FEDERATED INSURANCE SERIES, 497, 1999-04-22

FEDERATED INSURANCE SERIES
497, 1999-04-22

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PROSPECTUS
Federated Equity Income Fund II

A Portfolio of Federated Insurance Series

A mutual fund seeking to provide above average income and capital appreciation
by investing in income-producing equity securities.

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, 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

CONTENTS

Risk/Return Summary 1

What are the Fund's Investment Strategies? 3

What are the Principal Securities in Which the Fund Invests? 4

What are the Specific Risks of Investing in the Fund? 5

What Do Shares Cost? 5

How is the Fund Sold? 5

How to Purchase and Redeem Shares 5

Account and Share Information 6

Who Manages the Fund? 6

Financial Information 7

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.

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

[Graphic]

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 does 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
1 Year 15.57% 28.58% 11.78%
Start of Performance 1 18.15% 28.40% 18.00%

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

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.

CONVERTIBLE SECURITIES

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

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

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

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

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

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.

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. From time to time, the Fund has the ability to purchase
portfolio 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 is the Fund Sold?

The Fund's 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).

RULE 12B-1 PLAN

The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Shares. Because these Shares pay marketing fees
on an ongoing basis, your investment cost may be higher over time than other
shares with different sales charges and marketing fees.

How to Purchase and Redeem Shares

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

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

* 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 AND CAPITAL GAINS

The Fund declares and pays any dividends annually.

Shares of the Fund will begin earning dividends if owned on the record date.
Dividends of the Fund are automatically reinvested in additional Shares.

TAX INFORMATION

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

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

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

Who Manages the Fund?

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

The Adviser and other subsidiaries of Federated advise approximately 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.

THE FUND'S PORTFOLIO MANAGERS ARE:

LINDA A. DUESSEL

Linda A. Duessel has been the Fund's portfolio manager since February 1997.
Ms. Duessel joined Federated in 1991 and has been a Portfolio Manager 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 Adviser
from 1991 until 1995. Ms. Duessel is a Chartered Financial Analyst and
received her M.S. in Industrial Administration from Carnegie Mellon
University.

STEVEN J. LEHMAN

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

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.75% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses. For the fiscal year ended
December 31, 1998, the Fund's Adviser earned 0.32% of the Fund's average net
assets.

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 Fund, that rely on computers.

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

The Fund's 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 Fund's 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 Fund
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 Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.

Financial Information

FINANCIAL HIGHLIGHTS

The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends.

This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.

Financial Highlights

(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.

[Graphic]

Federated
World-Class Investment Manager

PROSPECTUS

Federated Equity Income Fund II

A Portfolio of Federated Insurance Series

APRIL 20, 1999

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

You can obtain information about the Fund (including the SAI) by 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.

[Graphic]

Federated Equity Income Fund II
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. 811-07461
Cusip 313916801

G01298-01 (4/99)

[Graphic]

STATEMENT OF ADDITIONAL INFORMATION

Federated Equity Income Fund II

A Portfolio of Federated Insurance Series

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Equity Income Fund II
(Fund), dated April 30, 1999. This SAI incorporates by reference the Fund's
Annual Report. Obtain the prospectus or the Annual Report without charge by
calling 1-800-341-7400.

APRIL 30, 1999

[Graphic]
Federated
World-Class Investment Manager

Federated Equity Income Fund II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor

G01298-02 (4/99)

[Graphic]

CONTENTS

How is the Fund Organized? 1

Securities in Which the Fund Invests 1

What Do Shares Cost? 9

Mixed Funding and Shared Funding 9

How is the Fund Sold? 9

Subaccounting Services 10

Redemption in Kind 10

Massachusetts Partnership Law 10

Account and Share Information 10

Tax Information 11

Who Manages and Provides Services to the Fund? 12

How Does the Fund Measure Performance? 15

Who is Federated Investors, Inc.? 17

Financial Information 18

Investment Ratings 18

Addresses 20

How is the Fund Organized?

The Fund is a diversified portfolio of Federated Insurance Series (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 15, 1993. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities. The Trust changed its name from Insurance Management
Series to Federated Insurance Series on November 14, 1995. The Fund's investment
adviser is Federated Investment Management Company (Adviser). The Adviser,
formerly known as Federated Advisers, changed its name effective March 31, 1999.

Securities in Which the Fund Invests

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

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.

INTERESTS IN OTHER LIMITED LIABILITY COMPANIES

Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.

REAL ESTATE INVESTMENT TRUSTS (REITS)

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

WARRANTS

Warrants give the Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the expiration
date). The Fund may buy the designated securities by paying the exercise price
before the expiration date. Warrants may become worthless if the price of the
stock does not rise above the exercise price by the expiration date. This
increases the market risks of warrants as compared to the underlying security.
Rights are the same as warrants, except companies typically issue rights to
existing stockholders.

FIXED INCOME SECURITIES

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

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

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

TREASURY SECURITIES

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

AGENCY SECURITIES

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

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

CORPORATE DEBT SECURITIES

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

COMMERCIAL PAPER

Commercial paper is an issuer's obligation with a maturity of less than nine
months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default. The short
maturity of commercial paper reduces both the market and credit risks as
compared to other debt securities of the same issuer.

DEMAND INSTRUMENTS

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

BANK INSTRUMENTS

Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit
and banker's acceptances. Yankee instruments are denominated in
U.S. dollars and issued by U.S. branches of foreign banks. Eurodollar
instruments are denominated in U.S. dollars and issued by non-
U.S. branches of U.S. or foreign banks.

ZERO COUPON SECURITIES

Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the market and credit risks of a zero coupon security.

There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs are
the most common forms of stripped zero coupon securities. In addition, some
securities give the issuer the option to deliver additional securities in place
of cash interest payments, thereby increasing the amount payable at maturity.
These are referred to as pay-in- kind or PIK securities.

CONVERTIBLE SECURITIES

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

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

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

FOREIGN SECURITIES

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

* 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.

DEPOSITARY RECEIPTS

Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.

HEDGING

Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different derivatives
contracts, or derivatives contracts and securities. The Fund's ability to hedge
may be limited by the costs of the derivatives contracts. The Fund may attempt
to lower the cost of hedging by entering into transactions that provide only
limited protection, including transactions that (1) hedge only a portion of its
portfolio, (2) use derivatives contracts that cover a narrow range of
circumstances or (3) involve the sale of derivatives contracts with different
terms. Consequently, hedging transactions will not eliminate risk even if they
work as intended. In addition, hedging strategies are not always successful, and
could result in increased expenses and losses to the Fund.

DERIVATIVE CONTRACTS

Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.

Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.

For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.

The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.

Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to market and
currency risks, and may also expose the Fund to liquidity and leverage risks.
OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract.

The Fund may trade in the following types of derivative contracts.

FUTURES CONTRACTS

Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures contracts
are considered to be commodity contracts. Futures contracts traded OTC are
frequently referred to as forward contracts.

The Fund may buy and sell financial futures contracts:

OPTIONS

Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.

The Fund may:

Buy put options on portfolio securities and financial futures contracts in
anticipation of a decrease in the value of the underlying asset.

Write call options on portfolio securities and financial futures contracts to
generate income from premiums, and in anticipation of a decrease or only limited
increase in the value of the underlying asset. If a call written by the Fund is
exercised, the Fund foregoes any possible profit from an increase in the market
price of the underlying asset over the exercise price plus the premium received.

Buy or write options to close out existing options positions.

When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.

The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

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

The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS

Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.

DELAYED DELIVERY TRANSACTIONS

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

SECURITIES LENDING

The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.

Securities lending activities are subject to market and credit risks.

ASSET COVERAGE

In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.

INVESTMENT RATINGS

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

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

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.

EQUITY SECURITIES INVESTMENT RISKS

STOCK MARKET RISKS

SECTOR RISKS

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

LIQUIDITY RISKS

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

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

OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

RISKS RELATED TO INVESTING FOR VALUE

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

RISKS RELATED TO COMPANY SIZE

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

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
larger, more established companies.

RISKS OF FOREIGN INVESTING

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

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

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

CURRENCY RISKS

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

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

EURO RISKS

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

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

CREDIT RISKS

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

FIXED INCOME SECURITIES INVESTMENT RISKS

INTEREST RATE RISKS

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

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

CREDIT RISKS

Credit risk is the possibility that an issuer will default (the issuer fails to
repay interest and 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. Fixed income securities receive
different credit ratings depending on the rating service's assessment of the
likelihood of default by the issuer. The lower the credit rating, the greater
the credit risk. In the case of unrated securities, the Fund must rely entirely
upon the Adviser's credit assessment.

Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of the security and
the yield of a U.S. Treasury security with a comparable maturity (the "spread")
measures the additional interest received for taking 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.

CALL RISKS

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

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

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. Because, however, rising
interest rates generally result in decreased prepayments of mortgage backed
securities, therein extending their durations, mortgage backed securities may
decrease in value to a greater extent then other fixed income securities when
interest rates rise. 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 refers to the possibility that the Fund may not be able to sell a
security or close out a derivative contract when it wants to. If this happens,
the Fund will be required to continue to hold the security or keep the position
open, and the Fund could incur losses.

OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

Securities rated below investment grade, also known as junk bonds, generally
entail greater risks than investment grade securities. For example, their prices
are more volatile, their values are more negatively impacted by economic
downturns, and their trading market may be more limited.

LEVERAGE RISKS

Leverage risk is created when an investment exposes the Fund to a level of risk
that exceeds the amount invested. Changes in the value of such an investment
magnify the Fund's risk of loss and potential for gain.

STATE INSURANCE REGULATIONS

The Fund is intended to be a funding vehicle for variable annuity contracts and
variable life insurance policies offered by certain insurance companies. The
contracts will seek to be offered in as many jurisdictions as possible. Certain
states have regulations concerning, among other things, the concentration of
investments, sales and purchases of futures contracts, and short sales of
securities. if applicable, the Fund may be limited in its ability to engage in
such investments and to manages its portfolio with desired flexibility. The Fund
will operate in material compliance with the applicable insurance laws and
regulations of each jurisdiction in which contracts will be offered by the
insurance companies which invest in the Fund.

VARIABLE ASSET REGULATIONS

The Fund is also subject to variable contract asset regulations prescribed by
the U.S. Treasury Department under Section 817(h) of the Internal Revenue Code.
After a one year start-up period, the regulations generally require that, as of
the end of each calendar quarter or within 30 days thereafter, no more than 55%
of the total assets of the Fund may be represented by any one investment, no
more than 70% of the total assets of the Fund may be represented by any two
investments, no more than 80% of the total assets of the Fund may be represented
by any three investments, and no more than 90% of the total assets of the Fund
may be represented by any four investments. In applying these diversification
rules, all securities of the same issuer, all interests of the same real
property project, and all interests in the same commodity are each treated as a
single investment. In the case of government securities, each government agency
or instrumentality shall be treated as a separate issuer. If the Fund fails to
achieve the diversification required by the regulations, unless relief is
obtained from the Internal Revenue Service, the contracts invested in the fund
will not be treated as annuity, endowment, or life insurance contracts.

INVESTMENT LIMITATIONS

BUYING ON MARGIN

The Fund will not purchase any securities on margin but may obtain such
short-term credits as are necessary for clearance of transactions. The deposit
or payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not considered
the purchase of a security on margin.

SELLING SHORT

The Fund will not sell securities short unless during the time the short
position is open, it owns an equal amount of the securities sold or securities
readily and freely convertible into or exchangeable, without payment of
additional consideration, for securities of the same issue as, and equal in
amount to, the securities sold short; and not more than 10% of the Fund's net
assets (taken at current value) is held as collateral for such sales at any one
time.

ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Fund will not issue senior securities except that the Fund may borrow money
and engage in reverse repurchase agreements in amounts up to one-third of the
value of its total assets, including the amounts borrowed.

The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. The Fund will not purchase any securities
while any borrowings are outstanding.

PLEDGING ASSETS

The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 10% of the value of
total assets at the time of the borrowing. Margin deposits for the purchase and
sale of financial futures contracts and related options are not deemed to be a
pledge.

INVESTING IN REAL ESTATE

The Fund will not purchase or sell real estate, although it may invest in
securities of issuers whose business involves the purchase or sale of real
estate or in securities which are secured by real estate or interest in real
estate.

INVESTING IN COMMODITIES

The Fund will not purchase or sell commodities, except that the Fund may
purchase and sell financial futures contracts and related options.

UNDERWRITING

The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of restricted securities which the Fund may purchase pursuant to its
investment objectives, policies, and limitations.

LENDING CASH OR SECURITIES

The Fund will not lend any of its assets except portfolio securities up to
one-third of the value of its total assets. This shall not prevent the purchase
or holding of corporate bonds, debentures, notes, certificates of indebtedness
or other debt securities of an issuer, repurchase agreements, or other
transactions which are permitted by the Fund's investment objectives and
policies.

CONCENTRATION OF INVESTMENTS

The Fund will not purchase portfolio instruments if, as a result of such
purchase, 25% or more of the value of its total assets would be invested in any
one industry.

DIVERSIFICATION OF INVESTMENTS

The Fund will not invest more than 5% of the value of its total assets in
securities of one issuer (except cash and cash items, repurchase agreements, and
U.S. government obligations) or acquire more than 10% of any class of voting
securities of any issuer. For these purposes, the Fund takes all common stock
and all preferred stock of an issuer each as a single class, regardless of
priorities, series, designations, or other differences.

The above limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.

ARBITRAGE TRANSACTIONS

The Fund will not engage in arbitrage transactions.

ACQUIRING SECURITIES

The Fund will not purchase securities of a company for the purpose of exercising
control or management. However, the Fund may purchase up to 10% of the voting
securities of any one issuer and may exercise its voting powers consistent with
the best interests of the Fund. In addition, the Fund, other companies advised
by the Adviser, and other affiliated companies may together buy and hold
substantial amounts of voting stock of a company and may vote together in regard
to such company's affairs. In some cases, the Fund and its affiliates might
collectively be considered to be in control of such company. In some cases,
Trustees and other persons associated with the Fund and its affiliates might
possibly become directors of companies in which the Fund holds stock.

WRITING COVERED CALL OPTIONS AND PURCHASING PUT OPTIONS

The Fund will not write call options on securities unless the securities are
held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the amount
of any further payment. The Fund will not purchase put options on securities
unless the securities are held in the Fund's portfolio. The Fund will not commit
more than 5% of the value of its total assets to premiums on open option
positions.

INVESTING IN RESTRICTED AND ILLIQUID SECURITIES

The Fund will not invest more than 15% of its net assets in illiquid securities,
including certain restricted securities (except for Section 4(2) commercial
paper and certain other restricted securities which meet the criteria for
liquidity as established by the Trustees), non-negotiable time deposits, and
repurchase agreements providing for settlement in more than seven days after
notice.

The Fund has no present intention to borrow money, invest in reverse repurchase
agreements, pledge securities, or sell securities short in excess of 5% of the
value of its total assets during the current fiscal year.

For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

* for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;

* in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;

* for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;

* futures contracts and options are valued at market values established by the
exchanges on which they are traded at the close of trading on such exchanges.
Options traded in the over-the-counter market are valued according to the mean
between the last bid and the last asked price for the option as provided by an
investment dealer or other financial institution that deals in the option. The
Board may determine in good faith that another method of valuing such investment
is necessary to appraise their fair market value;

* for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and

* for all other securities at fair value as determined in good faith by the
Board.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.

The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.

TRADING IN FOREIGN SECURITIES

Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.

What Do Shares Cost?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.

Mixed Funding and Shared Funding

Shares used as investments for both variable annuity contracts and variable life
insurance policies is called "mixed funding." Shares used as investments by
separate accounts of unaffiliated life insurance companies is called "shared
funding."

The Fund does engage in mixed funding and shared funding. Although the Fund does
not currently foresee any disadvantage to contract owners due to differences in
redemption rates, tax treatment, or other considerations resulting from mixed
funding or shared funding, the Trustees will closely monitor the operation of
mixed funding and shared funding and will consider appropriate action to avoid
material conflicts and take appropriate action in response to any material
conflicts which occur. Such action could result in one or more participating
insurance companies withdrawing their investment in the Fund.

How is the Fund Sold?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

RULE 12B-1 PLAN

As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of bank, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.

The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.

SHAREHOLDER SERVICES

The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.

SUPPLEMENTAL PAYMENTS

Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.

Investment professionals receive such fees for providing

distribution-related or shareholder services such as sponsoring sales, providing
sales literature, conducting training seminars for employees, and engineering
sales-related computer software programs and systems. Also, investment
professionals may be paid cash or promotional incentives, such as reimbursement
of certain expenses relating to attendance at informational meetings about the
Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.

Subaccounting Services

Certain participating insurance companies may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Participating insurance companies holding Shares in a fiduciary,
agency, custodial, or similar capacity may charge or pass through subaccounting
fees as part of or in addition to normal trust or agency account fees. They may
also charge fees for other services that may be related to the ownership of
Shares. This information should, therefore, be read together with any agreement
between the customer and the participating insurance company about the services
provided, the fees charged for those services, and any restrictions and
limitations imposed.

Redemption in Kind

Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.

Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.

Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.

Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.

Massachusetts Partnership Law

Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.

In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.

Account and Share Information

VOTING RIGHTS

The insurance company separate accounts, as shareholders of the Fund, will vote
the Fund Shares held in their separate accounts at meetings of the shareholders.
Voting will be in accordance with instructions received from contract owners of
the separate accounts, as more fully outlined in the prospectus of the separate
account.

Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund,
only Shares of that Fund are entitled to vote.

Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.

As of March 23, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Aetna Retirement Services, Hartford,
Connecticut, owned approximately 1,974,880 shares (47.89%) and Aetna Retirement
Services, Hartford Connecticut, owned
approximately 2,013,781 shares (48.83%).

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

Tax Information

FEDERAL INCOME TAX

The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.

The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.

FOREIGN INVESTMENTS

If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.

Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax-basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.

If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.

If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.

Who Manages and Provides Services to the Fund?

BOARD OF TRUSTEES

The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each person's
name, address, birth date, present position(s) held with the Trust, principal
occupations for the past five years and positions held prior to the past five
years, total compensation received as a Trustee from the Trust for its most
recent fiscal year, and the total compensation received from the Federated Fund
Complex for the most recent calendar year. The Trust is comprised of nine funds
and the Federated Fund Complex is comprised of 54 investment companies, whose
investment advisers are affiliated with the Fund's Adviser.

As of March 23, 1999, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.

An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.

<TABLE>
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST** FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+ Chief Executive Officer $0 $0 for the Trust
Birth Date: July 28, 1924 and Director or Trustee and 54 other investment
Federated Investors Tower of the Federated Fund companies in the
1001 Liberty Avenue Complex; Chairman and Fund Complex
Pittsburgh, PA Director, Federated
Chairman and Trustee Investors, Inc.;
Chairman and Trustee,
Federated Investment
Management Company;
Chairman and Director,
Federated Investment
Counseling, and
Federated Global
Investment Management
Corp.; Chairman,
Passport Research, Ltd.

THOMAS G. BIGLEY Director or Trustee of the Federated Fund $1,591.19 $113,860.22 for the Trust
Birth Date: February 3, 1934 Complex; Director, Member of Executive and 54 other investment
15 Old Timber Trail Committee, Children's Hospital of companies in the
Pittsburgh, PA Pittsburgh; formerly: Senior Partner, Ernst & Fund Complex
TRUSTEE Young LLP; Director, MED 3000 Group,
Inc.; Director, Member of Executive
Committee, University of Pittsburgh.

JOHN T. CONROY, JR. Director or Trustee of the Federated Fund $1,750.56 $125,264.48for the Trust
Birth Date: June 23, 1937 Complex; President, Investment Properties and 54 other investment
Wood/IPC Commercial Dept. Corporation; Senior Vice President, John R. companies in the
John R. Wood Associates, Inc. Realtors Wood and Associates, Inc., Realtors; Partner Fund Complex
3255 Tamiami Trial North Naples, FL or Trustee in private real estate ventures in
TRUSTEE Southwest Florida; formerly: President,
Naples Property Management, Inc. and
Northgate Village Development Corporation.

NICHOLAS CONSTANTAKIS Director or Trustee of the Federated Fund $1,591.19 $47,958.02 for the Trust
Birth Date: September 3, 1939 Complex; formerly: Partner, Andersen and 29 other investment
175 Woodshire Drive Worldwide SC. companies in the
Pittsburgh, PA Fund Complex
TRUSTEE

WILLIAM J. COPELAND Director or Trustee of the Federated Fund $1,750.56 $125,264.48 for the Trust
Birth Date: July 4, 1918 Complex; Director and Member of the and 54 other investment
One PNC Plaza-23rd Floor Executive Committee, Michael Baker, Inc.; companies in the
Pittsburgh, PA formerly: Vice Chairman and Director, PNC Fund Complex
TRUSTEE Bank, N.A., and PNC Bank Corp.; Director,
Ryan Homes, Inc.

Retired Previous Positions: Director, United
Refinery; Director, Forbes Fund; Chairman,
Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.

JAMES E. DOWD, ESQ. Director or Trustee of the Federated Fund $1,750.56 $125,264.48 for the Trust
Birth Date: May 18, 1922 Complex; Attorney-at-law; and 54 other investment
571 Hayward Mill Road Director, The Emerging Germany Fund, Inc. companies in the
Concord, MA Fund Complex
TRUSTEE Retired Previous Positions: President, Boston
Stock Exchange, Inc.; Regional
Administrator, United States Securities and
Exchange Commission.

LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund $1,591.19 $113,860.22 for the Trust
Birth Date: October 11, 1932 Complex; Professor of Medicine, University and 54 other investment
3471 Fifth Avenue of Pittsburgh; Medical Director, University of companies in the
Suite 1111 Pittsburgh Medical Center - Downtown; Fund Complex
Pittsburgh, PA Hematologist, Oncologist, and Internist,
TRUSTEE University of Pittsburgh Medical
Center; Presbyterian and Montefiore
Hospitals; Member, National Board of
Trustees, Leukemia Society of America.

<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST** FUND COMPLEX
<S> <C> <C> <C>

EDWARD L. FLAHERTY, JR., ESQ. # Director or Trustee of $1,750.56 $125,264.48 for the Trust
Birth Date: June 18, 1924 the Federated Fund and 54 other investment
Miller, Ament, Henny & Kochuba Complex; Attorney, of companies in the
205 Ross Street Counsel, Miller, Ament, Fund Complex
Pittsburgh, PA Henny & Kochuba;
TRUSTEE Director Emeritus, Eat'N
Park Restaurants, Inc.;
formerly: Counsel,
Horizon Financial, F.A.,
Western Region; Partner,
Meyer and Flaherty.

PETER E. MADDEN Director or Trustee of the Federated Fund $1,591.19 $113,860.22 for the Trust
Birth Date: March 16, 1942 Complex; formerly: Representative, and 54 other investment
One Royal Palm Way Commonwealth of Massachusetts General companies in the
100 Royal Palm Way Court; President, State Street Bank and Trust Fund Complex
Palm Beach, FL Company and State Street Corporation.
TRUSTEE
Retired Previous Positions: Director, VISA
USA and VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository Trust
Corporation.

JOHN E. MURRAY, JR., J.D., S.J.D. Director or Trustee of the Federated Fund $1,591.19 $113,860.22 for the Trust
Birth Date: December 20, 1932 Complex; President, Law Professor, and 54 other investment
President, Duquesne University Duquesne University; Consulting Partner, companies in the
Pittsburgh, PA Mollica & Murray. Fund Complex.
TRUSTEE
Retired Previous Positions: Dean and Professor
of Law, University of Pittsburgh School of Law;
Dean and Professor of Law, Villanova University
School of Law.

WESLEY W. POSVAR Director or Trustee of the Federated Fund $1,591.19 $113,860.22 for the Trust
Birth Date: September 14, 1925 Complex; President, World Society of and 54 other investment
1202 Cathedral of Learning Ekistics (metropolitan planning), companies in the
University of Pittsburgh Athens; Professor, International Politics; Fund Complex
Pittsbugh, PA Management Consultant; Trustee, Carnegie
TRUSTEE Endowment for International Peace, RAND
Corporation, Online Computer Library
Center, Inc., National Defense University
and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding
Chairman, National Advisory Council for
Environmental Policy and Technology,
Federal Emergency Management Advisory
Board; Trustee, Czech Management Center, Prague.

Retired Previous Positions:
Professor, United States Military Academy;
Professor, United States Air Force Academy.

MARJORIE P. SMUTS Director or Trustee of the Federated Fund $1,591.19 $113,860.22 for the Trust
Birth Date: June 21, 1935 Complex; Public Relations/Marketing/ and 54 other investment
4905 Bayard Street Conference Planning. Retired Previous companies in the
Pittsburgh, PA Positions: National Spokesperson, Fund Complex
TRUSTEE Aluminum Company of America; business
owner.

JOHN S. WALSH++ Director or Trustee of some of the Federated $0 $0 for the Trust
Birth Date: November 28, 1957 Funds; President and Director, Heat Wagon, and 23 other investment
2007 Sherwood Drive Inc.; President and Director, Manufacturers companies in the
Valparaiso, IN Products, Inc.; President, Portable Heater Fund Complex
TRUSTEE Parts, a division of Manufacturers Products,
Inc.; Director, Walsh & Kelly, Inc.; formerly:
Vice President, Walsh & Kelly, Inc.

J. CHRISTOPHER DONAHUE+* President or Executive Vice President of the $0 $0 for the Trust
Birth Date: April 11, 1949 Federated Fund Complex; Director or and 16 other investment
Federated Investors Tower Trustee of some of the Funds in the companies in the
1001 Liberty Avenue Federated Fund Complex; President and Fund Complex
Pittsburgh, PA Director, Federated Investors, Inc.; President
PRESIDENT and TRUSTEE and Trustee, Federated Investment
Management Company; President and
Director, Federated Investment
Counseling and Federated Global
Investment Management Corp.; President,
Passport Research, Ltd.; Trustee,
Federated Shareholder Services Company;
Director, Federated Services Company.

EDWARD C. GONZALES Trustee or Director of some of the Funds in $0 $0 for the Trust
Birth Date: October 22, 1930 the Federated Fund Complex; President, and 1 other investment
Federated Investors Tower Executive Vice President and Treasurer of company in the
1001 Liberty Avenue some Fund Complex
Pittsburgh, PA of the Funds in the Federated Fund
EXECUTIVE VICE PRESIDENT Complex; Vice Chairman, Federated
Investors, Inc.; Vice President, Federated
Investment Management Company and
Federated Investment Counseling,
Federated Global Investment Management
Corp. and Passport Securities Corp.; Trustee,
Federated Shareholder Services Company.

JOHN W. MCGONIGLE Executive Vice President and Secretary of $0 $0 for the Trust
Birth Date: October 26, 1938 the Federated Fund Complex; Executive Vice and 54 other investment
Federated Investors Tower President, Secretary, and Director, Federated companies in the
1001 Liberty Avenue Investors, Inc.; Trustee, Federated Fund Complex
Pittsburgh, PA Investment Management Company;
EXECUTIVE VICE PRESIDENT and SECRETARY Director, Federated Investment Counseling
and Federated Global Investment
Management Corp.; Director, Federated
Services Company; Director, Federated
Securities Corp.

<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST** FUND COMPLEX
<S> <C> <C> <C>

RICHARD J. THOMAS Treasurer of the Federated Fund $0 $0 for the Trust
Birth Date: June 17, 1954 Complex; Vice President-Funds and 54 other investment
Federated Investors Tower Financial Services Division, companies in the
1001 Liberty Avenue Federated Investors, Inc. Fund Complex
Pittsburgh, PA Formerly: various management
TREASURER management positions within Funds
Financial Services Division of
Federated Investors, Inc.

RICHARD B. FISHER President or Vice President of some of the $0 $0 for the Trust
Birth Date: May 17, 1923 Funds in the Federated Fund Complex; and 6 other investment
Federated Investors Tower Director or Trustee of some of the Funds in companies in the
1001 Liberty Avenue the Federated Fund Complex; Executive Vice Fund Complex
Pittsburgh, PA President, Federated Investors, Inc.;
VICE PRESIDENT Chairman and Director, Federated Securities Corp.

HENRY A. FRANTZEN Chief Investment Officer of this Fund and $0 $0 for the Trust
Birth Date: November 28, 1942 various other Funds in the and 3 other investment
Federated Investors Tower Federated Fund Complex; Executive Vice companies in the
1001 Liberty Avenue President, Federated Investment Fund Complex
Pittsburgh, PA Counseling, Federated Global Investment
CHIEF INVESTMENT OFFICER Management Corp., Federated Investment
Management Company and Passport
Research, Ltd.; Registered
Representative, Federated Securities
Corp.; Vice President Federated
Investors, Inc.; formerly: Executive
Vice President, Federated Investment
Counseling Institutional Portfolio
Management Services Division; Chief
Investment Officer/Manager,
International Equities, Brown Brothers
Harriman & Co.; Managing Director, BBH
Investment Management Limited.

WILLIAM D. DAWSON, III Chief Investment Officer of this Fund and $0 $0 for the Trust
Birth Date: March 3, 1949 various other Funds in the and 41 other investment
Federated Investors Tower Federated Fund Complex; Executive Vice companies in the
1001 Liberty Avenue President, Federated Investment Fund Complex
Pittsburgh, PA Counseling, Federated Global Investment
CHIEF INVESTMENT OFFICER Management Corp., Federated Investment
Management Company and Passport
Research, Ltd.; Registered
Representative, Federated Securities
Corp.; Portfolio Manager, Federated
Administrative Services; Vice
President, Federated Investors, Inc.;
formerly: Executive Vice President and
Senior Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services Division;
Senior Vice President, Federated
Investment Management Company and
Passport Research, Ltd.

J. THOMAS MADDEN Chief Investment Officer of this Fund and $0 $0 for the Trust
Birth Date: October 22, 1945 various other Funds in the and 12 other investment
Federated Investors Tower Federated Fund Complex; Executive Vice companies in the
1001 Liberty Avenue President, Federated Investment Fund Complex
Pittsburgh, PA Counseling, Federated Global Investment
CHIEF INVESTMENT OFFICER Management Corp., Federated Investment
Management Company and Passport
Research, Ltd.; Vice President,
Federated Investors, Inc.; formerly:
Executive Vice President and Senior
Vice President, Federated Investment
Counseling Institutional Portfolio
Management Services Division; Senior
Vice President, Federated Investment
Management Company and Passport
Research, Ltd.
</TABLE>

* The aggregate compensation is provided for the Trust which is comprised of
nine portfolios.

+ Mr. Donahue is the father of J. Christopher Donahue, President and
Trustee of the Trust.

++ Mr. Walsh became a member of the Board of Trustees on January 1, 1999. He did
not earn any fees for serving the Fund Complex since these fees are reported as
of the end of the last calendar year. He did not receive any fees as of the
fiscal year end of the Trust.

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly owned subsidiary of Federated.

The Adviser shall not be liable to the Trust or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Trust.

OTHER RELATED SERVICES

Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.

RESEARCH SERVICES

Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.

Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.

ADMINISTRATOR

Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:

AVERAGE AGGREGATE DAILY
MAXIMUM ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS

0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN

State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by
shareholders.

INDEPENDENT PUBLIC ACCOUNTANTS

Deloitte & Touche LLP is the independent public accountant for the Fund.

FEES PAID BY THE FUND FOR SERVICES

FOR THE YEAR ENDED DECEMBER 31 1998 1991 1 1996
Advisory Fee Earned $344,437 $ 96,582 NA
Advisory Fee Reduction 195,710 43,970 NA
Brokerage Commissions 59,502 33,449 NA
Administrative Fee 125,000 113,358 NA
12B-1 FEE 0 0 NA
SHAREHOLDER SERVICES FEE NA NA NA

1 For the period from January 30, 1997 (inception date) to December 31, 1997.

How Does the Fund Measure Performance?

The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.

Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns given for the one-year and Start of Performance periods ended
December 31, 1998.

Yield is given for the 30-day period ended December 31, 1998

SINCE
INCEPTION
ON
30-DAY JANUARY 30,
PERIOD 1 YEAR 5 YEARS 10 YEARS 1997
Total Return NA 15.57% NA NA 18.15%
Yield 1.69% NA NA NA NA

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.

YIELD

The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.

To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;

* charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;

* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and

* information about the mutual fund industry from sources such as the Investment
Company Institute.

The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:

LIPPER ANALYTICAL SERVICES, INC.

Lipper Analytical Services, Inc., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the convertible
securities and fixed income funds categories in advertising and sales
literature.

DOW JONES INDUSTRIAL AVERAGE ("DJIA")

Dow Jones Industrial Average ("DJIA") represents share prices of selected
blue-chip industrial corporations as well as public utility and transportation
companies. The DJIA indicates daily changes in the average price of stocks in
any of its categories. It also reports total sales for each group of industries.
Because it represents the top corporations of America, the DJIA index is a
leading economic indicator for the stock market as a whole.

STANDARD & POOR'S RATINGS GROUP DAILY STOCK PRICE INDEX OF 500 COMMON
STOCKS

Standard & Poor's Ratings Group Daily Stock Price Index of 500 Common Stocks is
a composite index of common stocks in industry, transportation, and financial
and public utility companies which compares total returns of funds whose
portfolios are invested primarily in common stocks. In addition, the Standard &
Poor's index assumes reinvestment of all dividends paid by stocks listed on the
index. Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated, in the Standard & Poor's figures.

MORNINGSTAR, INC.

Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.

Who is Federated Investors, Inc.?

Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.

EQUITY FUNDS

In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value- oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.

CORPORATE BOND FUNDS

In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.

GOVERNMENT FUNDS

In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.

MONEY MARKET FUNDS

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.

MUTUAL FUND MARKET

Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.

FEDERATED CLIENTS OVERVIEW

Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

INSTITUTIONAL CLIENTS

Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.

BANK MARKETING

Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated Funds are available to consumers through major brokerage firms
nationwide-we have over 2,200 broker/dealer and bank broker/dealer relationships
across the country-supported by more wholesalers than any other mutual fund
distributor. Federated's service to financial professionals and institutions has
earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement. The
marketing effort to these firms is headed by James F. Getz, President,
Broker/Dealer Sales Division, Federated Securities Corp.

Financial Information

The Financial Statements for the Fund for the fiscal year ended December 31,
1998, are incorporated herein by reference to the Annual Report to Shareholders
of Federated Equity Income Fund II dated December 31, 1998.

Investment Ratings

STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS

AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB-Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB-Debt rated BB has less near-term, vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.

B-Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.

CCC-Debt rated CCC has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.

CC-The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.

C-The rating C typically is applied to debt subordinated to senior debt which is
assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS

AAA-Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

AA-Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.

A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

BAA-Bonds which are rated BAA are considered as medium grade obligations, (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

BA-Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

CAA-Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA-Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C-Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS

AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F- 1+.

A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB-Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

BB-Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.

B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C-Bonds are imminent default in payment of interest or principal.

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS

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

* Leading market positions in well established industries.

* High rates of return on funds employed.

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

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

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

PRIME-2-Issuers rated Prime-1 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

A-1-This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

A-2-Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.

FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS

FITCH-1-(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.

FITCH-2-(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.

Addresses

FEDERATED EQUITY INCOME FUND II

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

DISTRIBUTOR

Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

INVESTMENT ADVISER

Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

CUSTODIAN

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

INDEPENDENT PUBLIC ACCOUNTANTS

Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110-1617

PROSPECTUS
Federated American Leaders Fund II

A Portfolio of Federated Insurance Series

A large capitalization value mutual fund investing primarily in common stocks of
high quality companies.

APRIL 20, 1999

CONTENTS

Risk/Return Summary 1

What are the Fund's Investment Strategies? 2

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

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

What Do Shares Cost? 5

How is the Fund Sold? 5

How to Purchase and Redeem Shares 5

Account and Share Information 6

Who Manages the Fund? 6

Financial Information 7

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.

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 ws 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
1 Year 17.62% 28.58% 13.58%
Start of Performance 1 20.73% 23.68% 18.17%

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

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

COMMON STOCKS

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

SECTOR RISKS

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.

What Do Shares Cost?

How is the Fund Sold?

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

How to Purchase and Redeem Shares

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

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

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

Account and Share Information

DIVIDENDS

The Fund declares and pays any dividends annually.

Shares of the Fund will begin earning dividends if owned on the record date.
Dividends of the Fund are automatically reinvested in additional Shares.

TAX INFORMATION

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

Who Manages the Fund?

THE FUND'S PORTFOLIO MANAGERS ARE:

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 investment 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.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.75% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses. For the fiscal year ended
December 31, 1998, the Fund's investment adviser earned 0.74% of the Fund's
average net assets.

YEAR 2000 READINESS

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

Financial Information

FINANCIAL HIGHLIGHTS

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

This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.

Financial Highlights

(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.

[Graphic]
Federated
World-Class Investment Manager
PROSPECTUS

Federated American Leaders Fund II

A Portfolio of Federated Insurance Series

APRIL 20, 1999

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

[Graphic]
Federated
Federated American Leaders Fund II
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 313916405

3113010A (4/99)

[Graphic]

STATEMENT OF ADDITIONAL INFORMATION

Federated American Leaders Fund II

A Portfolio of Federated Insurance Series

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated American Leaders Fund II
(Fund), dated April 20, 1999. This SAI incorporates by reference the Fund's
Annual Report. Obtain the prospectus or the Annual Report without charge by
calling 1-800-341-7400.

APRIL 20, 1999

[Graphic]
Federated
World-Class Investment Manager
Federated American Leaders Fund II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor

3113010B (4/99)

[Graphic]

CONTENTS

How is the Fund Organized? 1

Securities in Which the Fund Invests 1

What Do Shares Cost? 6

Mixed Funding and Shared Funding 7

How is the Fund Sold? 7

Subaccounting Services 7

Redemption in Kind 7

Massachusetts Partnership Law 7

Account and Share Information 8

Tax Information 8

Who Manages and Provides Services to the Fund? 9

How Does the Fund Measure Performance? 12

Who is Federated Investors, Inc.? 14

Financial Information 15

Investment Ratings 15

Addresses 17

How is the Fund Organized?

The Fund is a diversified portfolio of Federated Insurance Series (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 15, 1993. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities. The Trust changed its name from Insurance Management
Series to Federated Insurance Series on November 14, 1995. The Fund changed its
name from Equity Growth and Income Fund to Federated American Leaders Fund II on
February 26, 1996.

The Fund's investment adviser is Federated Investment Management Company
(Adviser). The Adviser, formerly known as Federated Advisers, changed its name
effective March 31, 1999.

Securities in Which the Fund Invests

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

EQUITY SECURITIES

COMMON STOCKS

PREFERRED STOCKS

INTERESTS IN OTHER LIMITED LIABILITY COMPANIES

Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.

REAL ESTATE INVESTMENT TRUSTS (REITS)

WARRANTS

FIXED INCOME 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

CORPORATE DEBT SECURITIES

COMMERCIAL PAPER

DEMAND INSTRUMENTS

BANK INSTRUMENTS

ZERO COUPON SECURITIES

CONVERTIBLE SECURITIES

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

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.

AMERICAN DEPOSITARY RECEIPTS

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase Agreements are transactions in which a 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 an
agreed upon interest rate effective for the period the Fund owns the security
subject to repurchase. The agreed upon interest rate is unrelated to the
interest rate on the underlying security. The Funds will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker/dealers, which are deemed by the Adviser to be creditworthy.

A Fund's custodian or subcustodian is required to take possession of the
securities subject to repurchase agreements. The Adviser or subcustodian will
monitor the value of the underlying security each day to ensure that the value
of the security always equals or exceeds the repurchase price.

Repurchase Agreements are subject to Credit Risk.

REVERSE REPURCHASE AGREEMENTS

DELAYED DELIVERY TRANSACTIONS

SECURITIES LENDING

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Securities lending activities are subject to market risks and credit risks.

ASSET COVERAGE

In order to secure its obligations in connection with special transactions, the
Fund will either own the underlying assets, enter into an offsetting transaction
or set aside readily marketable securities with a value that equals or exceeds
the Fund's obligations. Unless the Fund has other readily marketable assets to
set aside, it cannot trade assets used to secure such obligations. This may
cause the Fund to miss favorable trading opportunities or to realize losses on
special transactions.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

INVESTMENT RISKS

There are many factors that may affect an investment in the Fund. The Fund's
principal risks are described in the prospectus. Additional risk factors are
outlined below.

EQUITY SECURITIES INVESTMENT RISKS

STOCK MARKET RISKS

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

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

SECTOR RISKS

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

LIQUIDITY RISKS

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

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

RISKS RELATED TO INVESTING FOR VALUE

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

RISKS OF INVESTING IN 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.

CREDIT RISKS

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

FIXED INCOME SECURITIES INVESTMENT RISKS

INTEREST RATE RISKS

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

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

CREDIT RISKS

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

* Many fixed income securities receive credit ratings from services such as
Standard & 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.

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.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

* The Fund may invest in convertible securities rated below investment grade,
also known as junk bonds. Such convertible securities 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.

CALL RISKS

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

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

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.

LEVERAGE RISKS

* Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.

VARIABLE ASSET REGULATIONS

The Fund is also subject to variable contract asset regulations prescribed by
the U.S. Treasury Department under Section 817(h) of the Internal Revenue Code.
After a one year start-up period, the regulations generally require that, as of
the end of each calendar quarter or within 30 days thereafter, no more than 55%
of the total assets of the Fund may be represented by any one investment, no
more than 70% of the total assets of the Fund may be represented by any two
investments, no more than 80% of the total assets of the Fund may be represented
by any three investments, and no more than 90% of the total assets of the Fund
may be represented by any four investments. In applying these diversification
rules, all securities of the same issuer, all interests in the same real
property project, and all interests in the same commodity are each treated as a
single investment. In the case of government securities, each government agency
or instrumentality shall be treated as a separate issuer. If the Fund fails to
achieve the diversification required by the regulations, unless relief is
obtained from the Internal Revenue Service, the contracts invested in the Fund
will not be treated as annuity, endowment, or life insurance contracts.

STATE INSURANCE REGULATIONS

The Fund is intended to be a funding vehicle for variable annuity contracts and
variable life insurance policies offered by certain insurance companies. The
contracts will seek to be offered in as many jurisdictions as possible. Certain
states have regulations concerning, among other things, the concentration of
investments, sales and purchases of futures contracts, and short sales of
securities. If applicable, the Fund may be limited in its ability to engage in
such investments and to manage its portfolio with desired flexibility. The Fund
will operate in material compliance with the applicable insurance laws and
regulations of each jurisdiction in which contracts will be offered by the
insurance companies which invest in the Fund.

INVESTMENT LIMITATIONS

SELLING SHORT AND BUYING ON MARGIN

ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Fund will not issue senior securities except that the Fund may borrow money
directly or through reverse repurchase agreements as a temporary, extraordinary,
or emergency measure to facilitate management of the portfolio by enabling the
Fund to meet redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous, and then only in amounts not in
excess of one-third of the value of its total assets; provided that, while
borrowings and reverse repurchase agreements outstanding exceed 5% of the Fund's
total assets, any such borrowings will be repaid before additional investments
are made. The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage purposes.

