future time.
The seller's failure to complete these transactions may cause a Fund to miss
a price or yield considered to be advantageous. Settlement dates may be a
month or more after entering into these transactions, and the market values
of the securities purchased may vary from the purchase prices.

The Funds may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Funds may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The funds may realize short-term profits
or losses upon the sale of such commitments.

LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, each Fund may lend its portfolio
securities on a short-term or long-term basis, or both, up to one-third of
the value of its total assets, to broker/dealers, banks, or other
institutional borrowers of securities. (Federated International Equity Fund
II is not subject to this one-third limitation.) This policy is a
fundamental policy of each Fund and may not be changed without shareholder
approval. The Funds will only enter into loan arrangements with
broker/dealers, banks, or other institutions which the adviser has
determined are creditworthy under guidelines established by the Trustees and
will receive collateral in the form of cash or U.S. government securities
equal to at least 100% of the value of the securities loaned at all times.

VARIABLE ASSET REGULATIONS

The Funds are 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 a Fund may be represented by any one
investment, no more than 70% of the total assets of a Fund may be
represented by any two investments, no more than 80% of the total assets of
a Fund may be represented by any three investments, and no more than 90% of
the total assets of a Fund may be represented by any four investments. In
applying these diversification rules, all securities of the same issuer, all
interests in 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 a 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.

The Funds will be operated at all times so as to comply with the foregoing
diversification requirements.

STATE INSURANCE REGULATIONS

The Funds are intended to be funding vehicles 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 applied to the Trust, each Fund may be limited
in its ability to engage in such investments and to manage its portfolio
with desired flexibility. The Trust intends that each 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 Funds.

NET ASSET VALUE

The net asset value per share of Federated American Leaders Fund II,
Federated Growth Strategies Fund II, Federated Utility Fund II, Federated
Fund for U.S. Government Securities II, Federated High Income Bond Fund II,
Federated International Equity Fund II, and Federated Equity Income Fund II
fluctuates. They are determined by dividing the sum of the market value of
all securities and other assets of the particular Fund, less liabilities, by
the number of shares outstanding.

Federated Prime Money Fund II attempts to stabilize the net asset value of
its shares at $1.00 by valuing the portfolio securities using the amortized
cost method. The net asset value per share of Federated Prime Money Fund II
is determined by subtracting total liabilities from total assets and
dividing by the number of shares outstanding. Federated Prime Money Fund II
cannot guarantee that its net asset value will always remain at $1.00 per
share.

INVESTING IN THE FUNDS

PURCHASES AND REDEMPTIONS
Shares of the Funds are not sold directly to the general public. With
respect to Federated High Income Bond Fund II, the Fund reserves the right
to reject any purchase request. The Funds' shares are used solely as the
investment vehicle for separate accounts of insurance companies offering
variable annuity contracts and variable life insurance policies. The use of
Fund shares as investments for both variable annuity contracts and variable
life insurance policies is referred to as "mixed funding." The use of Fund
shares as investments by separate accounts of unaffiliated life insurance
companies is referred to as "shared funding."

The Funds intend to engage in mixed funding and shared funding in the
future. Although the Funds do 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 would 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 Funds.

Shares of the Funds are purchased or redeemed on behalf of participating
insurance companies at the next computed net asset value after an order is
received on days on which the New York Stock Exchange is open.

WHAT SHARES COST

The net asset value of shares is determined as of the close of trading
(normally 4:00 p.m., Eastern time) on the New York Stock Exchange, Monday
through Friday, except on: (i) days on which there are not sufficient
changes in the value of a Fund's portfolio securities that its net asset
value might be materially affected; (ii) days on which no shares are
tendered for redemption and no orders to purchase shares are received; or
(iii) the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.

Purchase orders from separate accounts investing in the Funds which are
received by the insurance companies by 4:00 p.m. (Eastern time), will be
computed at the net asset value of the applicable Funds determined on that
day, as long as such purchase orders are received by the applicable Fund in
proper form and in accordance with applicable procedures by 8:00 a.m.
(Eastern time) on the next business day and as long as federal funds in the
amount of such orders are received by the respective Funds on the next
business day. It is the responsibility of each insurance company which
invests in the Funds to properly transmit purchase orders and federal funds
in accordance with the procedures described above.

DIVIDENDS

Dividends on shares of Federated Growth Strategies Fund II and Federated
International Equity Fund II are declared and paid annually. Dividends on
shares of Federated American Leaders Fund II are declared and paid
quarterly. Dividends on shares of Federated Prime Money Fund II are declared
daily and paid monthly. Dividends on shares of Federated Utility Fund II,
Federated Fund for U.S. Government Securities II, Federated High Income Bond
Fund II, and Federated Equity Income Fund II are declared and paid monthly.

Shares of Federated Prime Money Fund II begin earning dividends on the day
that the Fund receives federal funds. Shares of Federated American Leaders
Fund II, Federated Growth Strategies Fund II, Federated Utility Fund II,
Federated Fund for U.S. Government Securities II, Federated High Income Bond
II, Federated International Equity Fund II, and Federated Equity Income Fund
II will begin earning dividends if owned on the applicable record date.
Dividends of each Fund are automatically reinvested in additional shares of
such Fund on payment dates at the ex-dividend date net asset value.

FEDERATED INSURANCE SERIES INFORMATION

MANAGEMENT OF FEDERATED INSURANCE SERIES

BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising
all the Trust's powers except those reserved for the shareholders. An
Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.

INVESTMENT ADVISERS. Pursuant to an investment advisory contract with the
Trust, investment decisions for Federated American Leaders Fund II,
Federated Growth Strategies Fund II, Federated Utility Fund II, Federated
Prime Money Fund II, Federated Fund for U.S. Government Securities II,
Federated High Income Bond Fund II and Federated Equity Income Fund II are
made by Federated Advisers, the Funds' investment adviser, subject to
direction by the Trustees. Pursuant to an investment advisory contract with
the Trust, investment decisions for Federated International Equity Fund II
are made by Federated Global Research Corp., the Fund's investment adviser,
subject to direction by the Trustees. The advisers continually conduct
investment research and supervision for the Funds and are responsible for
the purchase or sale of portfolio instruments, for which they receive an
annual fee from each Fund.

Both the Funds and the advisers have adopted strict codes of ethics
governing the conduct of all employees who manage the Funds and their
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Funds' shareholders and must place the interests of
shareholders ahead of the employees' own interest. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Funds; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the codes
are subject to review by the Trustees, and could result in severe penalties.

ADVISORY FEES. The Funds' advisers receive an annual investment advisory fee
equal to 1% of the average daily net assets for Federated International
Equity Fund II, 0.75% of the average daily net assets for Federated American
Leaders Fund II, Federated Growth Strategies Fund II, Federated Utility Fund
II, and Federated Equity Income Fund II, 0.60% of the average daily net
assets for Federated Fund for U.S. Government Securities II and Federated
High Income Bond Fund II, and 0.50% of the average daily net assets for
Federated Prime Money Fund II. The advisers may voluntarily choose to waive
a portion of their fees or reimburse a Fund for certain operating expenses.
The advisers can terminate this voluntary waiver and reimbursement of
expenses at any time at their sole discretion.

ADVISERS' BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, and Federated Global Research Corp.,
incorporated in Delaware on May 12, 1995, are registered investment advisers
under the Investment Advisers Act of 1940. They are subsidiaries of
Federated Investors. All of the Class A (voting) shares of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue,
Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and Mr.
Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors. Prior to September 1995, Federated Global Research
Corp. had not served as an investment adviser to mutual funds.
Federated Advisers, Federated Global Research Corp. and other subsidiaries
of Federated Investors serve as investment advisers to a number of
investment companies and private accounts. Certain other subsidiaries also
provide administrative services to a number of investment companies. With
over $110 billion invested across more than 300 funds under management
and/or administration by its subsidiaries, as of December 31, 1996,
Federated Investors is one of the largest mutual fund investment managers in
the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.

FUND MANAGERS

FEDERATED AMERICAN LEADERS FUND II. Scott B. Schermerhorn has been the
Fund's portfolio manager since July 1996. Mr. Schermerhorn joined Federated
Investors in 1996 as a Vice President of the Fund's investment adviser. From
1990 through 1996, Mr. Schermerhorn was a Senior Vice President and Senior
Investment Officer at J W Seligman & Co., Inc. Mr. Schermerhorn received his
M.B.A. in Finance and International Business from Seton Hall University.

Michael P. Donnelly has been the Fund's portfolio manager since April 1997.
Mr. Donnelly joined Federated in 1989 as an Investment Analyst
and has been a Vice President of the Fund's adviser since 1994. He served as
an Assistant Vice President of the Fund's adviser from 1992 to
1994. Mr. Donnelly is a Chartered Financial Analyst and received his M.B.A.
from the University of Virginia.

Peter R. Anderson has been the Fund's portfolio manager since the Fund's
inception. Mr. Anderson joined Federated Investors in 1972 as, and is
presently, a Senior Vice President of the Fund's investment adviser. Mr.
Anderson is a Chartered Financial Analyst and received his M.B.A in Finance
from the University of Wisconsin.

FEDERATED GROWTH STRATEGIES FUND II. James E. Grefenstette has been the
Fund's portfolio manager since the Fund's inception. Mr. Grefenstette joined
Federated Investors in 1992 and has been a Vice President of the Fund's
investment adviser since 1996. From 1994 until 1996, Mr. Grefenstette acted
as an Assistant Vice President of the Fund's investment adviser, and served
as an Investment Analyst of the investment advisor from 1992 to 1994. Mr.
Grefenstette was a credit analyst at Westinghouse Credit Corp. from 1990
until 1992. Mr. Grefenstette received his M.S. in Industrial Administration
from Carnegie Mellon University.

FEDERATED UTILITY FUND II AND FEDERATED EQUITY INCOME FUND II. Linda A.
Duessel has been Federated Utility Fund II's portfolio manager since April
1995. Ms. Duessel has been Federated Equity Income Fund II's portfolio
manager since February 1997. Ms. Duessel joined Federated Investors in 1991
and has been a Vice President of the Fund's investment adviser since 1995.
Ms. Duessel was an Assistant Vice President of the Fund's investment adviser
from 1991 until 1995. Ms. Duessel is a Chartered Financial Analyst and
received her M.S. in Industrial Administration from Carnegie Mellon
University.

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II. Kathleen M. Foody-Malus
has been the Fund's portfolio manager since the Fund's inception. Ms.
Foody-Malus joined Federated Investors in 1983 and has been a Vice President
of the Fund's investment adviser since 1993. Ms. Foody-Malus served as an
Assistant Vice President of the investment adviser from 1990 until 1992. Ms.
Foody-Malus received her M.B.A. in Accounting/Finance from the University of
Pittsburgh.

Todd A. Abraham has been the Fund's portfolio manager since April 1997. Mr.
Abraham joined Federated Investors in 1993 as an Investment Analyst and has
been an Assistant Vice President of the Fund's investment adviser since
1995. Mr. Abraham served as a Portfolio Analyst at Ryland Mortgage Co. from
1992 to 1993. Mr. Abraham received his M.B.A. in finance from Loyola
College.

FEDERATED HIGH INCOME BOND FUND II. Mark E. Durbiano has been the Fund's
portfolio manager since the Fund's inception. Mr. Durbiano joined Federated
Investors in 1982 and has been a Senior Vice President of the Fund's
investment adviser since January 1996. From 1988 through 1995, Mr. Durbiano
was a Vice President of the Fund's investment adviser. Mr. Durbiano is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Pittsburgh.

FEDERATED INTERNATIONAL EQUITY FUND II. Henry A. Frantzen has been the
Fund's portfolio manager since November 1995. Mr. Frantzen joined Federated
Investors in 1995 as an Executive Vice President of the Fund's investment
adviser. Mr. Frantzen served as Chief Investment Officer of international
equities at Brown Brothers Harriman & Co. from 1992 until 1995.

Drew J. Collins has been the Fund's portfolio manager since November 1995.
Mr. Collins joined Federated Investors in 1995 as a Senior Vice President of
the Fund's investment adviser. Mr. Collins served as Vice
President/Portfolio Manager of international equity portfolios at Arnhold
and Bleichroeder, Inc. from 1994 to 1995. He served as an Assistant Vice
President/Portfolio Manager for international equities at the College
Retirement Equities Fund from 1986 to 1994. Mr. Collins is a Chartered
Financial Analyst and received his M.B.A. in finance from the Wharton School
of The University of Pennsylvania.

Frank Semack has been the Fund's portfolio manager since November 1995. Mr.
Semack joined Federated Investors in 1995 as a Vice President of the Fund's
investment adviser. Mr. Semack served as an Investment Analyst at Omega
Advisers, Inc. from 1993 to 1994. He served as a Portfolio Manager/Associate
Director of Wardley Investment Services, Ltd. from 1980 to 1993. Mr. Semack
received his M.Sc. in economics from the London School of Economics.
Alexandre de Bethmann has been the Fund's portfolio manager since November
1995. Mr. de Bethmann joined Federated Investors in 1995 as a Vice President
of the Fund's investment adviser. Mr. de Bethmann served as Assistant Vice
President/Portfolio Manager for Japanese and Korean equities at the College
Retirement Equities Fund from 1994 to 1995. He served as an International
Equities Analyst and then as an Assistant Portfolio Manager at the College
Retirement Equities Fund between 1987 and 1994. Mr. de Bethmann received his
M.B.A. in Finance from Duke University.

DISTRIBUTION OF FUND SHARES

Federated Securities Corp. is the principal distributor for shares of the
Funds. Federated Securities Corp. is located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. It is a Pennsylvania corporation
organized on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is a subsidiary
of Federated Investors.

DISTRIBUTION PLAN (FEDERATED EQUITY INCOME FUND II ONLY). Under a
distribution plan adopted in accordance with Rule 12b-1 under the Investment
Company Act of 1940 (the "Plan"), the distributor may be paid a fee by the
Fund in an amount computed at an annual rate of up to 0.25% of the average
daily net asset value of the Fund. The distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds,
investment advisers, and broker/dealers to provide sales services or
distribution-related support services as agents for their clients or
customers. Financial institutions will receive fees based upon shares owned
by their clients or customers. The schedules of such fees will be determined
from time to time by the distributor. The Fund is not currently paying any
12b-1 fees under the Plan. Should the Fund begin to pay these fees,
shareholders will be notified.
The Plan is a compensation-type Plan. As such, the Fund makes no payments to
the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by
the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts
expended, or the distributor's overhead expenses. However, the distributor
may be able to recover such amounts or may earn a profit from future
payments made by the Fund under the Plan.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. Federated Securities Corp.,
from its own assets, may pay financial institutions supplemental fees for
the performance of substantial sales services, distribution-related support
services, or shareholder services. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Funds. Such assistance may be predicated upon the amount
of shares the financial institution sells or may sell, and/or upon the type
and nature of sales or marketing support furnished by the financial
institution. Any payments made by the distributor may be reimbursed by each
Fund's investment adviser or its affiliates.

ADMINISTRATION OF THE FUNDS

ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Funds. Federated Services Company provides these at an annual
rate which relates to the average aggregate daily net assets of all funds
advised by affiliates of Federated Investors as specified below:

MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.

BROKERAGE TRANSACTIONS

EXPENSES OF FEDERATED EQUITY INCOME FUND II

Holders of shares of Federated Equity Income Fund II pay their allocable
portion of Trust and Fund expenses.

The Trust expenses for which holders of shares of the Fund pay their
allocable portion include, but are not limited to the cost of: organizing
the Trust and continuing its existence; registering the Trust with federal
and state securities authorities; Trustees' fees; auditors' fees; meetings
of Trustees and shareholders and proxy solicitations therefor; legal fees of
the Trust; association membership dues; and such non-recurring and
extraordinary items as may arise from time to time.

The Fund expenses for which holders of shares of the Fund pay their
allocable portion include, but are not limited to: registering the portfolio
and shares of the portfolio; investment advisory services; taxes and
commissions; custodian fees; insurance premiums; auditors' fees; and such
non-recurring and extraordinary items as may arise from time to time.

SHAREHOLDER INFORMATION

VOTING RIGHTS

The insurance company separate accounts, as shareholders of each Fund, will
vote the Fund shares held in their separate accounts at meetings of
shareholders. Voting will be in accordance with instructions received from
contract owners of the separate accounts, as more fully outlined in the
prospectus of each such separate account. As of March 24, 1997, Aetna
Insurance Company of America, Hartford, Connecticut and Aetna Life Insurance
& Annuity Co., Hartford Connecticut, owned 41.32% and 41.79%, respectively,
of the voting securities of Federated American Leaders Fund II, and
therefore, may for certain purposes be deemed to control the Fund and be
able to affect the outcome of certain matters presented for a vote of
shareholders. As of March 24, 1997, Aetna Retirement Plan Services Central
Valuation Unit, Hartford, Connecticut, owned 100% of the voting securities
of Federated Growth Strategies Fund II, and therefore, may for certain
purposes be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders. As of March 24, 1997,
Life of Virginia, Richmond, Virginia and Aetna Retirement Services Central
Valuation Unit, Hartford, Connecticut, owned 34.19% and 48.62%,
respectively, of the voting securities of Federated Utility Fund II, and
therefore, may for certain purposes be deemed to control the Fund and be
able to affect the outcome of certain matters presented for a vote of
shareholders. As of March 24, 1997, United of Omaha Life Insurance Co.,
Omaha, Nebraska, owned 42.85% of the voting securities of Federated Prime
Money Fund II, and therefore, may for certain purposes be deemed to control
the Fund and be able to affect the outcome of certain matters presented for
a vote of shareholders. As of March 24, 1997, United of Omaha Life Insurance
Co., Omaha, Nebraska, and Aetna Retirement Services Central Valuation Unit,
Hartford, Connecticut owned 34.52% and 31.83%, respectively, of the voting
securities of Federated U.S. Government Securities Fund II, and therefore,
may for certain purposes be deemed to control the Fund and be able to affect
the outcome of certain matters presented for a vote of shareholders. As of
March 24, 1997, Aetna Retirement Plan Services Central Valuation Unit,
Hartford, Connecticut, owned 60.83% of the voting securities of Federated
High Income Bond Fund II, and therefore, may for certain purposes be deemed
to control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders. As of March 24, 1997, Aetna Retirement
Plan Services Central Valuation Unit, Hartford, Connecticut, owned 95.47% of
the voting securities of Federated International Equity Fund II, and
therefore, may for certain purposes be deemed to control the Fund and be
able to affect the outcome of certain matters presented for a vote of
shareholders. As of March 24, 1997, Aetna Retirement Plan Services Central
Valuation Unit, Hartford, Connecticut, owned 99.98% of the voting securities
of Federated Equity Income Fund II, and therefore, may for certain purposes
be deemed to control the Fund and be able to affect the outcome of certain
matters presented for a vote of shareholders. Aetna Insurance Company of
America, Aetna Life Insurance & Annuity Co., and Aetna Retirement Plan
Services Central Valuation Unit are owned by Aetna Inc. United of Omaha Life
Insurance Co. is owned by Mutual of Omaha Insurance Company. Life of
Virginia is owned by General Electric Capital Assurance Company.

Each share of each of the Funds gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All shares
of each Fund have equal voting rights, except that only shares of a
particular Fund are entitled to vote on matters affecting that Fund. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's operation and for the election of Trustees under
certain circumstances.

Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Trustees
upon the written request of shareholders owning at least 10% of the
outstanding shares of all series of the Trust.

TAX INFORMATION

FEDERAL TAXES

The Funds will pay no federal income tax because the Funds expect to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such
companies.

Each Fund will be treated as a single, separate entity for federal income
tax purposes so that income (including capital gains) and losses realized by
each of the Funds in the Trust will not be combined for tax purposes with
those realized by any other Fund.

Each Fund intends to comply with the variable asset diversification
regulations which are described earlier in this prospectus. If a Fund fails
to comply with these regulations, contracts invested in that Fund shall 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 each Fund to the separate accounts.

STATE AND LOCAL TAXES

Contract owners are urged to consult their own tax advisers regarding the
status of their contracts under state and local tax laws.

PERFORMANCE INFORMATION

From time to time Federated American Leaders Fund II, Federated Growth
Strategies Fund II, Federated Utility Fund II, Federated Fund for U.S.
Government Securities II, Federated High Income Bond Fund II, Federated
International Equity Fund II and Federated Equity Income Fund II advertise
total return and yield. From time to time Federated Prime Money Fund II
advertises its total return, yield and effective yield.

Total return represents the change, over a specific period of time, in the
value of an investment in a Fund after reinvesting all income and capital
gain distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.

The yields of Federated American Leaders Fund II, Federated Growth
Strategies Fund II, Federated Utility Fund II, Federated Fund for U.S.
Government Securities II, Federated High Income Bond Fund II, Federated
International Equity Fund II and Federated Equity Income Fund II are
calculated by dividing the net investment income per share (as defined by
the SEC) earned by the Fund over a thirty-day period by the maximum offering
price per share of the Fund on the last day of the period. This number is
then annualized using semi-annual compounding. The yield does not
necessarily reflect income actually earned by the Fund and, therefore, may
not correlate to the dividends or other distributions paid to shareholders.

The yield of Federated Prime Money Fund II represents the annualized rate of
income earned on an investment over a seven-day period. It is the annualized
dividends earned during the period on an investment shown as a percentage of
the investment. The effective yield is calculated similarly to the yield,
but when annualized, the income earned on an investment is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.

Performance information for each Fund will not reflect the charges and
expenses of a variable annuity or variable life insurance contract. Because
shares of each Fund can only be purchased by a separate account of an
insurance company offering such a contract, you should review the
performance figures of the contract in which you are invested, which
performance figures will accompany any advertisement of a Fund's
performance.

From time to time, advertisements for the Funds may refer to ratings,
rankings, and other information in certain financial publications and/or
compare a Fund's performance to certain indices.

APPENDIX

STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS

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.

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 B or B- rating.

C -- The rating C is reserved for income bonds on which no interest is being
paid.

D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.

MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS

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 INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS

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 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.

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 in imminent default in payment of interest or principal.

DDD, DD, AND D -- Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be valued on the
basis of their ultimate recovery value in liquidation or reorganization of
the obligor. DDD represents the highest potential for recovery on these
bonds, and D represents the lowest potential for recovery.

NR -- NR indicates that Fitch does not rate the specific issue. Plus + or
Minus -: Plus or minus signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the AAA category.

STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS

A-1 -- This highest category 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.

MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS

PRIME-1 -- Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
* Leading market positions in well established industries.

* High rates of return on funds employed.

* Conservative capitalization structure with moderated reliance on debt and
ample asset protection.

* Broad margins in earning coverage of fixed financial charges and high
internal cash generation.

* 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.

FITCH INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS

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 Insurance Series
Federated American Leaders Fund II Federated Investors Tower
Federated Growth Strategies Fund II Pittsburgh, Pennsylvania
15222-3779
Federated Utility Fund II
Federated Prime Money Fund II
Federated Fund for U.S.
Government Securities II
Federated High Income Bond Fund II
Federated International Equity Fund II

Federated Equity Income Fund II

Investment Advisers
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania
15222-3779
Federated Global Research Corp. 175 Water Street
New York, New York 10038-4965
Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts
02266-8600
Transfer Agent and Dividend Disbursing
Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts
02266-8600

Independent Auditors

Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania
15222-5401

FEDERATED INSURANCE SERIES

PROSPECTUS

An Open-End Management
Investment Company

* Federated American Leaders Fund II
* Federated Growth Strategies Fund II
* Federated Utility Fund II
* Federated Prime Money Fund II
* Federated High Income Bond Fund II
* Federated Fund for U.S. Government Securities II
* Federated International Equity Fund II
* Federated Equity Income Fund II

April 22, 1997

[Graphic]

Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the funds
and is a subsidiary of Federated Investors.

Cusip 313916306
Cusip 313916702
Cusip 313916108
Cusip 313916504
Cusip 313916603
Cusip 313916405
Cusip 313916207
Cusip 313916801
4011006A (4/97)

2382 banks or savings associations) deemed creditworthy by the Fund's adviser.

Over-the-counter option

FEDERATED INSURANCE SERIES
consisting of eight portfolios:
FEDERATED AMERICAN LEADERS FUND II
FEDERATED GROWTH STRATEGIES FUND II
FEDERATED UTILITY FUND II
FEDERATED PRIME MONEY FUND II
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
FEDERATED HIGH INCOME BOND FUND II
FEDERATED INTERNATIONAL EQUITY FUND II
FEDERATED EQUITY INCOME FUND II
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Federated Insurance Series dated April 22, 1997. This
Statement is not a prospectus itself. You may request a copy of a
prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated April 22, 1997

FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 313916702
Cusip 313916108
Cusip 313916504
Cusip 313916603
Cusip 313916405
Cusip 313916207
Cusip 313916801
Cusip 313916306
4011006B (4/97)

GENERAL INFORMATION 1

INVESTMENT INFORMATION 1

Investment Objectives 1
Types of Investments 2
INVESTMENT PRACTICES OF THE FUNDS 15

Repurchase Agreements 15
Reverse Repurchase Agreements 15
Credit Enhancement 15
Restricted and Illiquid Securities 15
When-Issued and Delayed Delivery Transactions 16
Lending of Portfolio Securities 16
Portfolio Turnover 16
INVESTMENT LIMITATIONS 17

Selling Short and Buying on Margin 17
Issuing Senior Securities and Borrowing Money 17
Pledging Assets 17
Concentration of Investments 18
Investing in Commodities 18
Investing in Real Estate 18
Lending Cash or Securities 19
Underwriting 19
Diversification of Investments 19
Acquiring Securities 19
Investing in Illiquid Securities 19
Dealing in Puts and Calls 20
Investing in Put Options 20

Writing Covered Call Options 20
Purchasing Securities to Exercise Control 20
Investing in Securities of Other Investment Companies 20
Arbitrage Transactions 20
Investing in Securities of Foreign Issuers 20
Regulatory Compliance 21
FEDERATED INSURANCE SERIES MANAGEMENT 21

Fund Ownership 25
Trustees' Compensation 26
Trustee Liability 26
INVESTMENT ADVISORY SERVICES 27

Advisers to the Funds 27
Advisory Fees 27
BROKERAGE TRANSACTIONS 27

OTHER SERVICES 28

Fund Administration 28
Custodian and Portfolio Accountant 28
Independent Auditors 29
PURCHASES AND REDEMPTIONS 29

DETERMINING NET ASSET VALUE 29

Determining Market Value of Securities 29
Trading in Foreign Securities 30
Use of the Amortized Cost Method 30
MASSACHUSETTS PARTNERSHIP LAW 31

TAX STATUS 32

The Funds' Tax Status 32
Shareholders' Tax Status 32
Foreign Taxes 32
TOTAL RETURN 32

YIELD 33

EFFECTIVE YIELD 33

PERFORMANCE COMPARISONS 34

Economic and Market Information 36
ABOUT FEDERATED INVESTORS 36

Mutual Fund Market 37
Institutional Clients 37
Bank Marketing 37
Broker/Dealers and Bank Broker/Dealer Subsidiaries37
FINANCIAL STATEMENTS 39

GENERAL INFORMATION

The Funds are portfolios of Federated Insurance Series (the `Trust''),
which was established as Insurance Management Series, a Massachusetts
business trust, under a Declaration of Trust dated September 15, 1993. At a
meeting of the Board of Trustees (the `Trustees'') held on November 14,
1995, the Trustees approved an amendment to the Declaration of Trust to
change the name of the Trust from Insurance Management Series to Federated
Insurance Series. At a meeting of the Trustees held on February 26, 1996,
the Trustees approved an amendment to the Declaration of Trust to change
the names of the Funds from Equity Growth and Income Fund to Federated
American Leaders Fund II; Growth Stock Fund to Federated Growth Strategies
Fund II, Utility Fund to Federated Utility Fund II; Prime Money Fund to
Federated Prime Money Fund II; U.S. Government Bond Fund to Federated Fund
for U.S. Government Securities II; Corporate Bond Fund to Federated High
Income Bond Fund II and International Stock Fund to Federated International
Equity Fund II. Federated Equity Income Fund II was added as a new
portfolio of the Trust on December 16, 1996. The Declaration of Trust
permits the Trust to offer separate series of shares of beneficial interest
in separate portfolios of securities, including the Funds. The shares in
any one portfolio may be offered in separate classes. As of the date of
this Statement, the Trustees have not established separate classes of
shares.
The Trust consists of eight portfolios (individually referred to as a
`Fund'' and collectively as the ``Funds''):
oFederated American Leaders Fund II;
oFederated Growth Strategies Fund II;
oFederated Utility Fund II;
oFederated Prime Money Fund II;

oFederated Fund for U.S. Government Securities II;
oFederated High Income Bond Fund II;
oFederated International Equity Fund II; and
oFederated Equity Income Fund II.
Shares of the Fund are sold only to insurance companies as funding vehicles
for variable annuity and variable life insurance contracts issued by the
insurance companies.
INVESTMENT INFORMATION

INVESTMENT OBJECTIVES
FEDERATED AMERICAN LEADERS FUND II
Federated American Leaders Fund II's primary investment objective is
to achieve long-term growth of capital. The Fund's secondary objective
is to provide income.
FEDERATED GROWTH STRATEGIES FUND II
Federated Growth Strategies Fund II's investment objective is capital
appreciation.
FEDERATED UTILITY FUND II
Federated Utility Fund II's investment objective is to achieve high
current income and moderate capital appreciation.
FEDERATED PRIME MONEY FUND II
Federated Prime Money Fund II's investment objective is to provide
current income consistent with stability of principal and liquidity.

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
Federated Fund for U.S. Government Securities II's investment
objective is to provide current income.

FEDERATED HIGH INCOME BOND FUND II
Federated High Income Bond Fund II's investment objective is to seek
high current income.
FEDERATED INTERNATIONAL EQUITY FUND II
Federated International Equity Fund II's investment objective is to
obtain a total return on its assets.
FEDERATED EQUITY INCOME FUND II
Federated Equity Income Fund II's investment objective is to provide
above average income and capital appreciation.
The investment objectives of the Funds cannot be changed without the
approval of shareholders.
TYPES OF INVESTMENTS
FEDERATED AMERICAN LEADERS FUND II
Federated American Leaders Fund II invests, under normal circumstances, at
least 65% of its total assets in common stock of `blue-chip'' companies,
as defined in the prospectus. The Fund may also invest in other securities
of these companies, U.S. government securities, and bank instruments. The
following supplements the discussion of acceptable investments in the
prospectus.
CONVERTIBLE SECURITIES
As with all fixed-income securities, various market forces influence
the market value of convertible securities, including changes in the
level of interest rates. As interest rates increase, the market value
of convertible securities may decline and, conversely, as interest
rates decline, the market value of convertible securities may
increase. The unique investment characteristics of convertible
securities, the right to be exchanged for the issuer's common stock,
causes the market value of convertible securities to increase when the

underlying common stock increases. However, since securities prices
fluctuate, there can be no assurance of capital appreciation, and most
convertible securities will not reflect quite as much capital
appreciation as their underlying common stocks. When the underlying
common stock is experiencing a decline, the value of the convertible
security tends to decline to a level approximating the yield-to-
maturity basis of straight nonconvertible debt of similar quality,
often called `investment value,'' and may not experience the same
decline as the underlying common stock.
Many convertible securities sell at a premium over their conversion
values (i.e., the number of shares of common stock to be received upon
conversion multiplied by the current market price of the stock). This
premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of
capital appreciation due to the conversion privilege. If this
appreciation potential is not realized, the premium may not be
recovered.
WARRANTS
Warrants are basically options to purchase common stock at a specific
price (usually at a premium above the market value of the optioned
common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to twenty years
or may be perpetual. However, most warrants have expiration dates
after which they are worthless. In addition, if the market price of
the common stock does not exceed the warrant's exercise price during
the life of the warrant, the warrant will expire as worthless.
Warrants have no voting rights, pay no dividends, and have no rights
with respect to the assets of the corporation issuing them. The

percentage increase or decrease in the market price of the warrant may
tend to be greater than the percentage increase or decrease in the
market price of the optioned common stock.

