FEDERATED INSURANCE SERIES, 497, 1999-06-29

FEDERATED INSURANCE SERIES
497, 1999-06-29

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PROSPECTUS
Federated Insurance Series

Federated American Leaders Fund II

Federated Equity Income Fund II

Federated Fund for U.S. Government Securities II

Federated Growth Strategies Fund II

Federated High Income Bond Fund II

Federated International Equity Fund II

Federated Prime Money Fund II

Federated Small Cap Strategies Fund II

Federated Strategic Income Fund II

Federated Utility Fund II

This prospectus offers shares of 10 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
10 separate investment portfolios, each having distinct investment objectives
and policies:

* Federated American Leaders Fund II - A large capitalization value mutual fund
investing primarily in common stocks of high quality companies;

* Federated Equity Income Fund II - A mutual fund seeking to provide above
average income and capital appreciation by investing in income-producing equity
securities;

* Federated Fund for U.S. Government Securities II - A mutual fund seeking
to provide current income by investing in U.S. government securities;

* Federated Growth Strategies Fund II - A mutual fund seeking capital
appreciation by investing primarily in growth equity securities;

* Federated High Income Bond Fund II - A mutual fund seeking high current income
by investing primarily in a professionally managed, diversified portfolio of
fixed income securities;

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

* Federated Prime Money Fund II - A money market mutual fund seeking to provide
current income consistent with stability of principal and liquidity;

* Federated Small Cap Strategies Fund II-A mutual fund seeking capital
appreciation by investing primarily in equity securities of small cap companies;

* Federated Strategic Income Fund II-A mutual fund seeking a high level of
current income by investing in three categories of fixed income securities:
domestic investment grade, domectic non-investment grade corporate and foreign;
and

* Federated Utility Fund II - A mutual fund seeking to achieve high current
income and moderate capital appreciation by investing in securities of utility
companies.

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.

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.

Fund shares are available exclusively as a funding vehicle for life insurance
companies writing variable life insurance policies and variable annuity
contracts. They are subject to investment limitations that do not apply to other
mutual funds available directly to the general public. Therefore, any comparison
of these two types of mutual funds would be inappropriate. This prospectus
should be accompanied by the prospectuses for such variable contracts.

APRIL 20, 1999

(REVISED JUNE 1, 1999)

CONTENTS

Federated American Leaders Fund II 2

Risk/Return Summary 2

What are the Fund's Investment Strategies? 3

What are the Principal Securities in Which the Fund Invests? 3

What are the Specific Risks of Investing in the Fund? 4

Federated Equity Income Fund II 4

Risk/Return Summary 4

What are the Fund's Investment Strategies? 5

What are the Principal Securities in Which the Fund Invests? 6

What are the Specific Risks of Investing in the Fund? 7

Federated Fund For U.S. Government Securities II 7

Risk/Return Summary 7

What are the Fund's Investment Strategies? 8

What are the Principal Securities in Which the Fund Invests? 9

What are the Specific Risks of Investing in the Fund? 10

Federated Growth Strategies Fund II 11

Risk/Return Summary 11

What are the Fund's Investment Strategies? 12

What are the Principal Securities in Which the Fund Invests? 13

What are the Specific Risks of Investing in the Fund? 13

Federated High Income Bond Fund II 14

Risk/Return Summary 14

What are the Fund's Investment Strategies? 15

What are the Principal Securities in Which the Fund Invests? 16

What are the Specific Risks of Investing in the Fund? 16

Federated International Equity Fund II 17

Risk/Return Summary 17

What are the Fund's Investment Strategies? 19

What are the Principal Securities in Which the Fund Invests? 19

What are the Specific Risks of Investing in the Fund? 20

Federated Prime Money Fund II 21

Risk/Return Summary 21

What are the Fund's Investment Strategies? 22

What are the Principal Securities in Which the Fund Invests? 23

What are the Specific Risks of Investing in the Fund? 23

Federated Small Cap Strategies Fund II 24

Risk/Return Summary 24

What are the Fund's Investment Strategies? 25

What are the Principal Securities in Which the Fund Invests? 25

What are the Specific Risks of Investing in the Fund? 26

Federated Strategic Income Fund II 26

Risk/Return Summary 26

What are the Fund's Investment Strategies? 27

What are the Principal Securities in Which the Fund Invests? 29

What are the Specific Risks of Investing in the Fund? 31

Federated Utility Fund II 33

Risk/Return Summary 33

What are the Fund's Investment Strategies? 34

What are the Principal Securities in Which the Fund Invests? 35

What are the Specific Risks of Investing in the Fund? 36

What Do Shares Cost? 37

How are the Funds Sold? 37

How to Purchase and Redeem Shares 37

Account and Share Information 38

Who Manages the Funds? 38

Financial Information 42

Federated American Leaders Fund II

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to seek long-term growth of capital. The
Fund's secondary objective is to provide income. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objectives by investing primarily in equity
securities of large capitalization companies that are in the top 25% of their
industry sectors in terms of revenues, are characterized by sound management and
have the ability to finance expected growth.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

* STOCK MARKET RISKS. The value of equity securities in the Fund's portfolio
will fluctuate and, as a result, the Fund's share price may decline suddenly or
over a sustained period of time.

* RISKS RELATING TO INVESTING FOR VALUE. Due to the Fund's "value" style of
investing, the Fund's share price may lag that of other funds using a
different investment style.

* SECTOR RISK. Because the Fund may allocate relatively more of its assets to
one or more industry sectors than to other sectors, the Fund's performance will
be more susceptible to any developments which affect the sectors emphasized by
the Fund.

* RISKS OF INVESTING IN AMERICAN DEPOSITARY RECEIPTS. Because the Fund may
invest in American Depositary Receipts issued by foreign companies, the Fund's
share price may be more affected by foreign economic and political conditions,
taxation policies and accounting and auditing standards, than would otherwise be
the case.

The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.

RISK/RETURN BAR CHART

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated American Leaders Fund II as of the calendar
year-end for each of four years. The `y' axis reflects the "% Total Return
beginning with "0" and increasing in increments of 8.5% up to 34%. The `x' axis
represents calculation periods from the earliest calendar year end of the Fund's
start of business through the calendar year ended 1998. The light gray shaded
chart features four distinct vertical bars, each shaded in charcoal, and each
visually representing by height the total return percentages for the calendar
year stated directly at its base. The calculated total return percentage for the
Fund for each calendar year is stated directly at the top of each respective
bar, for the calendar years 1995 through 1998. The percentages noted are:33.71%,
21.58%, 32.34%, and 17.62%.

The bar chart shows the variability of the Fund's total returns on a yearly
basis.

The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value and do not reflect the
charges and expenses of a variable annuity or variable life insurance contract.
If contract charges or fees had been included, the returns shown would have been
lower.

The Fund's year-to-date total return as of the most recent calendar quarter of
March 31, 1999 was 2.37%.

Within the period shown in the Chart, the Fund's highest quarterly return was
16.18% (quarter ended December 31, 1998). Its lowest quarterly return was
(11.94%) (quarter ended September 30, 1998).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Average Annual Total Return for the
calendar periods through December 31, 1998.

CALENDAR PERIOD FUND S&P 500 LGIFA
<S> <C> <C> <C>
1 Year 17.62% 28.58% 13.58%
Start of Performance 1 20.73% 23.68% 18.17%

</TABLE>

1 The Fund's start of performance date was February 10, 1994.

The table shows the Fund's average annual total returns compared to the Standard
and Poor's 500 Index (S&P 500), which is a broad-based market index, and the
Lipper Growth and Income Funds Average (LGIFA), which is an average of funds
with similar investment objectives, for the calendar periods ended December 31,
1998.

Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.

What are the Fund's Investment Strategies?

The Fund invests at least 65% of its assets in a portfolio of equity securities
issued by certain blue chip companies selected by the Adviser. The Fund's
holdings ordinarily will be in large capitalization companies that are in the
top 25% of their industries in terms of revenues, and which, in the Adviser's
opinion, are trading at a low valuation in relation to their history, to the
current market and to their expected future price. A description of the various
types of securities in which the Fund invests, and their risks, immediately
follows the strategy discussion.

Companies with similar characteristics may be grouped together in broad
categories called sectors. The Adviser diversifies the Fund's investments,
limiting the Fund's risk exposure with respect to individual securities and
industry sectors. In determining the amount to invest in a security, and in
order to manage sector risk, the Fund's Adviser attempts to limit the Fund's
exposure to each major sector in the Standard & Poor's 500 Index, as a general
matter, to not less than 50% nor more than 200% of the Index's allocation to
that sector.

The Fund's Adviser performs traditional fundamental analysis to select
securities that exhibit the most promising long-term value for the Fund's
portfolio. In selecting securities, the Adviser focuses on the current financial
condition of the issuing company, in addition to examining each issuer's
business and product strength, competitive position, and management expertise.
Further, the Adviser considers current economic, financial market, and industry
factors, which may affect the issuing company. To determine the timing of
purchases and sales of portfolio securities, the Adviser looks at recent stock
price performance and the direction of current fiscal year earnings estimates of
various companies.

The Adviser uses the "value" style of investing, selecting securities of
companies which are trading at discounts to their historic relationship to the
market as well as to their expected growth. Because the Adviser uses a "value"
style of investing, the price of the securities held by the Fund may not, under
certain market conditions, increase as rapidly as stocks selected primarily for
their growth attributes.

The Adviser may invest in American Depositary Receipts ("ADRs"), which represent
interests in underlying securities issued by a foreign company, but which are
traded in the United States. The Adviser invests primarily in the ADRs of
companies with significant operations within the United States. Securities of
foreign companies may be more affected by foreign economic and political
conditions, taxation policies, and accounting and auditing standards than those
of U.S. companies.

TEMPORARY DEFENSIVE INVESTMENTS

The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders.

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund invests.

COMMON STOCKS

Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.

AMERICAN DEPOSITARY RECEIPTS

American Depositary Receipts represent interests in underlying securities issued
by a foreign company. Depositary receipts are not traded in the same market as
the underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the U.S. rather than in overseas markets.
ADRs are also traded in U.S. dollars, eliminating the need for foreign exchange
transactions. Moreover, the Fund invests primarily in the ADRs of companies with
significant operations within the U.S.

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

The value of equity securities in the Fund's portfolio will rise and fall. These
fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline.

The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.

SECTOR RISKS

Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may underperform other sectors or the market as a whole. As the Adviser
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments which generally affect that sector.

RISKS RELATING TO INVESTING FOR VALUE

Due to their relatively low valuations, value stocks are typically less volatile
than growth stocks. For instance, the price of a value stock may experience a
smaller increase on a forecast of higher earnings, a positive fundamental
development, or positive market development. Further, value stocks tend to have
higher dividends than growth stocks. This means they depend less on price
changes for returns and may lag behind growth stocks in an up market.

RISKS OF INVESTING IN AMERICAN DEPOSITARY RECEIPTS

Because the Fund may invest in American Depositary Receipts issued by foreign
companies, the Fund's share price may be more affected by foreign economic and
political conditions, taxation policies, and accounting and auditing standards,
than would otherwise be the case. Foreign companies may not provide information
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its Adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.

Federated Equity Income Fund II

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide above average income and capital
appreciation. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing primarily in income
producing equity securities and securities that are convertible into common
stocks.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

* STOCK MARKET RISKS. The value of equity securities in the Fund's portfolio
will fluctuate and, as a result, the Fund's share price may decline suddenly or
over a sustained period of time.

* RISKS RELATING TO INVESTING FOR VALUE. The Fund generally uses a "value" style
of investing, so that the Fund's share price may lag that of other funds using a
different investment style.

RISK/RETURN BAR CHART

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated Equity Income Fund II as of the calendar
year-end for one year. The `y' axis reflects the "% Total Return" beginning with
"0" and increasing in increments of 5% up to 20%.The `x' axis represents
calculation periods from the earliest calendar year end of the Fund's start of
business through the calendar year ended December 31,1998.The light gray shaded
chart features one distinct vertical bar, shaded in charcoal, and visually
representing by height the total return percentage for the calendar year stated
directly at its base. The calculated total return percentage for the Fund for
the calendar year is stated directly at the top of the bar. For the calendar
year 1998, the percentage noted is 15.57%.

The bar chart shows the Fund's total return for the calendar year-end December
31, 1998.

The Fund's Shares are not sold subject to a sales charge (load). The total
return displayed above is based upon the net asset value and do not reflect the
charges and expenses of a variable annuity or variable life insurance contract.
If contract charges or fees had been included, the return shown would have been
lower.

The Fund's year-to-date total return as of the most recent calendar quarter as
of March 31, 1999, was 2.83%.

Within the period shown in the Chart, the Fund's highest quarterly return was
16.27% (quarter ended December 31, 1998). Its lowest quarterly return was
(8.91%) (quarter ended September 30, 1998).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Average Annual Total Return through
December 31, 1998.