PLEDGING ASSETS

The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may mortgage, pledge or hypothecate
assets having a market value not exceeding the lesser of the dollar amounts
borrowed or 15% of the value of its total assets at the time of borrowing.

CONCENTRATION OF INVESTMENTS

The Fund will not purchase securities if, as a result of such purchase, 25% or
more of its total assets would be invested in any one industry. However, the
Fund may at any time invest 25% or more of its total assets in cash or cash
items and securities issued and/or guaranteed by the U.S. government, its
agencies or instrumentalities.

INVESTING IN COMMODITIES

The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.

INVESTING IN REAL ESTATE

The Fund will not purchase or sell real estate, including limited partnership
interests in real estate, although it may invest in securities of companies
whose business involves the purchase or sale of real estate or in securities
secured by real estate or interests in real estate.

LENDING CASH OR SECURITIES

The Fund will not lend any of its assets, except portfolio securities up to
one-third of its total assets. This shall not prevent the Fund from purchasing
or holding corporate or U.S. government bonds, debentures, notes, certificates
of indebtedness or other debt securities of an issuer, entering into repurchase
agreements, or engaging in other transactions which are permitted by the Fund's
investment objectives and policies or the Trust's Declaration of Trust.

UNDERWRITING

The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objectives, policies, and
limitations.

DIVERSIFICATION OF INVESTMENTS

With respect to 75% of its total assets, the Fund will not purchase the
securities of any one issuer (other than cash, cash items, or securities issued
and/or guaranteed by the U.S. government, its agencies or instrumentalities, and
repurchase agreements collateralized by such securities) if, as a result, more
than 5% of its total assets would be invested in the securities of that issuer.
Also, the Fund will not purchase more than 10% of any class of the outstanding
voting securities of any one issuer. For these purposes, the Fund considers
common stock and all preferred stock of an issuer each as a single class,
regardless of priorities, series, designations, or other differences.

INVESTING IN RESTRICTED AND ILLIQUID SECURITIES

The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including, among others, repurchase agreements providing
for settlement more than seven days after notice, and certain restricted
securities not determined to be liquid under criteria established by the
Trustees.

Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction. The Fund did not borrow money, sell securities short, or invest in
reverse repurchase agreements in excess of 5% of the value of its total assets
during the last fiscal year and has no present intent to do so in the coming
fiscal year. Short selling may accelerate the recognition of gains.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

* for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;

* in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;

* for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;

* for all other securities, at fair value as determined in good faith by
the Board.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.

TRADING IN FOREIGN SECURITIES

What Do Shares Cost?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.

Mixed Funding and Shared Funding

How is the Fund Sold?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

SHAREHOLDER SERVICES

SUPPLEMENTAL PAYMENTS

Investment professionals receive such fees for providing distribution- related
or shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.

Subaccounting Services

Redemption in Kind

Massachusetts Partnership Law

Account and Share Information

VOTING RIGHTS

As of March 23, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Aetna Insurance Co. of America,
Hartford, CT owned approximately 6,752,893 shares (35.11%); Aetna Life Insurance
& Annuity Co., Hartford, CT owned approximately 6,041,920 shares (31.41%); Life
of Virginia, Richmond, VA owned approximately 3,576,598 shares (18.60%); and
Great-West Life & Annuity Ins. Co., Englewood, CO owned approximately 1,187,440
shares (6.17%).

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

Tax Information

FEDERAL INCOME TAX

FOREIGN INVESTMENTS

Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.

Who Manages and Provides Services to the Fund?

BOARD OF TRUSTEES

The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each person's
name, address, birth date, present position(s) held with the Trust, principal
occupations for the past five years and positions held prior to the past five
years, total compensation received as a Trustee from the Trust for its most
recent fiscal year, and the total compensation received from the Federated Fund
Complex for the most recent calendar year. The Trust is comprised of eight funds
and The Federated Fund Complex is comprised of 54 investment companies, whose
investment advisers are affiliated with the Fund's Adviser.

As of March 23, 1999, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.

<TABLE>

NAME TOTAL
BIRTH DATE COMPENSATION
ADDRESS AGGREGATE FROM TRUST
POSITION PRINCIPAL OCCUPATIONS COMPENSATION AND FUND
WITH TRUST FOR PAST 5 YEARS FROM TRUST** COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+ Chief Executive Officer and $0 $0 for the Trust
Birth Date: July Director or Trustee of the and
28, 1924 Federated Fund Complex; Chairman 54 other
Federated Investors and Director, Federated Investors, investment
Tower Inc.; Chairman and Trustee, companies in the
1001 Liberty Avenue Federated Investment Management Fund Complex
Pittsburgh, PA Company; Chairman and Director,
CHAIRMAN AND Federated Investment Counseling
TRUSTEE and Federated Global Investment
Management Corp.; Chairman,
Passport Research, Ltd.
THOMAS G. BIGLEY Director or Trustee of the Federated Fund Complex; Director, $1,591.19 $113,860.22 for
Birth Date: February Member of Executive Committee, Children's Hospital of the Trust
3, 1934 Pittsburgh; formerly: Senior Partner, Ernst & Young LLP; and 54 other
15 Old Timber Trail Director, MED 3000 Group, Inc.; Director, Member of investment
Pittsburgh, PA Executive Committee, University of Pittsburgh. companies in the
TRUSTEE Fund Complex
JOHN T. CONROY, JR. Director or Trustee of the Federated Fund Complex; $1,750.56 $125,264.48 for
Birth Date: June President, Investment Properties Corporation; Senior Vice the Trust
23, 1937 President, John R. Wood and Associates, Inc., Realtors; and 54 other
Wood/IPC Commercial Partner or Trustee in private real estate ventures in investment
Dept. Southwest Florida; formerly: President, Naples Property companies in the
John R. Wood Management, Inc. and Northgate Village Development Fund Complex
Associates, Corporation.
Inc. Realtors
3255 Tamiami Trial
North
Naples, FL
TRUSTEE
NICHOLAS Director or Trustee of the Federated Fund Complex; formerly: $1,591.19 $47,958.02 for
CONSTANTAKIS Partner, Andersen the Trust
Birth Date: September Worldwide SC. and 29 other
3, 1939 investment
175 Woodshire Drive companies in the
Pittsburgh, PA Fund Complex
TRUSTEE
WILLIAM J. COPELAND Director or Trustee of the Federated Fund Complex; Director $1,750.56 $125,264.48 for
Birth Date: July and Member of the Executive Committee, Michael Baker, the Trust
4, 1918 Inc.; formerly: Vice Chairman and Director, PNC Bank, N.A., and 54 other
One PNC Plaza- and PNC Bank Corp.; Director, Ryan Homes, Inc. investment
23rd Floor Previous Postions: Director, United Refinery; Director, Forbes companies in the
Pittsburgh, PA Fund; Chairman, Pittsburgh Foundation; Chairman, Fund Complex
TRUSTEE Pittsburgh Civic Light Opera.
JAMES E. DOWD, Director or Trustee of the Federated Fund Complex; Attorney- $1,750.56 $125,264.48 for
ESQ. at-law; Director, The Emerging Germany Fund, Inc. the Trust
Birth Date: May Previous Postions: President, Boston Stock Exchange, Inc.; and 54 other
18, 1922 Regional Administrator, United States Securities and investment
571 Hayward Exchange Commission. companies in the
Mill Road Fund Complex
Concord, MA
TRUSTEE
LAWRENCE D. ELLIS, Director or Trustee of the Federated Fund Complex; Professor $1,591.19 $113,860.22 for
M.D.* of Medicine, University of Pittsburgh; Medical Director, the Trust
Birth Date: October University of Pittsburgh Medical Center - Downtown; and 54 other
11, 1932 Hematologist, Oncologist, and Internist, University of investment
3471 Fifth Avenue Pittsburgh Medical Center; Member, National Board of companies in the
Suite 1111 Trustees, Leukemia Society of America. Fund Complex
Pittsburgh, PA
TRUSTEE

<CAPTION>
NAME
BIRTH DATE TOTAL
ADDRESS AGGREGATE COMPENSATION
POSITION PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
WITH TRUST FOR PAST 5 YEARS FROM TRUST** FUND COMPLEX
<S> <C> <C> <C>
EDWARD L. FLAHERTY, Director or Trustee of the Federated Fund Complex; Attorney, $1,750.56 $125,264.48 for
JR., ESQ.# of Counsel, Miller, Ament, Henny & Kochuba; Director the Trust
Birth Date: June Emeritus, Eat'N Park Restaurants, Inc.; formerly: Counsel, and 54 other
18, 1924 Horizon Financial, F.A., Western Region; Partner, Meyer and investment
Miller, Ament, Henny Flaherty. companies in the
& Kochuba Fund Complex
205 Ross Street
Pittsburgh, PA
TRUSTEE
PETER E. MADDEN Director or Trustee of the Federated Fund Complex; formerly: $1,591.19 $113,860.22 for
Birth Date: March Representative, Commonwealth of Massachusetts General the Trust
16, 1942 Court; President, State Street Bank and Trust Company and and 54 other
One Royal Palm Way State Street Corporation. investment
100 Royal Palm Way Previous Postions: Director, VISA USA and VISA Fund Complex
Palm Beach, FL International; Chairman and Director, Massachusetts
TRUSTEE Bankers Association; Director, Depository Trust Corporation.
JOHN E. MURRAY, JR., Director or Trustee of the Federated Fund Complex; $1,591.19 $113,860.22 for
J.D., S.J.D. President, Law Professor, Duquesne University; Consulting the Trust
Birth Date: December Partner, Mollica & Murray. and 54 other
20, 1932 Previous Postions: Dean and Professor of Law, University of investment
President, Duquesne Pittsburgh School of Law; Dean and Professor of Law, companies in the
University Villanova University School of Law. Fund Complex
Pittsburgh, PA
TRUSTEE
WESLEY W. POSVAR Director or Trustee of the Federated Fund Complex; $1,591.19 $113,860.22 for
Birth Date: September President, World Society of Ekistics (metropolitan planning), the Trust
14, 1925 Athens; Professor, International Politics; Management and 54 other
1202 Cathedral of Consultant; Trustee, Carnegie Endowment for International investment
Learning Peace, RAND Corporation, Online Computer Library Center, companies in the
University of Inc., National Defense University and U.S. Space Foundation; Fund Complex
Pittsburgh President Emeritus, University of Pittsburgh; Founding
Pittsbugh, PA Chairman, National Advisory Council for Environmental
TRUSTEE Policy and Technology, Federal Emergency Management
Advisory Board; Trustee, Czech Management Center, Prague.
Previous Postions: Professor, United States Military Academy;
Professor, United States Air Force Academy.
MARJORIE P. SMUTS Director or Trustee of the Federated Fund Complex; Public $1,591.19 $113,860.22 for
Birth Date: June 21, Relations/Marketing/Conference Planning. the Trust
1935 Previous Postions: National Spokesperson, Aluminum and 54 other
4905 Bayard Street Company of America; business owner. investment
Pittsburgh, PA companies in the
TRUSTEE Fund Complex
JOHN S. WALSH++ Director or Trustee of some of the Federated Funds; President $0 $0 for the Trust
Birth Date: November and Director, Heat Wagon, Inc.; President and Director, and 23 other
28, 1957 Manufacturers Products, Inc.; President, Portable Heater investment
2007 Sherwood Drive Parts, a division of Manufacturers Products, Inc.; Director, companies in the
Valparaiso, IN Walsh & Kelly, Inc.; formerly: Vice President, Walsh & Kelly, Fund Complex
TRUSTEE Inc.
J. CHRISTOPHER President or Executive Vice President of the Federated Fund $0 $0 for the Trust
DONAHUE+* Complex; Director or Trustee of some of the Funds in the and 16 other
Birth Date: April 11, Federated Fund Complex; President and Director, Federated investment
1949 Investors, Inc.; President and Trustee, Federated Investment companies in the
Federated Investors Management Company; President and Director, Federated Fund Complex
Tower Investment Counseling and Federated Global Investment
1001 Liberty Avenue Management Corp.; President, Passport Research, Ltd.;
Pittsburgh, PA Trustee, Federated Shareholder Services Company; Director,
PRESIDENT AND Federated Services Company.
TRUSTEE
EDWARD C. GONZALES Trustee or Director of some of the Funds in the Federated $0 $0 for the Trust
Birth Date: October Fund Complex; President, Executive Vice President and and 1 other
22, 1930 Treasurer of some of the Funds in the Federated Fund investment
Federated Investors Complex; Vice Chairman, Federated Investors, Inc.; Vice company in the
Tower President, Federated Investment Management Company and Fund Complex
1001 Liberty Avenue Federated Investment Counseling, Federated Global
Pittsburgh, PA Investment Management Corp. and Passport Research, Ltd.;
EXECUTIVE VICE Executive Vice President and Director, Federated Securities
PRESIDENT Corp.; Trustee, Federated Shareholder Services Company.

<CAPTION>
NAME
BIRTH DATE TOTAL
ADDRESS AGGREGATE COMPENSATION
POSITION PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
WITH TRUST FOR PAST 5 YEARS FROM TRUST** FUND COMPLEX
<S> <C> <C> <C>
JOHN W. MCGONIGLE Executive Vice President and Secretary of the Federated Fund $0 $0 for the Trust
Birth Date: October Complex; Executive Vice President, Secretary, and Director, and 54 other
26, 1938 Federated Investors, Inc.; Trustee, Federated Investment investment
Federated Investors Management Company; Director, Federated Investment companies in the
Tower Counseling and Federated Global Investment Management Fund Complex
1001 Liberty Avenue Corp.; Director, Federated Services Company; Director,
Pittsburgh, PA Federated Securities Corp.
EXECUTIVE VICE
PRESIDENT
AND SECRETARY
RICHARD J. THOMAS Treasurer of the Federated Fund Complex; Vice President - $0 $0 for the Trust
Birth Date: June Funds Financial Services Division, Federated Investors, Inc.; and 54 other
17, 1954 Formerly: various management positions within Funds investment
Federated Investors Financial Services Division of Federated Investors, Inc. companies in the
Tower Fund Complex
1001 Liberty Avenue
Pittsburgh, PA
TREASURER
RICHARD B. FISHER President or Vice President of some of the Funds in the $0 $0 for the Trust
Birth Date: May Federated Fund Complex; Director or Trustee of some of the and 6 other
17, 1923 Funds in the Federated Fund Complex; Executive Vice investment
Federated Investors President, Federated Investors, Inc.; Chairman and Director, companies in the
Tower Federated Securities Corp. Fund Complex
1001 Liberty Avenue
Pittsburgh, PA
VICE PRESIDENT
HENRY A. FRANTZEN Chief Investment Officer of this Fund and various other Funds $0 $0 for the Trust
Birth Date: November in the Federated Fund Complex; Executive Vice President, and 3 other
28, 1942 Federated Investment Counseling, Federated Global investment
Federated Investors Investment Management Corp., Federated Investment companies in the
Tower Management Company and Passport Research, Ltd.; Fund Complex
1001 Liberty Avenue Registered Representative, Federated Securities Corp.; Vice
Pittsburgh, PA President, Federated Investors, Inc.; Formerly: Executive Vice
CHIEF INVESTMENT President, Federated Investment Counseling Institutional
OFFICER Portfolio Management Services Division; Chief Investment
Officer/Manager, International Equities, Brown Brothers
Harriman & Co.; Managing Director, BBH Investment
Management Limited.
WILLIAM D. Chief Investment Officer of this Fund and various other Funds $0 $0 for the Trust
DAWSON, III in the Federated Fund Complex; Executive Vice President, and 41 other
Birth Date: March Federated Investment Counseling, Federated Global investment
3, 1949 Investment Management Corp., Federated Investment companies in the
Federated Investors Management Company and Passport Research, Ltd.; und Complex
Tower Registered Representative, Federated Securities Corp.;
1001 Liberty Avenue Portfolio Manager, Federated Administrative Services; Vice
Pittsburgh, PA President, Federated Investors, Inc.; Formerly: Executive Vice
CHIEF INVESTMENT President and Senior Vice President, Federated Investment
OFFICER Counseling Institutional Portfolio Management Services
Division; Senior Vice President, Federated Investment
Management Company and Passport Research, Ltd.
J. THOMAS MADDEN Chief Investment Officer of this Fund and various other Funds $0 $0 for the Trust
Birth Date: October in the Federated Fund Complex; Executive Vice President, and 12 other
22, 1945 Federated nvestment Counseling, Federated Global investment
Federated Investors Investment Management Corp., Federated Investment companies in the
Tower Management Company and Passport Research, Ltd.; Vice Fund Complex
1001 Liberty Avenue President, Federated Investors, Inc.; Formerly: Executive Vice
Pittsburgh, PA President and Senior Vice President, Federated Investment
CHIEF INVESTMENT Counseling Institutional Portfolio Management Services
OFFICER Division; Senior Vice President, Federated Investment
Management Company and Passport Research, Ltd.

</TABLE>

+ Mr. Donahue is the father of J. Christopher Donahue, President and
Trustee of the Trust.

** The aggregate compensation is provided for the Trust which is comprised of
eight portfolios.

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly owned subsidiary of Federated.

OTHER RELATED SERVICES

BROKERAGE TRANSACTIONS

RESEARCH SERVICES

ADMINISTRATOR

AVERAGE AGGREGATE DAILY
MAXIMUM ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS 0.150 of 1% on the
first $250 million 0.125 of 1% on the next $250 million 0.100 of 1% on the next
$250 million 0.075 of 1% on assets in excess of $750 million

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio. Federated Services Company may voluntarily waive a
portion of its fee and may reimburse the Fund for expenses.

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

INDEPENDENT PUBLIC ACCOUNTANTS

Deloitte and Touche LLP is the independent public accountant for the Fund.

FEES PAID BY THE FUND FOR SERVICES

FOR THE YEAR ENDED DECEMBER 31 1998 1997 1996
Advisory Fee Earned $ 2,758,350 $ 1,671,330 $ 693,045
Advisory Fee Reduction $ 29,986 $ 198,839 $ 203,603
Brokerage Commissions $ 608,534 $ 226,100 $ 234,623
Administrative Fee $ 277,306 $ 169,740 $ 125,000
12B-1 FEE NA
SHAREHOLDER SERVICES FEE NA

How Does the Fund Measure Performance?

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns given for the one-year and start of performance periods ended
December 31, 1998.

Yield given for the 30-day period ended December 31, 1998.

START OF PERFORMANCE
30-DAY PERIOD 1 YEAR ON FEBRUARY 10, 1994
Total Return NA 17.62% 20.73%
Yield 1.07% NA NA

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

YIELD

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;

* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and

* information about the mutual fund industry from sources such as the Investment
Company Institute.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

LIPPER ANALYTICAL SERVICES, INC.

Lipper Analytical Services, Inc., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the growth and
income funds category in advertising and sales literature.

DOW JONES INDUSTRIAL AVERAGE

Dow Jones Industrial Average, is an unmanaged index representing share prices of
major industrial corporations, public utilities, and transportation companies.
Produced by the Dow Jones & Company, it is cited as a principal indicator of
market conditions.

STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS

Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a composite
index of common stocks in industry, transportation, and financial and public
utility companies, can be used to compare to the total returns of funds whose
portfolios are invested primarily in common stocks. In addition, the S&P index
assumes reinvestment of all dividends paid by stocks listed on its index. Taxes
due on any of these distributions are not included, nor are brokerage or other
fees calculated in the S&P figures.

MORNINGSTAR, INC.

Morningstar, Inc., independent rating service, is the publisher of the bi-weekly
Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ- listed
mutual funds of all types, according to their risk-adjusted returns. The maximum
rating is five stars, and ratings are effective for two weeks.

Who is Federated Investors, Inc.?

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

EQUITY FUNDS

CORPORATE BOND FUNDS

GOVERNMENT FUNDS

MONEY MARKET FUNDS

MUTUAL FUND MARKET

FEDERATED CLIENTS OVERVIEW

Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

INSTITUTIONAL CLIENTS

BANK MARKETING

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Financial Information

The Financial Statements for the Fund for the fiscal year ended December 31,
1998 are incorporated herein by reference to the Annual Report to Shareholders
of Federated American Leaders Fund II dated December 31, 1998.

Investment Ratings

STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS

AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

CC-The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.

C-The rating C typically is applied to debt subordinated to senior debt which is
assigned an actual or implied CCC-debt rating. The C rating may be used to cover
a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS

CAA-Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA-Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C-Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS

CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C-Bonds are imminent default in payment of interest or principal.

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS

* Leading market positions in well established industries.

* High rates of return on funds employed.

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

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

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

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

A-2-Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.

FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS

FITCH-1-(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.

FITCH-2-(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.

Addresses

FEDERATED AMERICAN LEADERS FUND II Federated Investors Funds 5800 Corporate
Drive Pittsburgh, PA 15237-7000

DISTRIBUTOR

Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

INVESTMENT ADVISER

Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

CUSTODIAN

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

INDEPENDENT PUBLIC ACCOUNTANTS Deloitte & Touche LLP 125 Summer Street Boston,
MA 02110-1617

PROSPECTUS

Federated Growth Strategies Fund II

A Portfolio of Federated Insurance Series

A mutual fund seeking capital appreciation by investing primarily in growth
equity securities.

APRIL 20, 1999

CONTENTS

Risk/Return Summary 1

What are the Fund's Investment Strategies? 2

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

What are the Specific Risks of Investing in the Fund? 3

What Do Shares Cost? 4

How is the Fund Sold? 4

How to Purchase and Redeem Shares 5

Account and Share Information 5

Who Manages the Fund? 5

Financial Information 6

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 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 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
1 Year 17.44% 28.58% 25.69%
Start of Performance 1 22.85% 29.06% 23.06%

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

RISKS RELATED TO COMPANY SIZE

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.