BANK INSTRUMENTS
The Fund only invests in bank instruments (as defined in the
prospectus) either issued by an institution having capital, surplus,
and undivided profits over $100 million or insured by the Bank
Insurance Fund (`BIF'') or the Savings Association Insurance Fund
(`SAIF''), both of which are administered by the Federal Deposit
Insurance Corporation. Bank instruments may include Eurodollar
Certificates of Deposit, Yankee Certificates of Deposit, and
Eurodollar Time Deposits. Institutions issuing Eurodollar instruments
are not necessarily subject to the same regulatory requirements that
apply to domestic banks, such as reserve requirements, loan
limitations, examinations, accounting, auditing, recordkeeping and the
public availability of information.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as
U.S. Treasury bills, notes, and bonds) and obligations issued and/or
guaranteed by the U.S. government, its agencies or instrumentalities.
These securities are backed by:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or

othe credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always
receive financial support from the U.S. government are:
o Farm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks and Banks for Cooperatives;
o Federal Home Loan Banks;
oFederal Home Loan Mortgage Corporation;
oFederal National Mortgage Association; and
oStudent Loan Marketing Association.
FEDERATED GROWTH STRATEGIES FUND II
Federated Growth Strategies Fund II pursues its investment objective by
investing primarily in equity securities of companies with prospects for
above-average growth in earnings and dividends or companies where
significant changes are taking place.
The Fund may invest in common stocks, preferred stocks, convertible
securities of foreign issuers, securities of other investment companies,
corporate obligations, including bonds, debentures, notes, and warrants and
the types of U.S. government obligations set forth above in the section
describing Federated American Leaders Fund II.
The Fund may also engage in repurchase agreements, lend portfolio
securities, purchase securities on a when-issued or delayed delivery basis
and invest in put and call options, futures and options on futures. The
following supplements the discussion of acceptable investments in the
prospectus.
CORPORATE DEBT SECURITIES
Corporate debt securities may bear fixed, fixed and contingent, or
variable rates of interest. They may involve equity features such as
conversion or exchange rights, warrants for the acquisition of common

Corporate debt securities that are lower-rated - i.e., rated below BBB
by Standard & Poor's Ratings Group (`S&P'') or Baa by Moody's
Investors Service, Inc. (`Moody's'') - are commonly referred to as
`junk bonds.'' While these lower-rated bonds will usually offer
higher yields than higher-rated securities, there is more risk
associated with these investments. These lower-rated bonds may be
more susceptible to real or perceived adverse economic conditions than
investment grade bonds. These lower-rated bonds are regarded as
predominately speculative with regard to each issuer's continuing
ability to make principal and interest payments. In addition, the
secondary trading market for lower-rated bonds may be less liquid than
for investment grade bonds. As a result of these factors, lower-rated
bonds tend to have more price volatility and carry more risk to
principal than higher-rated bonds. The investment adviser will
endeavor to limit these risks through diversifying the portfolio and
through careful credit analysis of individual issuers.
CONVERTIBLE SECURITIES
The description of convertible securities which appears under the sub-
section entitled `Convertible Securities'' under the section entitled
`Types of Investments - Federated American Leaders Fund II'' is also
applicable to the Fund.

WARRANTS
The description of warrants which appears under the sub-section
entitled `Warrants'' under the main section entitled ``Types of
Investments - Federated American Leaders Fund II''is also applicable
to the Fund.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of its
shares, the Fund may attempt to hedge all or a portion of its
portfolio by buying and selling futures contracts and options on
futures contracts, and buying put and call options on portfolio
securities and securities indices. The Fund may also write covered
put and call options on portfolio securities to attempt to increase
its current income or to hedge a portion of its portfolio investments.
The Fund will maintain its positions in securities, option rights, and
segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position on a futures
contract may be closed out over-the-counter or on a nationally
recognized exchange which provides a secondary market for options of
the same series. The Fund will not engage in futures transactions for
speculative purposes.
FUTURES CONTRACTS
The Fund may purchase and sell financial futures contracts to hedge
against the effects of changes in the value of portfolio securities
due to anticipated changes in interest rates and market conditions
without necessarily buying or selling the securities. Although some
financial futures contracts call for making or taking delivery of the
underlying securities, in most cases these obligations are closed out
before the settlement date. The closing of a contractual obligation

is accomplished by purchasing or selling an identical offsetting
futures contract. Other financial futures contracts by their terms
call for cash settlements.
The Fund also may purchase and sell stock index futures contracts with
respect to any stock index traded on a recognized stock exchange or
board of trade to hedge against changes in prices. Stock index
futures contracts are based on indices that reflect the market value
of common stock of the firms included in the indices. An index
futures contract is an agreement pursuant to which two parties agree
to take or make delivery of an amount of cash equal to the differences
between the value of the index at the close of the last trading day of
the contract and the price at which the index contract was originally
written. No physical delivery of the underlying securities in the
index is made. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference
between the contract price and the actual level of the stock index at
the expiration of the contract.
A futures contract is a firm commitment by two parties: the seller
who agrees to make delivery of the specific type of security called
for in the contract (`going short'') and the buyer who agrees to take
delivery of the security (`going long'') at a certain time in the
future. For example, in the fixed income securities market, prices
move inversely to interest rates. A rise in rates means a drop in
price. Conversely, a drop in rates means

a rise in price. In order to hedge its holdings of fixed income
securities against a rise in market interest rates, the Fund could
enter into contracts to deliver securities at a predetermined price

(i.e., `go short'') to protect itself against the possibility that
the prices of its fixed income securities may decline during the
Fund's anticipated holding period. The Fund would `go long'' (agree
to purchase securities in the future at a predetermined price) to
hedge against a decline in market interest rates.
``MARGIN ``IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of `initial margin'' in
cash or U.S. government securities or highly-liquid debt securities
with its custodian (or the broker, if legally permitted). The nature
of initial margin in futures transactions is different from that of
margin in securities transactions in that initial margin in futures
transactions does not involve a borrowing of the funds by the Fund to
finance the transactions. Initial margin is in the nature of a
performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract,
assuming all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
Fund pays or receives cash, called `variation margin'', equal to the
daily change in value of the futures contract. This process is known
as `marking to market.'' Variation margin does not represent a
borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the
Fund will mark to market its open futures positions. The Fund is also

required to deposit and maintain margin when it writes call options on
futures contracts.
To the extent required to comply with Commodity Futures Trading
Commission (`CFTC'') Regulation 4.5 and thereby avoid status as a
`commodity pool operator,'' the Fund will not enter into a futures
contract, or purchase an option thereon, if immediately thereafter the
initial margin deposits for futures contracts held by it, plus
premiums paid by it for open options on futures contracts, would
exceed 5% of the market value of the Fund's total assets, after taking
into account the unrealized profits and losses on those contracts it
has entered into; and, provided further, that in the case of an option
that is in-the-money at the time of purchase, the in-the-money amount
may be excluded in computing such 5%. Second, the Fund will not enter
into these contracts for speculative purposes; rather, these
transactions are entered into only for bona fide hedging purposes, or
other permissible purposes pursuant to regulations promulgated by the
CFTC. Third, since the Fund does not constitute a commodity pool, it
will not market itself as such, nor serve as a vehicle for trading in
the commodities futures or commodity options markets. Finally,
because the Fund will submit to the CFTC special calls for
information, the Fund will not register as a commodities pool
operator.
PUT OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS
The Fund may purchase listed put options on financial and stock index
futures contracts to protect portfolio securities against decreases in
value resulting from market factors, such as an anticipated increase
in interest rates or stock prices. Unlike entering directly into a
futures contract, which requires the purchaser to buy a financial

instrument on a set date at a specified price, the purchase of a put
option on a futures contracts entitles (but does not obligate) its
purchaser to decide on or before a future date whether to assume a
short position at the specified price.
Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also
decrease in value and the option will increase in value. In such an
event, the Fund will normally close out its option by selling an
identical option. If the hedge is successful, the proceeds received by
the Fund upon the sale of the second option will be large enough to
offset both the premium paid by the Fund for the original option plus
the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures
contract of the type underlying the option (for a price less than the
strike price of the option) and exercise the option. The Fund would
then deliver the futures contract in return for payment of the strike
price. If the Fund neither closes out nor exercises an option, the
option will expire on the date provided in the option contract, and
only the premium paid for the contract will be lost.

such that exercise of the option would be profitable to the option
holder, the option will generally expire without being exercised. It
will generally be the policy of the Fund, in order to avoid the
exercise of an option sold by it, to cancel its obligation under the
option by entering into a closing purchase transaction, if available,
unless it is determined to be in the Fund's interest to deliver the
underlying futures position. A closing purchase transaction consists
of the purchase by the Fund of an option having the same term as the
option sold by the Fund, and has the effect of canceling the Fund's
position as a seller. The premium which the Fund will pay in executing
a closing purchase transaction may be higher than the premium received
when the option was sold, depending in large part upon the relative
price of the underlying futures position at the time of each
transaction.
CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write
listed and over-the-counter call options on financial and stock index
futures contracts to hedge its portfolio. When the Fund writes a call
option on a futures contract, it is undertaking the obligation of
assuming a short futures position (selling a futures contract) at the
fixed strike price at any time during the life of the option if the
option is exercised. As stock prices fall or market interest rates
rise, causing the prices of futures to go down, the Fund's obligation
under a call option on a future (to sell a futures contract) costs
less to fulfill, causing the value of the Fund's call option position
to increase.
In other words, as the underlying futures price falls below the strike
price, the buyer of the option has no reason to exercise the call, so

that the Fund keeps the premium received for the option. This premium
can substantially offset the drop in value of the Fund's portfolio
securities.
When the Fund purchases a call on a financial futures contract, it
receives in exchange for the payment of a cash premium the right, but
not the obligation, to enter into the underlying futures contract at a
strike price determined at the time the call was purchased, regardless
of the comparative market value of such futures position at the time
the option is exercised. The holder of a call option has the right to
receive a long (or buyer's) position in the underlying futures
contract.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds
the current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the
futures contracts. If this limitation is exceeded at any time, the
Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES AND STOCK INDICES
The Fund may purchase put options on portfolio securities and stock
indices to protect against price movements in the Fund's portfolio
securities. A put option gives the Fund, in return for a premium, the
right to sell the underlying security to the writer (seller) at a
specified price during the term of the option.

WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES AND STOCK INDICES
The Fund may also write covered call options to generate income and
thereby protect against price movements in the Fund's portfolio
securities. As writer of a call option, the Fund has the obligation
upon exercise of the option during the option period to deliver the
underlying security upon payment of the exercise price or, in the case
of a securities index, a cash payment equal to the difference between
the closing price of the index and the exercise price of the option.
The Fund may only sell call options either on securities held in its
portfolio or on securities which it has the right to obtain without
payment of further consideration (or has segregated cash in the amount
of any additional consideration).

U.S. GOVERNMENT OBLIGATIONS
The description of U.S. government obligations which appears under the
sub-section entitled `U.S. Government Obligations'' under the section
entitled `Types of Investments - Federated American Leaders Fund II''
is also applicable to the Fund.
FEDERATED UTILITY FUND II
Federated Utility Fund II endeavors to achieve its investment objective by
investing primarily in a professionally managed and diversified portfolio
of equity and debt securities of utility companies. The Fund may also
invest in the types of U.S. government obligations which appear under the
sub-section entitled `U.S. Government Obligations'' under the section
entitled `Types of Investments - Federated American Leaders Fund II.''

FEDERATED PRIME MONEY FUND II
Federated Prime Money Fund II invests exclusively in money market
instruments which mature in 397 days or less and which include, but are not
limited to, high-quality commercial paper and variable rate master demand
notes, bank instruments, and U.S. government obligations.
BANK INSTRUMENTS
In addition to domestic bank obligations such as certificates of
deposit, demand and time deposits, savings shares, and bankers'
acceptances, the Fund may invest in:
o Eurodollar Certificates of Deposit issued by foreign branches of
U.S. or foreign banks;
o Eurodollar Time Deposits, which are U.S. dollar-denominated deposits
in foreign branches of U.S. or foreign banks;
o Canadian Time Deposits, which are U.S. dollar-denominated deposits
issued by branches of major Canadian banks located in the U.S.; and
o Yankee Certificates of Deposit, which are U.S. dollar-denominated
certificates of deposit issued by U.S. branches of foreign banks and
held in the U.S.
U.S. GOVERNMENT OBLIGATIONS
The description of U.S. government obligations which appears under the
sub-section entitled `U.S. Government Obligations'' under the section
entitled `Types of Investments - Federated American Leaders Fund II''
is also applicable to the Fund.
RATINGS
A nationally recognized statistical rating organization's (`NRSROs'')
two highest rating categories are determined without regard for sub-
categories and gradations. For example, securities rated A-1+, A-1 or
A-2 by S&P, Prime-1 or Prime-2 by Moody's, or F-1 (+ or -) or F-2 (+

or -) by Fitch are all considered rated in one of the two highest
short-term rating categories. The Fund will limit its investments in
securities rated in the second highest short-term rating category
(e.g., A-2 by S&P, Prime-2 by Moody's or F-2 (+ or -) by Fitch) to not
more than 5% of its total assets, with not more than 1% invested in
the securities of any one issuer. The Fund will follow applicable
regulations in determining whether a security rated by more than one
NRSRO can be treated as being in one of the two highest short-term
rating categories; currently, such securities must be rated by two
NRSROs in one of their two highest rating categories. See `Regulatory
Compliance.''
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
Federated Fund for U.S. Government Securities II invests in U.S. government
securities which are primary or direct obligations of the U.S. government
or its agencies or instrumentalities or which are guaranteed by the U.S.
government, its agencies or instrumentalities, and in certain
collateralized mortgage obligations described below, and repurchase
agreements.

participation in the secondary market by securities dealers and other
investors make government-related pools highly liquid.
STRIPPED MORTGAGE-RELATED SECURITIES
Some of the mortgage-related securities purchased by the Fund may
represent an interest solely in the principal repayments or solely in
the interest payments on mortgage-backed securities (stripped
mortgage-backed securities or `SMBSs''). Due to the possibility of
prepayments on the underlying mortgages, SMBSs may be more interest-
rate sensitive than other securities purchased by the Fund. If
prevailing interest rates fall below the level at which SMBSs were
issued, there may be substantial prepayment on the underlying
mortgages, leading to the relatively early prepayment of principal-
only SMBSs and a reduction in the amount of payment made to holders of
interest-only SMBSs. It is possible that the Fund might not recover
its original investment on interest-only SMBSs if there are
substantial prepayments on the underlying mortgages. Therefore,
interest-only SMBSs generally increase in value as interest rates rise
and decrease in value as interest rates fall, counter to changes in
value experienced by most fixed income securities. The Fund's adviser
intends to use this characteristic of interest-only SMBSs to reduce
the effects of interest rate changes on the value of the Fund's
portfolio, while continuing to pursue current income.
FEDERATED HIGH INCOME BOND FUND II
Federated High Income Bond Fund II endeavors to achieve its objective by
investing primarily in a professionally managed, diversified portfolio of
fixed income securities. Some of these fixed income securities may involve
equity features. Capital growth will be considered, but only when
consistent with the investment objective of high current income.

CORPORATE DEBT SECURITIES
Corporate debt securities may bear fixed, fixed and contingent, or
variable rates of interest. They may involve equity features such as
conversion or exchange rights, warrants for the acquisition of common
stock of the same or a different issuer, participations based on
revenues, sales or profits, or the purchase of common stock in a unit
transaction (where corporate debt securities and common stock are
offered as a unit).
Equipment lease or trust certificates are secured obligations issued
in serial form, usually sold by transportation companies such as
railroads or airlines, to finance equipment purchases. The certificate
holders own a share of the equipment, which can be resold if the
issuer of the certificate defaults. The Fund does not currently intend
to invest more than 5% of its assets in equipment lease certificates.
EQUITY SECURITIES
Generally, less than 10% of the value of the Fund's total assets will
be invested in equity securities, including common stocks, warrants,
or rights. The Fund's investment adviser may choose to exceed this 10%
limitation if unusual market conditions suggest such investments
represent a better opportunity to reach the Fund's investment
objective.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments for defensive
purposes during times of unusual market conditions.

CERTIFICATES OF DEPOSIT
The Fund may invest in certificates of deposit of domestic and foreign
banks and savings associations if they have capital, surplus, and
undivided profits of over $100,000,000, or if the principal amount of
the instrument is insured by the Bank Insurance Fund or the Savings
Association Insurance Fund, both of which are administered by the
Federal Deposit Insurance Corporation (`FDIC''). These instruments
may include Eurodollar Certificates of Deposit issued by foreign
branches of U.S. or foreign banks, Eurodollar Time Deposits which are
U.S. dollar-denominated deposits in foreign branches of U.S. or
foreign banks, Canadian Time Deposits which are U.S. dollar-
denominated deposits issued by branches of major Canadian banks
located in the United States, and Yankee Certificates of Deposit which
are U.S. dollar-denominated certificates of deposit issued by U.S.
branches of foreign banks and held in the United States.
CURRENCY RISK
To the extent that debt securities purchased by the Fund are
denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Fund's net asset
value, the value of interest earned, gains and losses realized on the
sale of securities, and net investment income and capital gains, if
any, to be distributed to shareholders by the Fund. If the value of a
foreign currency rises against the U.S. dollar, the value of the Fund
assets denominated in that currency will increase; correspondingly, if
the value of a foreign currency declines against the U.S. dollar, the
value of Fund assets denominated in that currency will decrease.

The exchange rates between the U.S. dollar and foreign currencies are
a function of such factors as supply and demand in the currency
exchange markets, international balances of payments, governmental
intervention, speculation and other economic and political conditions.
Although the Fund values its assets daily in U.S. dollars, the Fund
may not convert its holdings of foreign currencies to U.S. dollars
daily. When the Fund converts its holdings to another currency, it may
incur conversion costs. Foreign exchange dealers may realize a profit
on the difference between the price at which they buy and sell
currencies.
The Fund will engage in foreign currency exchange transactions in
connection with its investments in foreign securities. The Fund will
conduct its foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or through forward contracts to purchase or sell
foreign currencies.
INVESTING IN FOREIGN CURRENCIES
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts in
order to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and a
foreign currency involved in an underlying transaction. However,
forward foreign currency exchange contracts may limit potential gains
which could result from a positive change in such currency
relationships. The Fund's investment adviser believes that it is
important to have the flexibility to enter into forward foreign
currency exchange contracts whenever it determines that it is in the

Fund's best interest to do so. The Fund will not speculate in foreign
currency exchange.
There is no limitation as to the percentage of the Fund's assets that
may be committed to such contracts.
The Fund does not enter into forward foreign currency exchange
contracts or maintain a net exposure in such contracts when the Fund
would be obligated to deliver an amount of foreign currency in excess
of the value of the Fund's portfolio securities or other assets
denominated in that currency or, in the case of a `cross-hedge''
denominated in a currency or currencies that the Fund's adviser
believes will tend to be closely correlated with the currency with
regard to price movements. Generally, the Fund does not enter into a
forward foreign currency exchange contract with a term longer than one
year.
FOREIGN CURRENCY OPTIONS
A foreign currency option provides the option buyer with the right to
buy or sell a stated amount of foreign currency at the exercise price
on a specified date or during the option period. The owner of a call
option has the right, but not the obligation, to buy the currency.
Conversely, the owner of a put option has the right, but not the
obligation to sell the currency.

When the option is exercised, the seller (i.e., writer) of the option
is obligated to fulfill the terms of the sold option. However, either
the seller or the buyer may, in the secondary market, close its
position during the option period at any time prior to expiration.

A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on foreign
currency generally falls in value if the underlying currency
depreciates in value. Although purchasing a foreign currency option
can protect the Fund against an adverse movement in the value of a
foreign currency, the option will not limit the movement in the value
of such currency. For example, if the Fund were holding securities
denominated in a foreign currency that was appreciating and had
purchased a foreign currency put to hedge against a decline in the
value of the currency, the Fund would not have to exercise its put
option. Likewise, if the Fund were to enter into a contract to
purchase a security denominated in foreign currency and, in
conjunction with that purchase, were to purchase a foreign currency
call option to hedge against a rise in value of the currency, and if
the value of the currency instead depreciated between the date of
purchase and the settlement date, the Fund would not have to exercise
its call. Instead, the Fund could acquire in the spot market the
amount of foreign currency needed for settlement.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS
Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally.
In addition, there are certain additional risks associated with
foreign currency options. The markets in foreign currency options are
relatively new, and the Fund's ability to establish and close out
positions on such options is subject to the maintenance of a liquid
secondary market. Although the Fund will not purchase or write such
options unless and until, in the opinion of the Fund's adviser, the
market for them has developed sufficiently to ensure that the risks in

connection with such options are not greater than the risks in
connection with the underlying currency, there can be no assurance
that a liquid secondary market will exist for a particular option at
any specific time.
In addition, options on foreign currencies are affected by all of
those factors that influence foreign exchange rates and investments
generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the
price of the option position may vary with changes in the value of
either or both currencies and may have no relationship to the
investment merits of a foreign security. Because foreign currency
transactions occurring in the interbank market involve substantially
larger amounts than those that may be involved in the use of foreign
currency options, investors may be disadvantaged by having to deal in
an odd lot market (generally consisting of transactions of less than
$1 million) for the underlying foreign currencies at prices that are
less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely
basis.
Available quotation information is generally representative of very
large transactions in the interbank market and thus may not reflect
relatively smaller transactions (i.e. less than $1 million) where
rates may be less favorable. The interbank market in foreign
currencies is a global, around-the-clock market. To the extent that
the U.S. option markets are closed while the markets for the

underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets until they reopen.
FEDERATED INTERNATIONAL EQUITY FUND II
Federated International Equity Fund II invests in a diversified portfolio
of equity securities issued by non-U.S. issuers. Federated International
Equity Fund II will invest at least 65%, and under normal market
conditions, substantially all of its total assets, in equity securities of
issuers located in at least three different countries outside of the United
States. Federated International Equity Fund II may also purchase sponsored
or unsponsored American Depositary Receipts (`ADRs''), Global Depositary
Receipts (`GDRs'') and European Depositary Receipts (``EDRs''); purchase
investment grade corporate and government fixed income securities of
issuers outside the U.S.; enter into forward commitments, repurchase
agreements, and foreign currency transactions; and maintain reserves in
foreign or U.S. money market instruments.

FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of its
shares, the Fund may attempt to hedge all or a portion of its
portfolio by buying and selling futures contracts and options on
futures contracts, and buying put and call options on portfolio
securities and securities indices. The Fund may also write covered put
and call options on portfolio securities to attempt to increase its
current income or to hedge a portion of its portfolio investments. The
Fund will maintain its positions in securities, option rights, and
segregated cash subject to puts and calls until the options are

exercised, closed, or have expired. An option position on a futures
contract may be closed out over-the-counter or on a nationally
recognized exchange which provides a secondary market for options of
the same series. The Fund will not engage in futures transactions for
speculative purposes.
The following sub-sections which are described above under the main
section entitled `Types of Investments - Federated Growth Strategies
Fund II,''are also applicable to the Fund: Futures Contracts,
`Margin'' in Futures Transactions, Put Options on Financial and Stock
Index Futures Contracts, Call Options on Financial and Stock Index
Futures Contracts, Purchasing Put Options on Portfolio Securities and
Stock Indices, and Writing Covered Call Options on Portfolio
Securities and Stock Indices.
FOREIGN CURRENCY HEDGING TRANSACTIONS
In order to hedge against foreign currency exchange rate risks, the
Fund may enter into forward foreign currency exchange contracts and
foreign currency futures contracts, as well as purchase put or call
options on foreign currencies, as described below. The Fund may also
conduct its foreign currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency
exchange market.
The Fund may enter into forward foreign currency exchange contracts
(`forward contracts'') to attempt to minimize the risk to the Fund
from adverse changes in the relationship between the U.S. dollar and
foreign currencies. A forward contract is an obligation to purchase or
sell a specific currency for an agreed price at a future date which is
individually negotiated and privately traded by currency traders and
their customers. The Fund may enter into a forward contract, for

example, when it enters into a contract for the purchase or sale of a
security denominated in a foreign currency in order to `lock in'' the
U.S. dollar price of the security. In addition, for example, when the
Fund believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward contract to sell
an amount of that foreign currency approximating the value of some or
all of the Fund's portfolio securities denominated in such foreign
currency, or when the Fund believes that the U.S. dollar may suffer a
substantial decline against a foreign currency, it may enter into a
forward contract to buy that foreign currency for a fixed dollar
amount. This second investment practice is generally referred to as
`cross-hedging.'' Because in connection with the Fund's forward
foreign currency transactions an amount of the Fund's assets equal to
the amount of the purchase will be held aside or segregated to be used
to pay for the commitment, the Fund will always have cash, cash
equivalents or high quality debt securities available sufficient to
cover any commitments under these contracts or to limit any potential
risk. The segregated account will be marked to market on a daily
basis. While these contracts are not presently regulated by the CFTC,
the CFTC may in the future assert authority to regulate forward
contracts. In such event, the Fund's ability to utilize forward
contracts in the manner set forth above may be restricted. Forward
contracts may limit potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies.
Unanticipated changes in currency prices may result in poorer overall
performance for the Fund than if it had not engaged in such contracts.
The Fund may purchase and write put and call options on foreign
currencies for the purpose of protecting against declines in the

dollar value of foreign portfolio securities and against increases in
the dollar cost of foreign securities to be acquired. As is the case
with other kinds of options, however, the writing of an option on
foreign currency will constitute only a partial hedge, up to the
amount of the premium received, and the Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on foreign
currency may constitute an effective hedge against fluctuation in
exchange rates, although, in the event of rate movements adverse to
the Fund's position, the Fund may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies
to be written or purchased by the Fund will be traded on U.S. and
foreign exchanges or over-the-counter.

The Fund may enter into exchange-traded contracts for the purchase or
sale for future delivery of foreign currencies (`foreign currency
futures'). This investment technique will be used only to hedge
against anticipated future changes in exchange rates which otherwise
might adversely affect the value of the Fund's portfolio securities or
adversely affect the prices of securities that the Fund intends to
purchase at a later date. The successful use of foreign currency
futures will usually depend on the ability of the adviser to forecast
currency exchange rate movements correctly. Should exchange rates move
in an unexpected manner, the Fund may not achieve the anticipated
benefits of foreign currency futures or may realize losses.

WARRANTS
The description of warrants which appears under the sub-section
entitled `Warrants'' under the section entitled ``Types of
Investments - Federated American Leaders Fund II''is also applicable
to the Fund.
RISKS
When the Fund uses futures and options on futures as hedging devices,
there is a risk that the prices of the securities or foreign currency
subject to the futures contracts may not correlate perfectly with the
prices of the securities or currency in the Fund's portfolio. This may
cause the futures contract and any related options to react
differently to market changes than the portfolio securities or foreign
currency. In addition, the adviser could be incorrect in its
expectations about the direction or extent of market factors such as
stock price movements or foreign currency exchange rate fluctuations.
In these events, the Fund may lose money on the futures contract or
option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the adviser
will consider liquidity before entering into these transactions, there
is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at
any particular time. The Fund's ability to establish and close out
futures and options positions depends on this secondary market. The
inability to close out these positions could have an adverse effect on
the Fund's ability to effectively hedge its portfolio.
To minimize risks, 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 value of the Fund's
total assets after taking into account the unrealized profits and
losses on those contracts it has entered into; and, provided further,
that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in computing such
5%. When the Fund purchases futures contracts, an amount of cash and
cash equivalents, equal to the underlying commodity value of the
futures contracts (less any related margin deposits), will be
deposited in a segregated account with the Fund's custodian (or the
broker, if legally permitted) to collateralize the position and
thereby insure that the use of such futures contract is unleveraged.
When the Fund sells futures contracts, it will either own or have the
right to receive the underlying future or security, or will make
deposits to collateralize the position as discussed above.
FEDERATED EQUITY INCOME FUND II
Federated Equity Income Fund II invests at least 65% of its assets in
income-producing equity securities including common stocks, preferred
stocks and securities (including debt securities) that are convertible into
common stocks.
CONVERTIBLE SECURITIES
The description of convertible securities which appears under the sub-
section entitled `Convertible Securities'' under the section entitled
`Types of Investments - Federated American Leaders Fund II'' is also
applicable to the Fund.
TEMPORARY INVESTMENTS
The temporary investments in which the Fund may invest include, but
are not limited to:

o commercial paper rated A-1 or A-2 by Standard & Poor's Ratings
Group, Prime-1 or Prime-2 by Moody's Investors Service, Inc., or F-1
or F-2 by Fitch Investors Service, Inc., and Europaper rated A-1, A-2,
Prime-1, or Prime-2. In the case where commercial paper or Europaper
has received different ratings from different rating services, such
commercial paper or Europaper is an acceptable temporary investment so
long as at least one rating is one of the preceding high-quality
ratings and provided the Fund's investment adviser has determined that
such investment presents minimal credit risks;

oinstruments of domestic and foreign banks and savings associations if
they have capital, surplus, and undivided profits of over
$100,000,000, or if the principal amount of the instrument is insured
by the Federal Deposit Insurance Corporation. These instruments may
include Eurodollar Certificates of Deposits (`ECDs''), Yankee
Certificates of Deposit (`Yankee CDs''), and Eurodollar Time Deposits
(`ETDs'');
oobligations of the U.S. government or its agencies or
instrumentalities;
orepurchase agreements; and
oother short-term instruments which are not rated but are determined
by the adviser to be of comparable quality to the other temporary
obligations in which the Fund may invest.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, and Europaper are subject to different risks
than domestic obligations of domestic banks or corporations. Examples
of these risks include international economic and political

developments, foreign governmental restrictions that may adversely
affect the payment of principal or interest, foreign withholding or
other taxes on interest income, difficulties in obtaining or enforcing
a judgment against the issuing entity, and the possible impact of
interruptions in the flow of international currency transactions.
Different risks may also exist for ECDs, ETDs, and Yankee CDs because
the banks issuing these instruments, or their domestic or foreign
branches, are not necessarily subject to the same regulatory
requirements that apply to domestic banks, such as reserve
requirements, loan limitations, examinations, accounting, auditing,
recordkeeping, and the public availability of information. These
factors will be carefully considered by the adviser in selecting
investments for the Fund.
WARRANTS
The description of warrants which appears under the sub-section
entitled `Warrants'' under the main section entitled ``Types of
Investments - Federated American Leaders Fund II''is also applicable
to the Fund.
FUTURES AND OPTIONS TRANSACTIONS
The Fund may attempt to hedge all or a portion of its portfolio by
buying and selling financial futures contracts, buying put options on
portfolio securities and listed put options on futures contracts, and
writing call options on futures contracts. The Fund may also write
covered call options on portfolio securities to attempt to increase
its current income.
FINANCIAL FUTURES CONTRACTS
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in

the contract (`going short'') and the buyer who agrees to take
delivery of the security (`going long'') at a certain time in the
future.
In the fixed-income securities market, price moves inversely to
interest rates. A rise in rates means a drop in price. Conversely, a
drop in rates means a rise in price. In order to hedge its holdings of
fixed-income securities against a rise in market interest rates, the
Fund could enter into contracts to deliver securities at a
predetermined price (i.e., `go short'') to protect itself against the
possibility that the prices of its fixed-income securities may decline
during the Fund's anticipated holding period. The Fund would `go
long''(agree to purchase securities in the future at a predetermined
price) to hedge against a decline in market interest rates.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures
contracts. Unlike entering directly into a futures contract, which
requires the purchaser to buy a financial instrument on a set date at
a specified price, the purchase of a put option on a futures contract
entitles (but does not obligate) its purchaser to decide on or before
a future date whether to assume a short position at the specified
price.
The Fund would purchase put options on futures contracts to protect
portfolio securities against decreases in value resulting from an
anticipated increase in market interest rates. Generally, if the
hedged portfolio securities decrease in value during the term of an
option, the related futures contracts will also decrease in value and
the option will increase in value. In such an event, the Fund will
normally close out its option by selling an identical option. If the

hedge is successful, the proceeds received by the Fund upon the sale
of the second option will be large enough to offset both the premium
paid by the Fund for the original option plus the decrease in value of
the hedged securities.

Alternatively, the Fund may exercise its put option. To do so, it
would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of the
option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the
Fund neither closes out nor exercises an option, the option will
expire on the date provided in the option contract, and the premium
paid for the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write
listed call options on futures contracts to hedge its portfolio
against an increase in market interest rates. When the Fund writes a
call option on a futures contract, it is undertaking the obligation of
assuming a short futures position (selling a futures contract) at the
fixed strike price at any time during the life of the option if the
option is exercised. As market interest rates rise, causing the prices
of futures to go down, the Fund's obligation under a call option on a
future (to sell a futures contract) costs less to fulfill, causing the
value of the Fund's call option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the
call, so that the Fund keeps the premium received for the option. This

premium can offset the drop in value of the Fund's fixed-income
portfolio which is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of
it by the buyer, the Fund may close out the option by buying an
identical option. If the hedge is successful, the cost of the second
option will be less than the premium received by the Fund for the
initial option. The net premium income of the Fund will then offset
the decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds
the current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the
futures contracts. If this limitation is exceeded at any time, the
Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
``MARGIN''IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of `initial margin'' in
cash or U.S. Treasury bills with its custodian (or the broker, if
legally permitted). The nature of initial margin in futures
transactions is different from that of margin in securities
transactions in that futures contract initial margin does not involve
the borrowing of funds by the Fund to finance the transactions.
Initial margin is in the nature of a performance bond or good-faith

deposit on the contract which is returned to the Fund upon termination
of the futures contract, assuming all contractual obligations have
been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
Fund pays or receives cash, called `variation margin,'' equal to the
daily change in value of the futures contract. This process is known
as `marking to market.'' Variation margin does not represent a
borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the
Fund will mark to market its open futures positions.
The Fund is also required to deposit and maintain margin when it
writes call options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A
put option gives the Fund, in return for a premium, the right to sell
the underlying security to the writer (seller) at a specified price
during the term of the option.

WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options to generate income. As
writer of a call option, the Fund has the obligation upon exercise of
the option during the option period to deliver the underlying security
upon payment of the exercise price. The Fund may only sell call
options either on securities held in its portfolio or on securities

which it has the right to obtain without payment of further
consideration (or has segregated cash in the amount of any additional
consideration).
INVESTMENT PRACTICES OF THE FUNDS

The following investment practices, unless indicated otherwise, may be
changed without approval of shareholders.
REPURCHASE AGREEMENTS
All of the Funds will engage in repurchase agreements. Repurchase
agreements are arrangements in which banks, broker/dealers, and other
organized financial institutions sell U.S. government securities or other
securities to the Fund and agree at the time of sale to repurchase them at
a mutually agreed upon time and price. A Fund or its custodian will take
possession of the securities subject to repurchase agreements and these
securities will be marked to market daily. To the extent that the original
seller does not repurchase the securities from a Fund, a Fund could receive
less than the repurchase price on any sale of such securities. In the event
that such a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by a Fund might be delayed pending court
action. The Funds believe that under the regular procedures normally in
effect for custody of a Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the
Fund and allow retention or disposition of such securities. The Funds will
only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the
Funds' adviser to be creditworthy pursuant to guidelines established by the
Trustees.

REVERSE REPURCHASE AGREEMENTS
The Funds may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, a Fund transfers possession of a portfolio instrument to another
person, such as a financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future a Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements may enable the
Fund to avoid selling portfolio instruments at a time when a sale may be
deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
CREDIT ENHANCEMENT
Federated Prime Money Fund II typically evaluates the credit quality and
ratings of credit-enhanced securities based upon the financial condition
and ratings of the party providing the credit enhancement (the `credit
enhancer'), rather than the issuer. However, credit-enhanced securities
will not be treated as having been issued by the credit enhancer for
diversification purposes, unless Federated Prime Money Fund II has invested
more than 10% of its assets in securities issued, guaranteed or otherwise
credit enhanced by the credit enhancer, in which case the securities will
be treated as having been issued by both the issuer and the credit
enhancer.

RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933. Section 4(2) commercial paper is restricted as to disposition
under federal securities law and is generally sold to institutional
investors, such as the Funds, who agree that they are purchasing the paper
for investment purposes and not with a view to public distribution. Any
resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors like
the Funds through or with the assistance of the issuer or investment
dealers who make a market in Section 4(2) commercial paper, thus providing
liquidity.

The Funds do not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, all of the Funds may lend their
portfolio securities, up to one-third of the value of each Fund's total
assets, to broker/dealers, banks, or other institutional borrowers of
securities. (Federated International Equity Fund II is not subject to this
one-third limitation).The collateral received when the Fund lends portfolio
securities must be valued daily and, should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund. During the time portfolio securities are on loan, the borrower pays
the Fund any dividends or interest paid on such securities. Loans are
subject to termination at the option of the Fund or the borrower. The Fund
may pay reasonable administrative and custodial fees in connection with a
loan and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund does not
have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to
the investment.
PORTFOLIO TURNOVER
Securities in the portfolios of Federated American Leaders Fund II,
Federated Growth Strategies Fund II, Federated Utility Fund II, Federated
Fund for U.S. Government Securities II, Federated High Income Bond Fund II,
Federated International Equity Fund II and Federated Equity Income Fund II
will be sold whenever such Fund's investment adviser believes it is
appropriate to do so in light of such Fund's investment objective, without
regard to the length of time a particular security may have been held.

Federated Fund for U.S. Government Securities II's policy of managing its
portfolio of U.S. government securities, including the sale of securities
held for a short period of time, to achieve its investment objective of
current income may result in high portfolio turnover. Federated Fund for
U.S. Government Securities II, Federated International Equity Fund II and
Federated Equity Income Fund II will not attempt to set or meet a portfolio
turnover rate as any turnover would be incidental to transactions
undertaken in an attempt to achieve the Funds' investment objectives. The
adviser does not anticipate that portfolio turnover will result in adverse
tax consequences. Any such trading will increase the portfolio turnover
rates and transaction costs.
For the fiscal years ended December 31, 1996 and 1995, the portfolio
turnover rates of Federated American Leaders Fund II were 90% and 43%,
respectively. For the fiscal year ended December 31, 1996, and for the
period from November 9, 1995 (date of initial public investment) to
December 31, 1995, the portfolio turnover rates of Federated Growth
Strategies Fund II were 96% and 4%, respectively. For the fiscal years
ended December 31, 1996 and 1995, the portfolio turnover rates of Federated
Utility Fund II were 63% and 62%, respectively. For the fiscal years ended
December 31, 1996 and 1995, the portfolio turnover rates of Federated Fund
for U.S. Government Securities II were 97% and 65%, respectively. For the
fiscal years ended December 31, 1996 and 1995, the portfolio turnover rates
of Federated High Income Bond Fund II were 51% and 48%, respectively. For
the fiscal year ended December 31, 1996 and for the period from May 5, 1995
(date of initial public investment) to December 31, 1995, the portfolio
turnover rates of Federated International Equity Fund II were 103% and 34%,
respectively. Portfolio turnover rates for Federated Equity Income Fund II
are not yet available.

INVESTMENT LIMITATIONS

The following limitations are fundamental [except that no investment
limitation of Federated Equity Income Fund II shall prevent the Fund from
investing substantially all of its assets (except for assets which are not
considered to be `investment securities'' under the Investment Company Act
of 1940, or assets exempted by the Securities and Exchange Commission
(`SEC'')) in an open-end management investment company with substantially
the same investment objectives]:
SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short or purchase any
securities on margin, but may obtain such short-term credits as may be
necessary for clearance of purchases and sales of portfolio
securities. The deposit or payment by Federated Growth Strategies Fund
II, Federated Utility Fund II or Federated Equity Income Fund II of
initial or variation margin in connection with futures contracts or
related options transactions is not considered the purchase of a
security on margin. Federated International Equity Fund II may make
margin payments in connection with its use of financial futures
contracts or related options and transactions.
Federated International Equity Fund II will not sell securities short
unless (1) it owns, or has a right to acquire, an equal amount of such
securities, or (2) it has segregated an amount of its other assets
equal to the lesser of the market value of the securities sold short
or the amount required to acquire such securities. The segregated
amount will not exceed 10% of Federated International Equity Fund II's

net assets. While in a short position, Federated International Equity
Fund II will retain the securities, rights, or segregated assets.
To comply with registration requirements in certain states, Federated
International Equity Fund II (1) will limit short sales of securities
of any class of any one issuer to the lesser of 2% of Federated
International Equity Fund II's net assets or 2% of the securities of
that class, (2) will make short sales only on securities listed on
recognized stock exchanges. These restrictions do not apply to short
sales of securities the Fund holds or has a right to acquire without
the payment of any further consideration. (If state requirements
change, these restrictions may be revised without shareholder
notification.)
Federated Equity Income Fund II will not sell securities short unless
during the time the short position is open, it owns an equal amount of
the securities sold or securities readily and freely convertible into
or exchangeable, without payment of additional consideration, for
securities of the same issue as, and equal in amount to, the
securities sold short; and not more than 10% of the Fund's net assets
(taken at current value) is held as collateral for such sales at any
one time.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Funds will not issue senior securities except that each Fund may
borrow money directly or through reverse repurchase agreements (or,
with respect to Federated International Equity Fund II, as required by
forward commitments to purchase securities or currencies) as a
temporary, extraordinary, or emergency measure to facilitate
management of the portfolio by enabling such Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be

inconvenient or disadvantageous, and then only in amounts not in
excess of one-third of the value of its total assets, including the
amount borrowed. With the exception of Federated Equity Income Fund
II, while borrowings and reverse repurchase agreements outstanding
exceed 5% of each such Fund's total assets, any such borrowings will
be repaid before additional investments are made. With respect to
Federated Equity Income Fund II, the Fund will not purchase any
securities while any borrowings are outstanding. The Funds will not
borrow money or engage in reverse repurchase agreements for investment
leverage purposes.
PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, each Fund (with the
exception of Federated Equity Income Fund II) may mortgage, pledge or
hypothecate assets having a market value not exceeding the lesser of
the dollar amounts borrowed or 15% of the value of total assets at the
time of borrowing. (Federated International Equity Fund II is not
subject to this 15% limitation.) Federated Equity Income Fund II may
pledge assets having a market value not exceeding the lesser of the
dollar amounts borrowed or 10% of the value of its total assets at the
time of borrowing. For purposes of this limitation, the following are
not deemed to be pledges by Federated Growth Strategies Fund II or
Federated Utility Fund II: margin deposits for the purchase and sale
of futures contracts and related options, any segregation or
collateral arrangements made in connection with options activities or
the purchase of

securities on a when-issued basis. For purposes of this limitation,
neither the deposit of underlying securities or other assets in escrow
in connection with the writing of put or call options or the purchase
of securities on a when-issued basis nor margin deposits for the
purchase and sale of financial futures contracts and related options
are deemed to be a pledge by Federated International Equity Fund II.
For purposes of this limitation, margin deposits for the purchase and
sale of financial futures contracts and related options are not deemed
to be pledges by Federated Equity Income Fund II.
CONCENTRATION OF INVESTMENTS
Federated Utility Fund II will not purchase securities if, as a result
of such purchase, 25% or more of its total assets would be invested in
securities of companies engaged principally in any one industry other
than the utilities industry. However, Federated Utility Fund II may at
any time invest 25% or more of its total assets in cash or cash items
and securities issued and/or guaranteed by the U.S. government, its
agencies or instrumentalities.
Federated Prime Money Fund II will not purchase securities if, as a
result of such purchase, 25% or more of its total assets would be
invested in securities of companies engaged principally in any one
industry other than finance companies. However, Federated Prime Money
Fund II may at any time invest 25% or more of its total assets in cash
or cash items and securities issued and/or guaranteed by the U.S.
government, its agencies or instrumentalities.
Federated International Equity Fund II will not invest 25% or more of
its total assets in securities of issuers having their principal
business activities in the same industry.

Federated American Leaders Fund II, Federated Growth Strategies Fund
II, Federated Fund for U.S. Government Securities II, and Federated
High Income Bond Fund II will not purchase securities if, as a result
of such purchase, 25% or more of their respective total assets would
be invested in any one industry. However, each Fund may at any time
invest 25% or more of its respective total assets in cash or cash
items and securities issued and/or guaranteed by the U.S. government,
its agencies or instrumentalities.
Federated Equity Income Fund II will not purchase securities if, as a
result of such purchase, 25% or more of its total assets would be
invested in any one industry.
INVESTING IN COMMODITIES
The Funds will not purchase or sell commodities, commodity contracts,
or commodity futures contracts, except that Federated Utility Fund II
may purchase and sell futures and stock index futures contracts and
related options; Federated Growth Strategies Fund II may purchase and
sell futures contracts and options on futures contracts, provided that
the sum of its initial margin deposits for futures contracts plus
premiums paid by it for open options on futures contracts, may not
exceed 5% of the fair market value of Federated Growth Strategies Fund
II's total assets, after taking into account the unrealized profits
and losses on those contracts; and Federated International Equity Fund
II may purchase and sell financial futures contracts and options on
financial futures contracts, provided that the sum of its initial
margin deposits for financial futures contracts plus premiums paid by
it for open options on financial futures contracts, may not exceed 5%
of the fair market value of Federated International Equity Fund II's
total assets, after taking into account the unrealized profits and

losses on those contracts. Further, Federated International Equity
Fund II may engage in foreign currency transactions and purchase or
sell forward contracts with respect to foreign currencies and related
options. Federated Equity Income Fund II will not purchase or sell
commodities, except that it may purchase and sell financial futures
contracts and related options.
INVESTING IN REAL ESTATE
The Funds will not purchase or sell real estate, including (with the
exception of Federated Equity Income Fund II) limited partnership
interests in real estate, although each Fund (including Federated
Equity Income Fund) may invest in securities of companies whose
business involves the purchase or sale of real estate or in securities
secured by real estate or interests in real estate.

LENDING CASH OR SECURITIES
No Fund will lend any of its assets, except portfolio securities up to
one-third of its total assets. (Federated International Equity Fund II
is not subject to this one-third limitation). This shall not prevent a
Fund from purchasing or holding money market instruments (with respect
to only Federated Prime Money Fund II), corporate bonds, U.S.
government bonds (with the exception of only Federated Equity Income
Fund II), debentures, notes, certificates of indebtedness or other
debt securities of an issuer, entering into repurchase agreements, or
engaging in other transactions which are permitted by the Fund's
investment objective and policies or the Trust's Declaration of Trust.

UNDERWRITING
No Fund will underwrite any issue of securities, except as such Fund
may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
respective investment objectives, policies, and limitations. Federated
International Equity Fund II will not underwrite or participate in the
marketing of securities of other issuers, except as it may be deemed
to be an underwriter under federal securities law in connection with
the disposition of its portfolio securities. Federated Equity Income
Fund II will not underwrite any issue or securities, except that it
may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of restricted securities which the Fund may
purchase pursuant to its investment objectives, policies and
limitations.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of its total assets, no Fund (except Federated
Equity Income Fund II) will purchase the securities of any one issuer
(other than cash, cash items, or securities issued and/or guaranteed
by the U.S. government, its agencies or instrumentalities, and, with
respect to all Funds except Federated International Equity Fund II,
repurchase agreements collateralized by such securities) if, as a
result, more than 5% of such Fund's total assets would be invested in
the securities of that issuer.
In addition, no Fund (with the exception of only Federated Prime Money
Fund II) will purchase more than 10% of any class of the outstanding
voting securities of any one issuer. For these purposes, the Funds
consider common stock and all preferred stock of an issuer each as a

single class, regardless of priorities, series, designations, or other
differences.
Federated Equity Income Fund II will not invest more than 5% of the
value of its total assets in securities of one issuer (except cash and
cash items, repurchase agreements, and U.S. government obligations) or
acquire more than 10% of any class of voting securities of any issuer.
For these purposes, the Fund takes all common stock and all preferred
stock of an issuer each as a single class, regardless of priorities,
series, designations, or other differences.
ACQUIRING SECURITIES
Federated International Equity Fund II will not acquire more than 10%
of the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval [except that no investment limitation
of Federated Equity Income Fund II shall prevent the Fund from investing
substantially all of its assets (except for assets which are not considered
to be `investment securities'' under the Investment Company Act of 1940,
or assets exempted by the SEC) in an open-end investment company with
substantially the same investment objectives]. Shareholders will be
notified before any material changes in these limitations becomes
effective.
INVESTING IN ILLIQUID SECURITIES
Federated American Leaders Fund II, Federated Growth Strategies Fund
II, Federated Utility Fund II, Federated Fund for U.S. Government
Securities II and Federated International Equity Fund II will not
invest more than 15% of their respective net assets in illiquid
securities, including, among others, repurchase agreements providing

for settlement more than seven days after notice, over-the-counter
options (with respect to only Federated Growth Strategies Fund II,
Federated Utility Fund II and Federated International Equity Fund II)
and certain restricted securities not determined by the Trustees to be
liquid.

Federated Prime Money Fund II will not invest more than 10% of its net
assets in illiquid securities, including, among others, repurchase
agreements providing for settlement more than seven days after notice
and certain restricted securities not determined by the Trustees to be
liquid.
Federated High Income Bond Fund II will not invest more than 15% of
its total assets in illiquid securities, including repurchase
agreements providing for settlement in more than seven days after
notice and certain restricted securities not determined by the
Trustees to be liquid.
Federated Equity Income Fund II will not invest more than 15% of its
net assets in illiquid securities, including certain restricted
securities (except for Section 4(2) commercial paper and certain other
restricted securities which meet the criteria for liquidity as
established by the Trustees), non-negotiable time deposits, and
repurchase agreements providing for settlement in more than seven days
after notice.
DEALING IN PUTS AND CALLS
Federated International Equity Fund II will not write call options on
securities unless the securities are held in the Fund's portfolio or
the Fund is entitled to them in deliverable form without further

payment or the Fund has segregated cash in the amount of any further
payments. Federated International Equity Fund II will not purchase put
options on securities unless the securities or an offsetting call
option is held in the Fund's portfolio. Federated International Equity
Fund II may also purchase, hold or sell (i) contracts for future
delivery of securities or currencies and (ii) warrants granted by the
issuer of the underlying securities.
INVESTING IN PUT OPTIONS
Federated Growth Strategies Fund II, Federated Utility Fund II,
Federated International Equity Fund II and Federated Equity Income
Fund II will not purchase put options on securities, unless the
securities are held in the Fund's portfolio and, with respect to
Federated Growth Strategies Fund II, Federated Utility Fund II and
Federated Equity Income Fund II, not more than 5% of their respective
total assets would be invested in premiums on open put options.
WRITING COVERED CALL OPTIONS
Federated Growth Strategies Fund II, Federated Utility Fund II,
Federated International Equity Fund II and Federated Equity Income
Fund II 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.
PURCHASING SECURITIES TO EXERCISE CONTROL
Federated Growth Strategies Fund II, Federated International Equity
Fund II and Federated Equity Income Fund II will not purchase
securities of a company for the purpose of exercising control or
management.

Federated Equity Income Fund II may purchase up to 10% of the voting
securities of any one issuer and may exercise its voting powers
consistent with the best interests of the Fund. In addition, the Fund,
other companies advised by the adviser, and other affiliated companies
may together buy and hold substantial amounts of voting stock of a
company and may vote together in regard to such company's affairs. In
some cases, the Fund and its affiliates might collectively be
considered to be in control of such company. In some cases, Trustees
and other persons associated with the Fund and its affiliates might
possibly become directors of companies in which the Fund holds stock.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
Federated Equity Income Fund II will not purchase securities of other
investment companies except as part of a merger, consolidation or
other acquisition.
ARBITRAGE TRANSACTIONS
Federated Equity Income Fund II will not engage in arbitrage
transactions.
INVESTING IN SECURITIES OF FOREIGN ISSUERS
Federated Utility Fund II may invest up to 10% of its total assets in
the utility securities of developing countries.

With respect to all of the Funds, 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 of
total or net assets will not result in a violation of such restriction.
Federated American Leaders Fund II, Federated Growth Strategies Fund II,
Federated Utility Fund II, Federated Prime Money Market Fund II, Federated

Fund for U.S. Government Securities II, Federated High Income Bond Fund II
and Federated International Equity Fund II have no present intention to
borrow money in excess of 5% of the value of their respective net assets
during the coming fiscal year. Federated Equity Income Fund has no present
intention to borrow money, invest in reverse repurchase agreements, pledge
securities, or sell securities short in excess of 5% of the value of its
total assets during the coming fiscal year.
For purposes of their policies and limitations, the Funds consider
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings association having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment
to be `cash items.''
REGULATORY COMPLIANCE
Federated Prime Money Fund II may follow non-fundamental operational
policies that are more restrictive than its fundamental investment
limitations, as set forth in the prospectus and this Statement of
Additional Information, in order to comply with applicable laws and
regulations, including the provisions of and regulations under the
Investment Company Act of 1940. In particular, Federated Prime Money Fund
II will comply with the diversification and other requirements of Rule 2a-7
which regulates money market mutual funds. Federated Prime Money Fund II
will also determine the effective maturity of its investments, as well as
its ability to consider a security as having received the requisite short-
term ratings by NRSROs, according to Rule 2a-7. Federated Prime Money Fund
II may change these operational policies to reflect changes in the laws and
regulations without the approval of its shareholders.

FEDERATED INSURANCE SERIES MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Insurance Series, and principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.

Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee, Member
of Executive Committee, University of Pittsburgh; Director or Trustee of
the Funds.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.

J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949

President and Trustee
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,

Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.

Gregor F. Meyer
Boca Grande Club

Boca Grande, FL
Birthdate: October 6, 1926
Trustee
Attorney, Retired Member of Miller, Ament, Henny & Kochuba; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or
Trustee of the Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and

Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.

*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.

@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.

As used in the table above, `The Funds'' and ``Funds'' mean the following
investment companies: 111 Corcoran Funds; Arrow Funds; Automated Government
Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash
Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; 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 Equity Funds; Federated Equity Income Fund, Inc.;
Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust;
Federated Government Income Securities, Inc.; Federated Government Trust;
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 Portfolios; Federated Investment Trust; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government 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.; First Priority Funds; Fixed
Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;

Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds;
RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of March 24, 1997, the following shareholders of record owned 5% or more
of the outstanding shares of Federated American Leaders Fund II:
Transamerica Occidental Life Insurance Co., Charlotte, North Carolina owned
729,000 shares (6.95%); Aetna Insurance Company of American, Hartford
Connecticut owned 4,332,009 shares (41.32%); and Aetna Life Insurance &
Annuity Co. Central Valuation Unit, Hartford, Connecticut owned 4,380,677
shares (41.79%).
As of March 24, 1997, the following shareholders of record owned 5% or more
of the outstanding shares of Federated Growth Strategies Fund II: Aetna
Retirement Services Central Valuation Unit, Hartford, Connecticut owned
1,672,697 shares (100%).
As of March 24, 1997, the following shareholders of record owned 5% or more
of the outstanding shares of Federated Utility Fund II: Life of Virginia,
Richmond, Virginia owned 1,948,269 shares (34.19%); Lincoln Benefit Life
Co., Lincoln, Nebraska owned 351,937 shares (6.18%); and Aetna Retirement
Services Central Valuation Unit, Hartford, Connecticut owned 2,770,027
shares (48.62%).

As of March 24, 1997, the following shareholders of record owned 5% or more
of the outstanding shares of Federated Prime Money Fund II: First Variable
Life Cash Management, Kansas City, Missouri owned 10,856,439 shares
(17.87%); United Omaha Life Insurance Co., Omaha, Nebraska owned 26,031,155
shares (42.85%); Providian Life & Health Insurance Co., Louisville,
Kentucky owned 7,027,565 shares (11.57%); Aetna Retirement Services Central
Valuation Unit, Hartford, Connecticut owned 10,902,467 shares (17.95%); and
Glenbrook Life and Annuity Company, Palatine, Illinois owned 4,048,704
shares (6.67%).
As of March 24, 1997, the following shareholders of record owned 5% or more
of the outstanding shares of Federated Fund for U.S. Government Securities
II: Provident Mutual, Valley Forge, Pennsylvania owned 210,447 shares
(5.34%); United of Omaha Life Insurance Co., Omaha, Nebraska owned
1,361,165 shares (34.52%); Transamerica Occidental Life Insurance Co.,
Charlotte, North Carolina owned 441,046 shares (11.18%); Lincoln Benefit
Life Co., Lincoln, Nebraska owned 263,646 shares (6.69%); and Aetna
Retirement Services Central Valuation Unit, Hartford, Connecticut owned
1,255,021 shares (31.83%).
As of March 24, 1997, the following shareholders of record owned 5% or more
of the outstanding shares of Federated High Income Bond Fund II: Life of
Virginia, Richmond, Virginia owned 1,328,893 shares (18.42%); Lincoln
Benefit Life Co., Lincoln, Nebraska owned 560,500 shares (7.77%); and Aetna
Retirement Services Central Valuation Unit, Hartford, Connecticut owned
4,388,070 shares (60.83%).

As of March 24, 1997, the following shareholders of record owned 5% or more
of the outstanding shares of Federated International Equity Fund II: Aetna

Retirement Services Central Valuation Unit, Hartford, Connecticut owned
1,787,050 shares (95.47%).
As of March 24, 1997, the following shareholders of record owned 5% or more
of the outstanding shares of Federated Equity Income Fund II: Aetna
Retirement Services Central Valuation Unit, Hartford, Connecticut owned
181,420 shares (99.98%).
TRUSTEES' COMPENSATION

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +

President and Trustee 15 other investment companies in
the Fund Complex
James E. Dowd $1,270 $119,615 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
Lawrence D. Ellis, M.D. $1,154 $108,725 for the Trust
and
Trustee 56 other investment companies in
the Fund Complex
Edward L. Flaherty, Jr. $1,270 $119,615 for the Trust
and
Trustee 56 other investment companies in
the Fund Complex
Peter E. Madden $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
Gregor F. Meyer $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
John E. Murray, Jr., $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
Wesley W. Posvar $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
Marjorie P. Smuts $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex

*Information is furnished for the fiscal year ended December 31, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
eight portfolios.
+The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, they are
not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.

INVESTMENT ADVISORY SERVICES

ADVISERS TO THE FUNDS
Federated Advisers is the investment adviser to Federated American Leaders
Fund II, Federated Growth Strategies Fund II, Federated Utility Fund II,
Federated Prime Money Fund II, Federated Fund for U.S. Government
Securities II, Federated High Income Bond Fund II and Federated Equity
Income Fund II. Federated Global Research Corp. is the investment adviser
to Federated International Equity Fund II. Federated Advisers and Federated
Global Research Corp. are subsidiaries of Federated Investors. All voting
securities of Federated Investors are owned by a trust, the trustees of
which are John F. Donahue, his wife and his son, J. Christopher Donahue.
The advisers shall not be liable to the Funds or any 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.
ADVISORY FEES
For their advisory services, Federated Advisers and Federated Global
Research Corp. receive an annual investment advisory fee as described in
the prospectus.
For the fiscal years ended December 31, 1996 and 1995, and for the period
from December 9, 1993 (start of business) to December 31, 1994, Federated
Advisers earned advisory fees from Federated American Leaders Fund II of
$693,045, $142,579 and $4,397, respectively, of which $203,603, $142,579,
and $4,397 were voluntarily waived. For the fiscal year ended December 31,
1996, and for the period from November 9, 1995 (date of initial public
investment) to December 31, 1995, Federated Advisers earned advisory fees
from Federated Growth Strategies Fund II of $51,083 and $231, all of which
were voluntarily waived. For the fiscal years ended December 31, 1996 and
1995, and for the period from December 9, 1993 (start of business) to
December 31, 1994, Federated Advisers earned advisory fees from Federated
Utility Fund II of $361,797, $89,752 and $2,077, respectively, of which
$248,058, $89,752 and $2077 were voluntarily waived. For the fiscal years
ended December 31, 1996 and 1995, and for the period from December 10, 1993
(start of business) to December 31, 1994, Federated Advisers earned
advisory fees from Federated Prime Money Fund II of $154,455, $40,601 and
$287, respectively, all of which were voluntarily waived. For the fiscal
years ended December 31, 1996 and 1995, and for the period from December 8,
1993 (start of business) to December 31, 1994, Federated Advisers earned
advisory fees from Federated Fund for U.S. Government Securities II of
$141,092, $30,456 and $2,605, respectively, all of which were voluntarily
waived. For the fiscal years ended December 31, 1996 and 1995, and for the

period from December 9, 1993 (start of business) to December 31, 1994,
Federated Advisers earned advisory fees from Federated High Income Bond
Fund II of $240,233, $46,425 and $7,966, respectively, of which $203,132,
$46,425 and $7,966 were voluntarily waived. For the fiscal year ended
December 31, 1996 and for the period from May 5, 1995 (date of initial
public investment) to December 31, 1995, Federated Global Research Corp.
earned advisory fees from Federated International Equity Fund II of
$106,851 and $12,476, respectively, all of which were voluntarily waived.
BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the advisers look for prompt execution of the order
at a favorable price. In working with dealers, the advisers 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 advisers make decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The advisers may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the
Funds or to the advisers and 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 provided by brokers and dealers may be
used by the advisers or by affiliates in advising the Funds and other
accounts. To the extent that receipt of these services may supplant
services for which the advisers or their affiliates might otherwise have
paid, it would tend to reduce their expenses. The advisers and their
affiliates exercise reasonable business judgment in selecting 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 years ended December 31, 1996 and 1995, and for the period
from December 9, 1993 (start of business) to December 31, 1994, Federated
American Leaders Fund II paid $234,623, $49,713 and $3,714, respectively,
in brokerage commissions on brokerage transactions. For the fiscal year
ended December 31, 1996 and for the period from November 9, 1995 (date of
initial public investment) to December 31, 1995, Federated Growth
Strategies Fund II paid $26,305 and $322, respectively, in brokerage
commissions on brokerage transactions. For the fiscal years ended December
31, 1996 and 1995, and for the period from December 9, 1993 (start of
business) to December 31, 1994, Federated Utility Fund II paid $81,701,
$59,746 and $476, respectively, in brokerage commissions on brokerage
transactions. For the fiscal years ended December 31, 1996 and 1995, and
for the period from December 10, 1993 (start of business) to December 31,
1994, Federated Prime Money Fund II did not pay brokerage commissions. For
the fiscal years ended December 31, 1996 and 1995, and for the period from
December 8, 1993 (start of business) to December 31, 1994, Federated Fund
for U.S. Government Securities II paid $0, $322 and $), respectively, in
brokerage commissions on brokerage transactions. For the fiscal years ended
December 31, 1996 and 1995, and for the period from December 9, 1993 (start
of business) to December 31, 1994, Federated High Income Bond Fund II did
not pay brokerage commissions. For the fiscal year ended December 31, 1996
and for the period from May 5, 1995 (date of initial public investment) to
December 31, 1995, Federated International Equity Fund II paid $104,437 and
$15,076, respectively, in brokerage commissions on brokerage transactions.

Although investment decisions for the Funds are made independently from
those of the other accounts managed by the advisers, investments of the
type the Funds may make may also be made by those other accounts. When the
Funds and one or more other accounts managed by the advisers are prepared
to invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the advisers to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Funds or
the size of the position obtained or disposed of by the Funds. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Funds.
OTHER SERVICES

FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Funds for a fee as described
in the prospectus. From March 1, 1994, to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Funds'
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the `Administrators.'' For the fiscal years ended December 31, 1996 and
1995, and for the period from December 9, 1993 (start of business) to
December 31, 1994, the Administrators earned $125,000, $125,000 and
$73,288, respectively, from Federated American Leaders Fund II. For the
fiscal year ended December 31, 1996 and for the period from November 9,
1995 (date of initial public investment) to December 31, 1995, the

Administrators earned $125,000 and $17,808, respectively, from Federated
Growth Strategies Fund II. For the fiscal years ended December 31, 1996 and
1995, and for the period from December 9, 1993 (start of business) to
December 31, 1994, the Administrators earned $125,000, $125,000 and
$73,289, respectively, from Federated Utility Fund II. For the fiscal years
ended December 31, 1996 and 1995, and for the period from December 10, 1993
(start of business) to December 31, 1994, the Administrators earned
$125,000, $125,000 and $14,041, respectively, from Federated Prime Money
Fund II. For the fiscal years ended December 31, 1996 and 1995, and for the
period from December 8, 1993 (start of business) to December 31, 1994, the
Administrators earned $125,000, $125,000 and $63,015, respectively, from
Federated Fund for U.S. Government Securities II. For the fiscal years
ended December 31, 1996 and 1995, and for the period from December 9, 1993
(start of business) to December 31, 1994, the Administrators earned
$125,000, $125,000 and $52,398, respectively, from Federated High Income
Bond Fund II. For the fiscal year ended December 31, 1996 and for the
period from May 5, 1995 (date of initial public investment) to December 31,
1995, the Administrators earned $125,000 and $81,165, respectively, from
Federated International Equity Fund II.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Funds. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
each Fund's portfolio investments. The fee paid for this service is based
upon the level of each Fund's average net assets for the period plus out-
of-pocket expenses.

TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on the
size, type and number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Funds are Deloitte & Touche LLP,
Pittsburgh, PA.
PURCHASES AND REDEMPTIONS

Shares of the Funds are sold at their net asset value on days the New York
Stock Exchange is open for business. The procedure for purchasing and
redeeming shares of the Funds is explained in the prospectus under
`Purchases and Redemptions'' and ``What Shares Cost.''
DISTRIBUTION PLAN (FEDERATED EQUITY INCOME FUND II ONLY)
The Plan permits the payment of fees to financial institutions and the
distributor to stimulate distribution activities and to cause services to
be provided to shareholders by a representative who has knowledge of the
shareholder's particular circumstances and goals. These activities may
include, but are not limited to: marketing efforts; providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.

By adopting the Plan, the Trustees expect that the Fund will be able to
achieve a more predictable flow of cash for investment purposes and to meet
redemptions. This will facilitate more efficient portfolio management and
assist the Fund in pursuing its investment objectives. By identifying
potential investors whose needs are served by the Fund's objective, and
properly servicing these accounts, the Fund may be able to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits include: (1) an efficient and effective administrative
system; (2) a more efficient use of shareholder assets by having them
rapidly invested with a minimum of delay and administrative detail; and
efficient and reliable shareholder records system and prompt responses to
shareholder requests and inquiries concerning their accounts.
Federated Equity Income Fund Ii is not currently paying any 12b-1 fees
under the Plan. Should the Fund begin to pay these fees, shareholders would
be notified
DETERMINING NET ASSET VALUE

The net asset value of Federated American Leaders Fund II, Federated Growth
Strategies Fund II, Federated Utility Fund II, Federated Fund for U.S.
Government Securities II, Federated High Income Bond Fund II, Federated
International Equity Fund II and Federated Equity Income Fund II generally
changes each day. The days on which net asset value is calculated by the
Funds are described in the prospectus.
Dividend income of Federated International Equity Fund II and Federated
Equity Income Fund II is recorded on the ex-dividend date, except certain
dividends from foreign securities where the ex-dividend date may have
passed, are recorded as soon as the Funds are informed of the ex-dividend
date.