CALENDAR PERIOD FUND S&P 500 LEIFI
<S> <C> <C>
1 Year 15.57% 28.58% 11.78%
Start of Performance 1 18.15% 28.40% 18.00%

</TABLE>

1 The Fund's start of performance date was January 30, 1997.

The table shows the Fund's average annual total returns compared to the Standard
& Poor's 500 Index (S&P 500), which is a broad-based market index, and the
Lipper Equity Income Fund Index (LEIFI), which is an index of funds with similar
investment objectives, for the calendar period ended December 31, 1998.

Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.

What are the Fund's Investment Strategies?

The Fund pursues its investment objective by investing at least 65% of its
assets in income-producing equity securities, including securities that are
convertible into common stocks. The Fund's holdings ordinarily will be in large
and middle capitalization companies. The Adviser attempts to manage the Fund so
that, on average, the Fund's portfolio yield is at least 50% greater than the
yield of the Standard & Poor's 500 Index (the "Index"). A description of the
various types of securities in which the Fund invests, and their risks,
immediately follows the strategy discussion.

Companies with similar characteristics may be grouped together in broad
categories called sectors. The Adviser diversifies the Fund's investments,
limiting the Fund's risk exposure with respect to individual securities and
industry sectors. In attempting to remain relatively sector-neutral, and in
order to manage sector risk, the Adviser attempts to limit the Fund's exposure
to each industry sector in the Index, as a general matter, to not less than 80%
nor more than 120% of the Index's allocation to that sector.

The Adviser performs a technical review of potential issuers, looking at
criteria appropriate to the Fund's investment goals. The Adviser examines
primarily large and middle capitalization companies, which, in the Adviser's
opinion, are trading at a low valuation in relation to their historic and
current market prices, and to their expected future price based on projected
earnings. In addition, the equity securities held by the Fund will generally
have a history and an expectation of paying increasing dividends to
shareholders.

Additionally, the Adviser performs traditional fundamental analysis to select
securities that exhibit the most promising long-term value for the Fund's
portfolio. In selecting securities, the Adviser focuses on the current financial
condition of the issuing company, in addition to examining its business and
product strength, competitive position, and management expertise. Further, the
Adviser considers current economic, financial market, and industry factors,
which may affect the issuing company. To determine the timing of purchases of
portfolio securities, the Adviser compares the current stock price of an issuer
with the Adviser's judgment as to that stock's current and expected value based
on projected future earnings. The Adviser sells a portfolio security if it
determines that the issuer's prospects have deteriorated, or if it finds an
attractive security which the Adviser deems has superior risk and return
characteristics to a security held by the Fund.

The Adviser ordinarily uses the "value" style of investing, selecting securities
that generally have a comparatively low volatility in share price relative to
the overall equity market and which may provide relatively high dividend income.
When the Adviser uses a "value" style of investing, the price of the securities
held by the Fund may not, under certain market conditions, increase as rapidly
as stocks selected primarily for their growth attributes. In addition, some
securities in which the Adviser invests may have "growth" style characteristics
because the Fund is sector-neutral in its investment approach.

The Fund purchases convertible preferred stocks and convertible bonds, which
have a higher yield than common stocks, in order to increase the Fund's yield
and to generally provide a measure of protection against market declines.

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

COMMON STOCKS

CONVERTIBLE SECURITIES

Convertible securities are convertible preferred stock or convertible bonds that
the Fund has the option to exchange for equity securities of the issuer at a
specified conversion price. The option allows the Fund to realize additional
returns if the market price of the equity securities exceeds the conversion
price. For example, the Fund may hold securities that are convertible into
shares of common stock at a conversion price of $10 per share. If the market
value of the shares of common stock reached $12, the Fund could realize an
additional $2 per share by converting its securities.

Convertible preferred stock and convertible bonds pay or accrue interest or
dividends at a specified rate. The rate may be a fixed percentage of the
principal or adjusted periodically. In addition, the issuer of a convertible
bond must repay the principal amount of the bond, normally within a specified
time. Convertible preferred stock and convertible bonds of a company generally
provide more income, but may pay a lower total return than that company's equity
securities.

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

RISKS RELATED TO INVESTING FOR VALUE

Due to their relatively low valuations, value stocks are typically less volatile
than growth stocks. For instance, the price of a value stock may experience a
smaller increase on a forecast of higher earnings, a positive fundamental
development or positive market development. Further, value stocks tend to have
higher dividends than growth stocks. This means they depend less on price
changes for returns and may lag behind growth stocks in an up market.

Federated Fund For U.S. Government Securities II

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

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

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its objective by investing primarily in U.S. government
securities, including mortgage backed securities issued by U.S. government
agencies. The Fund limits its investments to those that would enable it to
qualify as a permissible investment for variable annuity contracts and variable
life insurance policies issued by insurance companies.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

* INTEREST RATE RISK. Prices of fixed income securities generally fall when
interest rates rise.

* PREPAYMENT RISK. When homeowners prepay their mortgages in response to lower
interest rates, the Fund will be required to reinvest the proceeds at the lower
interest rates available. Also, when interest rates fall, the price of mortgage
backed securities may not rise to as great an extent as that of other fixed
income securities.

The Shares offered by this prospectus are not deposits or obligations of
any bank, and are not insured or guaranteed by the U.S. government, the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other government agency.

RISK/RETURN BAR CHART

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated Fund for U.S. Government Securities II as of
the calendar year-end for each of four years. The `y' axis reflects the "% Total
Return" beginning with "0" and increasing in increments of 1.5% up to 9.0%.The
`x' axis represents calculation periods from the earliest calendar year end of
the Fund's start of business through the calendar year ended December
31,1998.The light gray shaded chart features four distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Fund for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1995 through 1998. The
percentages noted are:8.77%, 4.20%, 8.58%, and 7.66%, respectively.

The bar chart shows the variability of the Fund's total returns on a yearly
basis.

The Fund's Shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value and do not reflect the
charges and expenses of a variable annuity or variable life insurance contract.
If contract charges or fees had been included, the returns shown would have been
lower.

The Fund's year-to-date total return as of the most recent calendar quarter of
March 31, 1999, was (0.13)%.

Within the period shown in the Chart, the Fund's highest quarterly return was
3.73% (quarter ended September 30, 1998). Its lowest quarterly return was
(0.72)% (quarter ended March 31, 1996).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Average Annual Total Returns through
December 31, 1998.

CALENDAR
PERIOD FUND LBGM LUSMFA LB5TB
<S> <C> <C> <C> <C>
1 Year 7.66% 7.91% 6.13% 9.60%
Start of
Performance 1 6.66% 8.19% 6.91% 7.40%

</TABLE>

1 The Fund's start of performance date was March 28, 1994.

The table shows the Fund's average annual total returns compared to the Lipper
U.S. Mortgage Funds Average (LUSMFA), which is an index of funds with similar
investment objectives, and the Lehman Brothers 5-Year Treasury Bellwether Index
(LB5TB) and the Lehman Brothers Government/Mortgage Backed Index (LBGM), which
are both broad-based market indices, for the calendar period ended December 31,
1998.

What are the Fund's Investment Strategies?

The Fund invests primarily in a portfolio of U.S. government mortgage backed
securities. The Fund does, however, utilize U.S. Treasury and U.S. government
agency debentures in order to comply with the diversification requirements of
the variable contract asset regulations. The Fund may invest up to 35% of its
total assets in certain mortgage securities of non-governmental issuers the
payment of which is indirectly guaranteed by the U.S. government. A description
of the various types of securities in which the Fund invests, and their risks,
immediately follows this strategy discussion.

Mortgage backed securities generally offer higher relative returns versus
comparable U.S. Treasury securities to compensate for their prepayment risks.
The Adviser actively manages the Fund's portfolio, seeking these higher relative
returns while attempting to limit the prepayment risk.

The Adviser attempts to manage the Fund's prepayment risk by selecting mortgage
backed securities with characteristics that make prepayment risk less likely.
Factors which the Adviser may consider in selecting securities include the
average interest rates of the underlying mortgages, the prior prepayment history
of the mortgages and the federal agencies that securitize the mortgages. The
Adviser attempts to assess the relative returns and risks of mortgage backed
securities by analyzing how the timing, amount and division of cash flows from
the pool of mortgages underlying the security might change in response to
changing economic and market conditions.

The Adviser formulates its interest rate outlook by analyzing a variety of
factors such as:

* current and expected U.S. economic growth;

* current and expected interest rates and inflation;

* the Federal Reserve's monetary policy; and

* changes in the supply of or demand for U.S. government securities.

There is no assurance that the Adviser's efforts to forecast market interest
rates and assess the impact of market interest rates on particular securities
will be successful.

The Fund may select U.S. government securities which are not mortgage backed
securities and therefore not subject to prepayment risk, such as U.S. Treasury
securities and U.S. government agency debentures. The Adviser may also use
collateralized mortgage obligations ("CMOs"), with relatively predictable cash
flows (such as sequential pay, planned amortization class and targeted
amortization class), to reduce prepayment risk. In addition, the Adviser may use
combinations of CMOs, and CMOs and other mortgage backed securities to attempt
to provide a higher yielding investment with lower sensitivity to fluctuations
in interest rates.

The Adviser may attempt to take advantage of current and potential yield
differentials existing from time to time between various mortgage backed
securities in order to increase the Fund's return. The Fund may also engage in
dollar roll transactions for their potential to enhance income.

What are the Principal Securities in Which the Fund Invests?

FIXED INCOME SECURITIES

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.

The following describes the types of fixed income securities in which the Fund
invests:

MORTGAGE BACKED SECURITIES

Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.

Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and prepayments from the underlying mortgages. As
a result, the holders assume all the prepayment risks of the underlying
mortgages.

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

CMOs, including interests in real estate mortgage investment conduits (REMICs),
allocate payments and prepayments from an underlying pass-through certificate
among holders of different classes of mortgage backed securities. This creates
different prepayment and market risks for each CMO class.

PRIVATE ISSUE CMOS

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
AAA rating is the highest possible rating assigned to fixed income securities
indicating low credit risk. 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
mortgaged-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 degree of increased or decreased prepayment risk depends upon the structure
of the CMOs. However, the actual returns on any type of mortgage backed security
depend upon the performance of the underlying pool of mortgages, which no one
can predict and will vary among pools.

TREASURY SECURITIES

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

AGENCY SECURITIES

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risk, but not as low as treasury
securities.

The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risk, it does not
reduce the market and prepayment risks of these mortgage backed securities.

SPECIAL TRANSACTIONS

DELAYED DELIVERY TRANSACTIONS

Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create market
risks for the Fund. Delayed delivery transactions also involve credit risks in
the event of a counterparty default.

TO BE ANNOUNCED SECURITIES (TBAS)

As with other delayed delivery transactions, a seller agrees to issue a TBA
security at a future date. However, the seller does not specify the particular
securities to be delivered. Instead, the Fund agrees to accept any security that
meets specified terms. For example, in a TBA mortgage backed transaction, the
Fund and the seller would agree upon the issuer, interest rate and terms of the
underlying mortgages. The seller would not identify the specific underlying
mortgages until it issues the security. TBA mortgage backed securities increase
market risks because the underlying mortgages may be less favorable than
anticipated by the Fund.

DOLLAR ROLLS

Dollar rolls are transactions where the Fund sells mortgage backed securities
with a commitment to buy similar, but not identical, mortgage backed securities
on a future date at a lower price. Normally, one or both securities involved are
TBA mortgage backed securities. Dollar rolls are subject to market and credit
risks.

REPURCHASE AGREEMENTS

Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.

ASSET COVERAGE

In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting derivative contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on derivative contracts or special
transactions.

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.

Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.

PREPAYMENT RISKS

Unlike traditional fixed income securities, which may pay a fixed rate of
interest until maturity, when the entire principal amount is due, payments on
mortgage backed securities include both interest and a partial payment of
principal. This partial payment of principal may be comprised of a scheduled
principal payment as well as an unscheduled payment from the voluntary
prepayment, refinancing, or foreclosure of the underlying loans. These
unscheduled payments of principal can adversely affect the price and yield of
mortgage backed securities. For example, during periods of declining interest
rates, prepayments can be expected to accelerate, and the Fund would be required
to reinvest the proceeds at the lower interest rates then available. In
addition, like other interest-bearing securities, the values of mortgage backed
securities generally fall when interest rates rise. Since rising interest rates
generally result in decreased prepayments of mortgage backed securities, this
could cause mortgage securities to have greater average lives than expected and
their value may decline more than other fixed income securities. Conversely,
when interest rates fall, their potential for capital appreciation is limited
due to the existence of the prepayment feature.

Generally, mortgage backed securities compensate for greater prepayment risk by
paying a higher yield. The additional interest paid for risk is measured by the
difference between the yield of a mortgage backed security and the yield of a
U.S. Treasury security with a comparable maturity (the spread). An increase in
the spread will cause the price of the security to decline. Spreads generally
increase in response to adverse economic or market conditions.