What Do Shares Cost?

How is the Fund Sold?

How to Purchase and Redeem Shares

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

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

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

Account and Share Information

DIVIDENDS

The Fund declares and pays any dividends annually.

Shares of the Fund will begin earning dividends if owned on the record date.
Dividends of the Fund are automatically reinvested in additional Shares.

TAX INFORMATION

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

Who Manages the Fund?

THE FUND'S PORTFOLIO MANAGERS ARE:

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 investment
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
investment 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.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.75% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses. For the fiscal year ended
December 31, 1998, the Fund's adviser earned 0.44% of the Fund's average net
assets.

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 Fund, that rely on computers.

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

Financial Information

FINANCIAL HIGHLIGHTS

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

This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.

Financial Highlights

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
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.

[Graphic]
Federated
World-Class Investment Manager
PROSPECTUS

Federated Growth Strategies Fund II

A Portfolio of Federated Insurance Series

APRIL 20, 1999

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

[Graphic]
Federated
Federated Growth Strategies Fund II
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 313916702

G01283-01 (4/99)

[Graphic]

STATEMENT OF ADDITIONAL INFORMATION

Federated Growth Strategies Fund II

A Portfolio of Federated Insurance Series

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Growth Strategies Fund II
(Fund), dated April 20, 1999. This SAI incorporates by reference the Fund's
Annual Report. Obtain the prospectus or the Annual Report without charge by
calling 1-800-341-7400.

APRIL 20, 1999

[Graphic]
Federated
World-Class Investment Manager
Federated Growth Strategies Fund II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor

G01283-02 (4/99)

[Graphic]

CONTENTS

How is the Fund Organized? 1

Securities in Which the Fund Invests 1

What Do Shares Cost? 8

Mixed Funding and Shared Funding 8

How is the Fund Sold? 9

Subaccounting Services 9

Redemption in Kind 9

Massachusetts Partnership Law 9

Account and Share Information 10

Tax Information 10

Who Manages and Provides Services to the Fund? 11

How Does the Fund Measure Performance? 14

Who is Federated Investors, Inc.? 16

Financial Information 17

Investment Ratings 17

Addresses 19

How is the Fund Organized?

The Fund is a diversified portfolio of Federated Insurance Series (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 15, 1993. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities. The Trust changed its name from Insurance Management
Series to Federated Insurance Series on November 14, 1995. The Fund changed its
name from Growth Stock Fund to Federated Growth Strategies Fund II on February
26, 1996.

The Fund's investment adviser is Federated Investment Management Company
(Adviser). The Adviser, formerly known as Federated Advisers, changed its name
effective March 31, 1999.

Securities in Which the Fund Invests

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

EQUITY SECURITIES

COMMON STOCKS

PREFERRED STOCKS

INTERESTS IN OTHER LIMITED LIABILITY COMPANIES

Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.

WARRANTS

FIXED INCOME 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

CORPORATE DEBT SECURITIES

COMMERCIAL PAPER

DEMAND INSTRUMENTS

ZERO COUPON SECURITIES

There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. In addition, some securities give
the issuer the option to deliver additional securities in place of cash interest
payments, thereby increasing the amount payable at maturity. These are referred
to as pay-in-kind or PIK securities.

CONVERTIBLE SECURITIES

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.

HEDGING

DERIVATIVE CONTRACTS

The Fund may trade in the following types of derivative contracts:

FUTURES CONTRACTS

The Fund may buy and sell the following types of futures contracts: financial
futures contracts and stock index futures contracts.

OPTIONS

The Fund may:

* buy call options on securities, securities indices and financial futures
contracts in anticipation of an increase in value of the underlying asset;

* buy put options on securities, securities indices and financial futures
contracts in anticipation of a decrease in the value of the underlying
asset; and

* buy or write options to close out existing positions.

The Fund may also write call options on securities, securities indices and
financial futures contracts to generate income from premiums, and in
anticipation of a decrease or only limited increase in the value of the
underlying asset. If a call written by the Fund is exercised, the Fund foregoes
any possible profit from an increase in the market price of the underlying asset
over the exercise price plus the premium received.

The Fund may also write put options on securities to generate income from
premiums, and in anticipation of an increase or only limited decrease in the
value of the underlying asset. In writing puts, there is a risk that the Fund
may be required to take delivery of the underlying asset when its current market
price is lower than the exercise price.

When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.

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. The foreign securities underlying European Depositary Receipts
(EDRs), Global Depositary Receipts (GDRs) and International Depositary Receipts
(IDRs), are traded globally or outside the United States. Depositary receipts
involve many of the same risks of investing directly in foreign securities,
including currency risks and risks of foreign investing.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS

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.

SECURITIES LENDING

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Securities lending activities are subject to market risks and credit risks.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.

EQUITY SECURITIES INVESTMENT RISKS

STOCK MARKET RISKS

RISKS RELATED TO INVESTING FOR GROWTH

SECTOR RISK

RISKS RELATED TO COMPANY SIZE

RISKS OF INVESTING IN AMERICAN DEPOSITARY RECEIPTS

LIQUIDITY RISKS

OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

CREDIT RISKS

FIXED INCOME SECURITIES INVESTMENT RISKS

INTEREST RATE RISKS

Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed imcome 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 affect 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 RISK

Credit risk is the possibility that an issuer will default (the issuer fails to
repay interest and 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 the security and
the yield of a U.S. Treasury security with a comparable maturity (the "spread")
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.

CALL RISK

CURRENCY RISKS

PREPAYMENT RISKS

Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate mortgages
when mortgage rates fall. This results in the prepayment of mortgage backed
securities with higher interest rates. Conversely, prepayments due to
refinancings decrease when mortgage rates increase. This extends the life of
mortgage backed securities with lower interest rates. Other economic factors can
also lead to increases or decreases in prepayments. Increases in prepayments of
high interest rate mortgage backed securities, or decreases in prepayments of
lower interest rate mortgage backed securities, may reduce their yield and
price. These factors, particularly the relationship between interest rates and
mortgage prepayments makes the price of mortgage backed securities more volatile
than many other types of fixed income securities with comparable credit risks.

Mortgage backed securities generally compensate for greater prepayment risk by
paying a higher yield. The difference between the yield of a mortgage backed
security and the yield of a U.S. Treasury security with a comparable maturity
(the spread) measures the additional interest paid for risk. Spreads may
increase generally in response to adverse economic or market conditions. A
security's spread may also increase if the security is perceived to have an
increased prepayment risk or perceived to have less market demand. An increase
in the spread will cause the price of the security to decline.

The Fund may have to reinvest the proceeds of mortgage prepayments in other
fixed income securities with lower interest rates, higher prepayment risks, or
other less favorable characteristics.

LIQUIDITY RISKS

OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns and
financial setbacks may affect their prices more negatively, and their trading
market may be more limited.

LEVERAGE RISK

VARIABLE ASSET REGULATIONS

The Fund is also subject to variable contract asset regulations prescribed by
the U.S. Treasury Department under Section 817(h) of the Internal Revenue Code.
After a one year start-up period, the regulations generally require that, as of
the end of each calendar quarter or within 30 days thereafter, no more than 55%
of the total assets of the Fund may be represented by any one investment, no
more than 70% of the total assets of the Fund may be represented by any two
investments, no more than 80% of the total assets of the Fund may be represented
by any three investments, and no more than 90% of the total assets of the Fund
may be represented by any four investments. In applying these diversification
rules, all securities of the same issuer, all interests in the same real
property project, and all interests in the same commodity are each treated as a
single investment. In the case of government securities, each government agency
or instrumentality shall be treated as a separate issuer. If the Fund fails to
achieve the diversification required by the regulations, unless relief is
obtained from the Internal Revenue Service, the contracts invested in the Fund
will not be treated as annuity, endowment, or life insurance contracts.

STATE INSURANCE REGULATIONS

The Fund is intended to be a funding vehicle for variable annuity contracts and
variable life insurance policies offered by certain insurance companies. The
contracts will seek to be offered in as many jurisdictions as possible. Certain
states have regulations concerning, among other things, the concentration of
investments, sales and purchases of futures contracts, and short sales of
securities. If applicable, the Fund may be limited in its ability to engage in
such investments and to manage its portfolio with desired flexibility. The Fund
will operate in material compliance with the applicable insurance laws and
regulations of each jurisdiction in which contracts will be offered by the
insurance companies which invest in the Fund.

INVESTMENT LIMITATIONS

SELLING SHORT

The Fund will not sell securities short unless at all times when a short
position is open, it owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further consideration,
for securities of the same issuer as, and equal in amount to, the securities
sold short; and unless not more than 10% of the value of the Fund's net assets
(taken at current value) is held as collateral for such sales at any one time.

BUYING ON MARGIN

The Fund will not purchase any securities on margin but may obtain such
short-term credits as may be necessary for the clearance of transactions and may
make margin payments in connection with buying financial futures, put options on
stock index futures, and put options on financial futures.

ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Fund will not issue senior securities, except as permitted by its investment
objective and policies, and except that the Fund may borrow money and engage in
reverse repurchase agreements only in amounts up to one-third of the value of
its net assets, including the amounts borrowed. The Fund will not borrow money
or engage in reverse repurchase agreements for investment leverage, but rather
as a temporary, extraordinary, or emergency measure, or to facilitate management
of the portfolio by enabling the Fund to meet redemption requests where the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while any such
borrowings (including reverse repurchase agreements) are outstanding.

PLEDGING ASSETS

The Fund will not mortgage, pledge, or hypothecate any assets, except to secure
permitted borrowings. In those cases, it may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 10% of the value of
total assets at the time of the borrowing.

CONCENTRATION OF INVESTMENTS

The Fund will not purchase securities if, as a result of such purchase, 25% or
more of the value of its total assets would be invested in any one industry.
However, the Fund may at times invest 25% or more of the value of its total
assets in cash or cash items (not including certificates of deposit), securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
or repurchase agreements secured by such instruments.

INVESTING IN COMMODITIES

The Fund will not purchase or sell commodities. The Fund reserves the right to
purchase financial futures and put options on stock index futures and on
financial futures.

INVESTING IN REAL ESTATE

The Fund will not purchase or sell real estate, although it may invest in the
securities of companies whose business involves the purchase or sale of real
estate, or in securities which are secured by real estate or interests in real
estate.

LENDING CASH OR SECURITIES

The Fund will not lend any of its assets except portfolio securities. This shall
not prevent the purchase or holding of corporate or government bonds,
debentures, notes, certificates of indebtedness, or other debt securities of an
issuer, repurchase agreements, or other transactions which are permitted by the
Fund's investment objective and policies or Declaration of Trust.

UNDERWRITING

DIVERSIFICATION OF INVESTMENTS

The Fund will not purchase the securities of any issuer (other than securities
of the U.S. government, its agencies or instrumentalities, or instruments
secured by securities of such issuers, such as repurchase agreements) if, as a
result, more than 5% of the value of its total assets would be invested in the
securities of such issuer or acquire more than 10% of any class of voting
securities of any issuer. For these purposes, the Fund takes all common stock
and all preferred stock of an issuer each as a single class, regardless of
priorities, series, designations or other differences.

INVESTING IN ILLIQUID SECURITIES

The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for settlement in
more than seven days after notice and certain restricted securities not
determined by the Trustees to be liquid.

WRITING COVERED CALL OPTIONS

ACQUIRING SECURITIES

The Fund will not purchase securities of a company for the purpose of exercising
control or management. However, the Fund may invest in up to 10% of the voting
securities of any one issuer and may exercise its voting powers consistent with
the best interests of the Fund. In addition, the Fund, other companies advised
by the Fund's investment adviser, and other affiliated companies may together
buy and hold substantial amounts of voting stock of a company and may vote
together in regard to such company's affairs. In some such cases, the Fund and
its affiliates might collectively be considered to be in control of such
company. In some cases, Trustees and other persons associated with the Fund and
its affiliates might possibly become directors of companies in which the Fund
holds stock.

INVESTING IN RESTRICTED AND ILLIQUID SECURITIES

The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities law. Under criteria established by the Trustees, certain restricted
securities are determined to be liquid. To the extent that restricted securities
are not determined to be liquid the Fund will limit their purchase, together
with other illiquid securities, to 15% of its net assets.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

* for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;

* in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;

* for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;

* futures contracts and options are valued at market values established by the
exchanges on which they are traded at the close of trading on such exchanges.
Options traded in the over-the-counter market are valued according to the mean
between the last bid and the last asked price for the option as provided by an
investment dealer or other financial institution that deals in the option. The
Board may determine in good faith that another method of valuing such
investments is necessary to appraise their fair market value.

* for all other securities, at fair value as determined in good faith by
the Board.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.

TRADING IN FOREIGN SECURITIES

What Do Shares Cost?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.

Mixed Funding and Shared Funding

How is the Fund Sold?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

SHAREHOLDER SERVICES

SUPPLEMENTAL PAYMENTS

Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.

Subaccounting Services

Redemption in Kind

Massachusetts Partnership Law

Account and Share Information

VOTING RIGHTS

As of March 23, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Aetna Retirement Services 61286272-0,
Hartford, CT owned approximately 1,955,346 shares (55.25%); and Aetna Retirement
Services 710294708-0, Hartford, CT owned
approximately 1,524,083 shares (43.07%).

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

Tax Information

FEDERAL INCOME TAX

FOREIGN INVESTMENTS

Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.

Who Manages and Provides Services to the Fund?

BOARD OF TRUSTEES

The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of eight
funds and The Federated Fund Complex is comprised of 54 investment companies,
whose investment advisers are affiliated with the Fund's Adviser.

As of March 23, 1999, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.

<TABLE>
<CAPTION>
NAME Total
BIRTH DATE Aggregate Compensation
ADDRESS Principal Occupations Compensation From Trust
POSITION WITH TRUST for Past 5 Years From Trust** and Fund Complex
<S> <C> <C> <C>
John F. Donahue*+ Chief Executive Officer and Director or Trustee of $0 $0 for the Trust and
Birth Date: July 28, 1924 the Federated Fund Complex; Chairman and Director, 54 other investment
Federated Investors Tower Federated Investors, Inc.; Chairman and Trustee, companies in the
1001 Liberty Avenue Federated Investment Management Company; Chairman Fund Complex
Pittsburgh, PA and Director, Federated Investment Counseling and
CHAIRMAN AND TRUSTEE Federated Global Investment Management Corp.;
Chairman, Passport Research, Ltd.

THOMAS G. BIGLEY Director or Trustee of the Federated Fund Complex; $1,591.19 $113,860.22 for the
Birth Date: February 3, 1934 Director, Member of Executive Committee, Children's Trust and 54 other
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior Partner, investment companies
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group, Inc.; in the Fund Complex
TRUSTEE Director, Member of Executive Committee, University
of Pittsburgh.

JOHN T. CONROY, JR. Director or Trustee of the Federated Fund Complex; $1,750.56 $125,264.48 for the
Birth Date: June 23, 1937 President, Investment Properties Corporation; Senior Trust and 54 other
Wood/IPC Commercial Dept. Vice President, John R. Wood and Associates, Inc., investment companies
John R. Wood Associates, Inc. Realtors; Partner or Trustee in private real estate in the Fund Complex
Realtors ventures in Southwest Florida; formerly: President,
3255 Tamiami Trial North Naples Property Management, Inc. and Northgate
Naples, FL Village Development Corporation.
TRUSTEE

NICHOLAS P. CONSTANTAKIS Director or Trustee of the Federated Fund Complex; $1,591.19 $47,958.02 for the
Birth Date: September 3, 1939 formerly: Partner, Andersen Worldwide SC. Trust and 29 other
175 Woodshire Drive investment companies
Pittsburgh, PA in the Fund Complex
TRUSTEE

WILLIAM J. COPELAND Director or Trustee of the Federated Fund Complex; $1,750.56 $125,264.48 for the
Birth Date: July 4, 1918 Director and Member of the Executive Committee, Trust and 54 other
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman and investment companies
Pittsburgh, PA Director, PNC Bank, N.A. and PNC Bank Corp.; in the Fund Complex
TRUSTEE Director, Ryan Homes, Inc.
Previous Positions: Director, United Refinery;
Director, Forbes Fund; Chairman, Pittsburgh
Foundation; Chairman, Pittsburgh Civic Light Opera.

JAMES E. DOWD, ESQ. Director or Trustee of the Federated Fund Complex; $1,750.56 $125,264.48 for the
Birth Date: May 18, 1922 Attorney-at-law; Director, The Emerging Germany Trust and 54 other
571 Hayward Mill Road Fund, Inc. investment companies
Concord, MA Previous Positions: President, Boston Stock Exchange, in the Fund Complex
TRUSTEE Inc.; Regional Administrator, United States
Securities and Exchange Commission.

LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund Complex; $1,591.19 $113,860.22 for the
Birth Date: October 11, 1932 Professor of Medicine, University of Pittsburgh; Trust and 54 other
3471 Fifth Avenue Medical Director, University of Pittsburgh Medical investment companies
Suite 1111 Center - Downtown; Hematologist, Oncologist, and in the Fund Complex
Pittsburgh, PA Internist, University of Pittsburgh Medical Center;
TRUSTEE Member, National Board of Trustees, Leukemia Society
of America.

EDWARD L. FLAHERTY, JR., ESQ. # Director or Trustee of the Federated Fund Complex; $1,750.56 $125,264.48 for the
Birth Date: June 18, 1924 Attorney of Counsel, Miller, Ament, Henny & Kochuba; Trust and 54 other
Miller, Ament, Henny & Kochuba Director Emeritus, investment companies
205 Ross Street Eat'N Park Restaurants, Inc.; formerly: Counsel, in the Fund Complex
Pittsburgh, PA Horizon Financial, F.A., Western Region; Partner,
TRUSTEE Meyer and Flaherty.

<CAPTION>
NAME Total
BIRTH DATE Aggregate Compensation
ADDRESS Principal Occupations Compensation From Trust
POSITION WITH TRUST for Past 5 Years From Trust** and Fund Complex
<S> <C> <C> <C>
PETER E. MADDEN Director or Trustee of the Federated Fund Complex; $1,591.19 $113,860.22 for the
Birth Date: March 16, 1942 formerly: Representative, Commonwealth of Trust and 54 other
One Royal Palm Way Massachusetts General Court; President, State Street investment companies
100 Royal Palm Way Bank and Trust Company and State Street Corporation. in the Fund Complex
Palm Beach, FL Previous Positions: Director, VISA USA and VISA
TRUSTEE International; Chairman and Director, Massachusetts
Bankers Association; Director, Depository Trust
Corporation.

JOHN E. MURRAY, JR., J.D., S.J.D. Director or Trustee of the Federated Fund Complex; $1,591.19 $113,860.22 for the
Birth Date: December 20, 1932 President, Law Professor, Duquesne University; Trust and 54 other
President, Duquesne University Consulting Partner, Mollica & Murray. investment companies
Pittsburgh, PA Previous Positions: Dean and Professor of Law, in the Fund Complex
TRUSTEE University of Pittsburgh School of Law; Dean and
Professor of Law, Villanova University School of
Law.

WESLEY W. POSVAR Director or Trustee of the Federated Fund Complex; $1,591.19 $113,860.22 for the
Birth Date: September 14, 1925 President, World Society of Ekistics (metropolitan Trust and 54 other
1202 Cathedral of Learning planning), Athens; Professor, International investment companies
University of Pittsburgh Politics; Management Consultant; Trustee, Carnegie in the Fund Complex
Pittsbugh, PA Endowment for International Peace, RAND Corporation,
TRUSTEE Online Computer Library Center, Inc., National
Defense University and U.S. Space Foundation;
President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for
Environmental Policy and Technology, Federal
Emergency Management Advisory Board; Trustee, Czech
Management Center, Prague.
Previous Positions: Professor, United States Military
Academy; Professor, United States Air Force Academy.

MARJORIE P. SMUTS Director or Trustee of the Federated Fund Complex; $1,591.19 $113,860.22 for the
Birth Date: June 21, 1935 Public Relations/Marketing/Conference Planning. Trust and 54 other
4905 Bayard Street Previous Positions: National Spokesperson, Aluminum investment companies
Pittsburgh, PA Company of America; business owner. in the Fund Complex
TRUSTEE

JOHN S. WALSH++ Director or Trustee of some of the Federated Funds; $0 $0 for the Trust and
Birth Date: November 28, 1957 President and Director, Heat Wagon, Inc.; President 23 other investment
2007 Sherwood Drive and Director, Manufacturers Products, Inc.; companies in the
Valparaiso, IN President, Portable Heater Parts, a division of Fund Complex
TRUSTEE Manufacturers Products, Inc.; Director, Walsh &
Kelly, Inc.; formerly: Vice President, Walsh &
Kelly, Inc.

J. CHRISTOPHER DONAHUE+* President or Executive Vice President of the $0 $0 for the Trust and
Birth Date: April 11, 1949 Federated Fund Complex; Director or Trustee of some 16 other investment
Federated Investors Tower of the Funds in the Federated Fund Complex; companies in the
1001 Liberty Avenue President and Director, Federated Investors, Inc.; Fund Complex
Pittsburgh, PA President and Trustee, Federated Investment
PRESIDENT AND TRUSTEE Management Company; President and Director,
Federated Investment Counseling and Federated Global
Investment Management Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder
Services Company; Director, Federated Services
Company.

EDWARD C. GONZALES Trustee or Director of some of the Funds in the $0 $0 for the Trust and
Birth Date: October 22, 1930 Federated Fund Complex; President, Executive Vice 1 other investment
Federated Investors Tower President and Treasurer of some of the Funds in the company in the
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated Fund Complex
Pittsburgh, PA Investors, Inc.; Vice President, Federated
EXECUTIVE VICE PRESIDENT Investment Management Company and Federated
Investment Counseling, Federated Global Investment
Management Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated
Securities Corp.; Trustee, Federated Shareholder
Services Company.