DETERMINING MARKET VALUE OF SECURITIES
The values of the portfolio securities in Federated American Leaders Fund
II, Federated Growth Strategies Fund II, Federated Utility Fund II,
Federated Fund for U.S. Government Securities II, and Federated High Income
Bond Fund II are determined as follows:
ofor equity securities and bonds and other fixed income securities,
according to the last sale price on a national securities exchange,
if available;
oin the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;

ofor bonds and other fixed income securities, at the last sale price
on a national securities exchange, if available, otherwise as
determined by an independent pricing service;
ofor unlisted equity securities, the latest mean prices;
ofor short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service; or
ofor all other securities, at fair value as determined in good faith
by the Trustees.
The values of the portfolio securities in Federated International Equity
Fund II and Federated Equity Income Fund II are determined as follows:
oaccording to the last reported sale price on a recognized securities
exchange, if available. (If a security is traded on more than one
exchange, the price on the primary market for that security, as
determined by the Fund's adviser is used.);

o(with respect to Federated Equity Income Fund II) according to the
last reported bid price, if no sale on the recognized exchange is
reported or if the security is traded over-the-counter;
o(with respect to Federated International Equity Fund II) according
to the mean between the last closing bid and asked prices, if no
sale on the recognized exchange is reported or if the security is
traded over-the-counter;
oat fair value as determined in good faith by the Trustees; or
ofor short-term obligations with remaining maturities of less than 60
days at the time of purchase, at amortized cost, which approximates
value.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading
in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics, and other market data.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value,
Federated International Equity Fund II values foreign securities at the
latest closing price on the exchange on which they are traded immediately
prior to the closing of the New York Stock Exchange. Certain foreign
currency exchange rates may also be determined at the latest rate prior to
the closing of the New York Stock Exchange. 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 New
York Stock Exchange. 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 Trustees, although the actual calculation
may be done by others.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments for Federated Prime Money Fund II is amortized cost.
Under this method, portfolio instruments are valued at the acquisition cost
as adjusted for amortization of premium or accumulation of discount rather
than at current market value.
Federated Prime Money Fund II's use of the amortized cost method of valuing
portfolio instruments depends on its compliance with certain conditions in
Rule 2a-7 (the `Rule'') promulgated by the Securities and Exchange
Commission under the Investment Company Act of 1940. Under the Rule, the
Trustees must establish procedures reasonably designed to stabilize the net
asset value per share, as computed for purposes of distribution and
redemption, at $1.00 per share, taking into account current market
conditions and the Prime Money Fund's investment objective. Under the Rule,
Federated Prime Money Fund II is permitted to purchase instruments which
are subject to demand features or standby commitments. As defined by the
Rule, a demand feature entitles Federated Prime Money Fund II to receive
the principal amount of the instrument from the issuer or a third party on
(1) no more than 30 days' notice or (2) at specified intervals not
exceeding 397 calendar days on no more than 30 days' notice. A standby
commitment entitles Federated Prime Money Fund II to achieve same-day
settlement and to receive an exercise price equal to the amortized cost of
the underlying instrument plus accrued interest at the time of exercise.

MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between
the amortized cost value per share and the net asset value per share
based upon available indications of market value. The Trustees will
decide what, if any, steps should be taken if there is a difference of
more than 0.50% between the two values. The Trustees will take any
steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences between the
two methods of determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that Federated Prime Money Fund II limit its
investments to instruments that, in the opinion of the Trustees,
present minimal credit risks and have received the requisite rating
from one or more nationally recognized statistical rating
organizations. If the instruments are not rated, the Trustees must
determine that they are of comparable quality. The Rule also requires
Federated Prime Money Fund II to maintain a dollar-weighted average
portfolio maturity (not more than 90 days) appropriate to the
objective of maintaining a stable net asset value of $1.00 per share.
In addition, no instrument with a remaining maturity of more than
thirteen months can be purchased by Federated Prime Money Fund II.
Should the disposition of a portfolio security result in a dollar-
weighted average portfolio maturity of more than 90 days, Federated
Prime Money Fund II will invest its available cash to reduce the
average maturity to 90 days or less as soon as possible.

Federated Prime Money Fund II may attempt to increase yield by trading
portfolio securities to take advantage of short-term market variations.
This policy may, from time to time, result in high portfolio turnover.
Under the amortized cost method of valuation, neither the amount of daily
income nor the net asset value is affected by any unrealized appreciation
or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares
of Federated Prime Money Fund II computed by dividing the annualized daily
income on Federated Prime Money Fund II's portfolio by the net asset value
computed as above may tend to be higher than a similar computation made by
using a method of valuation based upon market prices and estimates.
In periods of rising interest rates, the indicated daily yield on shares of
Federated Prime Money Fund II computed the same way may tend to be lower
than a similar computation made by using a method of calculation based upon
market prices and estimates.
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. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign.
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.

TAX STATUS

THE FUNDS' TAX STATUS
The Funds will pay no federal income tax because each expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, a Fund must,
among other requirements:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
However, Federated International Equity Fund II may invest in the stock of
certain foreign corporations which would constitute a Passive Foreign
Investment Company (`PFIC''). Federal income taxes may be imposed on
Federated International Equity Fund II upon disposition of PFIC
investments.
SHAREHOLDERS' TAX STATUS
Each Fund intends to comply with the variable asset diversification
regulations which are described in the prospectus and this Statement. If a
Fund fails to comply with these regulations, contracts invested in that

fund shall not be treated as annuity, endowment, or life insurance
contracts under the Internal Revenue Code.
Contract owners should review the contract prospectus for information
concerning the federal income tax treatment of their contracts and
distributions from each Fund to the separate accounts.
FOREIGN TAXES
Investment income on certain foreign securities in which Federated
International Equity Fund II may invest 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
Federated International Equity Fund II would be subject.
TOTAL RETURN

For the one-year period ended December 31, 1996, and for the period from
February 1, 1994 (date of initial public investment) to December 31, 1996,
the average annual total returns for Federated American Leaders Fund II
were 21.58% and 18.03%, respectively. For the one year period ended
December 31, 1996 and for the period from November 9, 1995 (date of initial
public investment) to December 31, 1996, the average annual total returns
of Federated Growth Strategies Fund II were 24.32% and 24.04%,
respectively. For the one-year period ended December 31, 1996, and for the
period from April 14, 1994 (date of initial public investment) to December
31, 1996, the average annual total returns for Federated Utility Fund II
were 11.56% and 10.63%, respectively. For the one-year period ended
December 31, 1996, and for the period from November 18, 1994 (date of
initial public investment) to December 31, 1996, the average annual total
returns for Federated Prime Money Fund II were 4.75% and 4.95%,
respectively. For the one-year period ended December 31, 1996, and for the

period from March 29, 1994 (date of initial public investment) to December
31, 1996, the average annual total returns for Federated Fund for U.S.
Government Securities II were 4.20% and 5.62%, respectively. For the one-
year period ended December 31, 1996, and for the period from February 2,
1994 (date of initial public investment) to December 31, 1996, the average
annual total returns for Federated High Income Bond Fund II were 14.31% and
10.48%, respectively. For the one-year period ended December 31, 1996 and
for the period from May 5, 1995 (date of initial public investment) to
December 31, 1996, the average annual total returns of Federated
International Equity Fund II were 8.32% and 7.17%, respectively.

The average annual total returns for the Funds are the average compounded
rates 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 net asset value 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,
adjusted over the period by any additional shares, assuming the monthly,
quarterly, or annual, as applicable, reinvestment of all dividends and
distributions. You should review the performance figures for your insurance
contract, which figures reflect the applicable charges and expenses of the
contract. Such performance figures will accompany any advertisement of a
Fund's performance.
YIELD

The yields for Federated American Leaders Fund II, Federated Growth
Strategies Fund II, Federated Utility Fund II, Federated Fund for U.S.

Government Securities II, and Federated High Income Bond Fund II for the
thirty-day period ended December 31, 1996, were 1.33%, 0.39%, 3.29%, 5.96%
and 8.87%, respectively. Federated International Equity Fund II did not
calculate a yield for the thirty-day period ended December 31, 1996.
The yields for Federated American Leaders Fund II, Federated Growth
Strategies Fund II, Federated Utility Fund II, Federated Fund for U.S.
Government Securities II, Federated High Income Bond Fund II, Federated
International Equity Fund II are determined by dividing the net investment
income per share (as defined by the Securities and Exchange Commission)
earned by a Fund over a thirty-day period by the offering price per share
of a Fund on the last day of the period. This value is then annualized
using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each
month over a twelve-month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by a Fund because
of certain adjustments required by the Securities and Exchange Commission
and, therefore, may not correlate to the dividends or other distributions
paid to shareholders. Also the yield does not reflect the charges and
expenses of an insurance contract. You should review the performance
figures for your contract, which figures reflect the applicable charges and
expenses of the contract. Such performance figures will accompany any
advertisement of a Fund's performance. To the extent that financial
institutions and broker/dealers charge fees in connection with services
provided in conjunction with an investment in any class of Shares, the
performance will be reduced for those shareholders paying those fees.
The yield for Federated Prime Money Fund II for the seven-day period ended
December 31, 1996, was 4.77%.

Federated Prime Money Fund II calculates its yield daily, based upon the
seven days ending on the day of the calculation, called the `base
period.''This yield is computed by:
odetermining the net change in the value of a hypothetical account
with a balance of one share at the beginning of the base period,
with the net change excluding capital changes but including the
value of any additional shares purchased with dividends earned from
the original one share and all dividends declared on the original
and any purchased shares;
odividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base
period return; and
omultiplying the base period return by 365/7.
EFFECTIVE YIELD

The effective yield for Federated Prime Money Fund II for the seven-day
period ended December 31, 1996, was 4.88%.
Federated Prime Money Fund II's effective yield is computed by compounding
the unannualized base period return by:
oadding 1 to the base period return;
oraising the sum to the 365/7th power; and
osubtracting 1 from the result.

Effective yield does not reflect the charges and expense of a variable
annuity contract. You should review the performance figures for your
insurance contract, which figures reflect the applicable charges and
expenses of the contract. Such performance figures will accompany any
advertisement of a Fund's performance.

PERFORMANCE COMPARISONS

Each Fund's performance depends upon such variables as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio securities;
ochanges in Fund expenses; and
othe relative amount of the Fund's cash flow.
A Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share (except with respect to Federated
Prime Money Fund II) fluctuate daily. Both net earnings and offering price
per share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any 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 Funds
use in advertising may include:
oDOW JONES INDUSTRIAL AVERAGE is an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by the Dow Jones & Company, it is
cited as a principal indicator of market conditions.
oSTANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industrial, transportation, and
financial and public utility companies, can be used to compare to
the total returns of funds whose portfolios are invested primarily
in common stocks. In addition, the Standard & Poor's index assumes

reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in the Standard & Poor's figures.
oLIPPER 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 Trust
may quote its Lipper ranking in various fund categories in
advertising and sales literature.
OLIPPER HIGH CURRENT YIELD AVERAGE is composed of approximately 141
funds which invest at least 65% of their assets in investment grade
debt issues (rated in top four grades) with dollar-weighted average
maturities of five to ten years. From time to time, Federated High
Income Bond Fund II will compare its total return to the average
total return of the funds comprising the average for the same
calculation period.
OLIPPER UTILITY FUND AVERAGE is composed of approximately 87 funds
which invest 65% of their equity portfolio in utility stocks. From
time to time, Federated Utility Fund II will compare its total
return to the average total return of the funds comprising the
average for the same calculation period.
oLEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) INDEX is comprised of
approximately 5,000 issues which include: nonconvertible bonds
publicly issued by the U.S. government or its agencies; corporate
bonds guaranteed by the U.S. government and quasi-federal
corporations; and publicly issued, fixed-rate, non-convertible
domestic bonds of companies in industry, public utilities and
finance. The average maturity of these bonds approximates nine

years. Tracked by Lehman Brothers , Inc., the index calculates
total returns for one month, three month, twelve month, and ten year
periods and year-to-date.

oLEHMAN BROTHERS GOVERNMENT/CORPORATE (LONG-TERM) INDEX is composed
of the same types of issues as defined above. However, the average
maturity of the bonds included in this index approximates 22 years.
oLEHMAN BROTHERS GOVERNMENT INDEX is an unmanaged index comprised of
all publicly issued, non-convertible domestic debt of the U.S.
government, or any agency thereof, or any quasi-federal corporation
and of corporate debt guaranteed by the U.S. government. Only notes
and bonds with a minimum outstanding principal of $1 million and a
minimum maturity of one year are included.
oLEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX includes 15- and
30-year fixed-rated securities backed by mortgage pools of the
Government National Mortgage Association, Federal Home Loan Mortgage
Corporation, and Federal National Mortgage Corporation. Graduated
payment mortgages and balloons are included in the index.
oMORNINGSTAR, 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.
oBANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a
financial reporting service which publishes weekly average rates of
50 leading bank and thrift institution money market deposit
accounts. The rates published in the index are an average of the

personal account rates offered on the Wednesday prior to the date of
publication by ten of the largest banks and thrifts in each of the
five largest Standard Metropolitan Statistical Areas. Account
minimums range upward from $2,500 in each institution, and
compounding methods vary. If more than one rate is offered, the
lowest rate is used. Rates are subject to change at any time
specified by the institution.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day compound
(effective) yield. From time to time, the Fund will quote its MONEY
ranking in advertising and sales literature.
oSTANDARD & POOR'S UTILITY INDEX is an unmanaged index of common
stocks from forty different utilities. This index indicates daily
changes in the price of the stocks. The index also provides figures
for changes in price from the beginning of the year to date, and for
a twelve month period.
oDOW JONES UTILITY INDEX is an unmanaged index comprised of fifteen
utility stocks that tracks changes in price daily and over a six
month period. The index also provides the highs and lows for each of
the past five years.
oMORGAN STANLEY EUROPE, AUSTRALIA, AND FAR EAST (EAFE) Index is a
market capitalization weighted foreign securities index, which is
widely used to measure the performance of European, Australian, New
Zealand and Far Eastern stock markets. The index covers
approximately 1,020 companies drawn from 18 countries in the above
regions. The index values its securities daily in both U.S. dollars
and local currency and calculates total returns monthly. EAFE U.S.
dollar total return is a net dividend figure less Luxembourg

withholding tax. The EAFE is monitored by Capital International,
S.A., Geneva, Switzerland.
oSALOMON BROTHERS WORLD EQUITY INDEX EX U.S. is a capitalization-
weighted index comprised of equities from 22 countries excluding the
United States.
oFT ACTUARIES WORLD - EX U.S. index is comprised of 1,740 stocks,
excluding U.S. stocks, jointly compiled by the Financial Times Ltd.,
Goldman, Sachs & Co., and NatWest Securities Ltd. in conjunction
with the Institute of Actuaries and the Faculty of Actuaries.
oSTANDARD & POOR'S LOW-PRICED INDEX compares a group of approximately
twenty actively traded stocks priced under $25 for one month periods
and year-to-date.
oSTANDARD & POOR'S 500 ("S&P 500") is an unmanaged index of common
stocks in industry, transportation, finance, and public utilities
denoting general market performance, as monitored by Standard &
Poor's Ratings Group.
oLIPPER GROWTH FUND AVERAGE is an average of the total returns for
251 growth funds tracked by Lipper Analytical Services, Inc., an
independent mutual fund rating service.

oLIPPER GROWTH FUND INDEX is an average of the net asset-valuated
total returns for the top 30 growth funds tracked by Lipper
Analytical Services, Inc.
oLEHMAN BROTHERS HIGH YIELD INDEX and its sub-indices are based on
credit quality and/or duration. The Lehman Brothers High Yield Index
covers the universe of fixed rate, publicly issued, non-investment
grade debt registered with the SEC. All bonds included in the High

Yield Index must be dollar-denominated and non-convertible and have
at least one year remaining to maturity and an outstanding par value
of at least $100 million. Generally securities must be rated Ba1 or
lower by Moody's Investors Service, including defaulted issues. If
no Moody's rating is available, bonds must be rated BB+ or lower by
S&P; and if no S&P rating is available, bonds must be rated below
investment grade by Fitch Investors Service. A small number of
unrated bonds is included in the index; to be eligible they must
have previously held a high yield rating or have been associated
with a high yield issuer, and must trade accordingly.
In addition, Federated Equity Income Fund II will, from time to time, use
the following standard convertible securities indices against which it will
compare its performance: Goldman Sachs Convertible 100; Kidder Peabody
Convertible Bond Index; Value Line Convertible Bond Index; and Dow Jones
Utility Index.
Advertisements and other sales literature for the Funds may quote total
returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in
the Funds based on monthly, quarterly, or yearly, as applicable,
reinvestment of dividends over a specific period of time.
From time to time as it deems appropriate, the Funds may advertise their
performance using charts, graphs and descriptions compared to federally
insured bank products, including certificates of deposit and time deposits,
and to money market funds using the Lipper Analytical Services money market
instrument average. In addition, advertising and sales literature for the
Funds may use charts and graphs to illustrate the principals of dollar-cost
averaging and may disclose the amount of dividends paid by the Funds over
certain periods of time.

Advertising and other promotional literature may include charts, graphs and
other illustrations using the Funds' returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Funds can
compare their performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Funds may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Funds. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual funds industry, including the growth of the industry, from
sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS

In the equity sector, Federated Investors has more than 26 years
experience. As of December 31, 1996, Federated managed 31 equity funds
totaling approximately $7.6 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.

In the corporate bond sector, as of December 31, 1996, Federated managed 12
money market funds and 17 bonds funds with assets approximating $17.2
billion and $4.0 billion, respectively. Federated's corporate bond decision
making--based on intensive, diligent credit analysis--is backed by over 21
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 $200 billion.
In the government sector, as of December 31, 1996, Federated managed 9
mortgage-backed, 5 government/agency and 17 government money market mutual
funds, with assets approximating $6.3 billion, $1.7 billion and $23.6
billion, respectively. Federated trades approximately $309 million in U.S.
government and mortgage-backed securities daily and places $17 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 nearly $30 billion in
government funds within these maturity ranges.

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 mutual 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, 1996, Federated managed more than $50.3
billion in assets across 50 money market funds, including 18 government, 11
prime and 21 municipal with assets approximating $28.0 billion, $12.8
billion and $9.5 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international and global portfolios.
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 $3.5 trillion to the more than 6,000
funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, 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 advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with 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 Mark R.
Gensheimer, Executive 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, Federated Securities Corp.

*Source: Investment Company Institute

FINANCIAL STATEMENTS

The Funds' Financial Statements for the fiscal year ended December 31,
1996, are incorporated herein by reference to the Annual Reports of the

Funds dated December 31, 1996 (File Nos. 33-69268 and 811-8042). Copies of
the Reports may be obtained without charge by contacting the respective
Fund.

FEDERATED INSURANCE SERIES

PROSPECTUS

This prospectus offers shares of three portfolios (individually referred to
as a "Fund" or collectively as the "Funds") of Federated Insurance Series
(the "Trust"), which is an open-end, management investment company. Shares
of the Funds may be sold only to separate accounts of insurance companies to
serve as the investment medium for variable life insurance policies and
variable annuity contracts issued by the insurance companies. This
prospectus offers interests in the following three separate investment
portfolios, each having distinct investment objectives and policies:

* Federated Utility Fund II;
* Federated Fund for U.S. Government Securities II; and
* Federated High Income Bond Fund II.

RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

by reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

Prospectus dated April 22, 1997

Table of Contents

FINANCIAL HIGHLIGHTS --
FEDERATED UTILITY FUND II 1
FINANCIAL HIGHLIGHTS -- FEDERATED FUND
FOR U.S. GOVERNMENT SECURITIES II 2
FINANCIAL HIGHLIGHTS -- FEDERATED HIGH
INCOME BOND FUND II 3
GENERAL INFORMATION ON FEDERATED
INSURANCE SERIES 4

FEDERATED UTILITY FUND II
INVESTMENT INFORMATION 4
Investment Objective 4
Investment Policies 4
Investment Limitations 7
FEDERATED FUND FOR U.S. GOVERNMENT
SECURITIES II INVESTMENT INFORMATION 7
Investment Objective 7
Investment Policies 8
Investment Limitations 9
FEDERATED HIGH INCOME BOND FUND II
INVESTMENT INFORMATION 9
Investment Objective 9
Investment Policies 9
Investment Risks 10
Investment Limitations 12
INVESTMENT PRACTICES 12
Repurchase Agreements 12
Restricted and Illiquid Securities 12
When-Issued and Delayed Delivery
Transactions 12
Lending of Portfolio Securities 13
Variable Asset Regulations 13
State Insurance Regulations 13
NET ASSET VALUE 13
INVESTING IN THE FUNDS 13
Purchases and Redemptions 13
What Shares Cost 14

Dividends 14
FEDERATED INSURANCE SERIES INFORMATION 14
Management of Federated
Insurance Series 14
Fund Managers 15
Distribution of Fund Shares 15
Administration of the Funds 16
Brokerage Transactions 16
SHAREHOLDER INFORMATION 16
Voting Rights 16
TAX INFORMATION 17
Federal Taxes 17
State and Local Taxes 17
PERFORMANCE INFORMATION 17
APPENDIX 18
ADDRESSES Inside Back Cover

FEDERATED UTILITY FUND II
FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

be read in conjunction with the Fund's Financial Statements and notes
thereto, contained in the Fund's Annual Report, which may be obtained from
the Fund.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.03 $ 9.29 $ 9.48
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.42 0.45 0.34
Net realized and unrealized gain (loss) on investments
and foreign currency 0.82 1.74 (0.19)
Total from investment operations 1.24 2.19 0.15
LESS DISTRIBUTIONS
Distributions from net investment income (0.41) (0.45) (0.34)
Distributions from net realized gain on investments
and foreign currency transactions (0.05) -- --
Total distributions (0.46) (0.45) (0.34)
NET ASSET VALUE, END OF PERIOD $11.81 $11.03 $ 9.29
TOTAL RETURN(B) 11.56% 24.18% 1.12%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.85% 0.85% 0.60%*
Net investment income 3.92% 4.62% 4.77%*
Expense waiver/reimbursement(c) 0.51% 2.24% 54.83%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $63,558 $29,679 $974
Average commission rate paid(d) $.0402 -- --
Portfolio turnover 63% 62% 73%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from April 14, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 9,
1993 (the start of business), to April 13, 1994, the net investment income
was distributed to the Fund's adviser.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated December 31, 1996, which can be obtained free of
charge.

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.29 $ 9.99 $ 9.99
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.59 0.54 0.27
Net realized and unrealized gain (loss) on investments (0.18) 0.30 --
Total from investment operations 0.41 0.84 0.27
LESS DISTRIBUTIONS
Distributions from net investment income (0.57) (0.54) (0.27)
Distributions from net realized gain on investments (0.04) -- --
Total distributions (0.61) (0.54) (0.27)
NET ASSET VALUE, END OF PERIOD $10.09 $10.29 $ 9.99
TOTAL RETURN(B) 4.20% 8.77% 2.62%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80% 0.80% 0.48%*
Net investment income 6.00% 6.00% 3.99%*
Expense waiver/reimbursement(c) 1.01% 4.81% 32.83%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $34,965 $12,264 $1,244
Portfolio turnover 97% 65% 0%
</TABLE>

* Computed on an annualized basis.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated December 31, 1996, which can be obtained free of
charge.

FEDERATED HIGH INCOME BOND FUND II
FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Annual Report, which is incorporated herein by reference. This table should
be read in conjunction with the Fund's Financial Statements and notes
thereto, contained in the Fund's Annual Report, which may be obtained from
the Fund.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.79 $ 8.87 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.88 0.85 0.75
Net realized and unrealized gain (loss) on investments 0.45 0.89 (1.12)
Total from investment operations 1.33 1.74 (0.37)
LESS DISTRIBUTIONS
Distributions from net investment income (0.88) (0.82) (0.75)
Distributions in excess of net investment income(d) -- -- (0.01)
Total distributions (0.88) (0.82) (0.76)
NET ASSET VALUE, END OF PERIOD $10.24 $ 9.79 $ 8.87
TOTAL RETURN(B) 14.31% 20.38% (3.73%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80% 0.80% 0.41%*
Net investment income 9.23% 9.27% 9.11%*
Expense waiver/reimbursement(c) 0.59% 3.40% 10.01%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $66,043 $20,165 $1,457
Portfolio turnover 51% 48% 18%
</TABLE>

* Computed on an annualized basis.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated December 31, 1996, which can be obtained free of
charge.

GENERAL INFORMATION ON FEDERATED INSURANCE SERIES

The Funds are portfolios of Federated Insurance Series, which was

established as Insurance Management Series, a Massachusetts business trust,
under a Declaration of Trust dated September 15, 1993. At a meeting of the
Board of Trustees (the "Trustees") held on November 14, 1995, the Trustees
approved an amendment to the Declaration of Trust to change the name of the
Trust from Insurance Management Series to Federated Insurance Series. At a
meeting of the Trustees held on February 26, 1996, the Trustees approved an
amendment to the Declaration of Trust to change the names of the Funds from
Utility Fund to Federated Utility Fund II; U.S. Government Bond Fund to
Federated U.S. Government Bond Fund II; and Corporate Bond Fund to Federated
High Income Bond Fund II. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest in separate
portfolios of securities, including the Funds. The shares in any one
portfolio may be offered in separate classes. As of the date of this
prospectus, the Trustees have not established separate classes of shares.

An insurance company chooses which portfolios to make available as funding
vehicles for its variable annuity contracts and variable life insurance
policies. Shares of each Fund are sold at net asset value as described in
the section entitled "What Shares Cost." Shares of the Funds are redeemed at
net asset value.

For purposes of this prospectus, "Federated Funds" shall mean two or more
funds for which affiliates of Federated Investors serve as investment
adviser and principal underwriter.

Shares of beneficial interest in the following three separate portfolios are
offered by this prospectus:

* Federated Utility Fund II -- a portfolio seeking high current income and
moderate capital appreciation by investing primarily in a professionally
managed, diversified portfolio of equity and debt securities of utility
companies;

* Federated Fund for U.S. Government Securities II -- a portfolio seeking
current income by investing in U.S. government securities; and

* Federated High Income Bond Fund II -- a portfolio seeking high current
income by investing in lower-rated fixed income securities, including
preferred stocks, bonds, debentures and notes.

Each of the Funds may also invest in certain other types of securities as
further described in this prospectus.

FEDERATED UTILITY FUND II
INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to achieve high current income and

moderate capital appreciation. The investment objective cannot be changed
without approval of shareholders. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by following
the policies described in this prospectus.

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS. The Fund's investment approach is based on the
conviction that over the long term, the economy will continue to expand and
develop and that this economic growth will be reflected in the growth of the
revenues and earnings of utility companies. The Fund intends to achieve its
investment objective by investing in equity and debt securities of utility
companies that produce, transmit, or distribute gas and electric energy as
well as those companies that provide communications facilities, such as
telephone and telegraph companies. Under normal market conditions, the Fund
will invest at least 65% of its total assets in securities of utility
companies. The prices of fixed income securities fluctuate inversely to the
direction of interest rates.

COMMON STOCKS. The Fund invests primarily in common stocks of utility
companies selected by the Fund's investment adviser on the basis of

traditional research techniques, including assessment of earnings and
dividend growth prospects and of the risk and volatility of the company's
industry. However, other factors, such as product position, market share, or
profitability will also be considered by the Fund's investment adviser.

SECURITIES OF FOREIGN ISSUERS. The Fund may invest in the securities of
foreign issuers which are freely traded on United States securities
exchanges or in the over-the-counter market in the form of depositary
receipts as well as securities of foreign issuers that trade on foreign
stock exchanges. Securities of a foreign issuer may present greater risks in
the form of nationalization, confiscation, domestic marketability, or other
national or international restrictions. As a matter of practice, the Fund
will not invest in the securities of a foreign issuer if any such risk
appears to the investment adviser to be substantial.

RISK CONSIDERATIONS IN DEVELOPING COUNTRIES. Securities prices in developing

countries can be significantly more volatile than in developed countries,
reflecting the greater uncertainties of investing in lesser developed
markets and economies. In particular, developing 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. Such
countries may also have restrictions on foreign ownership or prohibitions on
the repatriation of assets, and may have less protection of property rights
than developed countries.

and warrants or a combination of the features of several of these
securities. The Fund invests in convertible bonds rated "B" or higher by
Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's") at the time of investment or, if unrated, of comparable quality.
If a convertible bond is rated below "B" according to the characteristics
set forth hereafter after the Fund has purchased it, the Fund is not
required to drop the convertible bond from the portfolio but will consider
appropriate action. The investment characteristics of each convertible
security vary widely, which allows convertible securities to be employed for
different investment objectives.

corporation prior to the holders of common stock in the case of liquidation.
However, convertible securities are generally subordinated to similar
nonconvertible securities of the same company. The interest income and
dividends from convertible bonds and preferred stocks provide a stable
stream of income with generally higher yields than common stocks, but lower
than nonconvertible securities of similar quality. The Fund will exchange or
convert the convertible securities held in its portfolio into shares of the
underlying common stock in instances in which, in the investment adviser's
opinion, the investment characteristics of the underlying common shares will
assist the Fund in achieving its investment objective. Otherwise, the Fund
will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the Fund's adviser evaluates the investment
characteristics of the convertible security as a fixed income instrument and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, the Fund's adviser considers numerous factors,
including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and practices.

tends to increase as the market value of the underlying stock rises, whereas
it tends to decrease as the market value of the underlying stock declines.
While no securities investment is without some risk, investments in
convertible securities generally entail less risk than investments in the
common stock of the same issuer.

FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell

financial futures contracts to hedge all or a portion of its portfolio of
long-term debt securities against changes in interest rates. Financial
futures contracts call for the delivery of particular debt instruments
issued or guaranteed by the U.S. Treasury or by specified agencies or
instrumentalities of the U.S. government at a certain time in the future.
The seller of the contract agrees to make delivery of the type of instrument
called for in the contract and the buyer agrees to take delivery of the
instrument at the specified future time.

* certificates of deposit (including those issued by domestic and foreign
branches of FDIC insured banks);

* obligations issued or guaranteed as to principal and interest by the U.S.
government or any of its agencies or instrumentalities; and

* repurchase agreements.

INVESTMENT LIMITATIONS

The Fund will not:

* borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its total assets and pledge up to 15% of its
total assets to secure such borrowings.

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide current income. The
investment objective cannot be changed without approval of shareholders.

While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the investment policies
described in this prospectus.

INVESTMENT POLICIES

The U.S. government securities in which the Fund invests include:

* direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds;

* notes, bonds and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of
the United States;

* notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and

* notes, bonds and discount notes of other U.S. government instrumentalities
supported only by the credit of the instrumentalities.

* the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;

* the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or

* the credit of the agency or instrumentality.

The Fund may also invest in CMOs which are rated AAA by a nationally
recognized statistical rating agency and which are issued by private
entities such as investment banking firms and companies related to the
construction industry. The CMOs in which the Fund may invest may be: (i)
privately issued securities which are collateralized by pools of mortgages
in which each mortgage is guaranteed as to payment of principal and interest
by an agency or instrumentality of the U.S. government; (ii) privately
issued securities which are collateralized by pools of mortgages in which
payment of principal and interest are guaranteed by the issuer and such
guarantee is collateralized by U.S. government securities; and (iii) other
privately issued securities in which the proceeds of the issuance are
invested in mortgage-backed securities and payment of the principal and
interest are supported by the credit of an agency or instrumentality of the
U.S. government. The mortgage-related securities provide for a periodic
payment consisting of both interest and principal. The interest portion of
these payments will be distributed by the Fund as income, and the capital
portion will be reinvested.

Mortgage-backed securities may be subject to certain prepayment risks
because the underlying mortgage loans may be prepaid without penalty or
premium. Prepayment risks on mortgage-backed securities tend to increase
during periods of declining mortgage interest rates because many borrowers
refinance their mortgages to take advantage of favorable rates. At the time
the Fund reinvests the proceeds, it may receive a rate of interest which is
actually lower than the rate of interest paid on those securities.

INVESTMENT LIMITATIONS

The Fund will not:

* borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its total assets and pledge up to 15% of its
total assets to secure such borrowings.

The above investment limitations cannot be changed without shareholder
approval.

In addition, the Fund may purchase the investments and engage in the
investment techniques described below under "Investment Practices."

FEDERATED HIGH INCOME BOND FUND II
INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS. The Fund invests at least 65% of its assets in lower
rated fixed income bonds. Under normal circumstances, the Fund will not

invest more than 10% of the value of its total assets in equity securities.
The fixed income securities in which the Fund invests include, but are not
limited to:

* preferred stocks;

* bonds;

* debentures;

* notes;

* equipment lease certificates; and

* equipment trust certificates.

The securities in which the Fund may invest are generally rated BBB or lower
by S&P or Fitch Investors Services Inc. ("Fitch") or Baa or lower by
Moody's, or are not rated but are determined by the Fund's investment
adviser to be of comparable quality. Securities which are rated BBB or lower
by S&P or Fitch or Baa or lower by Moody's have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to
lead to weakened capacity to make principal and interest payments than
highly rated bonds. A description of the rating categories is contained in
the Appendix to this combined prospectus. There is no lower limit with
respect to rating categories for securities in which the Fund may invest.
See "Investment Risks" below.

TEMPORARY INVESTMENTS. The Fund may invest temporarily in cash and
short-term obligations for defensive purposes during times of unusual market
conditions. Short-term obligations may include:

* certificates of deposit;

* commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's,
or F-1 or F-2 by Fitch and variable rate demand master notes;

* short-term notes;

* obligations issued or guaranteed as to principal and interest by the U.S.
government or any of its agencies or instrumentalities; and

* repurchase agreements.