CREDIT RISK

Credit risk is the possibility that an issuer will default (fail to repay
interest and principal when due). If an issuer defaults, the Fund may lose
money. Money market funds try to minimize this risk by purchasing higher quality
securities.

Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk.

LIQUIDITY RISKS

Liquidity risk refers to the possibility that the Fund may not be able to sell a
security when it wants to. If this happens, the Fund will be required to
continue to hold the security and the Fund could incur losses.

Trading opportunities are more limited for fixed income securities that have not
received any credit ratings, have received ratings below investment grade or are
not widely held.

Trading opportunities are more limited for CMOs that have complex terms or that
are not widely held. These features may make it more difficult to sell or buy a
security at a favorable price or time. Consequently, the Fund may have to accept
a lower price to sell a security, sell other securities to raise cash or give up
an investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.

Federated Growth Strategies Fund II

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is capital appreciation. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN

INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing primarily in common stock
of companies with market capitalizations above $500 million that offer superior
growth prospects.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

* STOCK MARKET RISKS. The value of equity securities in the Fund's portfolio
will fluctuate and, as a result, the Fund's share price may decline suddenly or
over a sustained period of time.

* LIQUIDITY RISKS. Smaller company securities in which the Fund invests may
be less readily marketable and may be subject to greater fluctuation in
price than other securities.

* RISKS RELATED TO COMPANY SIZE. Because the smaller companies in which the Fund
may invest may have unproven track records, a limited product or services base
and limited access to capital, they may be more likely to fail than larger
companies.

* SECTOR RISK. Because the Fund may allocate relatively more assets to certain
industry sectors than others, the Fund's performance may be more susceptible to
any developments which affect those sectors emphasized by the Fund.

* RISKS RELATED TO INVESTING FOR GROWTH. The Fund generally uses a "growth"
style of investing and, as a result, the stocks in which the Fund invests may
experience greater volatility in price, and may pay lower dividends, than stocks
invested in by Funds using a different investment style.

RISK/RETURN BAR CHART

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated Growth Strategies Fund II as of the calendar
year-end for each of three years. The `y' axis reflects the "% Total Return
"beginning with "0" and increasing in increments of 6% up to 30%. The `x' axis
represents calculation periods from the earliest calendar year end of the Fund's
start of business through the calendar year ended 1998. The light gray shaded
chart features three distinct vertical bars, each shaded in charcoal, and each
visually representing by height the total return percentages for the calendar
year stated directly at its base. The calculated total return percentage for the
Fund for each calendar year is stated directly at the top of each respective
bar, for the calendar years 1996 through 1998. The percentages noted are:24.32%,
27.03%, and 17.44%.

The bar chart shows the variability of the Fund's total returns on a yearly
basis.

The Fund's year-to-date total return as of the most recent calendar quarter of
March 31, 1999 was 8.99%.

Within the period shown in the chart, the Fund's highest quarterly return was
27.84% (quarter ended December 31, 1998). Its lowest quarterly return was
(20.08%) (quarter ended September 30, 1998).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Average Annual Total Return for the
calendar periods through December 31, 1998.

CALENDAR PERIOD FUND S&P 500 LGFI
<S> <C> <C> <C>
1 Year 17.44% 28.58% 25.69%
Start of Performance 1 22.85% 29.06% 23.06%

</TABLE>

1 The Fund's start of performance date was November 9, 1995.

The table shows the Fund's average annual total returns compared to the Standard
& Poor's 500 Index (S&P 500) which is a broad-based market index, and the Lipper
Growth Fund Index (LGFI) which is an index of funds with similar investment
objectives for the calendar period ended December 31, 1998.

What are the Fund's Investment Strategies?

The Fund pursues its investment objective by investing primarily in common stock
of companies with market capitalizations above $500 million (at the time of
purchase) that offer superior growth prospects. Market capitalization is
determined by multiplying the number of outstanding shares by the current market
price per share. Using its own quantitative process, the Adviser rates the
future performance potential of companies. The Adviser evaluates each company's
earnings quality in light of their current valuation to narrow the list of
attractive companies. The Adviser then evaluates product positioning, management
quality and sustainability of current growth trends of those companies. Using
this type of fundamental analysis, the Adviser selects the most promising
companies for the Fund's portfolio. A description of the various types of
securities in which the Fund invests, and their risks, immediately follows the
strategy discussion.

Companies with similar characteristics may be grouped together in broad
categories called sectors. In determining the amount to invest in a security,
the Adviser limits the Fund's exposure to each business sector that comprises
the S&P 500 Index. The Fund's allocation to a sector will not be less than 50%
or more than 200% of the Index's allocation to that sector. The Fund ordinarily
will hold between 100 and 150 companies in its portfolio.

PORTFOLIO TURNOVER

The Fund may actively trade its portfolio securities in an attempt to achieve
its investment objective. Actively trading portfolio securities increases the
Fund's trading costs and may have an adverse impact on the Fund's performance.

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

COMMON STOCKS

AMERICAN DEPOSITARY RECEIPTS

American Depositary Receipts ("ADRs") represent interests in underlying
securities issued by a foreign company. Depositary receipts are not traded in
the same market as the underlying security. The foreign securities underlying
ADRs are traded in the U.S. ADRs provide a way to buy shares of foreign-based
companies in the U.S. rather than in overseas markets. ADRs are also traded in
U.S. dollars, eliminating the need for foreign exchange transactions. Depositary
Receipts involve many of the same risks of investing directly in foreign
securities, including Country Risk and Currency Risk.

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

The value of equity securities in the Fund's portfolio will go up and down.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline.

The Fund's investment adviser attempts to manage market risk by limiting the
amount the Fund invests in each company's equity securities. However,
diversification will not protect the Fund against widespread or prolonged
declines in the stock market.

LIQUIDITY RISKS

Trading opportunities are more limited for equity securities that are not widely
held. This may make it more difficult to sell or buy a security at a favorable
price or time. Consequently, the Fund may have to accept a lower price to sell a
security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.

RISKS RELATED TO COMPANY SIZE

Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more volatile
its price. Market capitalization is determined by multiplying the number of
outstanding shares by the current market price per share.

Companies with smaller market capitalizations also tend to have unproven track
records, limited product or service base and limited access to capital. These
factors also increase risks and make these companies more likely to fail than
companies with larger market capitalizations.

SECTOR RISK

Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may perform differently than other sectors or as the market as a whole. As the
adviser allocates more of the Fund's portfolio holdings to a particular sector,
the Fund's performance will be more susceptible to any economic, business or
other developments which generally affect that sector. In the effort to manage
this risk, the Adviser limits the amount allocated to each sector.

RISKS OF INVESTING IN AMERICAN DEPOSITARY RECEIPTS

RISKS RELATED TO INVESTING FOR GROWTH

Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on an analyst's downward earnings estimate revision,
a negative fundamental development, or other adverse market development.
Further, growth stocks tend to have lower dividend yields than value stocks.
This means they depend more on price changes for returns and may be more
adversely affected in a down market compared to higher yielding stocks.

Federated High Income Bond Fund II

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to seek high current income by investing
primarily in a professionally managed, diversified portfolio of fixed income
securities. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing in a diversified
portfolio of high-yield, lower-rated corporate bonds.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

* The corporate bonds in which the fund invests have a higher default risk than
investment-grade securities. Low-grade bonds are almost always uncollateralized
and subordinated to other debt that a firm has outstanding.

* Liquidity of individual corporate bonds varies considerably. Low-grade
corporate bonds have less liquidity than investment grade securities, which
means that trades in these securities will be made at larger bid-ask spreads.

* Low-grade corporate bond returns are sensitive to both changes in prevailing
interest rates and in the economy. An increase in market interest rates may
result in a decrease in the value of Fund shares. The value of the Fund's
portfolio may also decline in tandem with a drop in the overall value of the
stock market based on negative developments in the U.S. and global economies.

RISK/RETURN BAR CHART

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated High Income Bond Fund II as of the calendar
year-end for each of four years. The `y' axis reflects the "% Total Return
"beginning with "0" and increasing in increments of 5% up to 25%. The `x' axis
represents calculation periods from the earliest calendar year end of the Fund's
start of business through the calendar year ended 1998. The light gray shaded
chart features four distinct vertical bars, each shaded in charcoal, and each
visually representing by height the total return percentages for the calendar
year stated directly at its base. The calculated total return percentage for the
Fund for each calendar year is stated directly at the top of each respective
bar, for the calendar years 1995 through 1998. The percentages noted are:20.38%,
14.31%, 13.83%, and 2.70%.

The bar chart shows the variability of the Fund's total returns on a yearly
basis.

The Fund's year-to-date total return as of the most recent calendar quarter of
March 31, 1999 was 3.30%.

Within the period shown in the Chart, the Fund's highest quarterly return was
5.79% (quarter ended September 30, 1996). Its lowest quarterly return was
(4.16%) (quarter ended September 30, 1998).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Average Annual Total Return for the
calendar periods through December 31, 1998.

CALENDAR PERIOD FUND LBSBRI LHCYFA
<S> <C> <C> <C>
1 Year 2.70% 1.28% (0.44%)
Start of Performance 1 9.49% 8.49% 7.14%

</TABLE>

1 The Fund's Start of Performance date was March 1, 1994.

The table shows the Fund's average annual total returns compared to the Lehman
Brothers Single B Rated Index (LBSBRI) which is a broad-based market index, and
the Lipper High Current Yield Funds Average (LHCYFA) which is an average of the
Fund with similar investment objectives, for the calendar period ended December
31, 1998.

What are the Fund's Investment Strategies?

The Fund provides exposure to the high-yield, lower-rated corporate bond market.
At least 65 percent of the Fund's assets are invested in corporate bonds rated
BBB or lower. The Adviser actively manages the Fund's portfolio seeking to
realize the potentially higher returns of high-yield bonds (also known as "junk
bonds") compared to returns of high-grade securities by seeking to minimize
default risk and other risks through careful security selection and
diversification. A description of the various types of securities in which the
Fund invests, and their risks, immediately follows the strategy discussion.

The Adviser selects securities seeking high yields, low relative credit risk,
and high portfolio diversification. The securities in which the Fund invests
have high yields primarily because of the market's greater uncertainty about the
issuer's ability to make all required interest and principal payments, and
therefore about the returns that will be in fact realized by the Fund.

The Adviser attempts to select bonds for investment by the Fund which offer
superior potential returns for the default risks being assumed. The Adviser's
security selection process consists of a credit-intensive, fundamental analysis
of the issuing firm. The Adviser's analysis focuses on the financial condition
of the issuing firm, together with the issuer's business and product strength,
competitive position and management expertise. Further, the Adviser considers
current economic, financial market, and industry factors, which may affect the
issuer.

The Adviser attempts to minimize the Fund's portfolio credit risk through
diversification. The Adviser selects securities to maintain broad portfolio
diversification both by company and industry.

TEMPORARY DEFENSIVE INVESTMENTS

The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher-quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders.

What are the Principal Securities in Which the Fund Invests?

The Fund invests primarily in lower-rated corporate fixed income securities.
Corporate fixed income securities are debt securities issued by U.S. or foreign
businesses. Notes, bonds, debentures and commercial paper are the most prevalent
types of corporate debt securities. The Fund may also purchase interests in bank
loans to companies.

The Fund treats preferred stock which is redeemable by the issuer as a fixed
income security. Preferred stocks have the right to receive specified dividends
or distributions before the issuer makes payments on its common stock. Some
preferred stock also participates in dividends and distributions paid on common
stock.

The Fund may invest in fixed income securities of issuers based outside the
U.S. The securities of foreign issuers in which the Fund invests are
primarily traded in the U.S. and are predominantly denominated in
U.S. dollars.

A security's current yield measures the annual income earned on a security as a
percentage of its price. The rate may be a fixed percentage of the principal or
adjusted periodically. In addition, the issuer of a fixed income security must
repay the principal amount of the security, normally within a specified time. A
security's yield to maturity will increase or decrease depending upon whether it
costs less (a discount) or more (a premium) than the principal amount.

The credit risks of corporate debt securities vary widely among issuers. In
addition, the credit risk of an issuer's debt securities may vary based on their
priority for repayment. For example, higher-ranking (senior) securities have a
higher priority than lower ranking (subordinated) securities. This means that
the issuer might not make payments on subordinated securities while continuing
to make payments on senior securities. Typically, both senior and subordinated
debt securities have a higher priority than redeemable preferred stock. Most of
the fixed income securities in which the Fund invests will be uncollateralized
and subordinated to other debt that a corporation has outstanding.

Lower rated fixed income securities are securities rated below investment grade
(i.e., BB or lower) by a Nationally Recognized Rating Service. There is no
minimal acceptable rating for a security to be purchased or held by the Fund and
the Fund may purchase or hold unrated securities and securities whose issuers
are in default.

What are the Specific Risks of Investing in the Fund?