JOHN W. MCGONIGLE Executive Vice President and Secretary of the $0 $0 for the Trust and
Birth Date: October 26, 1938 Federated Fund Complex; Executive Vice President, 54 other investment
Federated Investors Tower Secretary, and Director, Federated Investors, Inc.; companies in the
1001 Liberty Avenue Trustee, Federated Investment Management Company; Fund Complex
Pittsburgh, PA Director, Federated Investment Counseling and
EXECUTIVE VICE PRESIDENT Federated Global Investment Management Corp.;
AND SECRETARY Director, Federated Services Company; Director,
Federated Securities Corp.

RICHARD J. THOMAS Treasurer of the Federated Fund Complex; Vice $0 $0 for the Trust and
Birth Date: June 17, 1954 President-Funds Financial Services Division, 54 other investment
Federated Investors Tower Federated Investors, Inc.; formerly: various companies in the
1001 Liberty Avenue management positions within Funds Financial Services Fund Complex
Pittsburgh, PA Division of Federated Investors, Inc.
TREASURER

<CAPTION>
NAME Total
BIRTH DATE Aggregate Compensation
ADDRESS Principal Occupations Compensation From Trust
POSITION WITH TRUST for Past 5 Years From Trust** and Fund Complex
<S> <C> <C> <C>
RICHARD B. FISHER President or Vice President of some of the Funds in $0 $0 for the Trust and
Birth Date: May 17, 1923 the Federated Fund Complex; Director or Trustee of 6 other investment
Federated Investors Tower some of the Funds in the Federated Fund Complex; companies in the
1001 Liberty Avenue Executive Vice President, Federated Investors, Inc.; Fund Complex
Pittsburgh, PA Chairman and Director, Federated Securities Corp.
VICE PRESIDENT

HENRY A. FRANTZEN Chief Investment Officer of this Fund and various $0 $0 for the Trust and
Birth Date: November 28, 1942 other Funds in the Federated Fund Complex; Executive 3 other investment
Federated Investors Tower Vice President, Federated Investment Counseling, companies in the
1001 Liberty Avenue Federated Global Investment Management Corp., Fund Complex
Pittsburgh, PA Federated Investment Management Company and Passport
CHIEF INVESTMENT OFFICER Research, Ltd.; Registered Representative, Federated
Securities Corp.; Vice President, Federated
Investors, Inc.; formerly: Executive Vice
President, Federated Investment Counseling
Institutional Portfolio Management Services
Division; Chief Investment Officer/Manager,
International Equities, Brown Brothers
Harriman & Co.; Managing Director, BBH
Investment Management Limited.

WILLIAM D. DAWSON, III Chief Investment Officer of this Fund and various $0 $0 for the Trust and
Birth Date: March 3, 1949 other Funds in the Federated Fund Complex; Executive 41 other investment
Federated Investors Tower Vice President, Federated Investment Counseling, companies in the
1001 Liberty Avenue Federated Global Investment Management Corp., Fund Complex
Pittsburgh, PA Federated Investment Management Company and Passport
CHIEF INVESTMENT OFFICER Research, Ltd.; Registered Representative, Federated
Securities Corp.; Portfolio Manager,
Federated Administrative Services; Vice
President, Federated Investors, Inc.;
formerly: Executive Vice President and
Senior Vice President, Federated Investment
Counseling Institutional Portfolio
Management Services Division; Senior Vice
President, Federated Investment Management
Company and Passport Research, Ltd.

J. THOMAS MADDEN Chief Investment Officer of this Fund and various $0 $0 for the Trust and
Birth Date: October 22, 1945 other Funds in the Federated Fund Complex; Executive 12 other investment
Federated Investors Tower Vice President, Federated Investment Counseling, companies in the
1001 Liberty Avenue Federated Global Investment Management Corp., Fund Complex
Pittsburgh, PA Federated Investment Management Company and Passport
CHIEF INVESTMENT OFFICER Research, Ltd.; Vice President, Federated Investors,
Inc.; formerly: Executive Vice President and
Senior Vice President, Federated Investment
Counseling Institutional Portfolio
Management Services Division; Senior Vice
President, Federated Investment Management
Company and Passport Research, Ltd.
</TABLE>

+ Mr. Donahue is the father of J. Christopher Donahue, President and
Trustee of the Trust.

** The aggregate compensation is provided for the Trust which is comprised of
eight portfolios.

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly owned subsidiary of Federated.

OTHER RELATED SERVICES

BROKERAGE TRANSACTIONS

RESEARCH SERVICES

ADMINISTRATOR

MAXIMUM AVERAGE AGGREGATE DAILY ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED
FUNDS 0.150 of 1% on the first $250 million 0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million 0.075 of 1% on assets in excess of $750
million

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

INDEPENDENT PUBLIC ACCOUNTANTS

Deloitte and Touche LLP is the independent public accountant for the Fund.

FEES PAID BY THE FUND FOR SERVICES

FOR THE YEAR ENDED DECEMBER 31 1998 1997 1996
Advisory Fee Earned $404,516 $245,993 $ 51,083
Advisory Fee Reduction 167,071 168,091 51,083
Brokerage Commissions 110,394 100,717 26,305
Administrative Fee 125,000 125,002 125,000
12B-1 FEE NA
SHAREHOLDER SERVICES FEE NA

How Does the Fund Measure Performance?

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns given for the one-year and start of performance periods ended
December 31, 1998.

Yield given for the 30-day period ended December 31, 1998.

30-DAY START OF PERFORMANCE
PERIOD 1 YEAR ON NOVEMBER 9, 1995
Total Return NA 17.44% 22.85%
Yield NA NA NA

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

YIELD

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;

* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and

* information about the mutual fund industry from sources such as the Investment
Company Institute.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

LIPPER ANALYTICAL SERVICES, INC.

Lipper Analytical Services, Inc., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time. From
time to time, the Fund will quote its Lipper ranking in the "growth funds"
category in advertising and sales literature.

DOW JONES INDUSTRIAL AVERAGE

Dow Jones Industrial Average is an unmanaged index representing share prices of
major industrial corporations, public utilities, and transportation companies.
Produced by the Dow Jones & Company, it is cited as a principal indicator of
market conditions.

STANDARD & POOR'S ("S&P") LOW-PRICED INDEX

Standard & Poor's ("S&P") Low-Priced Index compares a group of approximately 20
actively traded stocks priced under $25 for one-month periods and year-to-date.

STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS

Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a composite
index of common stocks in industry, transportation and financial and public
utility companies, can be used to compare to the total returns of funds whose
portfolios are invested primarily in common stocks. In addition, the S&P index
assumes reinvestments of all dividends paid by stocks listed on its index. Taxes
due on any of these distributions are not included, nor are brokerage or other
fees calculated in the S&P figures.

STANDARD & POOR'S 500

Standard & Poor's 500 is an unmanaged index of common stocks in industry,
transportation, finance and public utilities denoting general market
performance, as monitored by S&P Corporation.

LIPPER GROWTH FUND AVERAGE

Lipper Growth Fund Average is an average of the total returns for 251 growth
funds tracked by Lipper Analytical Services, Inc., and independent mutual fund
rating service.

LIPPER GROWTH FUND INDEX

Lipper Growth Fund Index is an average of the net asset-valuated total returns
for the top 30 growth funds tracked by Lipper Analytical Services, Inc., an
independent mutual fund rating service.

MORNINGSTAR, INC.

Who is Federated Investors, Inc.?

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

EQUITY FUNDS

CORPORATE BOND FUNDS

GOVERNMENT FUNDS

MONEY MARKET FUNDS

MUTUAL FUND MARKET

FEDERATED CLIENTS OVERVIEW

Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

INSTITUTIONAL CLIENTS

BANK MARKETING

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Financial Information

The Financial Statements for the Fund for the fiscal year ended December 31,
1998 are incorporated herein by reference to the Annual Report to Shareholders
of Federated Growth Strategies Fund II dated December 31, 1998.

Investment Ratings

STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS

AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

BB-Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.

CCC-Debt rated CCC has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-rating.

CC-The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.

C-The rating C typically is applied to debt subordinated to senior debt which is
assigned an actual or implied CCC-debt rating. The C rating may be used to cover
a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS

CAA-Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA-Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C-Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS

CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C-Bonds are imminent default in payment of interest or principal.

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS

* Leading market positions in well established industries.

* High rates of return on funds employed.

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

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

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

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

A-2-Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.

FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS

FITCH-1-(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.

FITCH-2-(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.

Addresses

FEDERATED GROWTH STRATEGIES FUND II Federated Investors Funds 5800 Corporate
Drive Pittsburgh, PA 15237-7000

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

INVESTMENT ADVISER

Federated Investment Management Company

Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

INDEPENDENT PUBLIC ACCOUNTANTS Deloitte & Touche LLP 125 Summer Street Boston,
MA 02110-1617

PROSPECTUS

Federated High Income Bond Fund II

A Portfolio of Federated Insurance Series

A mutual fund seeking high current income by investing primarily in a
professionally managed, diversified portfolio of fixed income securities.

APRIL 20, 1999

CONTENTS

Risk/Return Summary 1

What are the Fund's Investment Strategies? 2

What are the Principal Securities in Which the Fund Invests? 2

What are the Specific Risks of Investing in the Fund? 3

What Do Shares Cost? 4

How is the Fund Sold? 4

How to Purchase and Redeem Shares 5

Account and Share Information 5

Who Manages the Fund? 5

Financial Information 6

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
1 Year 2.70% 1.28% (0.44%)
Start of Performance 1 9.49% 8.49% 7.14%

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.

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 is the Fund Sold?

How to Purchase and Redeem Shares

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

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

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

Account and Share Information

DIVIDENDS

The Fund declares and pays any dividends annually.

Shares of the Fund will begin earning dividends if owned on the record date.
Dividends of the Fund are automatically reinvested in additional Shares.

TAX INFORMATION

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

Who Manages the Fund?

THE FUND'S PORTFOLIO MANAGERS ARE:

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
investment 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 Investors, Inc. or its
predecessor in 1994 as an Investment Analyst and has been a Vice President
of the Fund's investment adviser since 1999. He served as an Assistant Vice
President of the Fund's investment 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.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.60% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses. For the fiscal year ended
December 31, 1998, the Fund's adviser earned 0.60% of the Fund's average net
assets.

YEAR 2000 READINESS

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

Financial Information

FINANCIAL HIGHLIGHTS

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

This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.

Financial Highlights

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
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.

[Graphic]
Federated
World-Class Investment Manager
PROSPECTUS

Federated High Income Bond Fund II

A Portfolio of Federated Insurance Series

APRIL 20, 1999

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

[Graphic]
Federated
Federated High Income Bond Fund II
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

3113009A (4/99)

[Graphic]

STATEMENT OF ADDITIONAL INFORMATION

Federated High Income Bond Fund II

A Portfolio of Federated Insurance Series

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated High Income Bond Fund II
(Fund), dated April 20, 1999. This SAI incorporates by reference the Fund's
Annual Report. Obtain the prospectus or the Annual Report without charge by
calling 1-800-341-7400.

APRIL 20, 1999

[Graphic]
Federated
World-Class Investment Manager
Federated High Income Bond Fund II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor

3113009B (4/99)

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CONTENTS

How is the Fund Organized? 1

Securities in Which the Fund Invests 1

What do Shares Cost? 7

Mixed Funding and Shared Funding 7

How is the Fund Sold? 7

Subaccounting Services 7

Redemption in Kind 7

Massachusetts Partnership Law 8

Account and Share Information 8

Tax Information 8

Who Manages and Provides Services to the Fund? 9

How Does the Fund Measure Performance? 12

Who is Federated Investors, Inc.? 14

Financial Information 15

Investment Ratings 15

Addresses 17

How is the Fund Organized?

The Fund is a diversified portfolio of Federated Insurance Series (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 15, 1993. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities. The Trust changed its name from Insurance Management
Series to Federated Insurance Series on November 14, 1995. The Fund changed its
name from Corporate Bond Fund to Federated High Income Bond Fund II on February
26, 1996.

The Fund's investment adviser is Federated Investment Management Company
(Adviser). The Adviser, formerly known as Federated Advisers, changed its name
effective March 31, 1999.

Securities in Which the Fund Invests

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

The following describes the additional types of securities in which the Fund
invests.

FIXED INCOME SECURITIES

A security's current yield measures the annual income earned on a security as a
percentage of its price. 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. If the issuer may redeem the security before its
scheduled maturity, the price and yield on a discount or premium security may
change based upon the probability of an early redemption. Securities with higher
risks generally have higher yields.

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

TREASURY SECURITIES

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

AGENCY SECURITIES

ASSET BACKED SECURITIES

Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities have prepayment
risks. Like CMOs, asset backed securities may be structured like Floaters,
Inverse Floaters, IOs and POs.

ZERO COUPON SECURITIES

Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. Investors must wait until maturity to receive
interest and principal, which increases the market and credit risks of a zero
coupon security. A zero coupon step-up security converts to a coupon security
before final maturity. The difference between the purchase price and amount paid
at maturity represents interest on the zero coupon security.

BANK INSTRUMENTS

PREFERRED STOCKS

CORPORATE DEBT SECURITIES

COMMERCIAL PAPER

DEMAND INSTRUMENTS

CONVERTIBLE SECURITIES

The Fund treats convertible securities as fixed income securities for purposes
of its investment policies and limitations.

EQUITY SECURITIES

COMMON STOCKS

INTERESTS IN OTHER LIMITED LIABILITY COMPANIES

Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.

REAL ESTATE INVESTMENT TRUSTS (REITS)

WARRANTS

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 primarily denominated in foreign currencies. The Fund,
however, intends to invest predominantly in foreign securities which are
denominated in U.S. dollars. 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.

DEPOSITARY RECEIPTS

Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs) and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS

DELAYED DELIVERY TRANSACTIONS

SECURITIES LENDING

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Securities lending activities are subject to market risks and credit risks.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

ASSET COVERAGE

In order to secure its obligations in connection with special transactions, the
Fund will either own the underlying assets, enter into an offsetting transaction
or set aside readily marketable securities with a value that equals or exceeds
the Fund's obligations. Unless the Fund has other readily marketable assets to
set aside, it cannot trade assets used to secure such obligations 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 special transactions.

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.

FIXED INCOME RISKS

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.

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.

INTEREST RATE RISKS

LIQUIDITY RISKS

RISKS RELATED TO THE ECONOMY

* The prices of high-yield securities are affected by investor sentiment. 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.

LEVERAGE RISKS

EQUITY RISKS

STOCK MARKET RISKS

* The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities.

LIQUIDITY RISKS

CALL 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.

VARIABLE ASSET REGULATIONS

The Fund is also subject to variable contract asset regulations prescribed by
the U.S. Treasury Department under Section 817(h) of the Internal Revenue Code.
After a one year start-up period, the regulations generally require that, as of
the end of each calendar quarter or within 30 days thereafter, no more than 55%
of the total assets of the Fund may be represented by any one investment, no
more than 70% of the total assets of the Fund may be represented by any two
investments, no more than 80% of the total assets of the Fund may be represented
by any three investments, and no more than 90% of the total assets of the Fund
may be represented by any four investments. In applying these diversification
rules, all securities of the same issuer, all interests in the same real
property project, and all interests in the same commodity are each treated as a
single investment. In the case of government securities, each government agency
or instrumentality shall be treated as a separate issuer. If the Fund fails to
achieve the diversification required by the regulations, unless relief is
obtained from the Internal Revenue Service, the contracts invested in the Fund
will not be treated as annuity, endowment, or life insurance contracts.

STATE INSURANCE REGULATIONS

The Fund is intended to be a funding vehicle for variable annuity contracts and
variable life insurance policies offered by certain insurance companies. The
contracts will seek to be offered in as many jurisdictions as possible. Certain
states have regulations concerning, among other things, the concentration of
investments, sales and purchases of futures contracts, and short sales of
securities. If applicable, the Fund may be limited in its ability to engage in
such investments and to manage its portfolio with desired flexibility. The Fund
will operate in material compliance with the applicable insurance laws and
regulations of each jurisdiction in which contracts will be offered by the
insurance companies which invest in the Fund.

INVESTMENT LIMITATIONS

SELLING SHORT AND BUYING ON MARGIN

ISSUING SENIOR SECURITIES AND BORROWING MONEY

PLEDGING ASSETS

CONCENTRATION OF INVESTMENTS

INVESTING IN COMMODITIES

The Fund will not purchase or sell commodities, commodity contracts or commodity
futures contracts.

INVESTING IN REAL ESTATE

LENDING CASH OR SECURITIES

UNDERWRITING

DIVERSIFICATION OF INVESTMENTS

With respect to 75% of its total assets, the Fund will not purchase the
securities of any one issuer (other than cash, cash items or securities issued
and/or guaranteed by the U.S. government, its agencies or instrumentalities and
repurchase agreements collateralized by such securities) if, as a result, more
than 5% of its total assets would be invested in the securities of that issuer.
Also, the Fund will not purchase more than 10% of any class of the outstanding
voting securities of any one issuer. For these purposes, the Fund considers
common stock and all preferred stock of an issuer each as a single class,
regardless of priorities, series, designations or other differences.

INVESTING IN RESTRICTED AND ILLIQUID SECURITIES

The Fund will not invest more than 15% of its total assets in illiquid
securities, including repurchase agreements providing for settlement in more
than seven days after notice and certain restricted securities not determined to
be liquid under criteria established by the Trustees.

For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."

Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction. The Fund did not borrow money, sell securities short or invest in
reverse repurchase agreements in excess of 5% of the value of its total assets
during the last fiscal year and has no present intent to do so in the coming
fiscal year. Short selling may accelerate the recognition of gains.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

* for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;

* in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;

* for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;

* futures contracts and options are valued at market values established by the
exchanges on which they are traded at the close of trading on such exchanges.
Options traded in the over-the-counter market are valued according to the mean
between the last bid and the last asked price for the option as provided by an
investment dealer or other financial institution that deals in the option. The
Board may determine in good faith that another method of valuing such
investments is necessary to appraise their fair market value.

* for all other securities, at fair value as determined in good faith by the
Board.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.

TRADING IN FOREIGN SECURITIES

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.

What do Shares Cost?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.

Mixed Funding and Shared Funding

The Fund does engage in mixed funding and shared funding. Although the Fund does
not currently foresee any disadvantage to contract owners due to differences in
redemption rates, tax treatment or other considerations resulting from mixed
funding or shared funding, the Trustees will closely monitor the operation of
mixed funding and shared funding and will consider appropriate action to avoid
material conflicts and take appropriate action in response to any material
conflicts which occur. Such action could result in one or more participating
insurance companies withdrawing their investment in the Fund.

How is the Fund Sold?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

SHAREHOLDER SERVICES

SUPPLEMENTAL PAYMENTS

Investment professionals receive such fees for providing

distribution-related or shareholder services such as sponsoring sales, providing
sales literature, conducting training seminars for employees and engineering
sales-related computer software programs and systems. Also, investment
professionals may be paid cash or promotional incentives, such as reimbursement
of certain expenses relating to attendance at informational meetings about the
Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.

Subaccounting Services

Certain participating insurance companies may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Participating insurance companies holding Shares in a fiduciary,
agency, custodial or similar capacity may charge or pass through subaccounting
fees as part of or in addition to normal trust or agency account fees. They may
also charge fees for other services that may be related to the ownership of
Shares. This information should, therefore, be read together with any agreement
between the customer and the participating insurance company about the services
provided, the fees charged for those services and any restrictions and
limitations imposed.

Redemption in Kind

Massachusetts Partnership Law

Account and Share Information

VOTING RIGHTS

As of March 23, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Life of Virginia, Richmond, VA owned
approximately 5,117,079 shares (25.69%); Aetna Retirement Services 710294708-0,
Hartford, CT owned approximately 4,356,643 shares (21.87%); Aetna Retirement
Services 61286272-0, Hartford, CT owned approximately 2,638,198 shares (13.25%);
Lincoln Benefit Life Co., Lincoln, NE owned approximately 1,685,617 shares
(8.46%); and Conseco Variable Insurance Co., Carmel, IN owned approximately
1,157,904 shares (5.81%).

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

Tax Information

FEDERAL INCOME TAX

FOREIGN INVESTMENTS

Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.

Who Manages and Provides Services to the Fund?

BOARD OF TRUSTEES

The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of eight
funds and The Federated Fund Complex is comprised of 54 investment companies,
whose investment advisers are affiliated with the Fund's Adviser.

As of March 23, 1999, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.

<TABLE>
<CAPTION>
NAME TOTAL
BIRTHDATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST
POSITION WITH TRUST FOR PAST 5 YEARS FROM TRUST** AND FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+ Chief Executive Officer $0 $0 for the Trust and
Birth Date: July 28, 1924 and Director or Trustee 54 other investment
Federated Investors Tower of the Federated Fund companies in the
1001 Liberty Avenue Complex; Chairman and Fund Complex
Pittsburgh, PA Director, Federated
CHAIRMAN AND TRUSTEE Investors, Inc.; Chairman
and Trustee, Federated Investment
Management Company; Chairman and
Director, Federated Investment
Counseling and Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.

THOMAS G. BIGLEY Director or Trustee of the Federated Fund $1,591.19 $113,860.22 for the
Birth Date: February 3, 1934 Complex; Director, Member Trust and 54 other
15 Old Timber Trail of Executive Committee, Children's Hospital investment companies
Pittsburgh, PA of Pittsburgh; formerly: in the Fund Complex
TRUSTEE Senior Partner, Ernst & Young LLP;
Director, MED 3000 Group, Inc.;
Director, Member of Executive
Committee, University of Pittsburgh.