INVESTMENT RISKS

The prices of fixed income securities fluctuate inversely to the direction
of interest rates.

Lower-rated securities generally tend to reflect short-term corporate and
market developments to a greater extent than higher-rated securities which
react primarily to fluctuations in the general level of interest rates.
Short-term corporate and market developments affecting the prices or
liquidity of lower-rated securities could include adverse news affecting
major issuers, underwriters, or dealers in lower-rated securities. In
addition, since there are fewer investors in lower-rated securities, it may
be harder to sell the securities at an optimum time. As a result of these
factors, lower-rated securities tend to have more price volatility and carry
more risk to principal and income than higher-rated securities.

In the event of a restructuring, the Fund may bear additional legal or
administrative expenses in order to maximize recovery from an issuer.

The secondary trading market for lower-rated bonds is generally less liquid
than the secondary trading market for higher-rated bonds. In 1989,

legislation was enacted that requires federally insured savings associations
to divest their holdings of lower-rated bonds by 1994. The reduction of the
number of institutions empowered to purchase and hold lower-rated bonds
could have an adverse impact on the overall liquidity of the market. Adverse
publicity and the perception of investors relating to issuers, underwriters,
dealers or underlying business conditions, whether or not warranted by
fundamental analysis, may also affect the price or liquidity of lower-rated
bonds. On occasion, therefore, it may become difficult to price or dispose
of a particular security in the portfolio.

proceeds at lower interest rates, thus reducing income to the Fund.

AS A PERCENTAGE OF
TOTAL MARKET VALUE OF
BOND HOLDINGS AS OF
DECEMBER 31, 1996
CREDIT RATING RATED
BB & BBB 17.0%
B 73.0%
CCC 4.0%
D 0.1%
Not Rated 5.9%
Total 100.0%

issuer, the adviser places special emphasis on the estimated current value
of the issuer's assets rather than historical cost.

DIVERSIFICATION. The Fund invests in securities of many different issuers,
industries, and economic sectors to reduce portfolio risk.

INVESTMENT LIMITATIONS

The Fund will not:

* borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its total assets and pledge up to 15% of its
total assets to secure such borrowings.

The above investment limitations cannot be changed without shareholder
approval. However, the following investment limitation may be changed
without shareholder approval.

The Fund will not:

* invest more than 15% of its net assets in illiquid securities.

In addition, the Fund may purchase the investments and engage in the
investment techniques described below under "Investment Practices."

INVESTMENT PRACTICES

The following investment practices are common to two or more of the Funds
and, unless indicated otherwise, may be changed without approval of
shareholders.

REPURCHASE AGREEMENTS

a Fund's portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of a Fund and allow retention or
disposition of such securities. The Funds will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are found by each Fund's adviser to be creditworthy
pursuant to guidelines established by the Trustees.

RESTRICTED AND ILLIQUID SECURITIES

Each Fund may invest in restricted securities. Restricted securities are any
securities in which these Funds may otherwise invest pursuant to their
respective investment objectives and policies but which are subject to
restriction on resale under federal securities law. Federated Fund for U.S.
Government Securities II and Federated Utility Fund II will limit their
purchase, including non-negotiable time deposits, repurchase agreements
providing for settlement in more than seven days after notice,
over-the-counter options, and certain restricted securities determined by
the Trustees not to be liquid, to 15% of the net assets of each Fund.
Federated High Income Bond Fund II will limit investments in illiquid
securities, including certain restricted securities not determined by the
Trustees to be liquid, non-negotiable time deposits, and repurchase
agreements providing for settlement in more than seven days after notice, to
15% of the value of its total assets.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Funds may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Funds may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Funds may realize short-term profits
or losses upon the sale of such commitments.

LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, each Fund may lend its portfolio
securities on a short-term or long-term basis, or both, up to one-third of
the value of its total assets, to broker/dealers, banks, or other
institutional borrowers of securities. This policy is a fundamental policy
of each Fund and may not be changed without shareholder approval. The Funds
will only enter into loan arrangements with broker/dealers, banks, or other
institutions which the adviser has determined are creditworthy under
guidelines established by the Trustees and will receive collateral in the
form of cash or U.S. government securities equal to at least 100% of the

value of the securities loaned at all times.

VARIABLE ASSET REGULATIONS

The Funds will be operated at all times so as to comply with the foregoing
diversification requirements.

STATE INSURANCE REGULATIONS

NET ASSET VALUE

The net asset value per share of Federated Utility Fund II, Federated Fund
for U.S. Government Securities II and Federated High Income Bond Fund II
fluctuates. They are determined by dividing the sum of the market value of
all securities and other assets of the particular Fund, less liabilities, by
the number of shares outstanding.

INVESTING IN THE FUNDS

PURCHASES AND REDEMPTIONS

Shares of the Funds are not sold directly to the general public. With
respect to Federated High Income Bond Fund II, the Fund reserves the right
to reject any purchase request. The Funds' shares are used solely as the

investment vehicle for separate accounts of insurance companies offering
variable annuity contracts and variable life insurance policies. The use of
Fund shares as investments for both variable annuity contracts and variable
life insurance policies is referred to as "mixed funding." The use of Fund
shares as investments by separate accounts of unaffiliated life insurance
companies is referred to as "shared funding."

WHAT SHARES COST

tendered for redemption and no orders to purchase shares are received; or
(iii) the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.

DIVIDENDS

Dividends on shares of Federated Utility Fund II, Federated Fund for U.S.
Government Securities II and Federated High Income Bond Fund II are declared
and paid monthly.

Shares of each Fund will begin earning dividends if owned on the record
date. Dividends of each Fund are automatically reinvested in additional
shares of such Fund on payment dates at the ex-dividend date net asset
value.

FEDERATED INSURANCE SERIES INFORMATION

MANAGEMENT OF FEDERATED INSURANCE SERIES

BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising
all of the Trust's powers except those reserved for the shareholders. An
Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.

INVESTMENT ADVISER. Pursuant to an investment advisory contract with the
Trust, investment decisions for the Funds are made by Federated Advisers,
the Funds' investment adviser, subject to direction by the Trustees. The
adviser continually conducts investment research and supervision for the
Funds and is responsible for the purchase or sale of portfolio instruments,
for which it receives an annual fee from each Fund.

Both the Funds and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Funds and their portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Funds' shareholders and must place the interests of shareholders ahead
of the employees' own interest. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.

ADVISORY FEES. The Funds' adviser receives an annual investment advisory fee
equal to 0.75% of the average daily net assets for Federated Utility Fund II
and 0.60% of the average daily net assets for Federated Fund for U.S.
Government Securities II and Federated High Income Bond Fund II. The adviser
may voluntarily choose to waive a portion of its fees or reimburse a Fund
for certain operating expenses. The adviser can terminate this voluntary
reimbursement of expenses at any time at its sole discretion.

ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.

Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $110 billion invested across
more than 300 funds under management and/or administration by its
subsidiaries, as of December 31, 1996, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more than
2,000 employees, Federated continues to be led by the management who founded
the company in 1955. Federated funds are presently at work in and through

4,500 financial institutions nationwide.

FUND MANAGERS

FEDERATED UTILITY FUND II. Linda A. Duessel has been the Fund's portfolio
manager since April 1995. Ms. Duessel joined Federated Investors in 1991 and
has been a Vice President of the Fund's investment adviser since 1995. Ms.
Duessel was an Assistant Vice President of the Fund's investment adviser
from 1991 until 1995. Ms. Duessel is a Chartered Financial Analyst and
received her M.S. in Industrial Administration from Carnegie Mellon
University.

FEDERATED HIGH INCOME BOND FUND II. Mark E. Durbiano has been the Fund's

portfolio manager since the Fund's inception. Mr. Durbiano joined Federated
Investors in 1982 and has been a Senior Vice President of the Fund's
investment adviser since January 1996. From 1988 through 1995, Mr. Durbiano
was a Vice President of the Fund's investment adviser. Mr. Durbiano is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Pittsburgh.

DISTRIBUTION OF FUND SHARES

Fund's investment adviser or its affiliates.

ADMINISTRATION OF THE FUNDS

ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund. Federated Services Company provides these at an annual
rate as specified below:

MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million

BROKERAGE TRANSACTIONS

With respect to Federated Utility Fund II, 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. In
working with dealers, the adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better
price and execution of the order can be obtained elsewhere. In selecting
among firms believed to meet these criteria, the adviser may give
consideration to those firms which have sold or are selling shares of
Federated Utility Fund II and other funds distributed by Federated
Securities Corp. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Trustees.

SHAREHOLDER INFORMATION

VOTING RIGHTS

As of March 24, 1997, Life of Virginia, Richmond, Virginia and Aetna
Retirement Services Central Valuation Unit, Hartford, Connecticut, owned
34.19% and 48.62%, respectively of the voting securities of Federated
Utility Fund II, and therefore, may for certain purposes be deemed to
control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders. As of March 24, 1997, United of Omaha

Life Insurance Co., Omaha, Nebraska and Aetna Retirement Services Central
Valuation Unit, Hartford, Connecticut owned 34.52% and 31.83%, respectively,
of the voting securities of Federated Fund for U.S. Government Securities
II, and therefore, may for certain purposes be deemed to control the Fund
and be able to affect the outcome of certain matters presented for a vote of
shareholders. As of March 24, 1997, Aetna Retirment Services Central
Valuation Unit, Hartford, Connecticut owned 60.83% of the voting securities
of Federated High Income Bond Fund II, and therefore, may for certain
purposes be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders. Aetna Retirement Plan
Services Central Valuation Unit is owned by Aetna Inc. United of Omaha Life
Insurance Co. is owned by Mutual of Omaha Insurance Company. Life of
Virginia is owned by General Electric Capital Assurance Company.

Each share of each of the Funds gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. All shares
of each Fund have equal voting rights, except that only shares of a
particular Fund are entitled to vote on matters affecting that Fund. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in a Fund's or the Trust's operation and for the election of
Trustees under certain circumstances.

TAX INFORMATION

FEDERAL TAXES

STATE AND LOCAL TAXES

Contract owners are urged to consult their own tax advisers regarding the

status of their contracts under state and local tax laws.

PERFORMANCE INFORMATION

From time to time Federated Utility Fund II, Federated Fund for U.S.
Government Securities II and Federated High Income Bond Fund II advertise
total return and yield.

The yields of Federated Utility Fund II, Federated Fund for U.S. Government
Securities II and Federated High Income Bond Fund II are calculated by
dividing the net investment income per share (as defined by the Securities
and Exchange Commission) earned by the Fund over a thirty-day period by the
offering price per share of the Fund on the last day of the period. This
number is then annualized using semi-annual compounding. The yield does not
necessarily reflect income actually earned by a Fund and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
Performance information for each Fund will not reflect the charges and
expenses of a variable annuity or variable life insurance contract. Because
shares of each Fund can only be purchased by a separate account of an
insurance company offering such a contract, you should review the
performance figures of the contract in which you are invested, which
performance figures will accompany any advertisement of a Fund's
performance.

From time to time, advertisements for the Funds may refer to ratings,
rankings, and other information in certain financial publications and/or
compare a Fund's performance to certain indices.

APPENDIX

STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS

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.

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.

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 B or B- rating.

C -- The rating C is reserved for income bonds on which no interest is being
paid.

D -- Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.

MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS

over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

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 INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS

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.

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 in imminent default in payment of interest or principal.

STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS

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.

MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS

* Leading market positions in well established industries.

* High rates of return on funds employed.

* Conservative capitalization structure with moderated reliance on debt and
ample asset protection.

* Broad margins in earning coverage of fixed financial charges and high
internal cash generation.

* Well-established access to a range of financial markets and assured
sources of alternate liquidity.

FITCH INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS

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 Insurance Series
Federated Utility Fund II Federated Investors Tower
Federated Fund for U.S. Pittsburgh, Pennsylvania 15222-3779
Government Securities II
Federated High Income
Bond Fund II

Distributor
Federated Securities Corp. Federated Investors Tower

Pittsburgh, Pennsylvania 15222-3779

Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600

Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600

Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401

FEDERATED INSURANCE SERIES

PROSPECTUS

An Open-End Management
Investment Company

* Federated Utility Fund II

* Federated Fund for U.S. Government Securities II

* Federated High Income Bond Fund II

April 22, 1997

[Graphic]
Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the funds
and is a subsidiary of Federated Investors.

Cusip 313916207
Cusip 313916108
Cusip 313916306
3120303A (4/97)

FEDERATED INSURANCE SERIES
offering three portfolios:
FEDERATED UTILITY FUND II
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES
II
FEDERATED HIGH INCOME BOND FUND II
STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the
prospectus of Federated Insurance Series dated April 22, 1997. This
Statement is not a prospectus itself. You may request a copy of a
prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated April 22, 1997

FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 313916108
Cusip 313916306
Cusip 313916207
3120303B (4/97)

GENERAL INFORMATION 1

INVESTMENT INFORMATION 1

Investment Objectives 1
Types of Investments 1
Currency Risk 3
Investing in Foreign Currencies 4
INVESTMENT PRACTICES OF THE FUNDS 5

Repurchase Agreements 5
Reverse Repurchase Agreements 5
Restricted and Illiquid Securities 5
When-Issued and Delayed Delivery Transactions 6
Lending of Portfolio Securities 6
Portfolio Turnover 6
INVESTMENT LIMITATIONS 6

Selling Short and Buying on Margin 6
Issuing Senior Securities and Borrowing Money 7
Pledging Assets 7
Concentration of Investments 7
Investing in Commodities 7
Investing in Real Estate 7
Lending Cash or Securities 7
Underwriting 7
Diversification of Investments 8
Investing in Illiquid Securities 8
Investing in Put Options 8
Writing Covered Call Options 8

Investing in Securities of Foreign Issuers 8
FEDERATED INSURANCE SERIES MANAGEMENT 9

Fund Ownership 12
Trustees Compensation 13
Trustee Liability 14
INVESTMENT ADVISORY SERVICES 14

Adviser to the Funds 14
Advisory Fees 14
BROKERAGE TRANSACTIONS 14

OTHER SERVICES 15

Fund Administration 15
Custodian and Portfolio Accountant 15
Transfer Agent 15
Independent Auditors 15
PURCHASING SHARES 15

DETERMINING NET ASSET VALUE 15

Determining Market Value of Securities 16
MASSACHUSETTS PARTNERSHIP LAW 16

TAX STATUS 16

The Funds' Tax Status 16
Shareholders' Tax Status 16
TOTAL RETURN 17

YIELD 17

PERFORMANCE COMPARISONS 17

Economic and Market Information 19
ABOUT FEDERATED INVESTORS 19

Mutual Fund Market 20
Institutional Clients 20
Bank Marketing 20
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 20
FINANCIAL STATEMENTS 20

GENERAL INFORMATION

This Statement of Additional Information includes information about three
of the Trust's portfolios (individually referred to as a `Fund'' and
collectively as the `Funds''):
oFederated Utility Fund II;
oFederated Fund for U.S. Government Securities II; and
oFederated High Income Bond Fund II.
The Funds are portfolios of Federated Insurance Series (the `Trust''),
which was established as Insurance Management Series, a Massachusetts
business trust, under a Declaration of Trust dated September 15, 1993. At a
meeting of the Board of Trustees (the `Trustees'') held on November 14,
1995, the Trustees approved an amendment to the Declaration of Trust to
change the name of the Trust from Insurance Management Series to Federated
Insurance Series. At a meeting of the Trustees held on February 26, 1996,
the Trustees approved an amendment to the Declaration of Trust to change
the names of the Funds from Utility Fund to Federated Utility Fund II; U.S.
Government Bond Fund to Federated Fund for U.S. Government Securities II;
and Corporate Bond Fund to Federated High Income Bond Fund II. The
Declaration of Trust permits the Trust to offer separate series of shares
of beneficial interest in separate portfolios of securities, including the
Funds. The shares in any one portfolio may be offered in separate classes.
As of the date of this Statement, the Trustees have not established
separate classes of shares.
Shares of the Funds are sold only to insurance companies as funding
vehicles for variable annuity and variable life insurance contracts issued
by the insurance companies. The Trust has separate portfolios. An insurance
company chooses which portfolios to make available as funding vehicles for
its variable annuity and variable life insurance policies.

INVESTMENT INFORMATION

INVESTMENT OBJECTIVES
FEDERATED UTILITY FUND II
Federated Utility Fund II's investment objective is to achieve high
current income and moderate capital appreciation.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
Federated Fund for U.S. Government Securities II's investment
objective is to provide current income. Current income includes, in
general, discount earned on U.S. Treasury bills and agency discount
notes, interest earned on all other U.S. government securities and
short-term capital gains.
FEDERATED HIGH INCOME BOND FUND II
Federated High Income Fund II's investment objective is to seek high
current income.
The investment objectives of the Funds cannot be changed without the
approval of shareholders.
TYPES OF INVESTMENTS
FEDERATED UTILITY FUND II
Federated Utility Fund II endeavors to achieve its investment objective by
investing primarily in a professionally managed, diversified portfolio of
equity and debt securities of utility companies.

U.S. GOVERNMENT OBLIGATIONS
The Fund may also invest in U.S. government obligations which
generally include direct obligations of the U.S. Treasury (such as
U.S. Treasury bills, notes, and bonds) and obligations issued and/or

guaranteed by U.S. government agencies or instrumentalities. These
securities are backed by:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
othe credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always
receive financial support from the U.S. government are:
o Farm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks and Banks for Cooperatives;
oFederal Home Loan Banks;
oFederal Home Loan Mortgage Corporation;
oFederal National Mortgage Association; and
oStudent Loan Marketing Association.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
Federated Fund for U.S. Government Securities II invests in U.S. government
securities which are primary or direct obligations of the U.S. government
or its agencies or instrumentalities, or which are guaranteed by the U.S.
government, its agencies or instrumentalities, and in certain
collateralized mortgage obligations described below, and repurchase
agreements.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
Privately issued CMOs generally represent an ownership interest in
federal agency mortgage pass-through securities such as those issued
by the Government National Mortgage Association. The terms and

characteristics of the mortgage instruments may vary among pass-
through mortgage loan pools.
The market for such CMOs has expanded considerably since its
inception. The size of the primary issuance market and the active
participation in the secondary market by securities dealers and other
investors make government-related pools highly liquid.
STRIPPED MORTGAGE-RELATED SECURITIES
Some of the mortgage-related securities purchased by the Fund may
represent an interest solely in the principal repayments or solely in
the interest payments on mortgage-backed securities (stripped
mortgage-backed securities or `SMBSs''). Due to the possibility of
prepayments on the underlying mortgages, SMBSs may be more interest-
rate sensitive than other securities purchased by the Fund. If
prevailing interest rates fall below the level at which SMBSs were
issued, there may be substantial prepayment on the underlying
mortgages, leading to the relatively early prepayment of principal-
only SMBSs and a reduction in the amount of payment made to holders of
interest-only SMBSs. It is possible that the Fund might not recover
its original investment on interest-only SMBSs if there are
substantial prepayments on the underlying mortgages. Therefore,
interest-only SMBSs generally increase in value as interest rates rise
and decrease in value as interest rates fall, counter to changes in
value experienced by most fixed income securities. The Fund's adviser
intends to use this characteristic of interest-only SMBSs to reduce
the effects of interest rate changes on the value of the Fund's
portfolio, while continuing to pursue current income.

FEDERATED HIGH INCOME BOND FUND II
Federated High Income Bond Fund II endeavors to achieve its objective by
investing primarily in a professionally managed, diversified portfolio of
fixed income securities. Some of these fixed income securities may involve
equity features. Capital growth will be considered, but only when
consistent with the investment objective of high current income.
CORPORATE DEBT SECURITIES
Corporate debt securities may bear fixed, fixed and contingent, or
variable rates of interest. They may involve equity features such as
conversion or exchange rights, warrants for the acquisition of common
stock of the same or a different issuer, participations based on
revenues, sales or profits, or the purchase of common stock in a unit
transaction (where corporate debt securities and common stock are
offered as a unit).
Equipment lease or trust certificates are secured obligations issued
in serial form, usually sold by transportation companies such as
railroads or airlines, to finance equipment purchases. The certificate
holders own a share of the equipment, which can be resold if the
issuer of the certificate defaults. The Fund does not currently intend
to invest more than 5% of its assets in equipment lease certificates.
EQUITY SECURITIES
Generally, less than 10% of the value of the Fund's total assets will
be invested in equity securities, including common stocks, warrants,
or rights. The Fund's investment adviser may choose to exceed this 10%
limitation if unusual market conditions suggest such investments

represent a better opportunity to reach the Fund's investment
objective.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments for defensive
purposes during times of unusual market conditions.
CERTIFICATES OF DEPOSIT
The Fund may invest in certificates of deposit of domestic and foreign
banks and savings associations if they have capital, surplus, and
undivided profits of over $100,000,000, or if the principal amount of
the instrument is insured by the Bank Insurance Fund (`BIF'') or the
Savings Association Insurance Fund (`SAIF''), both of which are
administered by the Federal Deposit Insurance Corporation (`FDIC'').
These instruments may include Eurodollar Certificates of Deposit
issued by foreign branches of U.S. or foreign banks, Eurodollar Time
Deposits which are U.S. dollardenominated deposits in foreign branches
of U.S. or foreign banks, Canadian Time Deposits which are U.S.
dollar-denominated deposits issued by branches of major Canadian banks
located in the United States, and Yankee Certificates of Deposit which
are U.S. dollar-denominated certificates of deposit issued by U.S.
branches of foreign banks and held in the United States.
CURRENCY RISK
To the extent that debt securities purchased by the Fund are
denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Fund's net asset
value, the value of interest earned, gains and losses realized on the
sale of securities, and net investment income and capital gains, if
any, to be distributed to shareholders by the Fund. If the value of a
foreign currency rises against the U.S. dollar, the value of the Fund

assets denominated in that currency will increase; correspondingly, if
the value of a foreign currency declines against the U.S. dollar, the
value of Fund assets denominated in that currency will decrease.
The exchange rates between the U.S. dollar and foreign currencies are
a function of such factors as supply and demand in the currency
exchange markets, international balances of payments, governmental
intervention, speculation and other economic and political conditions.
Although the Fund values its assets daily in U.S. dollars, the Fund
may not convert its holdings of foreign currencies to U.S. dollars
daily. When the Fund converts its holdings to another currency, it may
incur conversion costs. Foreign exchange dealers may realize a profit
on the difference between the price at which they buy and sell
currencies.

The Fund will engage in foreign currency exchange transactions in
connection with its investments in foreign securities. The Fund will
conduct its foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or through forward contracts to purchase or sell
foreign currencies.
INVESTING IN FOREIGN CURRENCIES
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts in
order to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and a
foreign currency involved in an underlying transaction. However,
forward foreign currency exchange contracts may limit potential gains

which could result from a positive change in such currency
relationships. The Fund's investment adviser believes that it is
important to have the flexibility to enter into forward foreign
currency exchange contracts whenever it determines that it is in the
Fund's best interest to do so. The Fund will not speculate in foreign
currency exchange.
There is no limitation as to the percentage of the Fund's assets that
may be committed to such contracts.
The Fund does not enter into forward foreign currency exchange
contracts or maintain a net exposure in such contracts when the Fund
would be obligated to deliver an amount of foreign currency in excess
of the value of the Fund's portfolio securities or other assets
denominated in that currency or, in the case of a `cross-hedge''
denominated in a currency or currencies that the Fund's adviser
believes will tend to be closely correlated with the currency with
regard to price movements. Generally, the Fund does not enter into a
forward foreign currency exchange contract with a term longer than one
year.
FOREIGN CURRENCY OPTIONS
A foreign currency option provides the option buyer with the right to
buy or sell a stated amount of foreign currency at the exercise price
on a specified date or during the option period. The owner of a call
option has the right, but not the obligation, to buy the currency.
Conversely, the owner of a put option has the right, but not the
obligation to sell the currency.
When the option is exercised, the seller (i.e., writer) of the option
is obligated to fulfill the terms of the sold option. However, either

the seller or the buyer may, in the secondary market, close its
position during the option period at any time prior to expiration.
A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on foreign
currency generally falls in value if the underlying currency
depreciates in value. Although purchasing a foreign currency option
can protect the Fund against an adverse movement in the value of a
foreign currency, the option will not limit the movement in the value
of such currency. For example, if the Fund were holding securities
denominated in a foreign currency that was appreciating and had
purchased a foreign currency put to hedge against a decline in the
value of the currency, the Fund would not have to exercise its put
option. Likewise, if the Fund were to enter into a contract to
purchase a security denominated in foreign currency and, in
conjunction with that purchase, were to purchase a foreign currency
call option to hedge against a rise in value of the currency, and if
the value of the currency instead depreciated between the date of
purchase and the settlement date, the Fund would not have to exercise
its call. Instead, the Fund could acquire in the spot market the
amount of foreign currency needed for settlement.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS
Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally.
In addition, there are certain additional risks associated with
foreign currency options. The markets in foreign currency options are
relatively new, and the Fund's ability to establish and close out
positions on such options is subject to the maintenance of a liquid
secondary market. Although the Fund will not purchase or write such

options unless and until, in the opinion of the Fund's adviser, the
market for them has developed sufficiently to ensure that the risks in
connection with such options are not greater than the risks in
connection with the underlying currency, there can be no assurance
that a liquid secondary market will exist for a particular option at
any specific time.

In addition, options on foreign currencies are affected by all of
those factors that influence foreign exchange rates and investments
generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the
price of the option position may vary with changes in the value of
either or both currencies and may have no relationship to the
investment merits of a foreign security. Because foreign currency
transactions occurring in the interbank market involve substantially
larger amounts than those that may be involved in the use of foreign
currency options, investors may be disadvantaged by having to deal in
an odd lot market (generally consisting of transactions of less than
$1 million) for the underlying foreign currencies at prices that are
less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely
basis.
Available quotation information is generally representative of very
large transactions in the interbank market and thus may not reflect

relatively smaller transactions (i.e. less than $1 million) where
rates may be less favorable. The interbank market in foreign
currencies is a global, around-the-clock market. To the extent that
the U.S. option markets are closed while the markets for the
underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets until they reopen.
INVESTMENT PRACTICES OF THE FUNDS

Funds' adviser to be creditworthy pursuant to guidelines established by the
Trustees.
REVERSE REPURCHASE AGREEMENTS
The Funds may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, a Fund transfers possession of a portfolio instrument to another
person, such as a financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future a Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an
agreed upon rate.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933. Section 4(2) commercial paper is restricted as to disposition
under federal securities law and is generally sold to institutional
investors, such as the Funds, who agree that they are purchasing the paper
for investment purposes and not with a view to public distribution. Any
resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors like
the Funds through or with the assistance of the issuer or investment
dealers who make a market in Section 4(2) commercial paper, thus providing
liquidity.

The Trustees may consider the following criteria in determining the
liquidity of certain restricted securities:
othe frequency of trades and quotes for the security;
othe number of dealers willing to purchase or sell the security and
the number of other potential buyers;
odealer undertakings to make a market in the security; and
othe nature of the security and the nature of the marketplace trades.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for a Fund. No fees or other expenses, other
than normal transactions costs, are incurred. However, liquid assets of a
Fund sufficient to make payment for the securities to be purchased are
segregated on a Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Funds do not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of their assets.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, all of the Funds may lend their
portfolio securities, up to one-third of the value of each Fund's total
assets, to broker/dealers, banks, or other institutional borrowers of
securities. The collateral received when the Fund lends portfolio
securities must be valued daily and, should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund. During the time portfolio securities are on loan, the borrower pays
the Fund any dividends or interest paid on such securities. Loans are
subject to termination at the option of the Fund or the borrower. The Fund

may pay reasonable administrative and custodial fees in connection with a
loan and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund does not
have the right to vote securities or loan but would terminate the loan and
regain the right to vote if that were considered important with respect to
the investment.
PORTFOLIO TURNOVER
Securities in a Fund's portfolio will be sold whenever a Fund's investment
adviser believes it is appropriate to do so in light of the Fund's
investment objectives, without regard to the length of time a particular
security may have been held. Federated Fund for U.S. Government Securities
II's policy of managing its portfolio of U.S. government securities,
including the sale of securities held for a short period of time, to
achieve its investment objective of current income may result in high
portfolio turnover. Federated Fund for U.S. Government Securities II will
not attempt to set or meet a portfolio turnover rate as any turnover would
be incidental to transactions undertaken in an attempt to achieve the
Fund's investment objective.
For fiscal years ended December 31, 1996 and 1995, the portfolio turnover
rates of Federated Utility Fund II were 63% and 62%, respectively. For the
fiscal years ended December 31, 1996 and 1995, the portfolio turnover rates
of Federated Fund for U.S. Government Securities II were 97% and 65%,
respectively. For the fiscal years ended December 31, 1996 and 1995, the
portfolio turnover rates of Federated High Income Bond Fund II were 51% and
48%, respectively.

INVESTMENT LIMITATIONS

SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short or purchase any
securities on margin, but may obtain such short-term credits as may be
necessary for clearance of purchases and sales of portfolio
securities. The deposit or payment by Federated Utility Fund II of
initial or variation margin in connection with futures contracts or
related options transactions is not considered the purchase of a
security on margin.

ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Funds will not issue senior securities except that each Fund may
borrow money directly or through reverse repurchase agreements as a
temporary, extraordinary, or emergency measure to facilitate
management of the portfolio by enabling such Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous, and then only in amounts not in
excess of one- third of the value of such Fund's total assets;
provided that, while borrowings and reverse repurchase agreements
outstanding exceed 5% of each such Fund's total assets, any such
borrowings will be repaid before additional investments are made. The
Funds will not borrow money or engage in reverse repurchase agreements
for investment leverage purposes.
PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, each Fund may
mortgage, pledge or hypothecate assets having a market value not

exceeding the lesser of the dollar amounts borrowed or 15% of the
value of total assets at the time of the time of borrowing. For
purposes of this limitation, the following are not deemed to be
pledges by Federated Utility Fund II: margin deposits for the purchase
and sale of futures contracts and related options, any segregation or
collateral arrangements made in connection with options activities or
the purchase of securities on a when-issued basis.
CONCENTRATION OF INVESTMENTS
Federated Utility Fund II will not purchase securities if, as a result
of such purchase, 25% or more of its total assets would be invested in
securities of companies engaged principally in any one industry other
than the utilities industry. However, Federated Utility Fund II may at
any time invest 25% or more of its total assets in cash or cash items
and securities issued and/or guaranteed by the U.S. government, its
agencies or instrumentalities.
Federated High Income Bond Fund II and Federated Fund for U.S.
Government Securities II will not purchase securities if, as a result
of such purchase, 25% or more of their respective total assets would
be invested in any one industry. However, each Fund may at any time
invest 25% or more of its respective total assets in cash or cash
items and securities issued and/or guaranteed by the U.S. government,
its agencies or instrumentalities.
INVESTING IN COMMODITIES
The Funds will not purchase or sell commodities, commodity contracts,
or commodity futures contracts, except that Federated Utility Fund II
may purchase and sell futures and stock index futures contracts and
related options.

INVESTING IN REAL ESTATE
The Funds will not purchase or sell real estate, including limited
partnership interests in real estate, although each Fund may invest in
securities of companies whose business involves the purchase or sale
of real estate or in securities secured by real estate or interests in
real estate.
LENDING CASH OR SECURITIES
No Fund will lend any of its assets, except portfolio securities up to
one-third of its total assets. This shall not prevent a Fund from
purchasing or holding corporate or U.S. government bonds, debentures,
notes, certificates of indebtedness or other debt securities of an
issuer, entering into repurchase agreements, or engaging in other
transactions which are permitted by the Fund's investment objectives
and policies or the Trust's Declaration of Trust.
UNDERWRITING
No Fund will not underwrite any issue of securities, except as such
Fund may be deemed to be an underwriter under the Securities Act of
1933 in connection with the sale of securities in accordance with its
respective investment objectives, policies, and limitations.

DIVERSIFICATION OF INVESTMENTS
With respect to 75% of its total assets, no Fund will purchase the
securities of any one issuer (other than cash, cash items, or
securities issued and/or guaranteed by the U.S. government, its
agencies or instrumentalities, and repurchase agreements
collateralized by such securities) if, as a result, more than 5% of

such Fund's total assets would be invested in the securities of that
issuer.
In addition, no Fund will purchase more than 10% of any class of the
outstanding voting securities of any one issuer. For these purposes,
the Funds consider common stock and all preferred stock of an issuer
each as a single class, regardless of priorities, series,
designations, or other differences.
The above investment limitations cannot be changed by the Funds without
shareholder approval. The following limitations, however, may be changed by
the Trustees without shareholder approval. Shareholders will be notified
before any material changes in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
Federated Utility Fund II and Federated Fund for U.S. Government
Securities II will not invest more than 15% of their respective net
assets in illiquid securities, including, among others, repurchase
agreements providing for settlement more than seven days after notice,
over-the counter options (with respect to Federated Utility Fund II)
and certain restricted securities not determined by the Trustees to be
liquid.
Federated High Income Bond Fund II will not invest more than 15% of
its total assets in illiquid securities, including repurchase
agreements providing for settlement in more than seven days after
notice and certain restricted securities not determined by the
Trustees to be liquid.
INVESTING IN PUT OPTIONS
Federated Utility Fund II 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
Federated Utility Fund II 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.
INVESTING IN SECURITIES OF FOREIGN ISSUERS
Federated Utility Fund II may invest up to 10% of its total assets in
the utility securities of developing countries.
With respect to all of the Funds, 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 of
total or net assets will not result in a violation of such restriction.
No Fund has any present intention to borrow money in excess of 5% of the
value of its net assets during the coming fiscal year.
For purposes of their policies and limitations, the Funds consider
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings association having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment
to be `cash items.''