CREDIT RISKS

Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money. The high yield bonds in which the Fund invests have a higher
default risk than investment grade securities. Low-grade bonds are almost always
uncollateralized and subordinated to other debt that a firm has outstanding.

Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the adviser's credit assessment.

Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline relative to higher quality instruments.

LIQUIDITY RISKS

The market is less liquid for fixed income securities that have not received any
credit ratings, have received ratings below investment grade or are not widely
held. These features may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Fund may have to accept a lower price
to sell a security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.

INTEREST RATE RISKS

RISKS RELATED TO THE ECONOMY

The prices of high-yield securities are affected by the economy. The value of
the Fund's portfolio may decline in tandem with a drop in the overall value of
the stock market based on negative developments in the U.S. and global
economies.

Federated International Equity Fund II

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to obtain a total return on its assets. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment strategies and policies described
in this prospectus.

The Fund's total return will consist of two components: (1) changes in the
market value of its portfolio securities (both realized and unrealized
appreciation); and (2) income received from its portfolio securities. The Fund
expects that changes in market value will comprise the largest component of its
total return.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of companies based outside the U.S. The Fund's
Adviser manages the Fund based on the view that international equity markets are
inefficient at pricing securities and that careful security selection offers the
best potential for superior long-term investment returns. Selection of industry
and country are secondary considerations.

Using its own quantitative process, the Adviser ranks the future performance
potential of companies by evaluating each company's earnings potential and
management quality as well as reviewing the company's financial statements and
earnings forecasts. The Adviser then evaluates the sustainability of the
company's current growth trends and potential catalysts for increased growth.
Considering this fundamental analysis, the Adviser selects the most promising
companies for the Fund's portfolio.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

* STOCK MARKET RISKS. The value of equity securities in the Fund's portfolio
will fluctuate and, as a result, the Fund's share price may decline suddenly or
over a sustained period of time.

* CURRENCY RISKS. Because exchange rates for currencies fluctuate daily, prices
of the foreign securities in which the Fund invests are more volatile than
prices of securities traded exclusively in the U.S.

* RISKS OF FOREIGN INVESTING. Because the Fund invests in securities issued by
foreign companies, the Fund's share price may be more affected by foreign
economic and political conditions, taxation policies and accounting and auditing
standards than would otherwise be the case.

* SECTOR RISKS. Because the Fund may allocate relatively more assets to certain
industry sectors and geographic regions than others, the Fund's performance may
be more susceptible to any developments which affect those sectors or geographic
areas emphasized by the Fund.

* EURO RISKS. Because the Fund makes significant investments in securities
denominated by the Euro, the exchange rate between the Euro and the
U.S. dollar will have a significant impact on the value of the Fund's
investments.

* LIQUIDITY RISKS. The foreign securities in which the Fund invests may be
less readily marketable and may be subject to greater fluctuation in
price than other securities.

* RISKS OF INVESTING IN EMERGING MARKET COUNTRIES. Because the Fund may invest a
portion of its assets in emerging market countries, the Fund's share price may
be significantly more volatile and may be more subject to the impact of severe
economic downturns and unstable governments, than prices in developed countries.

* RISKS OF INVESTING FOR GROWTH. The Fund generally uses a "growth" style of
investing and, as a result, the stocks in which the Fund invests may experience
greater dividends than stocks invested in by funds using a different investment
style.

RISK/RETURN BAR CHART

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated International Equity Fund II as of the
calendar year-end for each of three years. The `y' axis reflects the "% Total
Return" beginning with "0" and increasing in increments of 6.5% up to 26.0%. The
`x' axis represents calculation periods from the earliest calendar year end of
the Fund's start of business through the calendar year ended December 31,
1998.The light gray shaded chart features three distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Fund for each calendar year is stated directly
at the top of each respective bar for the calendar years 1996 through 1998. The
percentages noted are: 8.32%, 10.08%, and 25.57%, respectively.

The bar chart shows the variability of the Fund's total returns on a yearly
basis.

The Fund is not sold subject to a sales charge (load). Hence, the total returns
displayed above are based upon the net asset value and do not reflect the
charges and expenses of a variable annuity or variable life insurance contract.
If contract charges or fees had been included, the returns shown would have been
lower.

The Fund's year-to-date total return as of the most recent calendar quarter of
March 31, 1999, was 3.14%.

Within the period shown in the chart, the Fund's highest quarterly return was
23.70% (quarter ended March 31, 1998). Its lowest quarterly return was (15.87%)
(quarter ended September 30, 1998).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Average Annual Total Returns through
December 31, 1998.

CALENDAR PERIOD FUND MSCI-EAFE
<S> <C> <C>
1 Year 25.57% 20.00%
Start of Performance 1 12.75% 8.80%

</TABLE>

1 The Fund's start of performance date was May 8, 1995.

The table shows the Fund's average annual total returns compared to the Morgan
Stanley Capital International Europe Australia and Far East Index (MSCI-EAFE)
for the calendar period ended December 31, 1998. This is a
broad-based market index.

What are the Fund's Investment Strategies?

The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of companies based outside the U.S. The Adviser
manages the Fund based on the view that international equity markets are
inefficient at pricing securities and that careful security selection offers the
best potential for superior long-term investment returns. Selection of industry
and country are secondary considerations. A description of the various types of
securities in which the Fund invests, and their risks, immediately follows the
strategy discussion.

Using its own quantitative process, the Adviser ranks the future performance
potential of companies. The Adviser evaluates each company's earnings potential
in light of its current valuation to narrow the list of attractive companies.
The Adviser then evaluates management quality and may meet with company
representatives, company suppliers, customers, or competitors. The Adviser also
reviews the company's financial statements and forecasts of earnings. Based on
this information, the Adviser evaluates the sustainability of the company's
current growth trends and potential catalysts for increased growth. Using this
type of fundamental analysis, the Adviser selects the most promising companies
for the Fund's portfolio.

With respect to the Fund's investments in developed markets, companies may be
grouped together in broad categories called business sectors. The Adviser may
emphasize certain business sectors in the portfolio that exhibit stronger growth
potential or higher profit margins.

The Fund will not invest more than 20% of its assets in companies located in
emerging markets. In selecting emerging markets countries in which to invest,
the Adviser reviews the country's economic outlook, its interest and inflation
rates, and the political and foreign exchange risk of investing in a particular
country. The Adviser then analyzes companies located in particular emerging
market countries.

PORTFOLIO TURNOVER

The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Actively trading portfolio securities increases the Fund's
trading costs and may have an adverse impact on the Fund's performance.

TEMPORARY INVESTMENTS

The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher quality debt
securities. It may do this to minimize potential losses and maintain liquidity
to meet shareholder redemptions during adverse market conditions. This may cause
the Fund to give up greater investment returns to maintain the safety of
principal, that is, the original amount invested by shareholders.

What are the Principal Securities in Which the Fund Invests?

FOREIGN SECURITIES

Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:

* it is organized under the laws of, or has a principal office located in,
another country;

* the principal trading market for its securities is in another country; or

* it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.

Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.

EQUITY SECURITIES

COMMON STOCKS

PREFERRED STOCKS

Preferred stocks have the right to receive specified dividends or distributions
before the issuer makes payments on its common stock. Some preferred stocks also
participate in dividends and distributions paid on common stock. Preferred
stocks may also permit the issuer to redeem the stock. The Fund may also treat
such redeemable preferred stock as a fixed income security.

What are the Specific Risks of Investing in the Fund?

The specific risks associated with foreign securities are as follows:

STOCK MARKET RISKS

CURRENCY RISKS

Exchange rates for currencies fluctuate daily. The combination of currency risk
and market risk tends to make securities traded in foreign markets more volatile
than securities traded exclusively in the U.S.

The Adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.

RISKS OF FOREIGN INVESTING

Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.

Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its Adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.

Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.

SECTOR RISKS

Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain sector
may underperform other sectors or as the market as a whole. As the Adviser
allocates more of the Fund's portfolio holdings to a particular sector, the
Fund's performance will be more susceptible to any economic, business or other
developments which generally affect that sector.

EURO RISKS

The Fund makes significant investments in securities denominated in the Euro,
the new single currency of the European Monetary Union (EMU). Therefore, the
exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of the Fund's investments.

With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these countries'
ability to respond to economic downturns or political upheavals, and
consequently reduce the value of their foreign government securities.

LIQUIDITY RISKS

Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security or close out a derivative contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep the
position open, and the Fund could incur losses.

Over-the-counter derivative contracts generally carry greater liquidity risk
than exchange-traded contracts.

The specific risks associated with equity securities are as follows:

RISKS OF INVESTING IN EMERGING MARKET COUNTRIES

Securities issued or traded in emerging markets generally entail greater risks
than securities issued or traded in developed markets. For example, their prices
may be significantly more volatile than prices in developed countries. Emerging
market economies may also experience more severe downturns (with corresponding
currency devaluations) than developed economies.

Emerging market countries may have relatively unstable governments and may
present the risk of nationalization of businesses, expropriation, confiscatory
taxation or, in certain instances, reversion to closed market, centrally planned
economies.

The Adviser is seeking information regarding the Year 2000 readiness of issuers
or Fund service providers located in emerging markets. The Year 2000 problem is
the potential for computer errors or failures because certain computer systems
may be unable to interpret dates after December 31, 1999, or experience other
date-related problems. However, this information may not exist, or may be
incomplete, inaccurate or difficult to obtain. As a result, the Adviser might
not be able to assess accurately or avoid the potential effects of the Year 2000
problem on these companies, and these problems could result in material losses
to the Fund.

RISKS RELATED TO INVESTING FOR GROWTH

Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on a forecast of lower earnings, a negative
fundamental development, or an adverse market development. Further, growth
stocks may not pay dividends or may pay lower dividends than value stocks. This
means they depend more on price changes for returns and may be more adversely
affected in a down market compared to value stocks that pay higher dividends.

Federated Prime Money Fund II

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is to provide current income
consistent with stability of principal and liquidity. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund invests in a portfolio of high quality fixed income securities maturing
in 397 days or less. The average maturity of the Fund's portfolio will be 90
days or less.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund.

The shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.

RISK/RETURN BAR CHART

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated Prime Money Fund II as of the calendar
year-end for each of four years. The `y' axis reflects the "% Total Return"
beginning with "0" and increasing in increments of 1% up to 6%. The `x' axis
represents calculation periods from the earliest calendar year end of the Fund's
start of business through the calendar year ended December 31, 1998. The light
gray shaded chart features four distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for the
calendar year stated directly at its base. The calculated total return
percentage for the Fund for each calendar year is stated directly at the top of
each respective bar for the calendar years 1995 through 1998. The percentages
noted are: 5.20%, 4.75%, 4.93%, and 4.92%, respectively.

Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's total returns on a
yearly basis.

The Fund's year-to-date total return as of the most recent calendar quarter of
March 31, 1999, was 1.07%.

Within the period shown in the Chart, the Fund's highest quarterly return was
1.27% (quarter ended December 31, 1995). Its lowest quarterly return was 0.80%
(quarter ended March 31, 1998).

The Fund's Seven-Day Net Yield as of December 31, 1998, was 4.52%.

AVERAGE ANNUAL RETURN TABLE

The following table represents the Fund's Average Annual Total Returns through
December 31, 1998.

CALENDAR PERIOD FUND
<S> <C>
1 Year 4.92%
Start of Performance 1 4.94%

</TABLE>

1 The Fund's start of performance date was November 21, 1994.

Investors may call the Fund at 1-800-341-7400 to acquire the current Seven-Day
Net Yield.

What are the Fund's Investment Strategies?

The Fund invests in a portfolio of high quality fixed income securities maturing
in 397 days or less. The average maturity of the Fund's portfolio will be 90
days or less. The Fund invests in securities that are either rated in the two
highest short term rating categories by one or more nationally recognized
statistical rating organizations or of comparable quality to securities having
such ratings. The Fund invests only in instruments denominated and payable in
U.S. dollars. A description of the various types of securities in which the Fund
invests, and their risks, immediately follows the strategy discussion.

In order to select individual investments, the Fund's Adviser performs a
fundamental credit analysis to develop an approved list of issuers and
securities that meet the Adviser's minimum credit standards. The Adviser
assesses likely movements in interest rates based upon general economic and
market conditions. Considering this assessment, the Adviser targets an average
portfolio maturity range. The Adviser generally shortens the portfolio's average
maturity when it expects interest rates to rise and extends the maturity when it
expects interest rates to fall. In adjusting the portfolio's average maturity,
the Adviser selects among investments with different maturities comparing their
relative returns.

INDUSTRY CONCENTRATION

The Fund may invest 25% or more of its assets in commercial paper issued by
finance companies.

What are the Principal Securities in Which the Fund Invests?

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be fixed or adjusted periodically. The issuer must also repay
the principal amount of the security, normally within a specified time. The Fund
invests primarily in the following types of fixed income securities.