JOHN T. CONROY, JR. Director or Trustee of the Federated Fund $1,750.56 $125,264.48 for the
Birth Date: June 23, 1937 Complex; President, Trust and 54 other
Wood/IPC Commercial Dept. Investment Properties Corporation; Senior investment companies
John R. Wood Associates, Inc. Realtors Vice President, John R. in the Fund Complex
3255 Tamiami Trial North Wood and Associates, Inc., Realtors; Partner
Naples, FL or Trustee in private
TRUSTEE real estate ventures in Southwest Florida;
formerly: President,
Naples Property Management, Inc. and
Northgate Village
Development Corporation.
NICHOLAS CONSTANTAKIS Director or Trustee of the Federated Fund $1,591.19 $47,958.02 for the Trust
Birth Date: September 3, 1939 Complex; formerly: Partner, and 29 other investment
175 Woodshire Drive Andersen Worldwide SC. companies in the
Pittsburgh, PA Fund Complex
TRUSTEE

WILLIAM J. COPELAND Director or Trustee of the Federated Fund $1,750.56 $125,264.48 for the
Birth Date: July 4, 1918 Complex; Director and Trust and 54 other
One PNC Plaza-23rd Floor Member of the Executive Committee, investment companies
Pittsburgh, PA Michael Baker, Inc.; formerly: in the Fund Complex
TRUSTEE Vice Chairman and Director, PNC Bank, N.A.,
and PNC Bank Corp.;
Director, Ryan Homes, Inc.
Previous Positions: Director, United Refinery;
Director, Forbes Fund;
Chairman, Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.

JAMES E. DOWD, ESQ. Director or Trustee of the Federated Fund $1,750.56 $125,264.48
for the
Birth Date: May 18, 1922 Complex; Attorney-at-law; Trust and 54 other
571 Hayward Mill Road Director, The Emerging Germany Fund, Inc. investment companies
Concord, MA Previous Positions: President, Boston Stock in the Fund Complex
TRUSTEE Exchange, Inc.; Regional
Administrator, United States Securities and
Exchange Commission.

LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund $1,591.19 $113,860.22
for the
Birth Date: October 11, 1932 Complex; Professor of Trust and 54 other
3471 Fifth Avenue Medicine, University of Pittsburgh; Medical investment companies
Suite 1111 Director, University of in the Fund Complex
Pittsburgh, PA Pittsburgh Medical Center - Downtown;
TRUSTEE Hematologist, Oncologist,
and Internist, University of Pittsburgh
Medical Center; Member, National
Board of Trustees, Leukemia Society of
America.

EDWARD L. FLAHERTY, JR., ESQ. # Director or Trustee of the Federated Fund $1,750.56 $125,264.48 for the
Birth Date: June 18, 1924 Complex; Attorney, of Trust and 54 other
Miller, Ament, Henny & Kochuba Counsel, Miller, Ament, Henny & Kochuba; investment companies
205 Ross Street Director Emeritus, Eat'N Park in the Fund Complex
Pittsburgh, PA Restaurants, Inc.; formerly: Counsel, Horizon
TRUSTEE Financial, F.A., Western
Region; Partner, Meyer and Flaherty.

<CAPTION>
NAME TOTAL
BIRTHDATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST
POSITION WITH TRUST FOR PAST 5 YEARS FROM TRUST** AND FUND COMPLEX
<S> <C> <C> <C>
PETER E. MADDEN Director or Trustee of $1,591.19 $113,860.22 for the
Birth Date: March 16, 1942 the Federated Fund Trust and 54 other
One Royal Palm Way Complex; formerly: investment companies
100 Royal Palm Way Representative, in the Fund Complex
Palm Beach, FL Commonwealth of
TRUSTEE Massachusetts General
Court;
President, State Street
Bank and Trust Company
and State
Street Corporation.
Previous Positions:
Director, VISA USA and
VISA International;
Chairman
and Director,
Massachusetts Bankers
Association; Director,
Depository
Trust Corporation.

JOHN E. MURRAY, JR., J.D., S.J.D. Director or Trustee of the Federated Fund $1,591.19 $113,860.22 for the
Birth Date: December 20, 1932 Complex; President, Law Trust and 54 other
President, Duquesne University Professor, Duquesne University; Consulting investment companies
Pittsburgh, PA Partner, Mollica & Murray. in the Fund Complex
TRUSTEE Previous Positions: Dean and Professor of
Law, University of Pittsburgh
School of Law; Dean and Professor of Law,
Villanova University School
of Law.
WESLEY W. POSVAR Director or Trustee of the Federated Fund $1,591.19 $113,860.22 for the
Birth Date: September 14, 1925 Complex; President, World Trust and 54 other
1202 Cathedral of Learning Society of Ekistics (metropolitan planning), investment companies
University of Pittsburgh Athens; Professor, International in the Fund Complex
Pittsbugh, PA Politics; Management Consultant; Trustee,
TRUSTEE Carnegie Endowment for
International Peace, RAND Corporation,
Online Computer Library Center,
Inc., National Defense University and
U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding
Chairman, National Advisory
Council for Environmental Policy and
Technology, Federal Emergency
Management Advisory Board; Trustee, Czech
Management Center, Prague.
Previous Positions: Professor, United States
Military Academy; Professor,
United States Air Force Academy.

MARJORIE P. SMUTS Director or Trustee of the Federated Fund $1,591.19 $113,860.22 for the
Birth Date: June 21, 1935 Complex; Public Relations/ Trust and 54 other
4905 Bayard Street Marketing/Conference Planning. investment companies
Pittsburgh, PA Previous Positions: National Spokesperson, in the Fund Complex
TRUSTEE Aluminum Company of
America; business owner.

JOHN S. WALSH++ Director or Trustee of some of the Federated $0 $0 for the Trust
Birth Date: November 28, 1957 Funds; President and Director, and 23 other
2007 Sherwood Drive Heat Wagon, Inc.; President and Director, investment companies
Valparaiso, IN Manufacturers Products, Inc.; in the Fund Complex
TRUSTEE President, Portable Heater Parts, a division of
Manufacturers Products,
Inc.; Director, Walsh & Kelly, Inc.; formerly:
Vice President, Walsh & Kelly, Inc.
J. CHRISTOPHER DONAHUE+* President or Executive Vice President of the $0 $0 for the Trust
Birth Date: April 11, 1949 Federated Fund Complex; and 16 other
Federated Investors Tower Director or Trustee of some of the Funds in investment companies
1001 Liberty Avenue the Federated Fund in the Fund Complex
Pittsburgh, PA Complex; President and Director, Federated
PRESIDENT AND TRUSTEE Investors, Inc.; President
and Trustee, Federated Investment
Management Company; President and
Director, Federated Investment
Counseling and Federated Global
Investment Management Corp.; President,
Passport Research, Ltd.; Trustee,
Federated Shareholder Services Company;
Director, Federated Services Company.

EDWARD C. GONZALES Trustee or Director of some of the Funds in $0 $0 for the Trust
Birth Date: October 22, 1930 the Federated Fund and 1 other
Federated Investors Tower Complex; President, Executive Vice President investment company
1001 Liberty Avenue and Treasurer of some of in the Fund Complex
Pittsburgh, PA the Funds in the Federated Fund Complex;
EXECUTIVE VICE PRESIDENT Vice Chairman, Federated
Investors, Inc.; Vice President, Federated
Investment Management
Company and Federated Investment
Counseling, Federated Global
Investment Management Corp. and Passport
Research, Ltd.; Executive
Vice President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.

JOHN W. MCGONIGLE Executive Vice President and Secretary of the $0 $0 for the Trust
Birth Date: October 26, 1938 Federated Fund and 54 other
Federated Investors Tower Complex; Executive Vice President, investment companies
1001 Liberty Avenue Secretary, and Director, Federated in the Fund Complex
Pittsburgh, PA Investors, Inc.; Trustee, Federated Investment
EXECUTIVE VICE PRESIDENT AND SECRETARY Management Company;
Director, Federated Investment
Counseling and Federated Global
Investment Management Corp.; Director,
Federated Services Company; Director,
Federated Securities Corp.

RICHARD J. THOMAS Treasurer of the Federated Fund Complex; $0 $0 for the Trust
Birth Date: June 17, 1954 Vice President - Funds and 54 other
Federated Investors Tower Financial Services Division, Federated investment companies
1001 Liberty Avenue Investors, Inc.; Formerly: various in the Fund Complex
Pittsburgh, PA management positions within Funds
TREASURER Financial Services Division of
Federated Investors, Inc.

<CAPTION>
NAME TOTAL
BIRTHDATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST
POSITION WITH TRUST FOR PAST 5 YEARS FROM TRUST** AND FUND COMPLEX
<S> <C> <C> <C>
RICHARD B. FISHER President or Vice $0 $0 for the Trust
Birth Date: May 17, 1923 President of some of the and 6 other
Federated Investors Tower Funds in the Federated investment companies
1001 Liberty Avenue Fund in the Fund Complex
Pittsburgh, PA Complex; Director or
VICE PRESIDENT Trustee of some of the
Funds in the Federated Fund Complex;
Executive Vice President, Federated
Investors, Inc.; Chairman and Director,
Federated Securities Corp.

HENRY A. FRANTZEN Chief Investment Officer of this Fund and $0 $0 for the Trust
Birth Date: November 28, 1942 various other Funds in the and 3 other
Federated Investors Tower Federated Fund Complex; Executive Vice investment companies
1001 Liberty Avenue President, Federated in the Fund Complex
Pittsburgh, PA Investment Counseling, Federated Global
CHIEF INVESTMENT OFFICER Investment Management
Corp., Federated Investment Management
Company and Passport Research, Ltd.;
Registered Representative, Federated
Securities Corp.; Vice President,
Federated Investors, Inc.; Formerly:
Executive Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services Division;
Chief Investment Officer/ Manager,
International Equities, Brown Brothers
Harriman & Co.; Managing Director, BBH
Investment Management Limited.

WILLIAM D. DAWSON, III Chief Investment Officer of this Fund and $0 $0 for the Trust
Birth Date: March 3, 1949 various other Funds in the and 41 other
Federated Investors Tower Federated Fund Complex; Executive Vice investment companies
1001 Liberty Avenue President, Federated Investment in the Fund Complex
Pittsburgh, PA Counseling, Federated Global Investment
CHIEF INVESTMENT OFFICER Management Corp., Federated
Investment Management Company and
Passport Research, Ltd.; Registered
Representative, Federated Securities
Corp.; Portfolio Manager, Federated
Administrative Services; Vice
President, Federated Investors, Inc.;
Formerly: Executive Vice President and
Senior Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services Division;
Senior Vice President, Federated
Investment Management Company and
Passport Research, Ltd.

J. THOMAS MADDEN Chief Investment Officer of this Fund and $0 $0 for the Trust
Birth Date: October 22, 1945 various other Funds in the and 12 other
Federated Investors Tower Federated Fund Complex; Executive Vice investment companies
1001 Liberty Avenue President, Federated in the Fund Complex
Pittsburgh, PA Investment Counseling, Federated Global
CHIEF INVESTMENT OFFICER Investment Management
Corp., Federated Investment Management
Company and Passport Research, Ltd.;
Vice President, Federated Investors,
Inc.; Formerly: Executive Vice
President and Senior Vice President,
Federated Investment Counseling
Institutional Portfolio Management
Services Division; Senior Vice
President, Federated Investment
Management Company and Passport
Research, Ltd.

</TABLE>

+ Mr. Donahue is the father of J. Christopher Donahue, President and
Trustee of the Trust.

** The aggregate compensation is provided for the Trust which is comprised of
eight portfolios.

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly owned subsidiary of Federated.

The Adviser shall not be liable to the Trust or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties imposed upon it by its contract with the Trust.

OTHER RELATED SERVICES

BROKERAGE TRANSACTIONS

RESEARCH SERVICES

ADMINISTRATOR

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by
shareholders.

INDEPENDENT PUBLIC ACCOUNTANTS

Deloitte and Touche LLP is the independent public accountant for the Fund.

FEES PAID BY THE FUND FOR SERVICES

FOR THE YEAR ENDED DECEMBER 31, 1998 1997 1996
Advisory Fee Earned $1,119,042 $637,608 $240,233
Advisory Fee Reduction 0 95,075 203,132
Brokerage Commissions 0 0 0
Administrative Fee 140,924 125,002 125,000
12B-1 FEE NA
SHAREHOLDER SERVICES FEE NA

How does the Fund Measure Performance?

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns given for the one-year and start of performance periods ended
December 31, 1998.

Yield given for the 30-day period ended December 31, 1998.

START OF
PERFORMANCE ON
30-DAY PERIOD 1 YEAR MARCH 1, 1994
Total Return NA 2.70% 9.49%
Yield 8.38% NA NA

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

YIELD

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;

* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and

* information about the mutual fund industry from sources such as the Investment
Company Institute.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges and economic and demographic
statistics.

You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:

LIPPER ANALYTICAL SERVICES, INC.

Lipper Analytical Services, Inc., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the high current
yield funds category in advertising and sales literature.

LIPPER HIGH CURRENT YIELD AVERAGE

Lipper High Current Yield Average is composed of approximately 141 funds which
invest at least 65% of their assets in investment grade debt issues (rated in
top four grades) with dollar-weighted average maturities of five to ten years.
From time to time, the Fund will compare its total return to the average total
return of the funds comprising the average for the same calculation period.

LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) INDEX

Lehman Brothers Government/Corporate (Total) Index is comprised of approximately
5,000 issues which include: non-convertible bonds publicly issued by the U.S.
government or its agencies; corporate bonds guaranteed by the U.S. government
and quasi-federal corporations; and publicly issued, fixed-rate, non-convertible
domestic bonds of companies in industry, public utilities and finance. The
average maturity of these bonds approximates nine years. Tracked by Lehman
Brothers, Inc., the index calculates total returns for one month, three month,
twelve month and ten year periods and year-to-date.

LEHMAN BROTHERS AGGREGATE BOND INDEX

Lehman Brothers Aggregate Bond Index is an unmanaged index measuring both the
capital price changes and income provided by the underlying universe of
securities, comprised of U.S. Treasury obligations, U.S. agency obligations,
foreign obligations, U.S. investment-grade corporate debt and mortgage backed
obligations.

LEHMAN BROTHERS GOVERNMENT/CORPORATE (LONG-TERM) INDEX

Lehman Brothers Government/Corporate (Long-Term) Index is composed of the same
types of issues as defined above. However, the average maturity of the bonds
included on this index approximates 22 years.

LEHMAN BROTHERS HIGH YIELD INDEX

Lehman Brothers High Yield Index and its sub-indices are based on credit quality
and/or duration. The Lehman Brothers High Yield Index covers the universe of
fixed rate, publicly issued, noninvestment grade debt registered with the SEC.
All bonds included in the Lehman Brothers High Yield Index must be
dollar-denominated and nonconvertible and have at least one year remaining to
maturity and an outstanding par value of at least $100 million. Generally,
securities must be rated Ba1 or lower by Moody's Investors Service, including
defaulted issues. If no Moody's rating is available, bonds must be rated BB+ or
lower by S&P; and if no S&P rating is available, bonds must be rated below
investment grade by Fitch IBCA, Inc. A small number of unrated bonds are
included in the index; to be eligible they must have previously held a high
yield rating or have been associated with a high yield issuer, and must trade
accordingly.

MORNINGSTAR, INC.

Who is Federated Investors, Inc.?

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

EQUITY FUNDS

CORPORATE BOND FUNDS

GOVERNMENT FUNDS

In the government sector, as of December 31, 1998, Federated manages 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.

MONEY MARKET FUNDS

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield -
J. Thomas Madden; U.S. fixed income -William D. Dawson, III; and global
equities and fixed income - Henry A. Frantzen. The Chief Investment
Officers are Executive Vice Presidents of the Federated advisory
companies.

MUTUAL FUND MARKET

FEDERATED CLIENTS OVERVIEW

Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

INSTITUTIONAL CLIENTS

Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.

BANK MARKETING

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Financial Information

The Financial Statements for the Fund for the fiscal year ended December 31,
1998 are incorporated herein by reference to the Annual Report to Shareholders
of Federated High Income Bond Fund II dated December 31, 1998.

Investment Ratings

STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS

AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

BB-Debt rated BB has less near-term, vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.

B-Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.

CC-The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.

C-The rating C typically is applied to debt subordinated to senior debt which is
assigned an actual or implied CCC-debt rating. The C rating may be used to cover
a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

MOODY'S INVESTORS SERVICE, INC.

LONG-TERM BOND RATING DEFINITIONS

CAA-Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA-Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C-Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS

CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C-Bonds are imminent default in payment of interest or principal.

MOODY'S INVESTORS SERVICE, INC.

COMMERCIAL PAPER RATINGS

* Leading market positions in well established industries.

* High rates of return on funds employed.

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

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

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

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

A-2-Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.

FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS

FITCH-1-(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.

FITCH-2-(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.

Addresses

FEDERATED HIGH INCOME BOND FUND II Federated Investors Funds 5800 Corporate
Drive Pittsburgh, PA 15237-7000

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

INVESTMENT ADVISER

Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

INDEPENDENT PUBLIC ACCOUNTANTS Deloitte & Touche LLP 125 Summer Street Boston,
MA 02110-1617

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 Utility Fund II

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

* Federated American Leaders Fund II - 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; 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.

APRIL 20, 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 Utility 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? 26

What are the Specific Risks of Investing in
the Fund? 27

What Do Shares Cost? 28

How is the Fund Sold? 28

How to Purchase and Redeem Shares 28

Account and Share Information 29

Who Manages the Fund? 29

Financial Information 32

Federated American Leaders Fund II

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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.

RISK/RETURN BAR CHART

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 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.

<TABLE>
<CAPTION>
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.

What are the Fund's Investment Strategies?

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.

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

COMMON STOCKS

AMERICAN DEPOSITARY RECEIPTS

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

SECTOR RISKS

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

Federated Equity Income Fund II

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

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.

<TABLE>
<CAPTION>
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.

What are the Fund's Investment Strategies?

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

EQUITY SECURITIES

COMMON STOCKS

CONVERTIBLE SECURITIES

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

RISKS RELATED TO INVESTING FOR VALUE

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 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.

<TABLE>
<CAPTION>
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

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

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

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

Asset Coverage

In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund with 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

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.

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?

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.

RISK/RETURN BAR CHART

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.

<TABLE>
<CAPTION>
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.

What are the Fund's Investment Strategies?

PORTFOLIO TURNOVER

TEMPORARY DEFENSIVE INVESTMENTS

What are the Principal Securities in Which the Fund Invests?

COMMON STOCKS

AMERICAN DEPOSITARY RECEIPTS

What are the Specific Risks of Investing in the Fund?

STOCK MARKET RISKS

LIQUIDITY RISKS

RISKS RELATED TO COMPANY SIZE

SECTOR RISK

RISKS OF INVESTING IN AMERICAN DEPOSITARY RECEIPTS

RISKS RELATED TO INVESTING FOR GROWTH

Federated High Income Bond Fund II

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

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:

RISK/RETURN BAR CHART

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.

<TABLE>
<CAPTION>
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.

What are the Fund's Investment Strategies?

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

What are the Principal Securities in Which the Fund Invests?

What are the Specific Risks of Investing in the Fund?

CREDIT RISKS

LIQUIDITY RISKS

INTEREST RATE RISKS

RISKS RELATED TO THE ECONOMY

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 investment
adviser (Adviser) manages the Fund based on the view that international equity
markets are inefficient at pricing securities and that careful security
selection offers the best potential for superior long-term investment returns.
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.

<TABLE>
<CAPTION>
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

EQUITY SECURITIES

COMMON STOCKS

PREFERRED STOCKS

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

RISKS OF FOREIGN INVESTING

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.

LIQUIDITY RISKS

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.

<TABLE>
<CAPTION>
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

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

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 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.

<TABLE>
<CAPTION>
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)

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

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

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 is the Fund 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.

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.

How to Purchase and Redeem Shares

* 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, and Federated Equity 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 are urged to consult their own tax advisers regarding the status
of their contracts under state and local tax laws.

Who Manages the Fund?

The Board of Trustees governs the 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, and Federated
Equity 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, 0.75% of the
average daily net assets for Federated American Leaders Fund II, Federated
Growth Strategies Fund II, Federated Utility Fund II, and Federated Equity
Income Fund II, 0.60% of the average daily net assets for Federated Fund for
U.S. Government Securities II and Federated High Income Bond Fund II, and 0.50%
of the average daily net assets for Federated Prime Money Fund II. The 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

YEAR 2000 READINESS

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.

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)

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>

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)

<TABLE>

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)

<TABLE>

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%

</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%)

</TABLE>

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.

[Graphic]
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 Utility Fund II

APRIL 20, 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.

[Graphic]
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 313916702 Cusip 313916108 Cusip 313916504 Cusip 313916603
Cusip 313916405 Cusip 313916207 Cusip 313916801 4011006A (4/99)

[Graphic]

STATEMENT OF ADDITIONAL INFORMATION

Federated Insurance Series

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Insurance Series, dated
April 20, 1999. This SAI incorporates by reference the Funds' Annual Reports.
Obtain the prospectus or the Annual Reports without charge by calling
1-800-341-7400.