FEDERATED INSURANCE SERIES MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Insurance Series, and principal occupations.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937

Trustee
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.

Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street

Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.

Gregor F. Meyer
Boca Grande Club
Boca Grande, FL
Birthdate: October 6, 1926
Trustee
Attorney, Retired Member of Miller, Ament, Henny & Kochuba; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or
Trustee of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935

Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer

Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.

Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated
ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.;
Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust;
Federated Government Income Securities, Inc.; Federated Government Trust;
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 Portfolios; Federated Investment Trust; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government 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.; First Priority Funds; Fixed
Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds;
RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; and World Investment Series, Inc.

FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of March 24, 1997, the following shareholders of record owned 5% or more
of the outstanding shares of Federated Utility Fund II: Life of Virginia,
Richmond, Virginia owned 1,948,269 shares (34.19%); Lincoln Benefit Life
Co., Lincoln, Nebraska owned 351,937 shares (6.18%); and Aetna Retirement
Services Central Valuation Unit, Hartford, Connecticut owned 2,770,027
shares (48.62%).

As of March 24, 1997, the following shareholders of record owned 5% or more
of the outstanding shares of Federated Fund for U.S. Government Securities
II: Provident Mutual, Valley Forge, Pennsylvania owned 210,447 shares
(5.34%); United of Omaha Life Insurance Co., Omaha, Nebraska owned
1,361,165 shares (34.52%); Transamerica Occidental Life Insurance Co.,
Charlotte, North Carolina owned 441,046 shares (11.18%); Lincoln Benefit
Life Co., Lincoln, Nebraska owned 263,646 shares (6.69%); and Aetna
Retirement Services Central Valuation Unit, Hartford, Connecticut owned
1,255,021 shares (31.83%).
As of March 24, 1997, the following shareholders of record owned 5% or more
of the outstanding shares of Federated High Income Bond Fund II: Life of
Virginia, Richmond, Virginia owned 1,328,893 shares (18.42%); Lincoln
Benefit Life Co., Lincoln, Nebraska owned 560,500 shares (7.77%); and Aetna
Retirement Services Central Valuation Unit, Hartford, Connecticut owned
4,388,070 shares (60.83%).
TRUSTEES COMPENSATION

AGGREGATE

NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +

John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in
the Fund Complex
Thomas G. Bigley $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
John T. Conroy, Jr. $1,270 $119,615 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
William J. Copeland $1,270 $119,615 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
J. Christopher Donahue, $0 $0 for the Trust and
President and Trustee 15 other investment companies in
the Fund Complex
James E. Dowd $1,270 $119,615 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
Lawrence D. Ellis, M.D. $1,154 $108,725 for the Trust
and
Trustee 56 other investment companies in
the Fund Complex
Edward L. Flaherty, Jr. $1,270 $119,615 for the Trust
and

Trustee 56 other investment companies in
the Fund Complex
Peter E. Madden $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
Gregor F. Meyer $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
John E. Murray, Jr., $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
Wesley W. Posvar $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
Marjorie P. Smuts $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex

subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES

ADVISER TO THE FUNDS
The Funds' investment adviser is Federated Advisers. It is a subsidiary of
Federated Investors. All voting securities of Federated Investors are owned
by a trust, the trustees of which are John F. Donahue, his wife and his
son, J. Christopher Donahue.
The adviser shall not be liable to the Funds or any 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.
ADVISORY FEES
For its advisory services, Federated Advisers receives annual investment
advisory fees as described in the prospectus.
For the fiscal years ended December 31, 1996 and 1995, and for the period
from December 9, 1993 (start of business) to December 31, 1994, the adviser
earned advisory fees from Federated Utility Fund II of $361,797, $89,752
and $2,077, respectively, of which $ 248,058, $89,752 and $2,077, were
voluntarily waived. For the fiscal years ended December 31, 1996 and 1995,
and for the period from December 8, 1993 (start of business) to December
31, 1994, the adviser earned advisory fees from Federated Fund for U.S.
Government Securities II of $141,092, $30,456 and $2,605, respectively, all
of which were voluntarily waived. For the fiscal years ended December 31,
1996 and 1995, and for the period from December 9, 1993 (start of business)
to December 31, 1994, the adviser earned advisory fees from Federated High

Income Bond Fund II of $240,233, $46,425 and $7,966, respectively, of which
$203,132, $46,425 and $7,966 were voluntarily waived.
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. In working with dealers, 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 makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the
Funds or to the adviser and 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 provided by brokers and dealers may be
used by the adviser or by affiliates in advising the Funds and other
accounts. To the extent that receipt of these services may supplant
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 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. During the fiscal years ended December 31, 1996 and
1995, and for the period from December 9, 1993 (start of business) to
December 31, 1994, Federated Utility Fund II paid total brokerage
commissions of $81,701, $59,746 and $476, respectively. For the fiscal

years ended December 31, 1996 and 1995, and for the period from December 8,
1993 (start of business) to December 31, 1994, Federated Fund for U.S.
Government Securities II paid $0, $322 and $0, respectively in brokerage
commissions on brokerage transactions. For the fiscal years ended December
31, 1996 and 1995, and for the period from December 9, 1993 (start of
business) to December 31, 1994, Federated High Income Bond Fund II paid no
brokerage commissions.

Although investment decisions for the Funds are made independently from
those of the other accounts managed by the adviser, investments of the type
the Funds may make may also be made by those other accounts. When the Funds
and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Funds or
the size of the position obtained or disposed of by the Funds. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Funds.
OTHER SERVICES

Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the `Administrators.'' For the fiscal years ended December 31, 1996 and
1995, and for the period from December 9, 1993 (start of business) to
December 31, 1994, the Administrators earned $125,000, $125,000 and
$73,289, respectively, from Federated Utility Fund II. For the fiscal
years ended December 31, 1996 and 1995, and for the period from December 8,
1993 (start of business) to December 31, 1994, the Administrators earned
$125,000, $125,000 and $63,015, respectively, from Federated Fund for U.S.
Government Securities II. For the fiscal years ended December 31, 1996 and
1995, and for the period from December 9, 1993 (start of business) to
December 31, 1994, the Administrators earned $125,000, $125,000 and
$52,398, respectively, from Federated High Income Bond Fund II.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Funds. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
each Fund's portfolio investments. The fee paid for this service is based
upon the level of each Fund's average net assets for the period plus out-
of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on the
size, type and number of accounts and transactions made by shareholders.

INDEPENDENT AUDITORS
The independent auditors for the Funds are Deloitte & Touche LLP,
Pittsburgh, PA.
PURCHASING SHARES

Shares of the Funds are sold at their net asset value without a sales
charge on days the New York Stock Exchange is open for business. The
procedure for purchasing shares of the Funds is explained in the Prospectus
under `Purchases and Redemptions'' and ``What Shares Cost.''
DETERMINING NET ASSET VALUE

The net asset value of the Federated Utility Fund II, Federated Fund for
U.S. Government Securities II and Federated High Income Bond Fund II
generally changes each day. The days on which net asset value is calculated
by the Funds are described in the prospectus.

DETERMINING MARKET VALUE OF SECURITIES
The values of the portfolio securities in Federated Utility Fund II,
Federated Fund for U.S. Government Securities II and Federated High Income
Bond Fund II are determined as follows:
ofor equity securities and bonds and other fixed income securities,
according to the last sale price on a national securities exchange,
if available;
oin the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;
ofor bonds and other fixed income securities, at the last sale price
on a national securities exchange, if available, otherwise as
determined by an independent pricing service;

ofor unlisted equity securities, the latest mean prices;
ofor short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service; or
ofor all other securities, at fair value as determined in good faith
by the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading
in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics, and other market data.
MASSACHUSETTS PARTNERSHIP LAW

TAX STATUS

THE FUNDS' TAX STATUS
The Funds will pay no federal income tax because each expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, a Fund must,
among other requirements:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Each Fund intends to comply with the variable asset diversification
regulations which are described in the Prospectus and this Statement of
Additional Information. If a Fund fails to comply with these regulations,
contracts invested in that fund shall not be treated as annuity, endowment,
or life insurance contracts under the Internal Revenue Code.
Contract owners should review the contract prospectus for information
concerning the federal income tax treatment of their contracts and
distributions from each Fund to the separate accounts.

TOTAL RETURN

For the fiscal year ended December 31, 1996, and for the period from April
14, 1994 (date of initial public investment), to December 31, 1996, the
average annual total returns for Federated Utility Fund II were 11.56% and
10.63%, respectively. For the fiscal year December 31, 1996, and for the
period from March 29, 1994, (date of initial public investment), to
December 31, 1996, the average annual total returns for Federated Fund for
U.S. Government Securities II were 4.20% and 5.62%, respectively. For the
fiscal year ended December 31, 1996, and for the period from February 2,
1994 (date of initial public investment), to December 31, 1996, the average
annual total returns for Federated High Income Bond Fund II were 14.31% and
10.48%, respectively.
The average annual total returns for Federated Utility Fund II, Federated
Fund for U.S. Government Securities II and Federated High Income Bond Fund
II are the average compounded rates 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 offering price 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, adjusted over the period by any additional shares,
assuming the monthly or quarterly, as applicable, reinvestment of all
dividends and distributions. You should review the performance figures for
your insurance contract, which figures reflect the applicable charges and
expenses of the contract. Such performance figures will accompany any
advertisement of a Fund's performance.

YIELD

The 30-day yields for Federated Utility Fund II, Federated Fund for U.S.
Government Securities II and Federated High Income Bond Fund II for the
thirty-day period ended December 31, 1996, were 3.29%, 5.96%, and 8.87%,
respectively.
The yields for Federated Utility Fund II, Federated Fund for U.S.
Government Securities II and Federated High Income Bond Fund II are
determined by dividing the net investment income per share (as defined by
the Securities and Exchange Commission (`SEC'')) earned by the Fund over a
thirty-day period by the offering price per share of the Fund on the last
day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a twelve-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Fund because of certain adjustments
required by the SEC and, therefore, may not correlate to the dividends or
other distributions paid to shareholders. Also the yield does not reflect
the charges and expenses of an insurance contract. You should review the
performance figures for your contract, which figures reflect the applicable
charges and expenses of the contract. Such performance figures will
accompany any advertisement of the Fund's performance.
PERFORMANCE COMPARISONS

ochanges in Fund expenses; and
othe relative amount of the Fund's cash flow.

A Fund's performance fluctuates on a daily basis largely because net
earnings and net asset value per share fluctuate daily. Both net earnings
and net asset value per share are factors in the computation of yield and
total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Funds' performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute net
asset value. The financial publications and/or indices which the Funds use
in advertising may include:
oDOW JONES INDUSTRIAL AVERAGE is an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by the Dow Jones & Company, it is
cited as a principal indicator of market conditions.
oSTANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industrial, transportation, and
financial and public utility companies, can be used to compare to
the total returns of funds whose portfolios are invested primarily
in common stocks. In addition, the Standard & Poor's index assumes
reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in the Standard & Poor's figures.

oLIPPER 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 Trust
may quote its Lipper ranking in various fund categories in
advertising and sales literature.
oLEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) INDEX is comprised of
approximately 5,000 issues which include: non-convertible bonds
publicly issued by the U.S. government or its agencies; corporate
bonds guaranteed by the U.S. government and quasi-federal
corporations; and publicly issued, fixed-rate, non- convertible
domestic bonds of companies in industry, public utilities and
finance. The average maturity of these bonds approximates nine
years. Tracked by Lehman Brothers, Inc., the index calculates total
returns for one month, three month, twelve month, and ten year
periods and year-to-date.
oLEHMAN BROTHERS GOVERNMENT/CORPORATE (LONG-TERM) INDEX is composed
of the same types of issues as defined above. However, the average
maturity of the bonds included in this index approximates 22 years.
oLEHMAN BROTHERS GOVERNMENT INDEX is an unmanaged index comprised of
all publicly issued, non-convertible domestic debt of the U.S.
government, or any agency thereof, or any quasi-federal corporation
and of corporate debt guaranteed by the U.S. government. Only notes
and bonds with a minimum outstanding principal of $1 million and a
minimum maturity of one year are included.
oLEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX includes 15- and
30-year fixed-rated securities backed by mortgage pools of the
Government National Mortgage Association, Federal Home Loan Mortgage

Corporation, and Federal National Mortgage Corporation. Graduated
payment mortgages and balloons are included in the index.
oMORNINGSTAR, 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.
OBANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, is a
financial reporting service which publishes weekly average rates of
50 leading bank and thrift institution money market deposit
accounts. The rates published in the index are an average of the
personal account rates offered on the Wednesday prior to the date of
publication by ten of the largest banks and thrifts in each of the
five largest Standard Metropolitan Statistical Areas. Account
minimums range upward from $2,500 in each institution, and
compounding methods vary. If more than one rate is offered, the
lowest rate is used. Rates are subject to change at any time
specified by the institution.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day compound
(effective) yield. From time to time, a Fund will quote its MONEY
ranking in advertising and sales literature.

oSTANDARD & POOR'S UTILITY INDEX is an unmanaged index of common
stocks from forty different utilities. This index indicates daily
changes in the price of the stocks. The index also provides figures

for changes in price from the beginning of the year to date, and for
a twelve month period.
oDOW JONES UTILITY INDEX is an unmanaged index comprised of fifteen
utility stocks that tracks changes in price daily and over a six
month period. The index also provides the highs and lows for each of
the past five years.
oSTANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industrial, transportation, and
financial and public utility companies, can be used to compare to
the total returns of funds whose portfolios are invested primarily
in common stocks. In addition, the Standard & Poor's index assumes
reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in the Standard & Poor's figures.
oLEHMAN BROTHERS HIGH YIELD INDEX and its sub-indices are based on
credit quality and/or duration. The Lehman Brothers High Yield Index
covers the universe of fixed rate, publicly issued, non-investment
grade debt registered with the SEC. All bonds included in the High
Yield Index must be dollar-denominated and non-convertible and have
at least one year remaining to maturity and an outstanding par value
of at least $100 million. Generally securities must be rated Ba1 or
lower by Moody's Investors Service, including defaulted issues. If
no Moody's rating is available, bonds must be rated BB+ or lower by
S&P; and if no S&P rating is available, bonds must be rated below
investment grade by Fitch Investors Service. A small number of
unrated bonds is included in the index; to be eligible they must
have previously held a high yield rating or have been associated
with a high yield issuer, and must trade accordingly.

Advertisements and other sales literature for the Funds may quote total
returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in
the Funds based on monthly reinvestment of dividends over a specific period
of time.
From time to time as it deems appropriate, the Funds may advertise their
performance using charts, graphs and descriptions, compared to federally
insured bank products including certificates of deposit and time deposits
and to money market funds using the Lipper Analytical Services money market
instrument average.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Funds' returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Funds can
compare their performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Funds may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Funds. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual funds industry, including the growth of the industry, from
sources such as the Investment Company Institute.

ABOUT FEDERATED INVESTORS

Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the equity sector, Federated Investors has more than 26 years
experience. As of December 31, 1996, Federated managed 31 equity funds
totaling approximately $7.6 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.

In the government sector, as of December 31, 1996, Federated managed 9
mortgage-backed, 5 government/agency and 17 government money market mutual
funds, with assets approximating $6.3 billion, $1.7 billion and $23.6
billion, respectively. Federated trades approximately $309 million in U.S.
government and mortgage-backed securities daily and places $17 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 nearly $30 billion in
government funds within these maturity ranges.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international and global portfolios.
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 $3.5 trillion to the more than 6,000
funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, 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 advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with 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 Mark R.
Gensheimer, Executive 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, Federated Securities Corp.
FINANCIAL STATEMENTS

The Funds' Financial Statements for the fiscal year ended December 31,
1996, are incorporated herein by reference to the Annual Reports of the
Funds dated December 31, 1996 (File Nos. 33-69268 and 811-8042). Copies of
the Reports may be obtained without charge by contacting the respective
Fund.

*Source: Investment Company Institute

FEDERATED AMERICAN LEADERS FUND II
(A Portfolio of Federated Insurance Series)

SUPPLEMENT TO THE PROSPECTUS DATED APRIL 22, 1997

Please delete Michael J. Donnelly's biographical information from page 9
and replace it with the following:
`Michael P. Donnelly has been the Fund's portfolio manager since
April 1997. Mr. Donnelly joined Federated in 1989 as an Investment
Analyst and has been a Vice President of the Fund's adviser since
1994. He served as an Assistant Vice President of the Fund's adviser
from 1992 to 1994. Mr. Donnelly is a Chartered Financial Analyst and
received his M.B.A. from the University of Virginia.''
April 22, 1997

FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 313916405
G01083-14 (4/97)

FEDERATED AMERICAN LEADERS FUND II
(A PORTFOLIO OF FEDERATED INSURANCE SERIES)

PROSPECTUS
This prospectus offers shares of Federated American Leaders Fund II (the
"Fund"), which is a diversified investment portfolio in Federated Insurance
Series (the "Trust"), an open-end, diversified management investment
company. The primary investment objective of the Fund is to achieve
long-term growth of capital. The Fund's secondary objective is to provide
income. Shares of the Fund may be sold only to separate accounts of
insurance companies to serve as the investment medium for variable life
insurance policies and variable annuity contracts issued by insurance
companies.

This prospectus contains the information you should read and know before you
invest in the Fund through the variable annuity contracts and variable life
insurance policies offered by insurance companies which provide for

investment in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated April
22, 1997, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information, or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information or to make inquiries
about the Fund, contact the Fund at the address listed in the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
FUND SHARES ARE AVAILABLE EXCLUSIVELY AS FUNDING VEHICLES FOR LIFE INSURANCE
COMPANIES WRITING VARIABLE ANNUITY CONTRACTS AND VARIABLE LIFE INSURANCE
POLICIES. THIS PROSPECTUS SHOULD BE ACCOMPANIED BY THE PROSPECTUS FOR SUCH
CONTRACTS.
Prospectus dated April 22, 1997
TABLE OF CONTENTS

<TABLE>
<S> <C>
FINANCIAL HIGHLIGHTS 1
GENERAL INFORMATION 2
INVESTMENT INFORMATION 2
Investment Objectives 2
Investment Policies 2
Investment Limitations 6
NET ASSET VALUE 6
INVESTING IN THE FUND 7
Purchases and Redemptions 7
What Shares Cost 7
Dividends 7
FUND INFORMATION 8
Management of the Fund 8
Distribution of Fund Shares 9
Administration of the Fund 9
Brokerage Transactions 10
SHAREHOLDER INFORMATION 10
Voting Rights 10
TAX INFORMATION 10
Federal Taxes 10
State and Local Taxes 11
PERFORMANCE INFORMATION 11
ADDRESSES 12
</TABLE>

FEDERATED AMERICAN LEADERS FUND II
FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED DECEMBER 31,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.80 $ 9.74 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.19 0.20 0.19
Net realized and unrealized gain (loss) on investments 2.54 3.06 (0.26)
Total from investment operations 2.73 3.26 (0.07)
LESS DISTRIBUTIONS
Distributions from net investment income (0.18) (0.19) (0.19)
Distributions in excess of net investment income(b) -- (0.01) --
Distributions from net realized gain on investments (0.09) -- --
Total distributions (0.27) (0.20) (0.19)
NET ASSET VALUE, END OF PERIOD $15.26 $12.80 $ 9.74
TOTAL RETURN(C) 21.58% 33.71% (0.70)%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.85% 0.85% 0.54%*
Net investment income 1.54% 2.03% 2.58%*
Expense waiver/reimbursement(d) 0.22% 1.36% 25.42%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $142,216 $48,514 $2,400
Average commission rate paid(e) $0.0012 -- --
Portfolio turnover 90% 43% 32%
</TABLE>

* Computed on an annualized basis.

(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated December 31, 1996, which can be obtained free of
charge.

GENERAL INFORMATION

The Fund is a portfolio of Federated Insurance Series, which was established
as Insurance Management Series, a Massachusetts business trust, under a
Declaration of Trust dated September 15, 1993. At a meeting of the Board of
Trustees (the "Trustees") held on November 14, 1995, the Trustees approved
an amendment to the Declaration of Trust to change the name of the Trust
from Insurance Management Series to Federated Insurance Series. At a meeting
of the Trustees held on February 26, 1996, the Trustees approved an
amendment to the Declaration of Trust to change the name of the Fund from
Equity Growth and Income Fund to Federated American Leaders Fund II. The
Declaration of Trust permits the Trust to offer separate series of shares of
beneficial interest in separate portfolios of securities, including the
Fund. The shares in any one portfolio may be offered in separate classes. As
of the date of this prospectus, the Trustees have not established separate
classes of shares.

Shares of the Fund are sold only to insurance companies as funding vehicles
for variable annuity contracts and variable life insurance policies issued
by the insurance companies. Shares of the Fund are sold at net asset value
as described in the section entitled "What Shares Cost." Shares of the Fund
are redeemed at net asset value.
For purposes of this prospectus, "Federated Funds" shall mean two or more
funds for which affiliates of Federated Investors serve as investment
adviser and principal underwriter.
INVESTMENT INFORMATION

INVESTMENT OBJECTIVES

The primary investment objective of the Fund is to achieve long-term growth
of capital. The Fund's secondary objective is to provide income. The
investment objectives cannot be changed without the approval of the Fund's
shareholders. While there is no assurance that the Fund will achieve its
investment objectives, it endeavors to do so by following the investment
policies described in this prospectus.

INVESTMENT POLICIES

* industry leader with proven management capabilities;

* historical and future earnings growth rate of approximately 10% compounded
annually;

* strong balance sheet with pension liabilities funded;

* products with brand recognition and consumer acceptance;

* growing consumer-based demand with limited government sales;

* ability to meet social, political, and environmental problems;

* vigorous research effort with continuing new product flow;

* low external capital requirements; and

* not an import competitive company but possessing international
capabilities.

receipts ("ADRs") of foreign-domiciled blue-chip companies. ADRs are trust
receipts issued by U.S. banks or trust companies representing ownership
interests in the equity securities of these companies. ADRs are U.S.
dollar-denominated and traded on U.S. securities exchanges or
over-the-counter. The value of ADRs could be affected by changes in foreign
currency exchange rates.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities and
warrants of the blue-chip companies. Convertible securities are fixed income
securities which may be exchanged or converted into a predetermined number
of the issuer's underlying common stock at the option of the holder during a
specified time period. Convertible securities may take the form of
convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features
of several of these securities. The Fund invests in convertible bonds rated
"B" or higher by Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service, Inc. ("Moody's") at the time of investment or, if
unrated, of comparable quality. If a convertible bond is rated below "B"
according to the characteristics set forth hereafter after the Fund has
purchased it, the Fund is not required to drop the convertible bond from the
portfolio but will consider appropriate action. The investment
characteristics of each convertible security vary widely, which allows
convertible securities to be employed for different investment objectives.

Convertible bonds and convertible preferred stocks are fixed income
securities that generally retain the investment characteristics of fixed
income securities until they have been converted but also react to movements
in the underlying equity securities. The holder is entitled to receive the
fixed income of a bond or the dividend preference of a preferred stock until
the holder elects to exercise the conversion privilege. Usable bonds are
corporate bonds that can be used in whole or in part, customarily at full
face value, in lieu of cash to purchase the issuer's common stock. When
owned as part of a unit along with warrants, which are options to buy the
common stock, they function as convertible bonds, except that the warrants
generally will expire before the bond's maturity. Convertible securities are
senior to equity securities and, therefore, have a claim to assets of the
corporation prior to the holders of common stock in the case of liquidation.
However, convertible securities are generally subordinated to similar
nonconvertible securities of the same company. The interest income and
dividends from convertible bonds and preferred stocks provide a stable
stream of income with generally higher yields than common stocks, but lower
than nonconvertible securities of similar quality. The Fund will exchange or
convert the convertible securities held in its portfolio into shares of the
underlying common stock in instances in which, in the investment adviser's
opinion, the investment characteristics of the underlying common shares will
assist the Fund in achieving its investment objective. Otherwise, the Fund
will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the Fund's adviser evaluates the investment
characteristics of the convertible security as a fixed income instrument and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, the Fund's adviser considers numerous factors,

including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and practices.

In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed income
security) or its "conversion value" (i.e., its value upon conversion into
its underlying common stock). As a fixed income security, a convertible
security tends to increase in market value when interest rates decline and
tends to decrease in value when interest rates rise. However, the price of a
convertible security is also influenced by the market value of the
security's underlying common stock. The price of a convertible security
tends to increase as the market value of the underlying stock rises, whereas
it tends to decrease as the market value of the underlying stock declines.
While no securities investment is without some risk, investments in
convertible securities generally entail less risk than investments in the
common stock of the same issuer.
BANK INSTRUMENTS. Primarily to manage short-term cash, the Fund may also
invest in certificates of deposit, demand and time deposits, bankers'
acceptances, deposit notes, and other instruments of domestic and foreign
banks and other deposit institutions.

invested in securities of other Federated Funds.
REPURCHASE AGREEMENTS. The Fund will engage in repurchase agreements.
Repurchase agreements are arrangements in which banks, broker/dealers, and
other recognized financial institutions sell U.S. government securities or
other securities to the Fund and agree at the time of sale to repurchase
them at a mutually agreed upon time and price. The Fund or its custodian
will take possession of the securities subject to repurchase agreements and
these securities will be marked to market daily. To the extent that the
original seller does not repurchase the securities from the Fund, the Fund
could receive less than the repurchase price on any sale of such securities.
In the event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that, under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor
of the Fund and allow retention or disposition of such securities. The Fund
will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/ dealers, which are found by the
Fund's adviser to be creditworthy pursuant to guidelines established by the
Trustees.
RESTRICTED AND ILLIQUID SECURITIES. As a matter of investment practice, the
Fund may invest in restricted securities. This policy is not applicable to
commercial paper issued under Section 4(2) of the Securities Act of 1933.
Restricted securities are any securities in which the Fund may otherwise
invest pursuant to its investment objective and policies but which are
subject to restriction on resale under federal securities law. To the extent
restricted securities are deemed to be illiquid, the Fund will limit their
purchase, including non-negotiable time deposits, repurchase agreements

providing for settlement in more than seven days after notice,
over-the-counter options, and certain restricted securities determined by
the Trustees not to be liquid, to 15% of the net assets of the Fund.

LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or long-term basis, or
both, up to one-third of the value of its total assets to broker/dealers,
banks, or other institutional borrowers of securities. This is a fundamental
policy which may not be changed without the approval of shareholders. The
Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the adviser has determined are creditworthy under
guidelines established by the Trustees, and will receive collateral in the
form of cash or U.S. government securities equal to at least 100% of the
value of the portfolio securities loaned at all times.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued or delayed delivery basis. These transactions
are arrangements in which the Fund purchases securities with payment and
delivery scheduled for a future time. The seller's failure to complete the
transaction may cause the Fund to miss a price or yield considered to be
advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may
vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Fund may enter in
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits

or losses upon the sale of such commitments.

* commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's,
or F-1 or F-2 by Fitch Investors Service, Inc.;

* securities issued and/or guaranteed as to the payment of principal and
interest by the U.S. government or its agencies and instrumentalities; and

* repurchase agreements.

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 in 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.

The Fund will be operated at all times so as to comply with the foregoing
diversification requirements.

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 manage
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.

INVESTMENT LIMITATIONS

The Fund will not:

or pledge securities except, under certain circumstances, the Fund may
borrow money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its total assets and pledge up to 15% of its total
assets to secure such borrowings.
The above investment limitations cannot be changed without shareholder
approval.
NET ASSET VALUE

The net asset value per share of the Fund fluctuates. It is determined by
dividing the sum of the market value of all securities and other assets of
the Fund, less liabilities, by the number of shares outstanding.

INVESTING IN THE FUND

PURCHASES AND REDEMPTIONS

Shares of the Fund are not sold directly to the general public. The Fund's
shares are used solely as the investment vehicle for separate accounts of
insurance companies offering variable annuity contracts and variable life
insurance policies. The use of Fund shares as investments for both variable
annuity contracts and variable life insurance policies is referred to as
"mixed funding." The use of Fund shares as investments by separate accounts
of unaffiliated life insurance companies is referred to as "shared funding."

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.

Shares of the Fund are purchased or redeemed on behalf of participating
insurance companies at the next computed net asset value after an order is
received on days on which the New York Stock Exchange is open.

WHAT SHARES COST

The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value
of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days on which no shares are tendered for
redemption and no orders to purchase shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

Purchase orders from separate accounts investing in the Fund which are
received by the insurance companies by 4:00 p.m. (Eastern time), will be
computed at the net asset value of the Fund determined on that day, as long
as such purchase orders are received by the Fund in proper form and in
accordance with applicable procedures by 8:00 a.m. (Eastern time) on the
next business day and as long as federal funds in the amount of such orders
are received by the Fund on the next business day. It is the responsibility

of each insurance company which invests in the Fund to properly transmit
purchase orders and federal funds in accordance with the procedures
described above.

DIVIDENDS

Dividends on shares of the Fund are declared and paid quarterly.

Shares of the Fund will begin earning dividends if owned on the applicable
record date. Dividends of the Fund are automatically reinvested in
additional shares of the Fund on payment dates at the ex-dividend date net
asset value.

FUND INFORMATION

MANAGEMENT OF THE FUND

BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the business affairs of the Trust and for
exercising all of the Trust's powers except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.

INVESTMENT ADVISER. Pursuant to an investment advisory contract with the
Trust, investment decisions for the Fund are made by Federated Advisers, the
Fund's investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it

receives an annual fee from the Fund.

Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interest. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of these codes are
subject to review by the Trustees, and could result in severe penalties.

ADVISORY FEES. The Fund's adviser receives an annual investment advisory fee
equal to 0.75% of the Fund's average daily net assets. The adviser may
voluntarily choose to waive a portion of its fee or reimburse the Fund for
certain operating expenses. The adviser can terminate this voluntary waiver
and reimbursement of expenses at any time at its sole discretion.

Scott B. Schermerhorn has been the Fund's portfolio manager since July 1996.
Mr. Schermerhorn joined Federated Investors in 1996 as a Vice President of
the Fund's investment adviser. From 1990 through 1996, Mr. Schermerhorn was
a Vice President and Senior Investment Officer at J W Seligman & Co., Inc.
Mr. Schermerhorn received his M.B.A. in Finance and International Business
from Seton Hall University.

Michael J. Donnelly is the Fund's portfolio manager effective May 1997. Mr.
Donnelly joined Federated Investors in 1993 as an Investment Analyst and has
been a Vice President of the Fund's investment adviser since January 1997.
Mr. Donnelly was an Assistant Vice President of the investment adviser from
1995 to 1996, and served as Assistant Manager at Korea First Bank from 1991
to 1993. Mr. Donnelly received his Masters Degree in Management with a
concentration in international business and finance from Northwestern
University.

Peter R. Anderson has been the Fund's portfolio manager since the Fund
commenced operations. Mr. Anderson joined Federated Investors in 1972 as,

and is presently, a Senior Vice President of the Fund's investment adviser.
Mr. Anderson is a Chartered Financial Analyst and received his M.B.A. in
Finance from the University of Wisconsin.

DISTRIBUTION OF FUND SHARES

Federated Securities Corp. is the principal distributor for shares of the
Fund. Federated Securities Corp. is located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. It is a Pennsylvania corporation
organized on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is a subsidiary
of Federated Investors.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. Federated Securities Corp.,
from its own assets, may pay financial institutions supplemental fees for
the performance of substantial sales services, distribution-related support
services, or shareholder services. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance may be predicated upon the amount of
shares the financial institution sells or may sell and/or upon the type and
nature of sales or marketing support furnished by the financial institution.
Any payments made by the distributor may be reimbursed by the Fund's
investment adviser or its affiliates.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of

Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund. Federated Services Company provides these at an annual
rate as specified below:

MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
<S> <C>
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>

BROKERAGE TRANSACTIONS

SHAREHOLDER 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.

TAX INFORMATION

FEDERAL TAXES

The Fund will pay no federal income tax because the Fund expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such
companies. As of March 24, 1997, Aetna Insurance Company of America,
Hartford, Connecticut and Aetna Life Insurance & Annuity Co., Hartford
Connecticut, owned 41.32% and 41.79%, respectively of the voting securities
of the Fund, and therefore, may for certain purposes be deemed to control
the Fund and be able to affect the outcome of certain matters presented for
a vote of shareholders. Aetna Insurance Company of America and Aetna Life

Insurance & Annuity Co. are owned by Aetna Inc.

The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.

The Fund intends to comply with the variable asset diversification
regulations which are described earlier in this prospectus. If the Fund
fails to comply with these regulations, contracts invested in the Fund shall
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.