CORPORATE DEBT SECURITIES

Corporate debt securities are issued by businesses. Short-term notes, variable
rate demand notes, and commercial paper are the most prevalent types of
corporate debt securities that the Fund purchases.

COMMERCIAL PAPER

Commercial paper is an issuer's draft or note with a maturity of less than or
equal to nine months. Companies typically issue commercial paper to fund current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. Commercial paper may default
if the issuer cannot continue to obtain liquidity in this fashion.

DEMAND INSTRUMENTS

Demand instruments are corporate debt securities that the issuer must repay upon
demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year.

BANK INSTRUMENTS

Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances.

ASSET BACKED SECURITIES

Asset Backed Securities are payable from pools of debt obligations other than
mortgages. Almost any type of fixed income assets (including other fixed income
securities) may be used to create an asset backed security. However, most asset
backed securities involve consumer or commercial debts with maturities of less
than ten years. Asset backed securities may take the form of commercial paper or
notes, in addition to simple ownership interests in the underlying debt
obligations.

CREDIT ENHANCEMENT

Credit enhancement consists of an arrangement in which one company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the other company makes all payments directly to the security holders and
receives reimbursement from the issuer. Normally, the company providing such
credit enhancement has greater financial resources and liquidity than the
issuer. This may lead the Adviser to evaluate the credit risk of a fixed income
security based solely upon its credit enhancement. The Adviser purchases fixed
income securities that have been credit enhanced.

REPURCHASE AGREEMENTS

Repurchase Agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return for the transaction.

INVESTMENT RATINGS

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 rating services or of comparable quality to securities having such
ratings.

What are the Specific Risks of Investing in the Fund?

Although there are many factors which may affect an investment in the Fund, the
principal risks of investing in a corporate money market fund are described
below.

SECTOR RISKS

A substantial part of the Fund's portfolio may be comprised of securities issued
or credit enhanced by companies in similar businesses, or with other similar
characteristics. As a result, the Fund will be more susceptible to any economic,
business, political, or other developments which generally affect these issuers.

INTEREST RATE RISKS

Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.

Interest rate changes have a greater affect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.

CREDIT RISK

Federated Small Cap Strategies Fund II

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide capital appreciation. While there
is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the strategies and policies described in this
prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of companies that fall within the market
capitalization range of the Standard & Poor's 600 Small Cap Index. The Fund's
Adviser invests in companies that offer growth prospects or in companies whose
stock is undervalued.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

* STOCK MARKET RISKS. The value of equity securities in the Fund's portfolio
will fluctuate and, as a result, the Fund's share price may decline suddenly or
over a sustained period of time.

* LIQUIDITY RISKS. Smaller company securities in which the Fund invests may
be less readily marketable and may be subject to greater fluctuation in
price than other securities.

* SECTOR RISKS. Because the Fund may allocate relatively more assets to certain
industry sectors than others, the Fund's performance may be more susceptible to
any developments which affect those sectors emphasized by the Fund.

RISK/RETURN BAR CHART AND TABLE

A performance bar chart and total returns for the Fund are not provided since
this is a new Fund and has not been in operation for a full calendar year.

What are the Fund's Investment Strategies?

The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of companies that fall within the market
capitalization range of the Standard & Poor's 600 Small Cap Index (Index). As of
October 21, 1998 this range was $18.5 million to $3.2 billion. Market
capitalization is determined by multiplying the number of outstanding shares by
the current market price per share.

The Adviser invests in companies that offer growth prospects or in companies
whose stock is undervalued. Using its own quantitative process, the Adviser
rates the future performance potential of companies. The Adviser evaluates each
company's earnings quality in light of their current valuation to narrow the
list of attractive companies. The Adviser then evaluates product positioning,
management quality and sustainability of current growth trends of those
companies. Using this type of fundamental analysis, the Adviser selects the most
promising companies for the Fund's portfolio.

Companies with similar characteristics may be grouped together in broad
categories called sectors. In determining the amount to invest in a security,
the Adviser limits the Fund's exposure to each business sector that comprises
the Index. The Fund's allocation to a sector will not be less than 50% or more
than 200% of the Index's allocation to that sector. The Fund ordinarily will
hold between 80 and 300 companies in its portfolio.

The Fund may also seek capital appreciation by buying securities in initial
public offerings. The Fund will participate in such offerings without regard to
the issuer's market capitalization. The Adviser may select initial public
offerings based on its fundamental analysis of the issuer.

The Fund may attempt to manage market risk by buying and selling financial
futures and options. This may include the purchase of index futures contracts as
a substitute for direct investments in stocks. It may also include the purchase
and sale of options to protect against general declines in small capitalization
stocks economically.

PORTFOLIO TURNOVER

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

COMMON STOCKS

Common stocks are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a result,
changes in an issuer's earnings directly influence the value of its common
stock.

AMERICAN DEPOSITARY RECEIPTS

American Depositary Receipts (ADRs) represent interests in underlying securities
issued by a foreign company, but traded in another market than the underlying
security. ADRs provide a way to buy shares of foreign-based companies in the
U.S. rather than in overseas markets. ADRs are also traded in U.S. dollars,
eliminating the need for foreign exchange transactions. Depositary Receipts
involve many of the same risks of investing directly in foreign securities,
including country risk and currency risks.

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. The value of equity securities in the Fund's
portfolio will go up and down. These fluctuations could be a sustained trend or
a drastic movement. The Fund's portfolio will reflect changes in prices of
individual portfolio stocks or general changes in stock valuations.
Consequently, the Fund's share price may decline and you could lose money.

The Fund's Adviser attempts to manage market risk of investing in individual
securities by limiting the amount the Fund invests in each stock.

LIQUIDITY RISKS

Equity securities that are not widely held may trade less frequently than more
widely held securities. This limits trading opportunity, making it more
difficult to sell or buy the securities at a favorable price or time. In
response, the Fund may have to lower the price, sell other securities, or give
up an investment opportunity, any of which could have a negative effect on its
performance. Infrequent trading may also lead to greater price volatility.

RISK RELATED TO COMPANY SIZE

In addition, investing in small capitalization companies entails greater risk
because these companies may have unproven track records, limited product or
service base, limited access to capital and may be more likely to fail than
companies with larger market capitalizations.

SECTOR RISK

RISK OF FOREIGN INVESTING

Exchange rates for currency fluctuate daily. The combination of currency risk
and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.

Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Foreign
financial markets may also have fewer investor protections. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.

Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.

Federated Strategic Income Fund II

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to seek a high level of current income. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the strategies and policies described in this
prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund allocates the portfolio among three categories of fixed income
securities: domestic investment grade (including U.S. government, mortgage
backed and corporate), domestic non-investment grade corporate and foreign.
Based upon historical returns, the Fund's Adviser expects the three categories
of investments to have different returns and risks under similar market
conditions. The Adviser relies on the differences in the expected performance of
each category to manage risks by allocating the Fund's portfolio among the three
categories. The Adviser also seeks to enhance the Fund's performance by
allocating more of its portfolio to the category that the Adviser expects to
offer the best balance between risk and return. While the Fund's portfolio
usually includes securities from all three categories, the Fund limits the
amount it may invest in a single category to 50% of assets.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

* INTEREST RATE RISK. Prices of fixed income securities generally fall when
interest rates rise.

* CALL RISKS. The Fund's performance may be adversely affected by the
possibility that an issuer of a security held by the Fund may redeem the
security prior to maturity at a price below its current market value.

* LIQUIDITY RISKS. The foreign securities in which the Fund invests may be
less readily marketable and may be subject to greater fluctuation in
price than other securities.

* CREDIT RISKS. There is a possibility that issuers of securities in which the
Fund may invest may default in the payment of interest or principal on the
securities when due, which would cause the Fund to lose money.

* RISKS ASSOCIATED WITH NON-INVESTMENT GRADE SECURITIES. The Fund may invest a
portion of its assets in securities rated below investment grade which may be
subject to greater interest rate, credit and liquidity risks than investment
grade securities.

RISK/RETURN BAR CHART AND TABLE

A performance bar chart and total returns for the Fund are not provided since
this is a new Fund and has not been in operation for a full calendar year.

What are the Fund's Investment Strategies?

The Fund allocates the portfolio among three categories of fixed income
securities: investment grade (including U.S. government, mortgage backed and
corporate), domestic non-investment grade corporate and foreign. In allocating
the Fund's portfolio among the three categories, the Adviser begins by analyzing
a variety of economic and market indicators, such as:

* the current level of global interest rates and the likely direction of
changes in interest rates;

* the current state of the global economy and the outlook for future
economic activity; and

* the historical returns of each category.

Based on this analysis, the Adviser compares the anticipated effects on the
performance and risks of each category of securities. The Adviser relies on the
differences in the expected performance of each category to manage risks by
allocating the Fund's portfolio among the three categories. The Adviser also
seeks to enhance the Fund's performance by allocating more of its portfolio to
the category that the Adviser expects to offer the best balance between risk and
return. While the Fund's portfolio usually includes securities from all three
categories, the Fund limits the amount it may invest in a single category to 50%
of assets.

The selection of portfolio securities involves an approach that is specific to
each category of fixed income securities. With regard to the selection of
domestic investment grade fixed income securities, the Adviser analyzes expected
trends in corporate earnings to determine the proper mix between U.S. government
securities, mortgage backed and corporate. The Adviser manages the U.S.
government securities domestic investment grade portion of the category by
analyzing the dollar weighted average duration. Duration measures the price
sensitivity of a group of fixed income securities to changes in interest rates.
The Adviser generally shortens the U.S. government securities' average duration
when it expects interest rates to rise and extends the duration when it expects
interest rates to fall. The Adviser selects U.S. government securities used to
lengthen or shorten the portfolio's duration by comparing the returns currently
offered by different investments to their historical and expected returns.

The Fund may invest in mortgage backed securities primarily by investing in
another mutual fund (which is not available for general investment by the
public) that owns those securities and that is advised by an affiliate of the
Adviser. This other mutual fund is managed independently of the Fund and may
incur administrative expenses. Therefore, any such investment by the Fund may be
subject to duplicate expenses. However, the Adviser believes that the benefits
and efficiencies of this approach should outweigh the potential additional
expenses. The Fund may also invest in such securities directly.

In selecting U.S. government mortgage backed securities, the analysis involves a
duration evaluation similar to that of the U.S. government securities portion.
The analysis also focuses on the expected cash flows from the pool of mortgage
obligations supporting the security. To assess the relative returns and risks of
these securities, the Adviser analyzes how the timing, amount, and division of
cash flows from the pool might change in response to changing economic and
market conditions.

The Adviser uses corporate earnings analysis to determine which business sectors
and credit ratings to look for when investing the domestic corporate securities
portion of the category. In selecting a domestic corporate fixed income
security, the Adviser analyzes the business, competitive position, and financial
condition of the issuer to assess whether the security's risk is commensurate
with its potential return.

The Fund will invest in domestic non-investment grade corporate fixed income
securities primarily by investing in another mutual fund (which is not available
for general investment by the public) advised by an affiliate of the Adviser.
The other mutual fund is managed independently of the Fund and may incur
administrative expenses. Therefore, any such investment by the Fund may be
subject to duplicate expenses. However, the Adviser believes that the benefits
and efficiencies of this approach should outweigh the potential additional
expenses. The Fund may also invest directly in non-investment grade corporate
securities. Although the selection of domestic non-investment grade corporate
securities involves the same factors as investment grade securities, the Adviser
gives greater emphasis to its analysis of the issuer.

With regard to the foreign fixed income securities allocation, the Fund invests
in foreign government and corporate debt obligations. The securities may be
denominated in foreign currency or in U.S. dollars. The Adviser looks primarily
for securities offering higher interest rates. The Adviser attempts to manage
the risks of these securities in two ways: first, by investing the foreign
security portion of the portfolio in a large number of securities from a wide
range of foreign countries; and second, by allocating this portion of the
portfolio among countries whose markets, based on historical analysis, respond
differently to changes in the global economy.

In implementing this strategy, the Adviser also invests a portion of the foreign
securities allocation in emerging market countries. Many emerging market
countries issue securities rated below investment grade. The Fund may invest up
to 80% of its foreign securities portfolio in emerging markets, with the balance
invested in developed markets.

The Adviser weighs several factors in selecting investments for the portfolio.
First, the Adviser analyzes a country's general economic condition and outlook,
including its interest rates, foreign exchange rates and current account
balance. The Adviser then analyzes the country's financial condition, including
its credit ratings, government budget, tax base, outstanding public debt and the
amount of public debt held outside the country. In connection with this
analysis, the Adviser also considers how developments in other countries in the
region or the world might affect these factors. Using its analysis, the Adviser
tries to identify countries with favorable characteristics, such as a
strengthening economy, favorable inflation rate, sound budget policy or strong
public commitment to repay government debt. The Adviser then analyzes the
business, competitive position, and financial condition of the issuer to assess
whether the security's risk is commensurate with its potential return.