APRIL 20, 1999

[Graphic]
Federated
World-Class Investment Manager
Federated Insurance Series
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor

4011006B (4/99)

[Graphic]

CONTENTS

Federated American Leaders Fund II 2

How is the Fund Organized? 2

Securities in Which the Fund Invests 2

Federated Equity Income Fund II 6

How is the Fund Organized? 6

Securities in Which the Fund Invests 6

Federated Fund for U.S. Government Securities II 18

How is the Fund Organized? 18

Securities in Which the Fund Invests 18

Federated Growth Strategies Fund II 22

How is the Fund Organized? 22

Securities in Which the Fund Invests 22

Federated High Income Bond Fund II 28

How is the Fund Organized? 28

Securities in Which the Fund Invests 28

Federated International Equity Fund II 32

How is the Fund Organized? 32

Securities in Which the Fund Invests 32

Federated Prime Money Fund II 38

How is the Fund Organized? 38

Securities in Which the Fund Invests 38

Federated Utility Fund II 42

How is the Fund Organized? 42

Securities in Which the Fund Invests 42

What Do Shares Cost? 48

Mixed Funding and Shared Funding 48

How is the Fund Sold? 49

Subaccounting Services 49

Redemption in Kind 49

Massachusetts Partnership Law 49

Account and Share Information 50

Tax Information 51

Who Manages and Provides Services to the Funds? 51

How Do the Funds Measure Performance? 56

Who is Federated Investors, Inc.? 59

Financial Information 60

Investment Ratings 61

Addresses 63

Federated American Leaders Fund II

How is the Fund Organized?

The Fund is a diversified portfolio of Federated Insurance Series (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 15, 1993. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities. The Trust changed its name from Insurance Management
Series to Federated Insurance Series on November 14, 1995. The Fund changed its
name from Equity Growth and Income Fund to Federated American Leaders Fund II on
February 26, 1996.

The Fund's investment adviser is Federated Investment Management Company
(Adviser). The Adviser, formerly known as Federated Advisers, changed its name
effective March 31, 1999.

Securities in Which the Fund Invests

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

EQUITY SECURITIES

COMMON STOCKS

PREFERRED STOCKS

INTERESTS IN OTHER LIMITED LIABILITY COMPANIES

Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.

REAL ESTATE INVESTMENT TRUSTS (REITS)

WARRANTS

FIXED INCOME 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

CORPORATE DEBT SECURITIES

COMMERCIAL PAPER

DEMAND INSTRUMENTS

BANK INSTRUMENTS

ZERO COUPON SECURITIES

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.

AMERICAN DEPOSITARY RECEIPTS

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase Agreements are subject to Credit Risk.

REVERSE REPURCHASE AGREEMENTS

DELAYED DELIVERY TRANSACTIONS

SECURITIES LENDING

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Securities lending activities are subject to market risks and credit risks.

ASSET COVERAGE

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

INVESTMENT RISKS

There are many factors that may affect an investment in the Fund. The Fund's
principal risks are described in the prospectus. Additional risk factors are
outlined below.

EQUITY SECURITIES INVESTMENT RISKS

STOCK MARKET RISKS

SECTOR RISKS

LIQUIDITY RISKS

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.

RISKS RELATED TO INVESTING FOR VALUE

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

RISKS OF INVESTING IN AMERICAN DEPOSITARY RECEIPTS

CREDIT RISKS

FIXED INCOME SECURITIES INVESTMENT RISKS

INTEREST RATE RISKS

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.

LIQUIDITY RISKS

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

The Fund may invest in convertible securities rated below investment grade, also
known as junk bonds. Such convertible securities 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.

CALL RISKS

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

SECTOR RISKS

LEVERAGE RISKS

VARIABLE ASSET REGULATIONS

The Fund is also subject to variable contract asset regulations prescribed by
the U.S. Treasury Department under Section 817(h) of the Internal Revenue Code.
After a one year start-up period, the regulations generally require that, as of
the end of each calendar quarter or within 30 days thereafter, no more than 55%
of the total assets of the Fund may be represented by any one investment, no
more than 70% of the total assets of the Fund may be represented by any two
investments, no more than 80% of the total assets of the Fund may be represented
by any three investments, and no more than 90% of the total assets of the Fund
may be represented by any four investments. In applying these diversification
rules, all securities of the same issuer, all interests in the same real
property project, and all interests in the same commodity are each treated as a
single investment. In the case of government securities, each government agency
or instrumentality shall be treated as a separate issuer. If the Fund fails to
achieve the diversification required by the regulations, unless relief is
obtained from the Internal Revenue Service, the contracts invested in the Fund
will not be treated as annuity, endowment, or life insurance contracts.

STATE INSURANCE REGULATIONS

The Fund is intended to be a funding vehicle for variable annuity contracts and
variable life insurance policies offered by certain insurance companies. The
contracts will seek to be offered in as many jurisdictions as possible. Certain
states have regulations concerning, among other things, the concentration of
investments, sales and purchases of futures contracts, and short sales of
securities. If applicable, the Fund may be limited in its ability to engage in
such investments and to manage its portfolio with desired flexibility. The Fund
will operate in material compliance with the applicable insurance laws and
regulations of each jurisdiction in which contracts will be offered by the
insurance companies which invest in the Fund.

Federated Equity Income Fund II

How is the Fund Organized?

Securities in Which the Fund Invests

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

EQUITY SECURITIES

COMMON STOCKS

PREFERRED STOCKS

INTERESTS IN OTHER LIMITED LIABILITY COMPANIES

Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.

REAL ESTATE INVESTMENT TRUSTS (REITS)

WARRANTS

FIXED INCOME 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

CORPORATE DEBT SECURITIES

COMMERCIAL PAPER

DEMAND INSTRUMENTS

BANK INSTRUMENTS

ZERO COUPON SECURITIES

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.

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

DEPOSITARY RECEIPTS

HEDGING

Hedging transactions are intended to reduce specific risks. For example, to
protect the Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. The
Fund may also attempt to hedge by using combinations of different derivatives
contracts, or derivatives contracts and securities. The Fund's ability to hedge
may be limited by the costs of the derivatives contracts. The Fund may attempt
to lower the cost of hedging by entering into transactions that provide only
limited protection, including transactions that (1) hedge only a portion of its
portfolio; (2) use derivatives contracts that cover a narrow range of
circumstances; or (3) involve the sale of derivatives contracts with different
terms. Consequently, hedging transactions will not eliminate risk even if they
work as intended. In addition, hedging strategies are not always successful, and
could result in increased expenses and losses to the Fund.

DERIVATIVE CONTRACTS

The Fund may trade in the following types of derivative contracts.

FUTURES CONTRACTS

Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date, and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures contracts
are considered to be commodity contracts. Futures contracts traded OTC are
frequently referred to as forward contracts.

The Fund may buy and sell financial futures contracts:

OPTIONS

The Fund may:

* Buy put options on portfolio securities and financial futures contracts in
anticipation of a decrease in the value of the underlying asset.

* Write call options on portfolio securities and financial futures contracts to
generate income from premiums, and in anticipation of a decrease or only limited
increase in the value of the underlying asset. If a call written by the Fund is
exercised, the Fund foregoes any possible profit from an increase in the market
price of the underlying asset over the exercise price plus the premium received.

* Buy or write options to close out existing options positions.

When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS

DELAYED DELIVERY TRANSACTIONS

SECURITIES LENDING

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Securities lending activities are subject to market and credit risks.

ASSET COVERAGE

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

INVESTMENT RATINGS

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

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

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.

EQUITY SECURITIES INVESTMENT RISKS

STOCK MARKET RISKS

SECTOR RISKS

LIQUIDITY RISKS

OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

RISKS RELATED TO INVESTING FOR VALUE

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

RISKS RELATED TO COMPANY SIZE

RISKS OF FOREIGN INVESTING

CURRENCY RISKS

EURO RISKS

CREDIT RISKS

FIXED INCOME SECURITIES INVESTMENT RISKS

INTEREST RATE RISKS

CREDIT RISKS

Credit risk is the possibility that an issuer will default (the issuer fails to
repay interest and principal when due). If an issuer defaults, the Fund will
lose money.

CALL RISKS

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

PREPAYMENT RISKS

LIQUIDITY RISKS

OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

LEVERAGE RISKS

STATE INSURANCE REGULATIONS

VARIABLE ASSET REGULATIONS

INVESTMENT PRACTICES OF THE FUNDS

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

REPURCHASE AGREEMENTS

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

REVERSE REPURCHASE AGREEMENTS

The Funds may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, a Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future a Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.

When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.

CREDIT ENHANCEMENT

Federated Prime Money Fund II typically evaluates the credit quality and ratings
of credit-enhanced securities based upon the financial condition and ratings of
the party providing the credit enhancement (the "credit enhancer"), rather than
the issuer. However, credit-enhanced securities will not be treated as having
been issued by the credit enhancer for diversification purposes, unless
Federated Prime Money Fund II has invested more than 10% of its assets in
securities issued, guaranteed or otherwise credit enhanced by the credit
enhancer, in which case the securities will be treated as having been issued by
both the issuer and the credit enhancer.

RESTRICTED AND ILLIQUID SECURITIES

The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933. The Trustees consider the following criteria in determining the
liquidity of certain restricted securities:

* the frequency of trades and quotes for the security;

* the number of dealers willing to purchase or sell the security and the
number of other potential buyers;

* dealer undertakings to make a market in the security; and

* the nature of the security and the nature of the marketplace trades.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

These transactions are made to secure what is considered to be an advantageous
price or yield for a Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of a Fund sufficient to
make payment for the securities to be purchased are segregated on a Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Funds do not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.

LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, all of the Funds may lend their
portfolio securities, up to one-third of the value of each Fund's total assets,
to broker/dealers, banks, or other institutional borrowers of securities.
(Federated International Equity Fund II is not subject to this one-third
limitation). This policy is a fundamental policy of each Fund and may not be
changed without shareholder approval. The collateral received when the Fund
lends portfolio securities must be valued daily and, should the market value of
the loaned securities increase, the borrower must furnish additional collateral
to the Fund. During the time portfolio securities are on loan, the borrower pays
the Fund any dividends or interest paid on such securities. Loans are subject to
termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker. The Fund does not have the right
to vote securities on loan, but would terminate the loan and regain the right to
vote if that were considered important with respect to the investment.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Funds may invest in the securities of affiliated money market funds as an
efficient means of managing the Funds' uninvested cash.

PORTFOLIO TURNOVER

Securities in the portfolios of Federated American Leaders Fund II, Federated
Growth Strategies Fund II, Federated Utility Fund II, Federated Fund for U.S.
Government Securities II, Federated High Income Bond Fund II, Federated
International Equity Fund II and Federated Equity Income Fund II will be sold
whenever such Fund's investment adviser believes it is appropriate to do so in
light of such Fund's investment objective, without regard to the length of time
a particular security may have been held. Federated Fund for U.S. Government
Securities II's policy of managing its portfolio of U.S. government securities,
including the sale of securities held for a short period of time, to achieve its
investment objective of current income may result in high portfolio turnover.
Federated Fund for U.S. Government Securities II, Federated International Equity
Fund II and Federated Equity Income Fund II will not attempt to set or meet a
portfolio turnover rate as any turnover would be incidental to transactions
undertaken in an attempt to achieve the Funds' investment objectives. The
adviser does not anticipate that portfolio turnover will result in adverse tax
consequences. Any such trading will increase the portfolio turnover rates and
transaction costs.

For the fiscal years ended December 31, 1998 and 1997, the portfolio turnover
rates of Federated American Leaders Fund II were 58% and 56%, respectively. For
the fiscal year ended December 31, 1998 and 1997, the portfolio turnover rates
of Federated Growth Strategies Fund II were 104% and 148%, respectively. For the
fiscal years ended December 31, 1998 and 1997, the portfolio turnover rates of
Federated Utility Fund II were 84% and 95%, respectively. For the fiscal years
ended December 31, 1998 and 1997, the portfolio turnover rates of Federated Fund
for U.S. Government Securities II were 99% and 73%, respectively. For the fiscal
years ended December 31, 1998 and 1997, the portfolio turnover rates of
Federated High Income Bond Fund II were 27% and 52%, respectively. For the
fiscal year ended December 31, 1998 and 1997, the portfolio turnover rates of
Federated International Equity Fund II were 247% and 179%, respectively. For the
fiscal year ended December 31, 1998 and for the period from January 30, 1997
(date of initial public investment) to December 31, 1997, the portfolio turnover
rates for Federated Equity Income Fund II were 59% and 68%.

INVESTMENT LIMITATIONS

The following limitations are fundamental [except that no investment limitation
of Federated Equity Income Fund II shall prevent the Fund from investing
substantially all of its assets (except for assets which are not considered to
be "investment securities" under the Investment Company Act of 1940, or assets
exempted by the Securities and Exchange Commission ("SEC")) in an open-end
management investment company with substantially the same investment objectives:

SELLING SHORT AND BUYING ON MARGIN

The Funds will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for clearance
of purchases and sales of portfolio securities. The deposit or payment by
Federated Growth Strategies Fund II, Federated Utility Fund II or Federated
Equity Income Fund II of initial or variation margin in connection with futures
contracts or related options transactions is not considered the purchase of a
security on margin. Federated International Equity Fund II may make margin
payments in connection with its use of financial futures contracts or related
options and transactions.

Federated International Equity Fund II will not sell securities short unless:
(1) it owns, or has a right to acquire, an equal amount of such securities; or
(2) it has segregated an amount of its other assets equal to the lesser of the
market value of the securities sold short or the amount required to acquire such
securities. The segregated amount will not exceed 10% of Federated International
Equity Fund II's net assets. While in a short position, Federated International
Equity Fund II will retain the securities, rights, or segregated assets.

Federated Equity Income Fund II will not sell securities short unless during the
time the short position is open, it owns an equal amount of the securities sold
or securities readily and freely convertible into or exchangeable, without
payment of additional consideration, for securities of the same issue as, and
equal in amount to, the securities sold short; and not more than 10% of the
Fund's net assets (taken at current value) is held as collateral for such sales
at any one time.

ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Funds will not issue senior securities except that each Fund may borrow
money directly or through reverse repurchase agreements (or, with respect to
Federated International Equity Fund II, as required by forward commitments to
purchase securities or currencies) as a temporary, extraordinary, or emergency
measure to facilitate management of the portfolio by enabling such Fund to meet
redemption requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous, and then only in amounts not in excess of
one-third of the value of its total assets, including the amount borrowed. With
the exception of Federated Equity Income Fund II, while borrowings and reverse
repurchase agreements outstanding exceed 5% of each such Fund's total assets,
any such borrowings will be repaid before additional investments are made. With
respect to Federated Equity Income Fund II, the Fund will not purchase any
securities while any borrowings are outstanding. The Funds will not borrow money
or engage in reverse repurchase agreements for investment leverage purposes.

PLEDGING ASSETS

The Funds will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, each Fund (with the exception of Federated
Equity Income Fund II) may mortgage, pledge or hypothecate assets having a
market value not exceeding the lesser of the dollar amounts borrowed or 15% of
the value of total assets at the time of borrowing. (Federated International
Equity Fund II is not subject to this 15% limitation.) Federated Equity Income
Fund II may pledge assets having a market value not exceeding the lesser of the
dollar amounts borrowed or 10% of the value of its total assets at the time of
borrowing. For purposes of this limitation, the following are not deemed to be
pledges by Federated Growth Strategies Fund II or Federated Utility Fund II:
margin deposits for the purchase and sale of futures contracts and related
options, any segregation or collateral arrangements made in connection with
options activities or the purchase of securities on a when-issued basis. For
purposes of this limitation, neither the deposit of underlying securities or
other assets in escrow in connection with the writing of put or call options or
the purchase of securities on a when-issued basis nor margin deposits for the
purchase and sale of financial futures contracts and related options are deemed
to be a pledge by Federated International Equity Fund II. For purposes of this
limitation, margin deposits for the purchase and sale of financial futures
contracts and related options are not deemed to be pledges by Federated Equity
Income Fund II.

CONCENTRATION OF INVESTMENTS

Federated Utility Fund II will not purchase securities if, as a result of such
purchase, 25% or more of its total assets would be invested in securities of
companies engaged principally in any one industry other than the utilities
industry. However, Federated Utility Fund II may at any time invest 25% or more
of its total assets in cash or cash items and securities issued and/or
guaranteed by the U.S. government, its agencies or instrumentalities.

Federated Prime Money Fund II will not purchase securities if, as a result of
such purchase, 25% or more of its total assets would be invested in securities
of companies engaged principally in any one industry other than finance
companies. However, Federated Prime Money Fund II may at any time invest 25% or
more of its total assets in cash or cash items and securities issued and/or
guaranteed by the U.S. government, its agencies or instrumentalities.

Federated International Equity Fund II will not invest 25% or more of its total
assets in securities of issuers having their principal business activities in
the same industry.

Federated American Leaders Fund II, Federated Growth Strategies Fund II,
Federated Fund for U.S. Government Securities II, and Federated High Income Bond
Fund II will not purchase securities if, as a result of such purchase, 25% or
more of their respective total assets would be invested in any one industry.
However, each Fund may at any time invest 25% or more of its respective total
assets in cash or cash items and securities issued and/or guaranteed by the U.S.
government, its agencies or instrumentalities.

Federated Equity Income Fund II will not purchase securities if, as a result of
such purchase, 25% or more of its total assets would be invested in any one
industry.

INVESTING IN COMMODITIES

The Funds will not purchase or sell commodities, commodity contracts, or
commodity futures contracts, except that Federated Utility Fund II may purchase
and sell futures and stock index futures contracts and related options;
Federated Growth Strategies Fund II may purchase and sell futures contracts and
options on futures contracts, provided that the sum of its initial margin
deposits for futures contracts plus premiums paid by it for open options on
futures contracts, may not exceed 5% of the fair market value of Federated
Growth Strategies Fund II's total assets, after taking into account the
unrealized profits and losses on those contracts; and Federated International
Equity Fund II may purchase and sell financial futures contracts and options on
financial futures contracts, provided that the sum of its initial margin
deposits for financial futures contracts plus premiums paid by it for open
options on financial futures contracts, may not exceed 5% of the fair market
value of Federated International Equity Fund II's total assets, after taking
into account the unrealized profits and losses on those contracts. Further,
Federated International Equity Fund II may engage in foreign currency
transactions and purchase or sell forward contracts with respect to foreign
currencies and related options. Federated Equity Income Fund II will not
purchase or sell commodities, except that it may purchase and sell financial
futures contracts and related options.

INVESTING IN REAL ESTATE

The Funds will not purchase or sell real estate, including (with the exception
of Federated Equity Income Fund II) limited partnership interests in real
estate, although each Fund (including Federated Equity Income Fund) may invest
in securities of companies whose business involves the purchase or sale of real
estate or in securities secured by real estate or interests in real estate.

LENDING CASH OR SECURITIES

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

UNDERWRITING

No Fund will underwrite any issue of securities, except as such Fund may be
deemed to be an underwriter under the Securities Act of 1933 in connection with
the sale of securities in accordance with its respective investment objectives,
policies, and limitations. Federated International Equity Fund II will not
underwrite or participate in the marketing of securities of other issuers,
except as it may be deemed to be an underwriter under federal securities law in
connection with the disposition of its portfolio securities. Federated Equity
Income Fund II will not underwrite any issue or securities, except that it may
be deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of restricted securities which the Fund may purchase pursuant to
its investment objectives, policies and limitations.

DIVERSIFICATION OF INVESTMENTS

With respect to 75% of its total assets, no Fund (except Federated Equity Income
Fund II) will purchase the securities of any one issuer (other than cash, cash
items, or securities issued and/or guaranteed by the U.S. government, its
agencies or instrumentalities, and, with respect to all Funds except Federated
International Equity Fund II, repurchase agreements collateralized by such
securities) if, as a result, more than 5% of such Fund's total assets would be
invested in the securities of that issuer.

In addition, no Fund (with the exception of only Federated Prime Money Fund II)
will purchase more than 10% of any class of the outstanding voting securities of
any one issuer. For these purposes, the Funds consider common stock and all
preferred stock of an issuer each as a single class, regardless of priorities,
series, designations, or other differences.

Federated Equity Income Fund II will not invest more than 5% of the value of its
total assets in securities of one issuer (except cash and cash items, repurchase
agreements, and U.S. government obligations) or acquire more than 10% of any
class of voting securities of any issuer. For these purposes, the Fund takes all
common stock and all preferred stock of an issuer each as a single class,
regardless of priorities, series, designations, or other differences.

ACQUIRING SECURITIES

Federated International Equity Fund II will not acquire more than 10% of the
outstanding voting securities of any one issuer.

The above investment limitations cannot be changed unless authorized by the
"vote of a majority of its outstanding voting securities," as defined by the
Investment Company Act. The following limitations, however, may be changed by
the Board without shareholder approval [except that no investment limitation of
Federated Equity Income Fund II shall prevent the Fund from investing
substantially all of its assets (except for assets which are not considered to
be "investment securities" under the Investment Company Act of 1940, or assets
exempted by the SEC) in an open-end investment company with substantially the
same investment objectives]. Shareholders will be notified before any material
changes in these limitations becomes effective.

INVESTING IN ILLIQUID SECURITIES

Federated American Leaders Fund II, Federated Growth Strategies Fund II,
Federated Utility Fund II, Federated Fund for U.S. Government Securities II and
Federated International Equity Fund II will not invest more than 15% of their
respective net assets in illiquid securities, including, among others,
repurchase agreements providing for settlement more than seven days after
notice, over-the-counter options (with respect to only Federated Growth
Strategies Fund II, Federated Utility Fund II and Federated International Equity
Fund II) and certain restricted securities not determined to be liquid under
criteria established by the Trustees.

Federated Prime Money Fund II will not invest more than 10% of its net assets in
illiquid securities, including, among others, repurchase agreements providing
for settlement more than seven days after notice and certain restricted
securities not determined to be liquid under criteria established by the
Trustees.