STATE AND LOCAL TAXES

Contract owners are urged to consult their own tax advisers regarding the
status of their contracts under state and local tax laws.

PERFORMANCE INFORMATION

From time to time the Fund advertises total return and yield.

Total return represents the change, over a specific period of time, in the
value of an investment in the Fund after reinvesting all income and capital

gain distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.

The yield of the Fund is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the offering price per share of the
Fund on the last day of the period. This number is then annualized using
semi-annual compounding. The yield does not necessarily reflect income
actually earned by the Fund and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.

Performance information will not reflect the charges and expenses of a
variable annuity or variable life insurance contract. Because shares of the
Fund can only be purchased by a separate account of an insurance company
offering such a contract, you should review the performance figures of the
contract in which you are invested, which performance figures will accompany
any advertisement of the Fund's performance.

From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.

ADDRESSES

Federated Insurance Series
Federated American Leaders Fund II Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600

Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services P.O. Box 8600
Company Boston, Massachusetts 02266-8600

Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401

FEDERATED AMERICAN LEADERS FUND II

(A PORTFOLIO OF FEDERATED INSURANCE SERIES)

PROSPECTUS

A Diversified Portfolio of
Federated Insurance Series,

An Open-End Management
Investment Company

April 22, 1997

[Graphic]
Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.

[Graphic]

Cusip 313916405
3113010A (4/97)

FEDERATED AMERICAN LEADERS FUND II
(A PORTFOLIO OF FEDERATED INSURANCE SERIES)

STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Federated American Leaders Fund II (the `Fund''), a
portfolio of Federated Insurance Series (the `Trust'') dated April 22,
1997. This Statement is not a prospectus. You may request a copy of a

prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated April 22, 1997

FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 313916405
3113010B (4/97)

GENERAL INFORMATION 1

INVESTMENT OBJECTIVES AND POLICIES 1

Types of Investments 1
When-Issued and Delayed Delivery Transactions 2
Lending of Portfolio Securities 2
Repurchase Agreements 3
Reverse Repurchase Agreements 3
Restricted and Illiquid Securities 3
Portfolio Turnover 3
INVESTMENT LIMITATIONS 4

FEDERATED INSURANCE SERIES MANAGEMENT 6

Fund Ownership 9
Trustees' Compensation 10
Trustee Liability 11
INVESTMENT ADVISORY SERVICES 11

Adviser to the Fund 11
Advisory Fees 11
BROKERAGE TRANSACTIONS 11

OTHER SERVICES 11

Fund Administration 11
Custodian and Portfolio Accountant 12
Transfer Agent 12
Independent Auditors 12
PURCHASING SHARES 12

DETERMINING NET ASSET VALUE 12

Determining Market Value of Securities 12
MASSACHUSETTS PARTNERSHIP LAW 12

TAX STATUS 13

The Fund's Tax Status 13
Shareholders' Tax Status 13
TOTAL RETURN 13

YIELD 13

PERFORMANCE COMPARISONS 14

ABOUT FEDERATED INVESTORS 15

Mutual Fund Market 15
Institutional Clients 15
Bank Marketing 15
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 15
FINANCIAL STATEMENTS 15

APPENDIX 16

GENERAL INFORMATION

The Fund is a portfolio of the Trust, which was established as Insurance
Management Series, a Massachusetts business trust, under a Declaration of
Trust dated September 15, 1993. At a meeting of the Board of Trustees (the
`Trustees'') held on November 14, 1995, the Trustees approved an
amendment to the Declaration of Trust to change the name of the Trust from
Insurance Management Series to Federated Insurance Series. At a meeting of
the Trustees held on February 26, 1996, the Trustees approved an amendment
to the Declaration of Trust to change the name of the Fund from Equity
Growth and Income Fund to Federated American Leaders Fund II. The
Declaration of Trust permits the Trust to offer separate series of shares
of beneficial interest in separate portfolios of securities, including the
Fund. The shares in any one portfolio may be offered in separate classes.
As of the date of this prospectus, the Trustees have not established
separate classes of shares.
INVESTMENT OBJECTIVES AND POLICIES

The primary investment objective of the Fund is to achieve long-term growth
of capital. The Fund's secondary objective is to provide income. The
investment objectives cannot be changed without approval of shareholders.
TYPES OF INVESTMENTS
The Fund invests, under normal circumstances, at least 65% of its total
assets in common stock of `blue-chip'' companies, as defined in the
prospectus. The Fund may also invest in other securities of these
companies, U.S. government securities, repurchase agreements, and bank
instruments. The following supplements the discussion of acceptable
investments in the prospectus.

CONVERTIBLE SECURITIES
As with all fixed-income securities, various market forces influence the
market value of convertible securities, including changes in the level of
interest rates. As interest rates increase, the market value of convertible
securities may decline and, conversely, as interest rates decline, the
market value of convertible securities may increase. The unique investment
characteristics of convertible securities, the right to be exchanged for
the issuer's common stock, causes the market value of convertible
securities to increase when the underlying common stock increases. However,
since securities prices fluctuate, there can be no assurance of capital
appreciation, and most convertible securities will not reflect as much
capital appreciation as their underlying common stocks. When the underlying
common stock is experiencing a decline, the value of the convertible
security tends to decline to a level approximating the yield-to-maturity
basis of straight nonconvertible debt of similar quality, often called
`investment value,'' and may not experience the same decline as the
underlying common stock.
Many convertible securities sell at a premium over their conversion values
(i.e., the number of shares of common stock to be received upon conversion
multiplied by the current market price of the stock). This premium
represents the price investors are willing to pay for the privilege of
purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege. If this appreciation
potential is not realized, the premium may not be recovered.
WARRANTS
Warrants are basically options to purchase common stock at a specific
price (usually at a premium above the market value of the optioned
common stock at issuance) valid for a specific period of time.

Warrants may have a life ranging from less than a year to twenty years
or may be perpetual. However, most warrants have expiration dates
after which they are worthless. In addition, if the market price of
the common stock does not exceed the warrant's exercise price during
the life of the warrant, the warrant will expire as worthless.
Warrants have no voting rights, pay no dividends, and have no rights
with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may
tend to be greater than the percentage increase or decrease in the
market price of the optioned common stock.

U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as
U.S. Treasury bills, notes, and bonds) and obligations issued and/or
guaranteed by the U.S. government agencies or instrumentalities. These
securities are backed by:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
othe credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always
receive financial support from the U.S. government are:
oFarm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks, and Banks for Cooperatives;
oFederal Home Loan Banks;

oFederal Home Loan Mortgage Corporation;
oFederal National Mortgage Association; and
oStudent Loan Marketing Association.
BANK INSTRUMENTS
The Fund only invests in bank instruments (as defined in the
prospectus) either issued by an institution having capital, surplus,
and undivided profits over $100 million or insured by the Bank
Insurance Fund (`BIF'') or the Savings Association Insurance Fund
(`SAIF''), both of which are administered by the Federal Deposit
Insurance Corporation. Bank instruments may include Eurodollar
Certificates of Deposit, Yankee Certificates of Deposit, and
Eurodollar Time Deposits. Institutions issuing Eurodollar instruments
are not necessarily subject to the same regulatory requirements that
apply to domestic banks, such as reserve requirements, loan
limitations, examinations, accounting, auditing, recordkeeping and the
public availability of information.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on a Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.

REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily.
In the event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under regular procedures
normally in effect for custody of the Fund's portfolio securities subject
to repurchase agreements, a court of competent jurisdiction would rule in
favor of the Fund and allow retention or disposition of such securities.
The Fund will only enter into repurchase agreements with banks and other

recognized financial institutions, such as broker/dealers, which are found
by the Fund's investment adviser to be creditworthy pursuant to guidelines
established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in
the future the Fund will repurchase the portfolio instrument by remitting
the original consideration plus interest at an agreed upon rate.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law and is generally sold to institutional investors, such as
the Fund, who agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like the Fund through
or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity.
The Trustees may consider the following criteria in determining the
liquidity of certain restricted securities:

othe frequency of trades and quotes for the security;
othe number of dealers willing to purchase or sell the security and
the number of other potential buyers;
odealer undertakings to make a market in the security; and
othe nature of the security and the nature of the marketplace trades.
PORTFOLIO TURNOVER
Securities in the Fund's portfolio will be sold whenever the Fund's
investment adviser believes it is appropriate to do so in light of the
Fund's investment objectives, without regard to the length of time a
particular security may have been held.
For the fiscal years ended December 31, 1996 and 1995, the portfolio
turnover rates for the Fund were 90% and 43%, respectively.

INVESTMENT LIMITATIONS

5% of the Fund's total assets, any such borrowings will be repaid
before additional investments are made. The Fund will not borrow money
or engage in reverse repurchase agreements for investment leverage
purposes.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, it may mortgage,
pledge or hypothecate assets having a market value not exceeding the
lesser of the dollar amounts borrowed or 15% of the value of its total
assets at the time of borrowing.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of its total assets would be invested in any one
industry. However, the Fund may at any time invest 25% or more of its
total assets in cash or cash items and securities issued and/or
guaranteed by the U.S. government, its agencies or instrumentalities.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts,
or commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests in real estate, although it may invest in
securities of companies whose business involves the purchase or sale
of real estate or in securities secured by real estate or interests in
real estate.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities
up to one-third of its total assets. This shall not prevent the Fund

from purchasing or holding corporate or U.S. government bonds,
debentures, notes, certificates of indebtedness or other debt
securities of an issuer, entering into repurchase agreements, or
engaging in other transactions which are permitted by the Fund's
investment objectives and policies or the Trust's Declaration of
Trust.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objectives, policies, and limitations.

DIVERSIFICATION OF INVESTMENTS
With respect to 75% of its total assets, the Fund will not purchase
the securities of any one issuer (other than cash, cash items, or
securities issued and/or guaranteed by the U.S. government, its
agencies or instrumentalities, and repurchase agreements
collateralized by such securities) if, as a result, more than 5% of
its total assets would be invested in the securities of that issuer.
Also, the Fund will not purchase more than 10% of any class of the
outstanding voting securities of any one issuer. For these purposes,
the Fund considers common stock and all preferred stock of an issuer
each as a single class, regardless of priorities, series,
designations, or other differences.
The above investment limitations cannot be changed without shareholder
approval. The following limitation, however, may be changed by the Trustees

without shareholder approval. Shareholders will be notified before any
material changes to this limitation becomes effective.
INVESTING IN 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, and certain
restricted securities not determined by the Trustees to be liquid.
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 of total or net assets will
not result in a violation of such restriction.
The Fund has no present intention to borrow money in excess of 5% of the
value of its net assets during the coming fiscal year.
For 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.''
FEDERATED INSURANCE SERIES MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Insurance Series, and principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee

Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.

Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director,
Member of Executive Committee, University of Pittsburgh; Director or
Trustee of the Funds.

estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.

J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
President and Trustee
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee

Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932

Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.

Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.

Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.

Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series; Federated
Investment Portfolios; Federated Investment Trust; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government 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.; First Priority Funds; Fixed
Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds;
RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of March 24, 1997, the following shareholders of record owned 5% or more
of the outstanding shares of the Fund: Transamerica Occidental Life
Insurance Co., Charlotte, North Carolina owned 729,000 shares (6.95%);
Aetna Insurance Company of American, Hartford Connecticut owned 4,332,009

shares (41.32%); and Aetna Life Insurance & Annuity Co. Central Valuation
Unit, Hartford, Connecticut owned 4,380,677 shares (41.79%).

TRUSTEES' COMPENSATION

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +

Trustee 56 other investment companies in
the Fund Complex
Lawrence D. Ellis, M.D. $1,154 $108,725 for the Trust
and
Trustee 56 other investment companies in
the Fund Complex
Edward L. Flaherty, Jr. $1,270 $119,615 for the Trust
and
Trustee 56 other investment companies in
the Fund Complex
Peter E. Madden $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
Gregor F. Meyer $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
John E. Murray, Jr., $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
Wesley W. Posvar $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
Marjorie P. Smuts $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex

*Information is furnished for the fiscal year ended December 31, 1996.

#The aggregate compensation is provided for the Trust which is comprised of
eight portfolios.
+The information is provided for the last calendar year.

TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, they are
not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES

ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers. It is a subsidiary of
Federated Investors. All voting securities of Federated Investors are owned
by a trust, the trustees of which are John F. Donahue, his wife and his
son, J. Christopher Donahue.
The adviser shall not be liable to the Fund or any 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.
ADVISORY FEES
For its advisory services, Federated Advisers receives an annual investment
advisory fee as described in the prospectus.
For the fiscal year ended December 31, 1996 and 1995, and for the period
from December 9, 1993 (start of business) to December 31, 1994, the adviser

earned advisory fees of $693,045, $142,579 and $4,397, respectively, of
which $203,603, $142,579 and $4,397, respectively, were voluntarily waived.
BROKERAGE TRANSACTIONS

The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
Adviser and 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 provided by brokers and dealers may be used by
the Adviser or its affiliates in advising the Fund and other accounts. To
the extent that receipt of these services may supplant 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 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
years ended December 31, 1996 and 1995, and for the period from December 9,
1993 (start of business) to December 31, 1994, the Fund paid $234,623,
$49,713 and $3,714, respectively, in brokerage commissions on brokerage
transactions.
Although investment decisions for the Fund are made independently from
those of any other accounts managed by the Adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the Adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the Adviser to be equitable to each. In some cases, this

procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES

FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994, to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services, and
Federated Administrative Services, Inc. may hereinafter collectively be
referred to as the "Administrators". For the fiscal years ended December
31, 1996 and 1995, and for the period from December 9, 1993 (start of
business) to December 31, 1994, the Administrators earned $125,000,
$125,000 and $73,288, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.

TRANSFER AGENT
Federated Services Company, through it registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records.
For its services, the transfer agent receives a fee based on the size, type
and number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP,
Pittsburgh, PA.
PURCHASING SHARES

Shares of the Fund are sold at their net asset value without a sales charge
on days the New York Stock Exchange is open for business. The procedure for
purchasing shares of the Fund is explained in the prospectus under
`Purchases and Redemptions'' and ``What Shares Cost.''
DETERMINING NET ASSET VALUE

Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
The values of the Fund's portfolio securities are determined as follows:
ofor equity securities and bonds and other fixed income securities,
according to the last sale price on a national securities exchange,
if available;
oin the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;
ofor bonds and other fixed income securities, at the last sale price
on a national securities exchange, if available; otherwise, as
determined by an independent pricing service;
ofor unlisted equity securities, the latest mean prices;

ofor short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service; or
ofor all other securities, at fair value as determined in good faith
by the Trustees.
MASSACHUSETTS PARTNERSHIP LAW

For the fiscal year ended December 31, 1996, and for the period from
February 1, 1994 (date of initial public investment) to December 31, 1996,
the average annual total returns for the Fund were 21.58% and 18.03%,
respectively.
The average annual total return for the Fund 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 offering price 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, adjusted over

the period by any additional shares, assuming the quarterly reinvestment of
all dividends and distributions. You should review the performance figures
for your insurance contract, which figures reflect the applicable charges
and expenses of the contract. Such performance figures will accompany any
advertisement of the Fund's performance.
YIELD

The Fund's 30-day yield for the thirty day period ended December 31, 1996
was 1.33%.
The yield for the Fund is determined by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the offering price per share of the
Fund on the last day of the period. This value is then annualized using
semi-annual compounding. This means that the amount of income generated
during the thirty-day period is assumed to be generated each month over a
twelve month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by the Fund because of certain
adjustments required by the Securities and Exchange Commission and,
therefore, may not correlate to the dividends or other distributions paid
to shareholders. Also, the yield does not reflect the charges and expenses
of an insurance contract. You should review the performance figures for
your insurance contract, which figures reflect the applicable charges and
expenses of the contract. Such performance figures will accompany any
advertisement of the Fund's performance.

PERFORMANCE COMPARISONS

The Fund's performance depends upon such variables as:

oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio securities;
ochanges in Fund expenses; and
othe relative amount of the Fund's cash flow.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings
and offering price per share are factors in the computation of yield and
total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any 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:
oLIPPER 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.
oDOW JONES INDUSTRIAL AVERAGE (``DJIA''), is an unmanaged index
representing share prices of major industrial corporations, public
utilities, and transportation companies. Produced by the Dow Jones &
Company, it is cited as a principal indicator of market conditions.

oSTANDARD & POOR'S (``S&P'') RATINGS GROUP DAILY STOCK PRICE INDEX OF
500 COMMON STOCKS, a composite index of common stocks in industry,
transportation, and financial and public utility companies, can be
used to compare to the total returns of funds whose portfolios are
invested primarily in common stocks. In addition, the S&P index
assumes reinvestment of all dividends paid by stocks listed on its
index. Taxes due on any of these distributions are not included, nor
are brokerage or other fees calculated in the S&P figures.
oMORNINGSTAR, 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.
Advertisements and sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns
also represent the historic change in the value of an investment in the
Fund based on quarterly reinvestment of dividends over a specified period
of time.
From time to time as it deems appropriate, the Fund may advertise its
performance using charts, graphs, and descriptions, compared to federally
insured bank products, including certificates of deposit and time deposits
and to money market funds using the Lipper Analytical Services money market
instruments average.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in

which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Funds. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS

Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the equity sector, Federated Investors has more than 26 years
experience. As of December 31, 1996, Federated managed 31 equity funds
totaling approximately $7.6 billion in assets across growth, value, equity
income, international, index and sector (i.e. utility) styles. Federated
Investors' value-oriented management style combines quantitative and

qualitative analysis and features a structured, computer-assisted composite
modeling system that was developed in the 1970s.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international and global portfolios.
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 $3.5 trillion to the more than 6,000
funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, 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 advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with 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 Mark R.
Gensheimer, Executive 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 Investors' 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, Federated Securities Corp.
FINANCIAL STATEMENTS

The Fund's Financial Statements for the fiscal year ended December 31,
1996, are incorporated herein by reference to the Annual Report of the Fund
dated December 31, 1996 (File Nos. 33-69268 and 811-8042). A copy of the
Report may be obtained without charge by contacting the Fund.

*Source: Investment Company Institute

APPENDIX

STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by S&P. 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.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
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.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
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 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.
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.
NR--NR indicates that Fitch does not rate the specific issue. Plus or Minus
(-): Plus or minus signs are used with a rating symbol to indicate the

relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the AAA category.
STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This highest category 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.
Moody's Investors Service, Inc., Commercial Paper Ratings
PRIME-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
oLeading market positions in well established industries.
oHigh rates of return on funds employed.
oConservative capitalization structure with moderated reliance on
debt and ample asset protection.
oBroad margins in earning coverage of fixed financial charges and
high internal cash generation.
oWell-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.
FITCH INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
F-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
F-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.

FEDERATED UTILITY FUND II

(A PORTFOLIO OF FEDERATED INSURANCE SERIES)

PROSPECTUS

This prospectus offers shares of Federated Utility Fund II (the "Fund"),
which is a diversified investment portfolio in the Federated Insurance
Series (the "Trust"), an open-end, diversified management investment
company. The Fund invests in equity and debt securities of utility companies
to achieve high current income and moderate capital appreciation. Shares of
the Fund may be sold only to separate accounts of insurance companies to
serve as the investment medium for variable life insurance policies and
variable annuity contracts issued by insurance companies.

The Fund has also filed a Statement of Additional Information dated April
22, 1997, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information, or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information or to make inquiries
about the Fund, contact the Fund at the address listed in the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

FUND SHARES ARE AVAILABLE EXCLUSIVELY AS FUNDING VEHICLES FOR LIFE INSURANCE
COMPANIES WRITING VARIABLE ANNUITY CONTRACTS AND VARIABLE LIFE INSURANCE
POLICIES. THIS PROSPECTUS SHOULD BE ACCOMPANIED BY THE PROSPECTUS FOR SUCH
CONTRACTS.

Prospectus dated April 22, 1997
TABLE OF CONTENTS
<TABLE>
<S> <C>
FINANCIAL HIGHLIGHTS 1
GENERAL INFORMATION 2
INVESTMENT INFORMATION 2
Investment Objective 2
Investment Policies 2
Investment Limitations 7
NET ASSET VALUE 7
INVESTING IN THE FUND 7
Purchases and Redemptions 7
What Shares Cost 7
Dividends 8
FUND INFORMATION 8
Management of the Fund 8
Distribution of Fund Shares 9
Administration of the Fund 9
Brokerage Transactions 10
SHAREHOLDER INFORMATION 10
Voting Rights 10
TAX INFORMATION 10
Federal Taxes 10
State and Local Taxes 11
PERFORMANCE INFORMATION 11
ADDRESSES 12
</TABLE>

FEDERATED UTILITY FUND II
FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED DECEMBER 31,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.03 $ 9.29 $ 9.48
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.42 0.45 0.34
Net realized and unrealized gain (loss) on investments
and foreign currency 0.82 1.74 (0.19)
Total from investment operations 1.24 2.19 0.15
LESS DISTRIBUTIONS
Distributions from net investment income (0.41) (0.45) (0.34)
Distributions from net realized gain on investments
and foreign currency transactions (0.05) -- --
Total distributions (0.46) (0.45) (0.34)
NET ASSET VALUE, END OF PERIOD $11.81 $11.03 $ 9.29
TOTAL RETURN(B) 11.56% 24.18% 1.12%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.85% 0.85% 0.60%*
Net investment income 3.92% 4.62% 4.77%*
Expense waiver/reimbursement(c) 0.51% 2.24% 54.83%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $63,558 $29,679 $974
Average commission rate paid(d) $.0402 -- --
Portfolio turnover 63% 62% 73%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from April 14, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 9,
1993 (the start of business), to April 13, 1994, the net investment income
was distributed to the Fund's adviser.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) Represents total commissions paid on portfolio securities divided by
total portfolio shares purchased or sold on which commissions were charged.
This disclosure is required for the fiscal years beginning on or after
September 1, 1995.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated December 31, 1996, which can be obtained free of
charge.

GENERAL INFORMATION

The Fund is a portfolio of Federated Insurance Series, which was established
as Insurance Management Series, a Massachusetts business trust, under a
Declaration of Trust dated September 15, 1993. At a meeting of the Board of
Trustees (the "Trustees") held on November 14, 1995, the Trustees approved
an amendment to the Declaration of Trust to change the name of the Trust
from Insurance Management Series to Federated Insurance Series. At a meeting
of the Trustees held on February 26, 1996, the Trustees approved an
amendment to the Declaration of Trust to change the name of the Fund from
Utility Fund to Federated Utility Fund II. The Declaration of Trust permits
the Trust to offer separate series of shares of beneficial interest in
separate portfolios of securities, including the Fund. The shares in any one
portfolio may be offered in separate classes. As of the date of this
prospectus, the Trustees have not established separate classes of shares.

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

INVESTMENT POLICIES

The Fund endeavors to achieve its objective by investing primarily in a
professionally managed, diversified portfolio of equity and debt securities
of utility companies. Unless indicated otherwise, the investment policies
may be changed by the Trustees without shareholder approval. Shareholders
will be notified before any material change in these policies becomes
effective.
ACCEPTABLE INVESTMENTS. The Fund's investment approach is based on the
conviction that over the long term, the economy will continue to expand and
develop and that this economic growth will be reflected in the growth of the
revenues and earnings of utility companies. The Fund intends to achieve its
investment objective by investing in equity and debt securities of utility
companies that produce, transmit, or distribute gas and electric energy as
well as those companies that provide communications facilities, such as
telephone and telegraph companies. Under normal market conditions, the Fund
will invest at least 65% of its total assets in securities of utility
companies. The prices of fixed income securities fluctuate inversely to the
direction of interest rates.

SECURITIES OF FOREIGN ISSUERS. The Fund may invest in the securities of
foreign issuers which are freely traded on United States securities
exchanges or in the over-the-counter market in the form of depositary
receipts as well as securities of foreign issuers that trade on foreign
stock exchanges. Securities of a foreign issuer may present greater risks in
the form of nationalization, confiscation, domestic marketability, or other
national or international restrictions. As a matter of practice, the Fund
will not invest in the securities of a foreign issuer if any such risk
appears to the investment adviser to be substantial.

CONVERTIBLE SECURITIES. The Fund may invest in convertible securities of
companies. Convertible securities are fixed income securities which may be
exchanged or converted into a predetermined number of the issuer's
underlying common stock at the option of the holder during a specified time
period. Convertible securities may take the form of convertible preferred
stock, convertible bonds or debentures, units consisting of "usable" bonds
and warrants or a combination of the features of several of these
securities. The Fund invests in convertible bonds rated "B" or higher by
Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's") at the time of investment or, if unrated, of comparable quality.
If a convertible bond is rated below "B" according to the characteristics
set forth hereafter after the Fund has purchased it, the Fund is not
required to drop the convertible bond from the portfolio but will consider
appropriate action. The investment characteristics of each convertible
security vary widely, which allows convertible securities to be employed for
different investment objectives.

Convertible bonds and convertible preferred stocks are fixed income
securities that generally retain the investment characteristics of fixed
income securities until they have been converted but also react to movements
in the underlying equity securities. The holder is entitled to receive the
fixed income of a bond or the dividend preference of a preferred stock until
the holder elects to exercise the conversion privilege. Usable bonds are
corporate bonds that can be used in whole or in part, customarily at full
face value, in lieu of cash to purchase the issuer's common stock. When
owned as part of a unit along with warrants, which are options to buy the
common stock, they function as convertible bonds, except that the warrants
generally will expire before the bond's maturity. Convertible securities are
senior to equity securities and, therefore, have a claim to assets of the
corporation prior to the holders of common stock in the case of liquidation.
However, convertible securities are generally subordinated to similar
nonconvertible securities of the same company. The interest income and
dividends from convertible bonds and preferred stocks provide a stable
stream of income with generally higher yields than common stocks, but lower
than nonconvertible securities of similar quality. The Fund will exchange or
convert the convertible securities held in its portfolio into shares of the
underlying common stock in instances in which, in the investment adviser's
opinion, the investment characteristics of the underlying common shares will
assist the Fund in achieving its investment objective. Otherwise, the Fund
will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the Fund's adviser evaluates the investment
characteristics of the convertible security as a fixed income instrument and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, the Fund's adviser considers numerous factors,
including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and practices.

In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed income
security) or its "conversion value" (i.e., its value upon conversion into
its underlying common stock). As a fixed income security, a convertible
security tends to increase in market value when interest rates decline and
tends to decrease in value when interest rates rise. However, the price of a
convertible security is also influenced by the market value of the
security's underlying common stock. The price of a convertible security
tends to increase as the market value of the underlying stock rises, whereas
it tends to decrease as the market value of the underlying stock declines.
While no securities investment is without some risk, investments in
convertible securities generally entail less risk than investments in the
common stock of the same issuer.

RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. This policy is not applicable to commercial paper issued under
Section 4(2) of the Securities Act of 1933. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its investment
objective and policies, but which are subject to restriction on resale under
federal securities law. The Fund may also invest in illiquid securities but
will limit such investment to no more than 15% of its net assets. This
limitation will include certain restricted securities not determined to be
liquid by the Trustees, repurchase agreements providing for settlement in
more than seven days after notice and over-the-counter options.

* certificates of deposit (including those issued by domestic and foreign
branches of FDIC insured banks);

* obligations issued or guaranteed as to principal and interest by the U.S.
government or any of its agencies or instrumentalities;

* and repurchase agreements.

LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or long-term basis,
or both, up to one-third of the value of its total assets to broker/dealers,
banks, or other institutional borrowers of securities. This is a fundamental
policy which may not be changed without the approval of shareholders. The
Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the investment adviser has determined are
creditworthy under guidelines established by the Trustees and will receive
collateral equal to at least 100% of the value of the securities loaned at
all times.

The Fund will be operated at all times so as to comply with the foregoing
diversification requirements.

INVESTMENT LIMITATIONS

The Fund will not:

* borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date), or pledge securities except, under certain circumstances, the Fund
may borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its total assets and pledge up to 15% of the
value of those assets to secure such borrowings.
The above investment limitations cannot be changed without shareholder
approval.

NET ASSET VALUE

INVESTING IN THE FUND

PURCHASES AND REDEMPTIONS

The Fund intends to engage in mixed funding and shared funding in the
future. 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 conflict which occur.
Such action could result in one or more participating insurance companies
withdrawing their investment in the Fund.

WHAT SHARES COST

The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value
of the Fund's portfolio securities such that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

DIVIDENDS

Dividends on shares of the Fund are declared and paid monthly.

Shares of the Fund will begin earning dividends if owned on the record date.
Dividends of the Fund are automatically reinvested in additional shares of
the Fund on payment dates at the ex-dividend date net asset value.

FUND INFORMATION

MANAGEMENT OF THE FUND

ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to 0.75% of the Fund's average daily net assets. The adviser may voluntarily
choose to waive a portion of its fees or reimburse the Fund for certain
operating expenses. The adviser can terminate this voluntary waiver and
reimbursement of expenses at any time at its sole discretion.

Linda A. Duessel has been the Fund's portfolio manager since April 1995. Ms.
Duessel joined Federated Investors in 1991 and has been a Vice President of
the Fund's investment adviser since 1995. Ms. Duessel was an Assistant Vice
President of the Fund's investment adviser from 1991 until 1995. Ms. Duessel
is a Chartered Financial Analyst and received her M.S. in Industrial
Administration from Carnegie Mellon University.

DISTRIBUTION OF FUND SHARES

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. Federated Securities Corp.,
from its own assets, may pay financial institutions supplemental fees for
the performance of substantial sales services, distribution-related support
services, or shareholder services. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance may be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution.
Any payments made by the distributor may be reimbursed by the Fund's
investment adviser or its affiliates.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund. Federated Services Company provides these at an annual
rate as specified below:
<TABLE>
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BROKERAGE TRANSACTIONS

SHAREHOLDER 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. As of March 24, 1997, Life of Virginia
and Aetna Retirement Services Central Valuation Unit owned 34.19% and
26.40%, respectively, of the voting securities of the Fund, and, therefore,
may for certain purposes be deemed to control the Fund and be able to affect
the outcome of certain matters presented for a vote of shareholders. Aetna
Retirement Services Central Valuation Unit is owned by Aetna Inc. and Life
of Virginia is owned by General Electric Capital Assurance Company.

TAX INFORMATION

FEDERAL TAXES

STATE AND LOCAL TAXES

Contract owners are urged to consult their own tax advisers regarding the
status of their contracts under state and local tax laws.

PERFORMANCE INFORMATION

From time to time the Fund advertises total return and yield.

From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.

ADDRESSES

Federated Insurance Series
Federated Utility Fund II Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600

Transfer Agent and
Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600

Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401

FEDERATED UTILITY FUND II

(A PORTFOLIO OF FEDERATED
INSURANCE SERIES)

PROSPECTUS

A Diversified Portfolio of
Federated Insurance Series,
An Open-End, Management
Investment Company

April 22, 1997

[Graphic]

Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.

[Graphic]

Cusip 313916108
3113008A (4/97)

FEDERATED UTILITY FUND II
(A PORTFOLIO OF FEDERATED INSURANCE SERIES)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Federated Utility Fund II (the ``Fund') a portfolio of
Federated Insurance Series (the ``Trust') dated April 22, 1997. This
Statement is not a prospectus itself. You may request a copy of a
prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated April 22, 1997

FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 313916108
3113008B (4/97)

GENERAL INFORMATION 1

INVESTMENT OBJECTIVE AND POLICIES 1

U.S. Government Obligations 1
When-Issued and Delayed Delivery Transactions 1
Lending of Portfolio Securities 1
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Restricted and Illiquid Securities 2
Portfolio Turnover 3
INVESTMENT LIMITATIONS 3

FEDERATED INSURANCE SERIES MANAGEMENT 5

Fund Ownership 8
Trustees' Compensation 9
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10

Adviser to the Fund 10
Advisory Fees 10
BROKERAGE TRANSACTIONS 10

OTHER SERVICES 11

Fund Administration 11
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Auditors 11
PURCHASING SHARES 11

DETERMINING NET ASSET VALUE 11

Determining Market Value of Securities 11
MASSACHUSETTS PARTNERSHIP LAW 12

TAX STATUS 12

The Fund's Tax Status 12
Shareholders' Tax Status 12
TOTAL RETURN 12

YIELD 12

PERFORMANCE COMPARISONS 13

Economic and Market Information 14
ABOUT FEDERATED INVESTORS 14

Mutual Fund Market 14
Institutional Clients 14
Bank Marketing 15
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 15
FINANCIAL STATEMENTS 15

APPENDIX 16

GENERAL INFORMATION

The Fund is a portfolio of Federated Insurance Series (the `Trust''),
which was established as Insurance Management Series, a Massachusetts
business trust, under a Declaration of Trust dated September 15, 1993. At a
meeting of the Board of Trustees (the `Trustees'') held on November 14,
1995, the Trustees approved an amendment to the Declaration of Trust to
change the name of the Trust from Insurance Management Series to Federated
Insurance Series. At a meeting of the Trustees held on February 26, 1996,
the Trustees approved an amendment to the Declaration of Trust to change
the name of the Fund from Utility Fund to Federated Utility Fund II. The
Declaration of Trust permits the Trust to offer separate series of shares
of beneficial interest in separate portfolios of securities, including the
Fund. The shares in any one portfolio may be offered in separate classes.
As of the date of this prospectus, the Trustees have not established
separate classes of shares.
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to achieve high current income and
moderate capital appreciation. The investment objective cannot be changed
without approval of shareholders. The Fund endeavors to achieve its
investment objective by investing primarily in a professionally managed,
diversified portfolio of equity and debt securities of utility companies.
U.S. GOVERNMENT OBLIGATIONS
The Fund may also invest in U.S. government obligations which generally
include direct obligations of the U.S. Treasury (such as U.S. Treasury
bills, notes, and bonds) and obligations issued and/or guaranteed by U.S.
government agencies or instrumentalities. These securities are backed by:
othe full faith and credit of the U.S. Treasury;

othe issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
othe credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always
receive financial support from the U.S. government are:
o Farm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks, and Banks for Cooperatives;
oFederal Home Loan Banks;
oFederal Home Loan Mortgage Corporation;
oFederal National Mortgage Association; and
oStudent Loan Marketing Association.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on a Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend its portfolio
securities, up to one-third of the value of its total assets, to
broker/dealers, banks, or other institutional borrowers of securities. This
policy may not be changed without shareholder approval.