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.

The following describes the types of fixed income securities in which the Fund
invests:

TREASURY SECURITIES

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

AGENCY SECURITIES

The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the market and prepayment risks of these mortgage backed securities.

CORPORATE DEBT SECURITIES

Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers.

In addition, the credit risk of an issuer's debt security may vary based on its
priority for repayment. For example, higher ranking (senior) debt securities
have a higher priority than lower ranking (subordinated) securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event of
bankruptcy, holders of senior securities may receive amounts otherwise payable
to the holders of subordinated securities. Some subordinated securities, such as
trust preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer any
payment that would reduce its capital below regulatory requirements.

MORTGAGE BACKED SECURITIES

FOREIGN SECURITIES

Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:

* it is organized under the laws of, or has a principal office located in,
another country;

* the principal trading market for its securities is in another country; or

Foreign securities are often denominated in foreign currencies. Along with the
risks normally associated with domestic fixed income securities, foreign
securities are subject to currency risks and risks of foreign investing.

CONVERTIBLE SECURITIES

Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.

Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.

The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.

CREDIT ENHANCEMENT

Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

* Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.

* Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.

CREDIT RISKS

* Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.

* Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services. These services assign ratings
to securities by assessing the likelihood of issuer default. Lower credit
ratings correspond to higher credit risk. If a security has not received a
rating, the Fund must rely entirely upon the Adviser's credit assessment.

* Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.

* Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.

CALL AND PREPAYMENT RISKS

* Call risk is the possibility that an issuer may redeem a fixed income security
before maturity (a call) at a price below its current market price. An increase
in the likelihood of a call may reduce the security's price.

* If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks or other less favorable characteristics.

* Unlike traditional fixed income securities, which may pay a fixed rate of
interest until maturity, when the entire principal amount is due, payments on
mortgage backed securities include both interest and a partial payment of
principal. This partial payment of principal may be comprised of a scheduled
principal payment as well as an unscheduled payment from the voluntary
prepayment, refinancing or foreclosure of the underlying loans. These
unscheduled payments of principal can adversely affect the price and yield of
mortgage backed securities. For example, during periods of declining interest
rates, prepayments can be expected to accelerate, and the Fund would be required
to reinvest the proceeds at the lower interest rates then available. In
addition, like other interest-bearing securities, the values of mortgage backed
securities generally fall when interest rates rise. Since rising interest rates
generally result in decreased prepayments of mortgage backed securities, this
could cause mortgage securities to have greater average lives than expected and
their value may decline more than other fixed income securities. Conversely,
when interest rates fall, their potential for capital appreciation is limited
due to the existence of the prepayment feature.

* Generally, mortgage backed securities compensate for greater prepayment risk
by paying a higher yield. The additional interest paid for risk is measured by
the difference between the yield of a mortgage backed security and the yield of
a U.S. Treasury security with a comparable maturity (the spread). An increase in
the spread will cause the price of the security to decline. Spreads generally
increase in response to adverse economic or market conditions.

LIQUIDITY RISKS

* Trading opportunities are more limited for fixed income securities that have
not received any credit ratings, have received ratings below investment grade or
are not widely held. These features may make it more difficult to sell or buy a
security at a favorable price or time. Consequently, the Fund may have to accept
a lower price to sell a security, sell other securities to raise cash or give up
an investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.

* Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security when it wants to. If this happens, the Fund will be required to
continue to hold the security and the Fund could incur losses.

SECTOR RISKS

* A substantial part of the Fund's portfolio may be comprised of securities
issued or credit enhanced by companies in similar businesses, or with other
similar characteristics. As a result, the Fund will be more susceptible to any
economic, business, political or other developments which generally affect these
issuers.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

* Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns and
financial setbacks may affect their prices more negatively, and their trading
market may be more limited. The Fund has no minimum rating requirement for such
securities.

CURRENCY RISKS

* Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.

* The Adviser attempts to manage currency risk by limiting the amount the Fund
invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S. dollar relative to other currencies.

RISKS OF FOREIGN INVESTING

* Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.

* Foreign countries may have restrictions on foreign ownership or may impose
exchange controls, capital flow reductions or repatriation restrictions which
could adversely affect the Fund's investments.

* Foreign financial markets may have fewer investor protections than domestic
markets. For instance, there may be less publicly available information about
foreign companies and foreign countries may lack uniform accounting, auditing
and financial reporting standards or regulatory requirements comparable to those
applicable to U.S. companies.

* Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.

Federated Utility Fund II

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to achieve high current income and moderate
capital appreciation. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing primarily in equity
securities of companies engaged in providing utility services such as
electricity, gas and telecommunications.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

* STOCK MARKET RISKS. The value of equity securities in the Fund's portfolio
will fluctuate and, as a result, the Fund's share price may decline suddenly or
over a sustained period of time.

* SECTOR RISK. Because the Fund may allocate relatively more of its assets to
utility-related industry sectors than to other sectors, the value of utility
company equity securities in the Fund's portfolio may be adversely affected by
technological changes, shifts in consumer demands or regulatory policies, the
adequacy of rate increases and future regulatory initiatives associated with
utility companies.

* RISKS RELATING TO INVESTING FOR VALUE. The Fund generally uses a "value" style
of investing, so that the Fund's share price may lag that of other funds using a
different investment style.

RISK/RETURN BAR CHART

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated Utility Fund II as of the calendar year-end
for each of four years. The `y' axis reflects the "% Total Return" beginning
with "0" and increasing in increments of 10% up to 30%. The `x' axis represents
calculation periods from the earliest calendar year end of the Fund's start of
business through the calendar year ended 1998. The light gray shaded chart
features four distinct vertical bars, each shaded in charcoal, and each visually
representing by height the total return percentages for the calendar year stated
directly at its base. The calculated total return percentage for the Fund for
each calendar year is stated directly at the top of each respective bar, for the
calendar years 1995 through 1998. The percentages noted are: 24.18%,
11.56%,26.63%, and 13.95%.

The bar chart shows the variability of the Fund's total returns on a yearly
basis.

The Fund's Shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon the net asset value and do not reflect
the charges and expenses of a variable annuity or variable life insurance
contract. If contract charges or fees had been included, the returns shown would
have been lower.

The Fund's year-to-date total return as of the most recent calendar quarter of
March 31, 1999 was (6.81%).

Within the period shown in the Chart, the Fund's highest quarterly return was
12.96% (quarter ended December 31, 1997). Its lowest quarterly return was
(2.81%) (quarter ended September 30, 1996).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Average Annual Total Return for the
calendar periods through December 31, 1998.

CALENDAR PERIOD FUND S&P 500 S&P UTIL
<S> <C> <C>
1 Year 13.95% 28.58% 14.78%
Start of Performance 1 14.42% 23.18% 14.13%

</TABLE>

1 The Fund's start of performance date was February 10, 1994.

The table shows the Fund's average annual total returns compared to the Standard
& Poor's 500 Index (S&P 500), which is a broad-based market index and the
Standard & Poor's Utility Index (S&P UTIL), which is an index of funds with
similar investment objectives for the calendar period ended December 31, 1998.

What are the Fund's Investment Strategies?

The Fund pursues its investment objective by investing, under normal market
conditions, at least 65% of its assets in equity securities (including
convertible securities) of companies that derive at least 50% of their revenues
from the provision of electricity, gas and telecommunications related services.
Shares of utility companies have generally been characterized by their high
dividend yield and relatively low price fluctuation as compared with shares of
other issuers, because of the relatively consistent demand for essential utility
services despite economic fluctuations. A description of the various types of
securities in which the Fund invests, and their risks, immediately follows the
strategy discussion.

The Adviser allocates the Fund's assets among the three utility sectors
(electricity, gas and telecommunications) based in part on the Adviser's opinion
as to which sectors are, as a whole, priced at a low market valuation
("undervalued") when compared with the other sectors. In addition, the Adviser
considers such factors as the dividend paying potential and earnings growth
potential of the companies comprising each sector. In order to diversify the
Fund, the Adviser attempts to limit the Fund's exposure to each sector reflected
by the Standard & Poor's Utility and Communications Indices ("S&P Indices"), as
a general matter, to not more than 300% of each Index's allocation to that
sector. The S&P Indices are unmanaged market capitalization-weighted indices of
natural gas an electric companies, and communications companies, respectively.

In determining whether to buy a security, the Adviser seeks companies that have
a history and a likelihood of paying increasing levels of dividends. The Adviser
uses the "value" style of investing, selecting securities of companies that, in
the Adviser's opinion, are trading at a lower valuation in relation to their
historic and current market prices, to industry peers, and to their expected
future price based on projected earnings, and that therefore offer the potential
for capital appreciation. Because the Adviser uses a "value" style of investing,
the price of the securities held by the Fund may not, under certain market
conditions, increase as rapidly as stocks selected primarily for their growth
attributes. However, such securities generally have lower volatility in relation
to their share price, and a higher yield, when compared with other equity
securities.

In addition to evaluating the share price of an issuer, the Adviser performs
traditional fundamental analysis to select securities that exhibit the most
promising value for the Fund's portfolio. In selecting securities, the Adviser
focuses on the current financial condition of the issuing company, in addition
to examining its business, competitive position, and management expertise.
Further, the Adviser considers current economic, financial market, and industry
factors, which may affect the issuing company. To determine the timing of
purchases of portfolio securities, the Adviser compares the current stock price
of an issuer with the Adviser's judgment as to that stock's current and expected
value based on projected future earnings. The Adviser sells a portfolio security
if it determines that the issuer's prospects have deteriorated, or if it finds
an attractive security which the Adviser deems has superior risk and return
characteristics to a security held by the Fund.

The Adviser may invest up to 35%, but, as a general matter, invests up to 25% of
its assets in non-utility securities such as shares of real estate investment
trusts and industrial corporations. The Adviser normally purchases these
securities to enhance the Fund's income. In addition, the Adviser may invest a
portion of the Fund's assets in securities of companies based outside the United
States, to diversify the Fund's holdings and to gain exposure to the foreign
market. Foreign holdings primarily take the form of American Depositary
Receipts, which represent interests in underlying securities issued by a foreign
company, but which are traded in the United States. Securities of foreign
companies may be more affected by foreign economic and political conditions,
taxation policies, and accounting and auditing standards than those of U.S.
companies.

INDUSTRY CONCENTRATION

The Fund invests 25% or more of its assets in the utility industry.

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

COMMON STOCKS

REAL ESTATE INVESTMENT TRUSTS (REITS)

REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial real
estate market.

AMERICAN DEPOSITARY RECEIPTS

CONVERTIBLE SECURITIES

The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

SECTOR RISKS

Utility securities pose certain risks to investors. For instance, technological
innovations may cause existing plants, equipment or products to become less
competitive or obsolete. Energy conservation and environmental concerns may
reduce demand for services of utility companies or may impede planned growth by
such companies. Utilities which own nuclear facilities may be susceptible to
environmental and regulatory issues that could cause litigation or result in
fines being levied against the company. In addition, most utility companies in
the United States and in foreign countries are subject to government regulation
which seeks to ensure desirable levels of service and adequate capacity to meet
public demand. To this end, prices are often regulated to enable consumers to
obtain service at what is perceived to be a fair price, while attempting to
provide utility companies with a rate of return sufficient to attract capital
investment necessary for continued operation and necessary growth. Utility
companies may, therefore, be adversely affected by shifts in regulatory
policies, the adequacy of rate increases, and future regulatory initiatives.

RISKS RELATED TO INVESTING FOR VALUE

RISKS OF INVESTING IN AMERICAN DEPOSITARY RECEIPTS

What Do Shares Cost?

Shares can be purchased or redeemed by participating insurance companies any day
the New York Stock Exchange (NYSE) is open. Transaction requests received in
proper form are processed at the next calculated net asset value (NAV). NAV is
determined at the end of regular trading (normally 4:00 p.m. Eastern time) each
day the NYSE is open. If the Fund owns foreign securities that trade in foreign
markets on days the NYSE is closed, the value of the Fund's assets may change on
days you cannot purchase or redeem Shares.

How are the Funds Sold?

The Funds' Distributor markets the Shares described in this prospectus to
insurance companies as funding vehicles for variable annuity contracts and
variable life insurance policies issued by the insurance companies.

When the Distributor receives marketing fees, it may pay some or all of them to
investment professionals.

The Distributor and its affiliates may pay out of their assets other
amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of
Federated Investors, Inc. (Federated).

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.

RULE 12B-1 PLAN

Federated Equity Income Fund II, Federated Small Cap Strategies Fund II, and
Federated Strategic Income Fund II have adopted a Rule 12b-1 Plan, which allows
them to pay up to 0.25% for marketing fees to the Distributor and investment
professionals for the sale, distribution and customer servicing of the Funds'
Shares. Because these Shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than other shares with different sales
charges and marketing fees. These Funds are not currently paying any 12b-1 fees
under the Rule 12b-1 Plan. Should these Funds begin to pay these fees,
shareholders will be notified. These Funds are not currently paying or accruing
fees under the Plan.

How to Purchase and Redeem Shares

Shares are used solely as the investment vehicle for separate accounts of
participating insurance companies offering variable annuity contracts and
variable life insurance policies. The general public has access to the Fund only
by purchasing a variable annuity contract or variable life insurance policy
(thus becoming a contract owner). Shares are not sold directly to the general
public.

Purchase orders must be received by your participating insurance company by 4:00
p.m. (Eastern time). The order will be processed at the NAV calculated on that
day if the Fund receives from the participating insurance company:

* orders in proper form by 8:00 a.m. (Eastern time) on the next business
day; and

* federal funds on the business day following the day the Fund received the
order.

Participating insurance companies are responsible for properly transmitting
purchase orders and federal funds to the Fund.

Account and Share Information

DIVIDENDS

Dividends on 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 Fund II, Federated
International Equity Fund II, Federated Equity Income Fund II, Federated Small
Cap Strategies Fund II, and Federated Strategic Income Fund II are declared and
paid annually. Dividends on shares of Federated Prime Money Fund II are declared
daily 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 Fund II, Federated
International Equity Fund II, and Federated Equity Income Fund II will begin
earning dividends if owned on the record date. Dividends of each Fund are
automatically reinvested in additional Shares of such Fund.

TAX INFORMATION

The Funds intend to comply with variable asset diversification regulations. If
the Funds fail to comply with these regulations, contracts invested in the Funds
will not be treated as annuity, endowment, or life insurance contracts under the
Internal Revenue Code.

Contract owners should review the applicable contract prospectus for information
concerning the federal income tax treatment of their contracts and distributions
from the Fund to the separate accounts.

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

Who Manages the Funds?

The Board of Trustees governs the Trust. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Funds'
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

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, Federated
Equity Income Fund II, Federated Small Cap Strategies Fund II, and Federated
Strategic Income Fund II are made by Federated Investment Management Company,
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 Investment
Management Corp., the Fund's investment adviser, subject to direction by the
Trustees.

Under the terms of the sub-advisory agreement between Federated Investment
Management Company and Federated Global Investment Management Corp. (the
"Sub-Adviser"), the Sub-Adviser will provide Federated Utility Fund II's
investment adviser such investment advice, statistical and other factual
information as may, from time to time, be reasonably requested by the Adviser.

The Adviser, Sub-Adviser and other subsidiaries of Federated advise
approximately 175 mutual funds and separate accounts, which total approximately
$111 billion in assets as of December 31, 1998. Federated was established in
1955 and is one of the largest mutual fund investment managers in the United
States with approximately 1,900 employees. More than 4,000 investment
professionals make Federated Funds available to their customers.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 1.00% of the average
daily net assets for Federated International Equity Fund II, 0.85% of the
average daily net assets for Federated Strategic Income 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, Federated Equity Income
Fund II, and Federated Small Cap Strategies 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 Adviser may voluntarily waive a portion of
its fee or reimburse the Fund for certain operating expenses. For the fiscal
year ended December 31, 1998, the Fund's investment adviser earned 0.74% of
Federated American Leaders Fund II's average net assets, 0.32% of Federated
Equity Income Fund II's average net assets, 0.52% of Federated Fund for U.S.
Government Securities II's average net assets, 0.44% of Federated Growth
Strategies Fund II's average net assets, 0.60% of Federated High Income Bond
Fund II's average net assets, 0.53% of Federated International Equity Fund II's
average net assets, 0.49% of Federated Prime Money Fund II's average net assets,
and 0.68% of Federated Utility Fund II's average net assets.

THE FUND'S PORTFOLIO MANAGERS ARE:

FEDERATED AMERICAN LEADERS FUND II

MICHAEL P. DONNELLY

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

ARTHUR J. BARRY

Arthur J. Barry has been a portfolio manager of the Fund since April 1997.
Mr. Barry joined Federated in 1994 as an Investment Analyst. He served as
an Assistant Vice President of the Fund's Adviser from 1997 through
June 1998 and has been a Vice President of the adviser since July 1998.
Mr. Barry is a Chartered Financial Analyst. He earned his M.S.I.A. with
concentrations in finance and accounting from Carnegie Mellon University.

FEDERATED GROWTH STRATEGIES FUND II

JAMES E. GREFENSTETTE

James E. Grefenstette has been a portfolio manager of the Fund since the
Fund's inception. Mr. Grefenstette joined Federated in 1992 and has been a
Portfolio Manager and a Vice President of the Fund's Adviser since 1996.
From 1994 until 1996, Mr. Grefenstette was a Portfolio Manager and an
Assistant Vice President of the Fund's investment adviser.
Mr. Grefenstette is a Chartered Financial Analyst; he received his M.S. in
Industrial Administration from Carnegie Mellon University.

SALVATORE ESPOSITO

Salvatore Esposito has been a portfolio manager of the Fund since August 1997.
Mr. Esposito joined Federated in 1995 as an Investment Analyst of the Fund's
Adviser. He has been a Portfolio Manager since August 1997 and has been an
Assistant Vice President of the Fund's investment adviser since October 1997.
From 1987 to 1995, Mr. Esposito served in various positions at PNC Bank,
culminating in that of Vice President/Lead Reviewer. Mr. Esposito earned his
M.B.A., concentrating in Finance, from Duquesne University.

FEDERATED UTILITY FUND II

STEVEN J. LEHMAN

Steven J. Lehman, primary portfolio manager, has been a portfolio manager
of the Fund since August 1997. Mr. Lehman joined the Fund's Adviser in
May 1997 as a Portfolio Manager and Vice President. He has been a Senior
Portfolio Manager since 1998. From 1986 to May 1997, Mr. Lehman served as a
Portfolio Manager, then Vice President/Senior Portfolio Manager, at First
Chicago NBD. Mr. Lehman is a Chartered Financial Analyst; he received his
M.A. from the University of Chicago.

LINDA A. DUESSEL

Linda A. Duessel has been a portfolio manager for the Fund since
April 1995. Ms. Duessel joined Federated in 1991 and has been a Portfolio
Manager and a Vice President of the Fund's Adviser since 1995. Ms. Duessel
was a Senior Investment Analyst and 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.

Drew J. Collins and Richard J. Lazarchic are the portfolio managers for
foreign securities.

DREW J. COLLINS

Drew J. Collins has been a portfolio manager of the Fund since July 1997.
Mr. Collins joined Federated in 1995 as a Senior Portfolio Manager and a
Senior Vice President of the Fund's 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.

RICHARD J. LAZARCHIC

Richard J. Lazarchic has been a portfolio manager of the Fund since
April 1998. Mr. Lazarchic joined Federated in March 1998 as a Vice
President of the Fund's Adviser. From May 1979 through October 1997,
Mr. Lazarchic was employed with American Express Financial Corp.,
initially as an Analyst and then as a Vice President/Senior Portfolio
Manager. Mr. Lazarchic is a Chartered Financial Analyst. He received his
M.B.A. from Kent State University.

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II

KATHLEEN M. FOODY-MALUS

Kathleen M. Foody-Malus has been the Fund's portfolio manager since the
Fund's inception. Ms. Foody-Malus joined Federated in 1983 and has been a
Senior Portfolio Manager since 1996 and a Vice President of the Fund's
Adviser since 1993. She was a Portfolio Manager and a Vice President of the
Fund's investment adviser from 1993 to 1996. Ms. Foody-Malus received her
M.B.A. in Accounting/Finance from the University of Pittsburgh.

TODD A. ABRAHAM

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

FEDERATED HIGH INCOME BOND FUND II

MARK E. DURBIANO

Mark E. Durbiano has been a portfolio manager of the Fund since the Fund
commenced operations. Mr. Durbiano joined Federated in 1982 and has been a
Senior Portfolio Manager and a Senior Vice President of the Fund's Adviser
since 1996. From 1988 through 1995, Mr. Durbiano was a Portfolio Manager
and 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.

CONSTANTINE KARTSONAS

Constantine Kartsonas has been a portfolio manager of the Fund since June 1998.
Mr. Kartsonas joined Federated in 1994 as an Investment Analyst and has been a
Vice President of the Fund's Adviser since 1999. He served as an Assistant Vice
President of the Fund's Adviser from 1997 to 1999. From 1990 to 1993, he served
as an Operations Analyst at Lehman Brothers. Mr. Kartsonas is a Chartered
Financial Analyst and earned his M.B.A., with a concentration in Finance, from
the University of Pittsburgh in 1994.

FEDERATED INTERNATIONAL EQUITY FUND II

DREW J. COLLINS

Drew J. Collins has been the Fund's portfolio manager since November 1995.
Mr. Collins joined Federated in 1995 as a Senior Portfolio Manager and a
Senior Vice President of the Fund's 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.

HENRY A. FRANTZEN

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

FEDERATED EQUITY INCOME FUND II

LINDA A. DUESSEL

Linda A. Duessel has been the Fund's portfolio manager since February 1997.
Ms. Duessel joined Federated in 1991 and has been a Portfolio Manager and a
Vice President of the Fund's Adviser since 1995. Ms. Duessel was a Senior
Investment Analyst and 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.

STEVEN J. LEHMAN

Steven J. Lehman has been the Fund's portfolio manager since August 1997.
Mr. Lehman joined the Fund's Adviser in May 1997 as a Portfolio Manager and
Vice President. He has been a Senior Portfolio Manager since 1998. From
1986 to May 1997, Mr. Lehman served as a Portfolio Manager, then Vice
President/Senior Portfolio Manager, at First Chicago NBD. Mr. Lehman is a
Chartered Financial Analyst; he received his M.A. from the University of
Chicago.

FEDERATED SMALL CAP STRATEGIES FUND II

AASH M. SHAH

Aash M. Shah has been the Fund's portfolio manager since inception.
Mr. Shah joined Federated Investors in 1993 and has been a Portfolio
Manager and a Vice President of the Fund's Adviser since January 1997.
Mr. Shah was a Portfolio Manager and served as an Assistant Vice President
of the Adviser from 1995 to 1996, and as an Investment Analyst from 1993 to
1995. Mr. Shah received his Masters in Industrial Administration from
Carnegie Mellon University with a concentration in finance and accounting.
Mr. Shah is a Chartered Financial Analyst.

KEITH J. SABOL

Keith J. Sabol has been the Fund's portfolio manager since inception.
Mr. Sabol joined Federated Investors in 1994 and has been a Portfolio
Manager since 1996 and a Vice President of the Fund's Adviser since 1998.
Mr. Sabol was an Investment Analyst, and then Equity Research Coordinator
for the Fund's Adviser from 1994 to 1996. Mr. Sabol is a Chartered
Financial Analyst; he earned his M.S. in Industrial Administration from
Carnegie Mellon University.

FEDERATED STRATEGIC INCOME FUND II

JOSEPH M. BALESTRINO

Joseph M. Balestrino has been the Fund's overall portfolio manager since
inception as well as managing the Fund's domestic investment grade
category. Mr. Balestrino joined Federated Investors in 1986 and has been a
Senior Portfolio Manager and Senior Vice President of the Fund's Adviser
since 1998. He was a Portfolio Manager and a Vice President of the Fund's
Adviser from 1995 to 1998. Mr. Balestrino served as a Portfolio Manager and
an Assistant Vice President of the Adviser from 1993 to 1995.
Mr. Balestrino is a Chartered Financial Analyst and received his Master's
Degree in Urban and Regional Planning from the University of Pittsburgh.

MARK E. DURBIANO

Mark E. Durbiano has been the Fund's portfolio manager since inception for
the Fund's domestic high yield category. Mr. Durbiano joined Federated
Investors in 1982 and has been a Senior Portfolio Manager and a Senior Vice
President of the Fund's Adviser since 1996. From 1988 through 1995,
Mr. Durbiano was a Portfolio Manager and a Vice President of the Fund's
Adviser. Mr. Durbiano is a Chartered Financial Analyst and received his
M.B.A. in Finance from the University of Pittsburgh.

ROBERT M. KOWIT

Robert M. Kowit has been the Fund's portfolio manager since inception for
the Fund's foreign government/foreign corporate debt category. Mr. Kowit
joined Federated Investors in 1995 as a Senior Portfolio Manager and a Vice
President of the Fund's Sub-Adviser. Mr. Kowit served as a Managing Partner
of Copernicus Global Asset Management from January 1995 through
October 1995. From 1990 to 1994, he served as Senior Vice
President/Portfolio Manager of International Fixed Income and Foreign
Exchange for John Hancock Advisers. Mr. Kowit received his M.B.A. from Iona
College with a concentration in finance.

MICHEAL W. CASEY, PH.D.