The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund does not
have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to
the investment.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers, and
other recognized financial institutions sell U.S. government securities or
other securities to the Fund and agree at the time of sale to repurchase
them at a mutually agreed upon time and price. The Fund or its custodian
will take possession of the securities subject to repurchase agreements and
these securities will be marked to market daily. To the extent that the
original seller does not repurchase the securities from the Fund, the Fund
could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by the Fund might be
delayed pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent

jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase the
portfolio instrument by remitting the original consideration plus interest
at an agreed upon rate.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law and is generally sold to institutional investors, such as
the Fund, who agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like the Fund through

or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity.
^
The Trustees may consider the following criteria in determining the
liquidity of certain restricted securities:
othe frequency of trades and quotes for the security;
othe number of dealers willing to purchase or sell the security and
the number of other potential buyers;
odealer undertakings to make a market in the security; and
othe nature of the security and the nature of the marketplace trades.

PORTFOLIO TURNOVER
Securities in the Fund's portfolio will be sold whenever the Fund's
investment adviser believes it is appropriate to do so in light of the
Fund's investment objective, without regard to the length of time a
particular security may have been held. Any such trading will increase the
Fund's portfolio turnover rate and transaction costs. The adviser to the
Fund does not anticipate that portfolio turnover will result in adverse tax
consequences.
For the fiscal year ended December 31, 1996 and 1995, the portfolio
turnover rates for the Fund were 63% and 62%, respectively.
INVESTMENT LIMITATIONS

connection with futures contracts or related options transactions is
not considered the purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money directly or through reverse repurchase agreements as a
temporary, extraordinary, or emergency measure to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous, and then only in amounts not in
excess of one-third of the value of its total assets; provided that,
while borrowings and reverse repurchase agreements outstanding exceed
5% of the Fund's total assets, any such borrowings will be repaid
before additional investments are made. The Fund will not borrow money
or engage in reverse repurchase agreements for investment leverage
purposes.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, it may mortgage,
pledge or hypothecate assets having a market value not exceeding the
lesser of the dollar amounts borrowed or 15% of the value of its total
assets at the time of borrowing. For purposes of this limitation, the
following are not deemed to be pledges: margin deposits for the
purchase and sale of futures contracts and related options, any
segregation or collateral arrangements made in connection with options
activities or the purchase of securities on a when-issued basis.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities, if, as a result of such
purchase, 25% or more of its total assets would be invested in

securities of companies engaged principally in any one industry other
than the utilities industry. However, the Fund may at any time invest
25% or more of its total assets in cash or cash items and securities
issued and/or guaranteed by the U.S. government, its agencies or
instrumentalities.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts,
or commodity futures contracts except that the Fund may purchase and
sell futures and stock index futures contracts and related options.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests in real estate, although it may invest in
securities of companies whose business involves the purchase or sale
of real estate or in securities secured by real estate or interests in
real estate.

LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities
up to one-third of its total assets. This shall not prevent the Fund
from purchasing or holding corporate or U.S. government bonds,
debentures, notes, certificates of indebtedness or other debt
securities of an issuer, entering into repurchase agreements, or
engaging in other transactions which are permitted by the Fund's
investment objective and policies or the Trust's Declaration of Trust.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in

connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of its total assets, the Fund will not purchase
the securities of any one issuer (other than cash, cash items, or
securities issued and/or guaranteed by the U.S. government, its
agencies or instrumentalities, and repurchase agreements
collateralized by such securities) if, as a result, more than 5% of
its total assets would be invested in the securities of that issuer.
Also, the Fund will not purchase more than 10% of any class of the
outstanding voting securities of any one issuer. For these purposes,
the Fund considers common stock and all preferred stock of an issuer
each as a single class, regardless of priorities, series,
designations, or other differences.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified before
any material changes in these limitations become effective.
INVESTING IN 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 by the
Trustees to be liquid.
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.
INVESTING IN SECURITIES OF FOREIGN ISSUERS
The Fund may invest up to 10% of its total assets in the utility
securities of developing countries.
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 of total or net assets will
not result in a violation of such restriction.
The Fund has no present intention to borrow money in excess of 5% of the
value of its net assets during the coming fiscal year.
For 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.''

FEDERATED INSURANCE SERIES MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Insurance Series, and principal occupations.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer

TRUSTEES' COMPENSATION

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +

John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in
the Fund Complex

Thomas G. Bigley $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex

John T. Conroy, Jr. $1,270 $119,615 for the Trust and
Trustee 56 other investment companies in
the Fund Complex

William J. Copeland $1,270 $119,615 for the Trust and
Trustee 56 other investment companies in
the Fund Complex

J. Christopher Donahue, $0 $0 for the Trust and
President and Trustee 15 other investment companies in
the Fund Complex

James E. Dowd $1,270 $119,615 for the Trust and
Trustee 56 other investment companies in
the Fund Complex

Lawrence D. Ellis, M.D. $ 1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex

Edward L. Flaherty, Jr. $1,270 $119,615 for the Trust and
Trustee 56 other investment companies in
the Fund Complex

Peter E. Madden $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex

Gregor F. Meyer $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex

John E. Murray, Jr., $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex

Wesley W. Posvar $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex

Marjorie P. Smuts $1,154 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex

ADVISORY FEES
For its advisory services, Federated Advisers receives an annual investment
advisory fee as described in the prospectus.
For the fiscal years ended December 31, 1996 and 1995, and for the period
from December 9, 1993 (start of business) to December 31, 1994, the adviser
earned advisory fees of $361,797, $89,752 and $2,077, respectively, of
which $248,058, $89,752 and $2,077 were waived.
BROKERAGE TRANSACTIONS

The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
Adviser and 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 provided by brokers and dealers may be used by
the Adviser or its affiliates in advising the Fund and other accounts. To
the extent that receipt of these services may supplant 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 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
years ended December 31, 1996 and 1995, and for the period from December 9,
1993 (start of business) to December 31, 1994, the Fund paid $81,701,
$59,746 and $476, respectively, in brokerage commissions on brokerage
transactions.
Although investment decisions for the Fund are made independently from
those of any other accounts managed by the Adviser, investments of the type

the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the Adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the Adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.

OTHER SERVICES

CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through it registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records.
For its services, the transfer agent receives a fee based on the size, type
and number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Deloitte & Touche LLP,
Pittsburgh, PA.
PURCHASING SHARES

ofor equity securities and bonds and other fixed income securities,
according to the last sale price on a national securities exchange,
if available;
oin the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;
ofor bonds and other fixed income securities, at the last sale price
on a national securities exchange, if available; otherwise, as
determined by an independent pricing service;
ofor unlisted equity securities, the latest mean prices;
ofor short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service; or
ofor all other securities, at fair value as determined in good faith
by the Trustees.

MASSACHUSETTS PARTNERSHIP LAW

from liability as a shareholder will occur only if the Trust itself cannot
meet its obligations to indemnify shareholders and pay judgments against
them.
TAX STATUS

THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
The Fund intends to comply with the variable asset diversification
regulations which are described in the prospectus and this Statement. If
the Fund fails to comply with these regulations, contracts invested in the
Fund shall not be treated as annuity, endowment, or life insurance
contracts under the Internal Revenue Code.
Contract owners should review the contract prospectus for information
concerning the federal income tax treatment of their contracts and
distributions from the Fund to the separate accounts.

TOTAL RETURN

For the fiscal year ended December 31, 1996, and for the period from April
14, 1994 (date of initial public investment) to December 31, 1996 , the
average annual total returns for the Fund were 11.56% and 10.63%,
respectively.
The average annual total return for the Fund 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 offering price 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, adjusted over
the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions. You should review the performance figures
for your insurance contract, which figures reflect the applicable charges
and expenses of the contract. Such performance figures will accompany any
advertisement of the Fund's performance.
YIELD

The Fund's 30-day yield for the thirty day period ended December 31, 1996
was 3.29%.
The yield for the Fund is determined by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
the Fund over a thirty-day period by the offering price per share of the
Fund on the last day of the period. This value is then annualized using
semi-annual compounding. This means that the amount of income generated
during the thirty-day period is assumed to be generated each month over a

twelve month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by the Fund because of

certain adjustments required by the Securities and Exchange Commission and,
therefore, may not correlate to the dividends or other distributions paid
to shareholders. Also, the yield does not reflect the charges and expenses
of an insurance contract. You should review the performance figures for
your insurance contract, which figures reflect the applicable charges and
expenses of the contract. Such performance figures will accompany any
advertisement of the Fund's performance.
PERFORMANCE COMPARISONS

The Fund's performance depends upon such variables as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio securities;
ochanges in Fund expenses; and
othe relative amount of the Fund's cash flow.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings
and offering price per share are factors in the computation of yield and
total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any 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:
oLIPPER 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 ``utility funds'' category in
advertising and sales literature.
oLIPPER UTILITY FUND AVERAGE is composed of approximately 87 funds
which invest 65% of their equity portfolio in utility stocks. From
time to time, the Trust/Fund will compare its total return to the
average total return of the funds comprising the average for the
same calculation period.
oDOW JONES INDUSTRIAL AVERAGE (``DJIA'') is an unmanaged index
representing share prices of major industrial corporations, public
utilities, and transportation companies. Produced by the Dow Jones &
Company, it is cited as a principal indicator of market conditions.
oSTANDARD & POOR'S RATINGS GROUP (``S&P'') DAILY STOCK PRICE INDEX
OF 500 COMMON STOCKS, a composite index of common stocks in
industry, transportation, financial, and public utility companies,
can be used to compare the total returns of funds whose portfolios
are invested primarily in common stocks. In addition, the S&P index
assumes reinvestment of all dividends paid by stocks listed on its
index. Taxes due on any of these distributions are not included, nor
are brokerage or other fees calculated in S&P figures.
oSTANDARD & POOR'S RATINGS GROUP UTILITY INDEX is an unmanaged index
of common stocks from forty different utilities. This index
indicates daily changes in the price of the stocks. The index also

provides figures for changes in price from the beginning of the year
to date, and for a twelve month period.
oDOW JONES UTILITY INDEX is an unmanaged index comprised of fifteen
utility stocks that tracks changes in price daily and over a six
month period. The index also provides the highs and lows for each of
the past five years.
oMORNINGSTAR, 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.

Advertisements and other sales literature for the Fund may quote total
returns, which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in
the Fund based on monthly reinvestment of dividends over a specified period
of time.
From time to time as it deems appropriate, the Fund may advertise its
performance using charts, graphs and descriptions compared to federally
insured bank products, including certificates of deposit and time deposits,
and to money market funds using the Lipper Analytical Services money market
average.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Funds' returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Funds can
compare their performance, or performance for the types of securities in

which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Funds may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Funds. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual funds industry, including the growth of the industry, from
sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS

analysis and features a structured, computer-assisted composite modeling
system that was developed in the 1970s.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international and global portfolios.
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 $3.5 trillion to the more than 6,000
funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, 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 advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.

BANK MARKETING
Other institutional clients include close relationships with 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 Mark R.
Gensheimer, Executive 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, Federated Securities Corp.
*Source: Investment Company Institute
FINANCIAL STATEMENTS

The Fund's Financial Statements for the fiscal year ended December 31,
1996, are incorporated herein by reference to the Annual Report of the Fund
dated December 31, 1996 (File Nos. 33-69268 and 811-8042). Copies of the
Report may be obtained without charge by contacting the Fund.

APPENDIX

STANDARD & POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--Debt rated `AAA'' has the highest rating assigned by S&P. 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, B--Debt rated "BB" and "B" is regarded, on balance as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. "B" indicates the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties of
major risk exposures to adverse conditions.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS
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 rate "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.

Federated Fund for U.S. Government Securities II

(A Portfolio of Federated Insurance Series)
PROSPECTUS

This prospectus offers shares of Federated Fund for U.S. Government
Securities II (the "Fund"), which is a diversified investment portfolio in
Federated Insurance Series (the "Trust"), an open-end, diversified
management investment company. The Fund seeks current income by investing in
a professionally managed, diversified portfolio limited to U.S. government
securities. Shares of the Fund may be sold only to separate accounts of
insurance companies to serve as the investment medium for variable life
insurance policies and variable annuity contracts issued by insurance
companies.

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 by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other government agency. Investment in these shares involves investment
risks, including the possible loss of principal.

This prospectus contains the information you should read and know before you
invest in the Fund through variable annuity contracts and variable life
insurance policies offered by insurance companies which provide for
investment in the Fund. Keep this prospectus for future reference.

Prospectus dated April 22, 1997

Table of Contents

<TABLE>
<S> <C>
FINANCIAL HIGHLIGHTS 1
GENERAL INFORMATION 2
INVESTMENT INFORMATION 2
Investment Objective 2
Investment Policies 2
Investment Limitations 5
NET ASSET VALUE 5
INVESTING IN THE FUND 5
Purchases and Redemptions 5
What Shares Cost 6
Dividends 6
FUND INFORMATION 6
Management of the Fund 6
Distribution of Fund Shares 8
Administration of the Fund 8
SHAREHOLDER INFORMATION 8
Voting Rights 8
TAX INFORMATION 9
Federal Taxes 9
State and Local Taxes 9
PERFORMANCE INFORMATION 9
ADDRESSES 11
</TABLE>

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED DECEMBER 31,
1996 1995 1994(a)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.29 $ 9.99 $ 9.99
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.59 0.54 0.27
Net realized and unrealized gain (loss) on investments (0.18) 0.30 --
Total from investment operations 0.41 0.84 0.27
LESS DISTRIBUTIONS
Distributions from net investment income (0.57) (0.54) (0.27)
Distributions from net realized gain on investments (0.04) -- --
Total distributions (0.61) (0.54) (0.27)
NET ASSET VALUE, END OF PERIOD $10.09 $10.29 $ 9.99
TOTAL RETURN(B) 4.20% 8.77% 2.62%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80% 0.80% 0.48%*
Net investment income 6.00% 6.00% 3.99%*
Expense waiver/reimbursement(c) 1.01% 4.81% 32.83%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $34,965 $12,264 $1,244
Portfolio turnover 97% 65% 0%
</TABLE>

* Computed on an annualized basis.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated December 31, 1996, which can be obtained free of
charge.

GENERAL INFORMATION

amendment to the Declaration of Trust to change the name of the Fund from
U.S. Government Bond Fund to Federated Fund for U.S. Government Securities
II. The Declaration of Trust permits the Trust to offer separate series of
shares of beneficial interest in separate portfolios of securities,
including the Fund. The shares in any one portfolio may be offered in
separate classes. As of the date of this prospectus, the Trustees have not
established separate classes of shares.

For purposes of this prospectus, "Federated Funds" shall mean two or more
funds for which affiliates of Federated Investors serve as investment
adviser and principal underwriter.

INVESTMENT INFORMATION
INVESTMENT OBJECTIVE

INVESTMENT POLICIES

Under normal circumstances, the Fund pursues its investment objective by
investing at least 65% of the value of its total assets in securities issued
or guaranteed as to payment of principal and interest by the U.S.
government, its agencies or instrumentalities. For purposes of this 65%
statement, the Fund will consider collateralized mortgage obligations issued
by U.S. government agencies or instrumentalities to be U.S. government
securities. Unless indicated otherwise, the investment policies may be
changed by the Trustees without the approval of the shareholders.
Shareholders will be notified before any material change becomes effective.

The U.S. government securities in which the Fund invests include:

* direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds;

* notes, bonds, and discount notes issued or guaranteed by U.S.government
agencies and instrumentalities supported by the full faith and credit of the
United States;

* notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and

* notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.

* the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;

* the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or

* the credit of the agency or instrumentality.

payment of principal and interest are guaranteed by the issuer and such
guarantee is collateralized by U.S. government securities; and (iii) other
privately issued securities in which the proceeds of the issuance are
invested in mortgage-backed securities and payment of the principal and
interest are supported by the credit of an agency or instrumentality of the
U.S. government. The mortgage-related securities provide for a periodic
payment consisting of both interest and principal. The interest portion of
these payments will be distributed by the Fund as income, and the capital
portion will be reinvested.

Mortgage-backed securities may be subject to certain prepayment risks
because the underlying mortgage loans may be prepaid without penalty or
premium. Prepayment risks on mortgage-backed securities tend to increase
during periods of declining mortgage interest rates because many borrowers
refinance their mortgages to take advantage of favorable rates. At the time
the Fund reinvests the proceeds, it may receive a rate of interest which is
actually lower than the rate of interest paid on those securities.

REPURCHASE AGREEMENTS. The Fund will engage in repurchase agreements.
Repurchase agreements are arrangements in which banks, broker/dealers, and
other recognized financial institutions sell U.S. government securities or
other securities to the Fund and agree at the time of sale to repurchase
them at a mutually agreed upon time and price. The Fund or its custodian
will take possession of the securities subject to repurchase agreements and
these securities will be marked to market daily. To the extent that the
original seller does not repurchase the securities from the Fund, the Fund
could receive less than the repurchase price on any sale of such securities.
In the event that such a defaulting seller filed for bankruptcy or became

insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that, under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor
of the Fund and allow retention or disposition of such securities. The Funds
will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are found by the
Fund's adviser to be creditworthy pursuant to guidelines established by the
Trustees.

RESTRICTED AND ILLIQUID SECURITIES. As a matter of investment practice, the
Fund may invest in restricted securities. This policy is not applicable to
commercial paper issued under Section 4(2) of the Securities Act of 1933.
Restricted securities are any securities in which the Fund may otherwise
invest pursuant to its investment objective and policies but which are
subject to restriction on resale under federal securities law. To the extent
restricted securities are deemed to be illiquid, the Fund will limit their
purchase, including non-negotiable time deposits, repurchase agreements
providing for settlement in more than seven days after notice,
over-the-counter options, and certain restricted securities determined by
the Trustees not to be liquid, to 15% of the net assets of the Fund.

LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or a long-term basis, or
both, up to one-third of the value of its total assets to broker/dealers,
banks, or other institutional borrowers of securities. This is a fundamental
policy which may not be changed without shareholder approval. The Fund will
only enter into loan arrangements with broker/dealers, banks, or other

institutions which the investment adviser has determined are creditworthy
under guidelines established by the Trustees and will receive collateral
equal to at least 100% of the value of the securities loaned in the form of
cash or U.S. government securities.

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 in 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.

The Fund will be operated at all times so as to comply with the foregoing
diversification requirements.

INVESTMENT LIMITATIONS

The Fund will not:

* borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date), or pledge securities except, under certain circumstances, the Fund
may borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its total assets and pledge up to 15% of the
value of those assets to secure such borrowings.

The above investment limitations cannot be changed without shareholder
approval.

NET ASSET VALUE
The net asset value per share of the Fund fluctuates. It is determined by
dividing the sum of the market value of all securities and other assets of
the Fund, less liabilities, by the number of shares outstanding.

INVESTING IN THE FUND

PURCHASES AND REDEMPTIONS

The Fund intends to engage in mixed funding and shared funding in the
future. 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.

WHAT SHARES COST

DIVIDENDS

Dividends on shares of the Fund are declared and paid monthly.

FUND INFORMATION

MANAGEMENT OF THE FUND

BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the business affairs of the Trust and for
exercising all of the Trust's powers except those reserved for the
shareholders. An Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.

ADVISORY FEES. The Fund's adviser receives an annual investment advisory fee
equal to 0.60% of the Fund's average daily net assets. The adviser may
voluntarily waive a portion of its fee or reimburse the Fund for certain
operating expenses. The adviser can terminate this voluntary waiver and
reimbursement of expenses at any time at its sole discretion.

Kathleen M. Foody-Malus has been the Fund's portfolio manager since the Fund
commenced operations. Ms. Foody-Malus joined Federated Investors in 1983 and

has been a Vice President of the Fund's investment adviser since 1993. Ms.
Foody-Malus served as an Assistant Vice President of the investment adviser
from 1990 until 1992. Ms. Foody-Malus received her M.B.A. in
Accounting/Finance from the University of Pittsburgh.

DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the
Fund. Federated Securities Corp. is located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. It is a Pennsylvania corporation
organized on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is a subsidiary
of Federated Investors.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. Federated Securities Corp.,
from its own assets, may pay financial institutions supplemental fees for
the performance of substantial sales services, distribution-related support
services, or shareholder services. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance may be predicated upon the amount of
shares the financial institution sells or may sell and/or upon the type and

nature of sales or marketing support furnished by the financial institution.
Any payments made by the distributor may be reimbursed by the Fund's
investment adviser or its affiliates.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund. Federated Services Company provides these at an annual
rate as specified below:

MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million

SHAREHOLDER 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. As of March 24, 1997, United Omaha Life
Insurance Co., Omaha, Nebraska owned 34.52% of the voting securities of the
Fund, and therefore, may for certain purposes be deemed to control the Fund
and be able to affect the outcome of certain matters presented for a vote of
shareholders. United of Omaha Life Insurance Co. is owned by Mutual of Omaha
Insurance Company.

Each share of the Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of each
portfolio in the Trust have equal voting rights except that only shares of
the Fund are entitled to vote on matters affecting only the Fund. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or the Fund's operation and for the election of
Trustees in certain circumstances.
Trustees may be removed by the Trustees or by the shareholders at a special
meeting. A special meeting of shareholders shall be called by the Trustees
upon the written request of shareholders owning at least 10% of the
outstanding shares of all series of the Trust.

TAX INFORMATION

FEDERAL TAXES

STATE AND LOCAL TAXES

Contract owners are urged to consult their own tax advisers regarding the
status of their contracts under state and local tax laws.

PERFORMANCE INFORMATION

From time to time the Fund advertises total return and yield.

From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.

ADDRESSES

Federated Insurance Series
Federated Fund for Federated Investors Tower
U.S. Government Securities II Pittsburgh, Pennsylvania 15222-3779

Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600

Transfer Agent and
Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600

Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401

Federated Fund for U.S. Government Securities II

(A Portfolio of Federated

Insurance Series)

PROSPECTUS

A Diversified Portfolio of
Federated Insurance Series,
An Open-End Management
Investment Company

[Graphic]
Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.

April 22, 1997
Cusip 313916207
3113007A (4/97)

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
(A PORTFOLIO OF FEDERATED INSURANCE SERIES)
STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the
prospectus of Federated Fund for U.S. Government Securities II (the
`Fund''), a portfolio of Federated Insurance Series (the ``Trust'')
dated April 22, 1997. This Statement is not a prospectus. You may
request a copy of a prospectus or a paper copy of this Statement, if
you have received it electronically, free of charge by calling
1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated April 22, 1997

FEDERATED INVESTOR
Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 313916207
3113007B (4/97)

GENERAL INFORMATION 1

INVESTMENT OBJECTIVE AND POLICIES 1

Types of Investments 1
When-Issued and Delayed Delivery Transactions 1
Lending of Portfolio Securities 1
Restricted and Illiquid Securities 2
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Portfolio Turnover 2
INVESTMENT LIMITATIONS 3

FEDERATED INSURANCE SERIES MANAGEMENT 4

Fund Ownership 8
Trustees' Compensation 9
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10

Adviser to the Fund 10
Advisory Fees 10
BROKERAGE TRANSACTIONS 10

OTHER SERVICES 11

Fund Administration 11
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Auditors 11
PURCHASING SHARES 11

DETERMINING NET ASSET VALUE 11

Determining Market Value of Securities 11
MASSACHUSETTS PARTNERSHIP LAW 12

TAX STATUS 12

The Fund's Tax Status 12
Shareholders' Tax Status 12
TOTAL RETURN 12

YIELD 12

PERFORMANCE COMPARISONS 13

ABOUT FEDERATED INVESTORS 14

Mutual Fund Market 14
Institutional Clients 14
Bank Marketing 14
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 15
FINANCIAL STATEMENTS 15

GENERAL INFORMATION

The Fund is a portfolio of the Trust, which was established as Insurance
Management Series, a Massachusetts business trust, under a Declaration of
Trust dated September 15, 1993. At a meeting of the Board of Trustees (the
`Trustees'') held on November 14, 1995, the Trustees approved an amendment
to the Declaration of Trust to change the name of the Trust from Insurance
Management Series to Federated Insurance Series. At a meeting of the
Trustees held on February 26, 1996, the Trustees approved an amendment to
the Declaration of Trust to change the name of the Fund from U.S.
Government Bond Fund to Federated Fund for U.S. Government Securities II.
The Declaration of Trust permits the Trust to offer separate series of
shares of beneficial interest in separate portfolios of securities,
including the Fund. The shares in any one portfolio may be offered in
separate classes. As of the date of this prospectus, the Trustees have not
established separate classes of shares.
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to provide current income. The
investment objective cannot be changed without the approval of
shareholders. Current income includes, in general, discount earned on U.S.
Treasury bills and agency discount notes, interest earned on all other U.S.
government securities, and short-term capital gains.
TYPES OF INVESTMENTS
The Fund invests in securities which are primary or direct obligations of
the U.S. government or its agencies or instrumentalities, or which are
guaranteed by the U.S. government, its agencies or instrumentalities and in
certain collateralized mortgage obligations, described below, and
repurchase agreements.

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
Privately issued CMOs generally represent an ownership interest in
federal agency mortgage pass-through securities such as those issued
by the Government National Mortgage Association. The terms and
characteristics of the mortgage instruments may vary among pass-
through mortgage loan pools.
The market for such CMOs has expanded considerably since its
inception. The size of the primary issuance market and the active
participation in the secondary market by securities dealers and other
investors make government-related pools highly liquid.
STRIPPED MORTGAGE-RELATED SECURITIES
Some of the mortgage-related securities purchased by the Fund may
represent an interest solely in the principal repayments or solely in
the interest payments on mortgage-backed securities (stripped
mortgage-backed securities or `SMBSs''). Due to the possibility of
prepayments on the underlying mortgages, SMBSs may be more interest-
rate sensitive than other securities purchased by the Fund. If
prevailing interest rates fall below the level at which SMBSs were
issued, there may be substantial prepayment on the underlying
mortgages, leading to the relatively early prepayment of principal-
only SMBSs and a reduction in the amount of payment made to holders of
interest-only SMBSs. It is possible that the Fund might not recover
its original investment on interest-only SMBSs if there are
substantial prepayments on the underlying mortgages. Therefore,
interest-only SMBSs generally increase in value as interest rates rise
and decrease in value as interest rates fall, counter to changes in
value experienced by most fixed income securities. The Fund's adviser
intends to use this characteristic of interest-only SMBSs to reduce

the effects of interest rate changes on the value of the Fund's
portfolio, while continuing to pursue current income.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on a Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend its portfolio
securities, up to one-third of the value of its total assets, to
broker/dealers, banks, or other institutional borrowers of securities.
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any interest paid on such securities. Loans are subject to termination
at the option of the Fund or the borrower. The Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker. The Fund does not have the
right to vote securities on loan, but would terminate the loan and regain
the right to vote if that were considered important with respect to the
investment.

RESTRICTED AND ILLIQUID SECURITIES
The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law and is generally sold to institutional investors, such as
the Fund, who agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like the Fund through
or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity.
The Trustees may consider the following criteria in determining the
liquidity of certain restricted securities:
othe frequency of trades and quotes for the security;
othe number of dealers willing to purchase or sell the security and
the number of other potential buyers;
odealer undertakings to make a market in the security; and
othe nature of the security and the nature of the marketplace trades.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers, and
other recognized financial institutions sell U.S. government securities or
other securities to the Fund and agree at the time of sale to repurchase
them at a mutually agreed upon time and price. The Fund or its custodian
will take possession of the securities subject to repurchase agreements and
these securities will be marked to market daily. To the extent that the
original seller does not repurchase the securities from the Fund, the Fund
could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy

or became insolvent, disposition of such securities by the Fund might be
delayed pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in
the future the Fund will repurchase the portfolio instrument by remitting
the original consideration plus interest at an agreed upon rate.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
PORTFOLIO TURNOVER
Securities in the Fund's portfolio will be sold whenever the Fund's
investment adviser believes it is appropriate to do so in light of the
Fund's investment objective, without regard to length of time a particular
security may have been held. The Fund's policy of managing its portfolio of
U.S. government securities, including the sale of securities held for a
short period of time, to achieve its investment objective of current income

may result in high portfolio turnover. The Fund will not attempt to set or
meet a portfolio turnover rate as any turnover would be incidental to
transactions undertaken in an attempt to achieve the Fund's investment
objective.
For the fiscal years ended December 31, 1996 and 1995, the portfolio
turnover rates for the Fund were 97% and 65%, respectively.
INVESTMENT LIMITATIONS

SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities
on margin, but may obtain such short-term credits as may be necessary
for clearance of purchases and sales of portfolio securities.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may
borrow money directly or through reverse repurchase agreements as a
temporary, extraordinary, or emergency measure to facilitate
management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous, and then only in amounts not in
excess of one-third of the value of its total assets; provided that,
while borrowings and reverse repurchase agreements outstanding exceed
5% of the Fund's total assets, any such borrowings will be repaid
before additional investments are made. The Fund will not borrow money
or engage in reverse repurchase agreements for investment leverage
purposes.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, it may mortgage,
pledge or hypothecate assets having a market value not exceeding the

lesser of the dollar amount borrowed or 15% of the value of total
assets at the time of borrowing.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of its total assets would be invested in any one
industry. However, the Fund may at any time invest 25% or more of its
total assets in cash or cash items and securities issued and/or
guaranteed by the U.S. government, its agencies or instrumentalities.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of its total assets, the Fund will not purchase
the securities of any one issuer (other than cash, cash items, or
securities issued and/or guaranteed by the U.S. government, its
agencies or instrumentalities, and repurchase agreements
collateralized by such securities) if, as a result, more than 5% of
its total assets would be invested in the securities of that issuer.
Also, the Fund will not purchase more than 10% of any class of the
outstanding voting securities of any one issuer. For these purposes,
the Fund considers common stock and all preferred stock of an issuer
each as a single class, regardless of priorities, series,
designations, or other differences.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests in real estate, although it may invest in
securities of companies whose business involves the purchase or sale
of real estate or in securities secured by real estate or interests in
real estate.

INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts,
or commodity futures contracts.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities
up to one-third of the value of its total assets. This shall not
prevent the Fund from purchasing or holding corporate or U.S.
government bonds, debentures, notes, certificates of indebtedness or
other debt securities of an issuer, entering into repurchase
agreements, or engaging in other transactions which are permitted by
the Fund's investment objective and policies or the Trust's
Declaration of Trust.
The above investment limitations cannot be changed without shareholder
approval. The following limitation, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in this limitation becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets
in illiquid securities, including, among others, repurchase agreements
providing for settlement more than seven days after notice, and
certain restricted securities not determined by the Trustees to be
liquid.

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 of total or net assets will
not result in a violation of such restriction.
The Fund has no present intention to borrow money in excess of 5% of the
value of its net assets during the coming fiscal year.
For 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.''
FEDERATED INSURANCE SERIES MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Insurance Series, and principal occupations.

Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director,
Member of Executive Committee, University of Pittsburgh; Director or
Trustee of the Funds.

William J. Copeland
One PNC Plaza - 23rd Floor

Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee

Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As used in the table above, `The Funds'' and ``Funds'' mean the following
investment companies: 111 Corcoran Funds; Arrow Funds; Automated Government
Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash
Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; 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 Equity Funds; Federated Equity Income Fund, Inc.;
Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust;
Federated Government Income Securities, Inc.; Federated Government Trust;
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 Portfolios; Federated Investment Trust; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal

Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government 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.; First Priority Funds; Fixed
Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds;
RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of March 24, 1997, the following shareholders of record owned 5% or more
of the outstanding shares of the Fund: Provident Mutual, Valley Forge,
Pennsylvania owned 210,447 shares (5.34%); United of Omaha Life Insurance
Co., Omaha, Nebraska owned 1,361,165 shares (34.52%); Transamerica
Occidental Life Insurance Co., Charlotte, North Carolina owned 441,046
shares (11.18%); Lincoln Benefit Life Co., Lincoln, Nebraska owned 263,646
shares (6.69%); and Aetna Retirement Services Central Valuation Unit,
Hartford, Connecticut owned 1,255,021 shares (31.83%).