Micheal W. Casey, Ph.D. has been the Fund's portfolio manager since
inception for the Fund's foreign government/foreign corporate debt
category. Mr. Casey joined Federated Investors in 1996 as a Senior
Investment Analyst and an Assistant Vice President. Mr. Casey currently
serves as a Portfolio Manager and has been a Vice President of the Sub-
Adviser since 1998. Mr. Casey served as an International Economist and
Portfolio Strategist for Maria Fiorini Ramirez Inc. from 1990 to 1996.
Mr. Casey earned a Ph.D. concentrating in economics from The New School for
Social Research and a M.Sc. from the London School of Economics.

YEAR 2000 READINESS

The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Funds, that rely on computers.

While it is impossible to determine in advance all of the risks to the Funds,
the Funds could experience interruptions in basic financial and operational
functions. Shareholders of the Funds could experience errors or disruptions in
the Funds' share transactions or the Funds' communications.

The Funds' service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.

Year 2000 problems would also increase the risks of the Funds' investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Funds
may purchase.

However, this may be difficult with certain issuers. For example, funds dealing
with foreign service providers or investing in foreign securities will have
difficulty determining the Year 2000 readiness of those entities. This is
especially true of entities or issuers in emerging markets.

The financial impact of these issues for the Funds is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Funds.

Financial Information

FINANCIAL HIGHLIGHTS

The Financial Highlights will help you understand the Funds' financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns assume reinvestment of any dividends and distributions.

This information has been audited by Deloitte & Touche LLP, whose reports, along
with the Funds' audited financial statements, are included in the Annual Reports
of the Funds.

Financial Highlights - Federated American Leaders Fund II

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>

YEAR ENDED DECEMBER 31 1998 1997 1996 1995 1994 1
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $19.63 $15.26 $12.80 $ 9.74 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.20 0.19 0.19 0.20 0.19
Net realized and
unrealized gain (loss)
on investments 3.20 4.64 2.54 3.06 (0.26)
TOTAL FROM INVESTMENT
OPERATIONS 3.40 4.83 2.73 3.26 (0.07)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.10) (0.10) (0.18) (0.19) (0.19)
Distributions in excess
of net investment income 2 - - - (0.01) -
Distributions from net
realized gain on
investments and foreign
currency transactions (1.25) (0.36) (0.09) - -
TOTAL DISTRIBUTIONS (1.35) (0.46) (0.27) (0.20) (0.19)
NET ASSET VALUE, END OF
PERIOD $21.68 $19.63 $15.26 $12.80 $ 9.74
TOTAL RETURN 3 17.62% 32.34% 21.58% 33.71% (0.70%)

RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.88% 0.85% 0.85% 0.85% 0.54% 4
Net investment income 1.06% 1.18% 1.54% 2.03% 2.58% 4
Expense
waiver/reimbursement 5 0.01% 0.09% 0.22% 1.36% 25.42% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $418,212 $305,796 $142,216 $48,514 $2,400
Portfolio turnover 58% 56% 90% 43% 32%

</TABLE>

1 Reflects operations for the period from February 10, 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.

2 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.

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

4 Computed on an annualized basis.

5 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, 1998, which can be obtained free of charge.

Financial Highlights - Federated Equity Income Fund II

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.31 $10.47
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.22 0.23
Net realized and unrealized gain on investments 1.69 1.76
TOTAL FROM INVESTMENT OPERATIONS 1.91 1.99
LESS DISTRIBUTIONS:
Distributions from net investment income (0.07) (0.15)
NET ASSET VALUE, END OF PERIOD: $14.15 $12.31
TOTAL RETURN 2 15.57% 19.19%

RATIOS TO AVERAGE NET ASSETS:
Expenses 0.93% 0.85% 3
Net investment income 2.04% 2.41% 3
Expense waiver/reimbursement 4 0.43% 1.44% 3
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $57,499 $32,875
Portfolio turnover 59% 68%

</TABLE>

1 Reflects operations for the period from January 30, 1997 (date of initial
public investment) to December 31, 1997.

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

3 Computed on an annualized basis.

4 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, 1998, which can be obtained free of charge.

Financial Highlights - Federated Fund for U.S. Government Securities II

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED DECEMBER 31 1998 1997 1996 1995 1994 1
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.54 $10.09 $10.29 $ 9.99 $ 9.99
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.44 0.58 0.59 0.54 0.27
Net realized and
unrealized gain (loss)
on investments 0.36 0.26 (0.18) 0.30 -
TOTAL FROM
INVESTMENT OPERATIONS 0.80 0.84 0.41 0.84 0.27
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.18) (0.39) (0.57) (0.54) (0.27)
Distributions from net
realized gain
on investment (0.01) - (0.04) - -
TOTAL DISTRIBUTIONS (0.19) (0.39) (0.61) (0.54) (0.27)
NET ASSET VALUE, END OF
PERIOD $11.15 $10.54 $10.09 $10.29 $ 9.99
TOTAL RETURN 2 7.66% 8.58% 4.20% 8.77% 2.62%

RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.85% 0.80% 0.80% 0.80% 0.48% 3
Net investment income 5.44% 5.98% 6.00% 6.00% 3.99% 3
Expense
waiver/reimbursement 4 0.08% 0.45% 1.01% 4.81% 32.83% 3
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $111,350 $63,099 $34,965 $12,264 $1,244
Portfolio turnover 99% 73% 97% 65% 0%

</TABLE>

1 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.

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

3 Computed on an annualized basis.

4 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, 1998, which can be obtained free of charge.

Financial Highlights - Federated Growth Strategies Fund II

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED DECEMBER 31 1998 1997 1996 1995 1
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $16.14 $12.80 $10.30 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) (0.04) 2 0.02 2 0.05 0.03
Net realized and
unrealized gain on
investments 2.83 3.41 2.45 0.27
TOTAL FROM INVESTMENT
OPERATIONS 2.79 3.43 2.50 0.30
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.02) (0.02) (0.004) -
Distributions from net
realized gain on
investments (1.00) (0.07) - -
TOTAL DISTRIBUTIONS (1.02) (0.09) (0.004) -
NET ASSET VALUE, END OF
PERIOD $17.91 $16.14 $12.80 $10.30
TOTAL RETURN 3 17.44% 27.03% 24.32% 3.00%

RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.86% 0.85% 0.85% 0.85% 4
Net investment income (0.25%) 0.14% 0.55% 1.91% 4
Expense
waiver/reimbursement 5 0.31% 0.67% 3.87% 76.95% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $62,747 $47,280 $16,985 $368
Portfolio turnover 104% 148% 96% 4%

</TABLE>

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

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

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

4 Computed on an annualized basis.

5 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, 1998, which can be obtained free of charge.

Financial Highlights-Federated High Income Bond Fund II

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED DECEMBER 31 1998 1997 1996 1995 1994 1
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.95 $10.24 $ 9.79 $ 8.87 $10.00
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.87 0.88 0.88 0.85 0.75
Net realized and
unrealized gain (loss)
on investments (0.57) 0.48 0.45 0.89 (1.12)
TOTAL FROM
INVESTMENT OPERATIONS 0.30 1.36 1.33 1.74 (0.37)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.26) (0.61) (0.88) (0.82) (0.75)
Distributions in excess
of net investment income
2 - - - - (0.01)
Distributions from net
realized gain on
investments (0.07) (0.04) - - -
TOTAL DISTRIBUTIONS (0.33) (0.65) (0.88) (0.82) (0.76)
NET ASSET VALUE, END OF
PERIOD $10.92 $10.95 $10.24 $ 9.79 $ 8.87
TOTAL RETURN 3 2.70% 13.83% 14.31% 20.38% (3.73%)

RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.78% 0.80% 0.80% 0.80% 0.41% 4
Net investment income 9.01% 8.70% 9.23% 9.27% 9.11% 4
Expense waiver 5 -% 0.09% 0.59% 3.40% 10.01% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $212,290 $156,164 $66,043 $20,165 $1,457
Portfolio turnover 27% 52% 51% 48% 18%

</TABLE>

1 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.

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

4 Computed on an annualized basis.

5 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, 1998, which can be obtained free of charge.

Financial Highlights - Federated International Equity Fund II

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED DECEMBER 31 1998 1997 1996 1995 1
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $12.27 $11.16 $10.35 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.03 2 0.07 0.11 2 0.07
Net realized and
unrealized gain on
investments and foreign
currency transactions 3.11 1.05 0.75 0.28
TOTAL FROM INVESTMENT
OPERATIONS 3.14 1.12 0.86 0.35
LESS DISTRIBUTIONS:
Distributions from net
investment income - (0.01) (0.05) -
Distributions from net
realized gain on
investments and foreign
currency transactions (0.02) - - -
TOTAL DISTRIBUTIONS (0.02) (0.01) (0.05) -
NET ASSET VALUE, END OF
PERIOD $15.39 $12.27 $11.16 $10.35
TOTAL RETURN 3 25.57% 10.08% 8.32% 3.50%

RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.25% 1.23% 1.25% 1.22% 4
Net investment income 0.19% 0.76% 0.89% 1.63% 4
Expense
waiver/reimbursement 5 0.47% 0.98% 3.05% 11.42% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $52,308 $36,575 $17,752 $4,760
Portfolio turnover 247% 179% 103% 34%

</TABLE>

1 Reflects operations for the period from May 8, 1995 (date of initial public
investment) to December 31, 1995.

2 Per share information is based on average shares outstanding.

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

4 Computed on an annualized basis.

5 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, 1998, which can be obtained free of charge.

Financial Highlights - Federated Prime Money Fund II

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED DECEMBER 31 1998 1997 1996 1995 1994 1
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.05 0.05 0.05 0.01
LESS DISTRIBUTIONS:
Distributions from net investment income (0.05) (0.05) (0.05) (0.05) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 2 4.92% 4.93% 4.75% 5.20% 0.50%

RATIOS TO AVERAGE NET ASSETS:
Expenses 0.80% 0.80% 0.80% 0.80% 0.80% 3
Net investment income 4.80% 4.84% 4.68% 5.12% 4.26% 3
Expense waiver 4 0.01% 0.20% 0.57% 2.69% 71.84% 3
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $103,097 $59,659 $45,655 $17,838 $552

</TABLE>

1 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.

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

3 Computed on an annualized basis.

4 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, 1998, which can be obtained free of charge.

Financial Highlights - Federated Utility Fund II

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED DECEMBER 31 1998 1997 1996 1995 1994 1
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $14.29 $11.81 $11.03 $ 9.29 $ 9.48
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.37 0.40 0.42 0.45 0.34
Net realized and
unrealized gain (loss)
on investments and
foreign currency 1.55 2.62 0.82 1.74 (0.19)
TOTAL FROM
INVESTMENT OPERATIONS 1.92 3.02 1.24 2.19 0.15
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.13) (0.28) (0.41) (0.45) (0.34)
Distributions from net
realized gain on
investments and foreign
currency transactions (0.81) (0.26) (0.05) - -
TOTAL DISTRIBUTIONS (0.94) (0.54) (0.46) (0.45) (0.34)
NET ASSET VALUE, END OF
PERIOD $15.27 $14.29 $11.81 $11.03 $ 9.29
TOTAL RETURN 2 13.95% 26.63% 11.56% 24.18% 1.12%

RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.93% 0.85% 0.85% 0.85% 0.60% 3
Net investment income 3.20% 3.41% 3.92% 4.62% 4.77% 3
Expense
waiver/reimbursement 4 0.07% 0.27% 0.51% 2.24% 54.83% 3
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $162,038 $104,462 $63,558 $29,679 $974
Portfolio turnover 84% 95% 63% 62% 73%

</TABLE>

1 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 (start of
business) to April 13, 1994, net investment income was distributed to the Fund's
adviser.

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

3 Computed on an annualized basis.

4 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, 1998, which can be obtained free of charge.

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Federated
World-Class Investment Manager
PROSPECTUS

Federated Insurance Series

Federated American Leaders Fund II

Federated Equity Income Fund II

Federated Fund for U.S. Government Securities II

Federated Growth Strategies Fund II

Federated High Income Bond Fund II

Federated International Equity Fund II

Federated Prime Money Fund II

Federated Small Cap Strategies Fund II

Federated Strategic Income Fund II

Federated Utility Fund II

APRIL 20, 1999

(REVISED JUNE 1, 1999)

A Statement of Additional Information (SAI) dated April 20, 1999, is
incorporated by reference into this prospectus. Additional information about the
Funds' investments is contained in the Funds' annual and semi-annual reports to
shareholders as they become available. The annual reports discuss market
conditions and investment strategies that significantly affected the Funds'
performance during their last fiscal year. To obtain the SAI, the annual
reports, semi-annual reports and other information without charge, and make
inquiries, call your investment professional or the Fund at 1-800-341-7400.

You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.

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Federated
Federated Insurance Series
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor

Investment Company Act File No. 811-8042

Cusip 313916306 Cusip 313916405

Cusip 313916702 Cusip 313916207

Cusip 313916108 Cusip 313916801

Cusip 313916504 Cusip 313916876

Cusip 313916603 Cusip 313916868

4011006A (6/99)

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