Federated High Income Bond Fund II will not invest more than 15% of its total
assets in illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice and certain restricted
securities not determined to be liquid under criteria established by the
Trustees.

Federated Equity Income Fund II will not invest more than 15% of its net assets
in illiquid securities, including non-negotiable time deposits, repurchase
agreements providing for settlement in more than seven days after notice, and
certain restricted securities not determined to be liquid under criteria
established by the Trustees.

DEALING IN PUTS AND CALLS

Federated International Equity Fund II will not write call options on securities
unless the securities are held in the Fund's portfolio or the Fund is entitled
to them in deliverable form without further payment or the Fund has segregated
cash in the amount of any further payments. Federated International Equity Fund
II will not purchase put options on securities unless the securities or an
offsetting call option is held in the Fund's portfolio. Federated International
Equity Fund II may also purchase, hold or sell (i) contracts for future delivery
of securities or currencies and (ii) warrants granted by the issuer of the
underlying securities.

INVESTING IN PUT OPTIONS

Federated Growth Strategies Fund II, Federated Utility Fund II, Federated
International Equity Fund II and Federated Equity Income Fund II will not
purchase put options on securities, unless the securities are held in the Fund's
portfolio and, with respect to Federated Growth Strategies Fund II, Federated
Utility Fund II and Federated Equity Income Fund II, not more than 5% of their
respective total assets would be invested in premiums on open put options.

WRITING COVERED CALL OPTIONS

Federated Growth Strategies Fund II, Federated Utility Fund II, Federated
International Equity Fund II and Federated Equity Income Fund II will not write
call options on securities unless the securities are held in the Fund's
portfolio or unless the Fund is entitled to them in deliverable form without
further payment or after segregating cash in the amount of any further payment.

PURCHASING SECURITIES TO EXERCISE CONTROL

Federated Growth Strategies Fund II, Federated International Equity Fund II and
Federated Equity Income Fund II will not purchase securities of a company for
the purpose of exercising control or management.

Federated Equity Income Fund II may purchase up to 10% of the voting securities
of any one issuer and may exercise its voting powers consistent with the best
interests of the Fund. In addition, the Fund, other companies advised by the
adviser, and other affiliated companies may together buy and hold substantial
amounts of voting stock of a company and may vote together in regard to such
company's affairs. In some cases, the Fund and its affiliates might collectively
be considered to be in control of such company. In some cases, Trustees and
other persons associated with the Fund and its affiliates might possibly become
directors of companies in which the Fund holds stock.

ARBITRAGE TRANSACTIONS

Federated Equity Income Fund II will not engage in arbitrage transactions.

With respect to all of the Funds, except with respect to borrowing money, if a
percentage limitation is adhered to at the time of investment, a later increase
or decrease in percentage resulting from any change in value of total or net
assets will not result in a violation of such restriction.

Federated American Leaders Fund II, Federated Growth Strategies Fund II,
Federated Utility Fund II, Federated Prime Money Market Fund II, Federated Fund
for U.S. Government Securities II, Federated High Income Bond Fund II and
Federated International Equity Fund II have no present intention to borrow money
in excess of 5% of the value of their respective net assets during the coming
fiscal year. Federated Equity Income Fund has no present intention to borrow
money, invest in reverse repurchase agreements, pledge securities, or sell
securities short in excess of 5% of the value of its total assets during the
coming fiscal year.

For purposes of their policies and limitations, the Funds consider certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash items."

REGULATORY COMPLIANCE

Federated Prime Money Fund II may follow non-fundamental operational policies
that are more restrictive than its fundamental investment limitations, as set
forth in the prospectus and this Statement of Additional Information, in order
to comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940. In particular, Federated
Prime Money Fund II will comply with the diversification and other requirements
of Rule 2a- 7 which regulates money market mutual funds. Federated Prime Money
Fund II will also determine the effective maturity of its investments, as well
as its ability to consider a security as having received the requisite
short-term ratings by NRSROs, according to Rule 2a-7. Federated Prime Money Fund
II may change these operational policies to reflect changes in the laws and
regulations without the approval of its shareholders.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Funds' portfolio securities are determined as follows:

* for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;

* in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;

* for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;

* futures contracts and options are valued at market values established by the
exchanges on which they are traded at the close of trading on such exchanges.
Options traded in the over-the-counter market are valued according to the mean
between the last bid and the last asked price for the option as provided by an
investment dealer or other financial institution that deals in the option. The
Board may determine in good faith that another method of valuing such
investments is necessary to appraise their fair market value;

* for all other securities, at fair value as determined in good faith by
the Board.

TRADING IN FOREIGN SECURITIES

Federated Fund for U.S. Government Securities II

How is the Fund Organized?

The Fund is a diversified portfolio of Federated Insurance Series (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 15, 1993. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities. The Trust changed its name from Insurance Management
Series to Federated Insurance Series on November 14, 1995. The Fund changed its
name from U.S. Government Bond Fund to Federated Fund for U.S. Government
Securities II on February 26, 1996. The Fund's investment adviser is Federated
Investment Management Company (Adviser). The Adviser, formerly known as
Federated Advisers, changed its name effective March 31, 1999.

Securities in Which the Fund Invests

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

FIXED INCOME 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

MORTGAGE BACKED SECURITIES

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 pre-payments from the underlying mortgages.
As a result, the holders assume all the prepayment risks of the underlying
mortgages.

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

SEQUENTIAL CMOS

In a sequential pay CMO, one class of CMOs receives all principal payments and
prepayments. The next class of CMOs receives all principal payments after the
first class is paid off. This process repeats for each sequential class of CMO.
As a result, each class of sequential pay CMOs reduces the prepayment risks of
subsequent classes.

PACS, TACS AND COMPANION CLASSES

More sophisticated CMOs include planned amortization classes (PACs) and targeted
amortization classes (TACs). PACs and TACs are issued with companion classes.
PACs and TACs receive principal payments and prepayments at a specified rate.
The companion classes receive principal payments and prepayments in excess of
the specified rate. In addition, PACs will receive the companion classes' share
of principal payments, if necessary, to cover a shortfall in the prepayment
rate. This helps PACs and TACs to control prepayment risks by increasing the
risks to their companion classes.

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.

IOS AND POS

CMOs may allocate interest payments to one class (Interest Only or IOs) and
principal payments to another class (Principal Only or POs). POs increase in
value when prepayment rates increase. In contrast, IOs decrease in value when
prepayments increase, because the underlying mortgages generate less interest
payments. However, IOs tend to increase in value when interest rates rise (and
prepayments decrease), making IOs a useful hedge against market risks.

FLOATERS AND INVERSE FLOATERS

Another variant allocates interest payments between two classes of CMOs. One
class (Floaters) receives a share of interest payments based upon a market index
such as LIBOR. The other class (Inverse Floaters) receives any remaining
interest payments from the underlying mortgages. Floater classes receive more
interest (and Inverse Floater classes receive correspondingly less interest) as
interest rates rise. This shifts prepayment and market risks from the Floater to
the Inverse Floater class, reducing the price volatility of the Floater class
and increasing the price volatility of the Inverse Floater class.

Z CLASSES AND RESIDUAL CLASSES

CMOs must allocate all payments received from the underlying mortgages to some
class. To capture any unallocated payments, CMOs generally have an accrual (Z)
class. Z classes do not receive any payments from the underlying mortgages until
all other CMO classes have been paid off. Once this happens, holders of Z class
CMOs receive all payments and prepayments. Similarly, REMICs have residual
interests that receive any mortgage payments not allocated to another REMIC
class.

The degree of increased or decreased prepayment risks depends upon the structure
of the CMOs. However, the actual returns on any type of mortgage backed security
depend upon the performance of the underlying pool of mortgages, which no one
can predict and will vary among pools.

ZERO COUPON SECURITIES

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are subject to credit risk.

REVERSE REPURCHASE AGREEMENTS

Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risk. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.

DELAYED DELIVERY TRANSACTIONS

TO BE ANNOUNCED SECURITIES (TBAS)

DOLLAR ROLLS

SECURITIES LENDING

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Securities lending activities are subject to market risks and credit risks.

ASSET COVERAGE

In order to secure its obligations in connection with special transactions, the
Fund will either own the underlying assets, enter into an offsetting transaction
or set aside readily marketable securities with a value that equals or exceeds
the Fund's obligations. Unless the Fund has other readily marketable assets to
set aside, it cannot trade assets used to secure such obligations entering into
an offsetting derivative contract or terminating a special transaction. This may
cause the Fund to miss favorable trading opportunities or to realize losses on
special transactions.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.

INTEREST RATE RISKS

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. Because, however, rising
interest rates generally result in decreased prepayments of mortgage backed
securities, therein extending their durations, mortgage backed securities may
decrease in value to a greater extent then other fixed income securities when
interest rates rise. Since rising interest rates generally result in decreased
propayment of mortgage backed securities, this could cause mortgage securities
to have greateer 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.

RISKS ASSOCIATED WITH COMPLEX CMOS

CMOs with complex or highly variable prepayment terms, such as companion
classes, IOs, POs, Inverse Floaters and residuals, generally entail greater
market, prepayment and liquidity risks than other mortgage backed securities.
For example, their prices are more volatile and their trading market may be more
limited.

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.

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.

LEVERAGE RISKS

STATE INSURANCE REGULATIONS

VARIABLE ASSET REGULATIONS

Federated Growth Strategies Fund II

How is the Fund Organized?

The Fund is a diversified portfolio of Federated Insurance Series (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 15, 1993. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities. The Trust changed its name from Insurance Management
Series to Federated Insurance Series on November 14, 1995. The Fund changed its
name from Growth Stock Fund to Federated Growth Strategies Fund II on February
26, 1996.

The Fund's investment adviser is Federated Investment Management Company
(Adviser). The Adviser, formerly known as Federated Advisers, changed its name
effective March 31, 1999.

Securities in Which the Fund Invests

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

EQUITY SECURITIES

COMMON STOCKS

PREFERRED STOCKS

INTERESTS IN OTHER LIMITED LIABILITY COMPANIES

Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.

WARRANTS

FIXED INCOME 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

CORPORATE DEBT SECURITIES

Commercial Paper

Demand Instruments

Zero Coupon Securities

There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. In addition, some securities give
the issuer the option to deliver additional securities in place of cash interest
payments, thereby increasing the amount payable at maturity. These are referred
to as pay-in-kind or PIK securities.

CONVERTIBLE SECURITIES

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.

HEDGING

DERIVATIVE CONTRACTS

The Fund may trade in the following types of derivative contracts.

FUTURES CONTRACTS

The Fund may buy and sell the following types of futures contracts: financial
futures contracts and stock index futures contracts.

OPTIONS

The Fund may:

* buy call options on securities, securities indices and financial futures
contracts in anticipation of an increase in value of the underlying asset;

* buy put options on securities, securities indices and financial futures
contracts in anticipation of a decrease in the value of the underlying
asset; and

* buy or write options to close out existing positions.

When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.

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. The foreign securities underlying European Depositary Receipts
(EDRs), Global Depositary Receipts (GDRs), and International Depositary Receipts
(IDRs), are traded globally or outside the United States. Depositary receipts
involve many of the same risks of investing directly in foreign securities,
including currency risks and risks of foreign investing.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS

DELAYED DELIVERY TRANSACTIONS

SECURITIES LENDING

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Securities lending activities are subject to market risks and credit risks.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.

EQUITY SECURITIES INVESTMENT RISKS

STOCK MARKET RISKS

RISKS RELATED TO INVESTING FOR GROWTH

SECTOR RISK

RISKS RELATED TO COMPANY SIZE

RISKS OF INVESTING IN AMERICAN DEPOSITARY RECEIPTS

LIQUIDITY RISKS

OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

CREDIT RISKS

FIXED INCOME SECURITIES INVESTMENT RISKS

INTEREST RATE RISKS

CREDIT RISK

Credit risk is the possibility that an issuer will default (the issuer fails to
repay interest and principal when due). If an issuer defaults, the Fund will
lose money.

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

CALL RISK

CURRENCY RISKS

PREPAYMENT RISKS

The Fund may have to reinvest the proceeds of mortgage prepayments in other
fixed income securities with lower interest rates, higher prepayment risks, or
other less favorable characteristics.

LIQUIDITY RISKS

OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

LEVERAGE RISK

VARIABLE ASSET REGULATIONS

The Fund is also subject to variable contract asset regulations prescribed by
the U.S. Treasury Department under Section 817(h) of the Internal Revenue Code.
After a one year start-up period, the regulations generally require that, as of
the end of each calendar quarter or within 30 days thereafter, no more than 55%
of the total assets of the Fund may be represented by any one investment, no
more than 70% of the total assets of the Fund may be represented by any two
investments, no more than 80% of the total assets of the Fund may be represented
by any three investments, and no more than 90% of the total assets of the Fund
may be represented by any four investments. In applying these diversification
rules, all securities of the same issuer, all interests in the same real
property project, and all interests in the same commodity are each treated as a
single investment. In the case of government securities, each government agency
or instrumentality shall be treated as a separate issuer. If the Fund fails to
achieve the diversification required by the regulations, unless relief is
obtained from the Internal Revenue Service, the contracts invested in the Fund
will not be treated as annuity, endowment, or life insurance contracts.

STATE INSURANCE REGULATIONS

The Fund is intended to be a funding vehicle for variable annuity contracts and
variable life insurance policies offered by certain insurance companies. The
contracts will seek to be offered in as many jurisdictions as possible. Certain
states have regulations concerning, among other things, the concentration of
investments, sales and purchases of futures contracts, and short sales of
securities. If applicable, the Fund may be limited in its ability to engage in
such investments and to manage its portfolio with desired flexibility. The Fund
will operate in material compliance with the applicable insurance laws and
regulations of each jurisdiction in which contracts will be offered by the
insurance companies which invest in the Fund.

Federated High Income Bond Fund II

How is the Fund Organized?

The Fund is a diversified portfolio of Federated Insurance Series (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 15, 1993. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities. The Trust changed its name from Insurance Management
Series to Federated Insurance Series on November 14, 1995. The Fund changed its
name from Corporate Bond Fund to Federated High Income Bond Fund II on February
26, 1996.

The Fund's investment adviser is Federated Investment Management Company
(Adviser). The Adviser, formerly known as Federated Advisers, changed its name
effective March 31, 1999.

Securities in Which the Fund Invests

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

The following describes the additional types of securities in which the Fund
invests.

FIXED INCOME 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

ASSET BACKED SECURITIES

ZERO COUPON SECURITIES

Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. Investors must wait until maturity to receive
interest and principal, which increases the market and credit risks of a zero
coupon security. A zero coupon step-up security converts to a coupon security
before final maturity. The difference between the purchase price and amount paid
at maturity represents interest on the zero coupon security.

BANK INSTRUMENTS

PREFERRED STOCKS

CORPORATE DEBT SECURITIES

COMMERCIAL PAPER

DEMAND INSTRUMENTS

CONVERTIBLE SECURITIES

The Fund treats convertible securities as fixed income securities for purposes
of its investment policies and limitations.

EQUITY SECURITIES

COMMON STOCKS

INTERESTS IN OTHER LIMITED LIABILITY COMPANIES

Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.

REAL ESTATE INVESTMENT TRUSTS (REITS)

WARRANTS

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

DEPOSITARY RECEIPTS

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS

DELAYED DELIVERY TRANSACTIONS

SECURITIES LENDING

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Securities lending activities are subject to market risks and credit risks.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

ASSET COVERAGE

In order to secure its obligations in connection with special transactions, the
Fund will either own the underlying assets, enter into an offsetting transaction
or set aside readily marketable securities with a value that equals or exceeds
the Fund's obligations. Unless the Fund has other readily marketable assets to
set aside, it cannot trade assets used to secure such obligations 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 special transactions.

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.

FIXED INCOME RISKS

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.

RISKS OF FOREIGN INVESTING

INTEREST RATE RISKS

LIQUIDITY RISKS

RISKS RELATED TO THE ECONOMY

The prices of high-yield securities are affected by investor sentiment. 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.

LEVERAGE RISKS

EQUITY RISKS

STOCK MARKET RISKS

The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities.

LIQUIDITY RISKS

CALL RISKS

CURRENCY RISKS

VARIABLE ASSET REGULATIONS

The Fund is also subject to variable contract asset regulations prescribed by
the U.S. Treasury Department under Section 817(h) of the Internal Revenue Code.
After a one year start-up period, the regulations generally require that, as of
the end of each calendar quarter or within 30 days thereafter, no more than 55%
of the total assets of the Fund may be represented by any one investment, no
more than 70% of the total assets of the Fund may be represented by any two
investments, no more than 80% of the total assets of the Fund may be represented
by any three investments, and no more than 90% of the total assets of the Fund
may be represented by any four investments. In applying these diversification
rules, all securities of the same issuer, all interests in the same real
property project, and all interests in the same commodity are each treated as a
single investment. In the case of government securities, each government agency
or instrumentality shall be treated as a separate issuer. If the Fund fails to
achieve the diversification required by the regulations, unless relief is
obtained from the Internal Revenue Service, the contracts invested in the Fund
will not be treated as annuity, endowment, or life insurance contracts.

STATE INSURANCE REGULATIONS

The Fund is intended to be a funding vehicle for variable annuity contracts and
variable life insurance policies offered by certain insurance companies. The
contracts will seek to be offered in as many jurisdictions as possible. Certain
states have regulations concerning, among other things, the concentration of
investments, sales and purchases of futures contracts, and short sales of
securities. If applicable, the Fund may be limited in its ability to engage in
such investments and to manage its portfolio with desired flexibility. The Fund
will operate in material compliance with the applicable insurance laws and
regulations of each jurisdiction in which contracts will be offered by the
insurance companies which invest in the Fund.

Federated International Equity Fund II

How is the Fund Organized?

The Fund is a diversified portfolio of Federated Insurance Series (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 15, 1993. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities. The Trust changed its name from Insurance Management
Series to Federated Insurance Series on November 14, 1995. The Fund changed its
name from International Stock Fund to Federated International Equity Fund II on
February 26, 1996. The Fund's investment adviser is Federated Investment
Management Company (Adviser). The Adviser, formerly known as Federated Advisers,
changed its name effective March 31, 1999.

Securities in Which the Fund Invests

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

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

DEPOSITARY RECEIPTS

Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are not traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
Receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.

FOREIGN EXCHANGE CONTRACTS

In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, the Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the current
exchange rate. The Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease the Fund's exposure to
currency risks.

FOREIGN GOVERNMENT SECURITIES

Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples of these include, but are not limited to, the International Bank for
Reconstruction and Development (the World Bank), the Asian Development Bank, the
European Investment Bank and the Inter-American Development Bank.

Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political unit
that are not backed by the national government's full faith and credit. Further,
foreign government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.

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 additional types of equity securities in which the Fund
invests.

COMMON STOCKS

PREFERRED STOCKS

INTERESTS IN OTHER LIMITED LIABILITY COMPANIES

Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.

REAL ESTATE INVESTMENT TRUSTS (REITS)

WARRANTS

FIXED INCOME SECURITIES

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

TREASURY SECURITIES

Treasury securities are direct obligations of the government of a foreign
country.

AGENCY SECURITIES

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

CORPORATE DEBT SECURITIES

Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers. The credit risk of an issuer's debt security may also vary based on its
priority for repayment. For example, higher ranking (senior) debt securities
have a higher priority than lower ranking (subordinated) securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event of
bankruptcy, holders of senior securities may receive amounts otherwise payable
to the holders of subordinated securities. Some subordinated securities, such as
trust preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer any
payment that would reduce its capital below regulatory requirements.

COMMERCIAL PAPER

DEMAND INSTRUMENTS

BANK INSTRUMENTS

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.

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

The fixed income securities in which the Fund will invest will possess a minimum
credit rating of A as assigned by Standard & Poor's or A by Moody's Investors
Service, Inc., or, if unrated, judged by the Adviser to be of comparable
quality. The Adviser will determine whether a security is investment grade based
upon the credit ratings given by one or more nationally recognized rating
services. For example, Standard & Poor's, a rating service, assigns ratings to
investment grade securities (AAA, AA, A and BBB) based on their assessment of
the likelihood of the issuer's inability to pay interest or principal (default)
when due on each security. Lower credit ratings correspond to higher credit
risk. If a security has not received a rating, the Fund must rely entirely upon
the Adviser's credit assessment that the security is comparable to investment
grade.

DERIVATIVE CONTRACTS

The Fund may trade in the following types of derivative contracts.

FUTURES CONTRACTS

OPTIONS

The Fund may:

* buy call options on securities, securities indices and financial futures
contracts in anticipation of an increase in value of the underlying asset;

* buy put options on securities, securities indices and financial futures
contracts in anticipation of a decrease in the value of the underlying
asset; and

* buy or write options to close out existing positions.

The Fund may also write call options on foreign currencies, securities indices
and financial futures contracts to generate income from premiums, and in
anticipation of a decrease or only limited increase in the value of the
underlying asset. If a call written by the Fund is exercised, the Fund foregoes
any possible profit from an increase in the market price of the underlying asset
over the exercise price plus the premium received.

The Fund may also write put options on securities, foreign currencies and
financial futures contracts (to generate income from premiums, and in
anticipation of an increase or only limited decrease in the value of the
underlying asset). In writing puts, there is a risk that the Fund may be
required to take delivery of the underlying asset when its current market price
is lower than the exercise price.

When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.

SWAPS

Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party, and
the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, the Fund would receive
(or pay) only the amount by which its payment under the contract is less than
(or exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by a
variety of names including caps, floors, and collars. Common swap agreements
that the Fund may use include:

CURRENCY SWAPS

Currency swap agreements provide for interest payments in different currencies.
The parties might agree to exchange the notional principal amount as well.

HYBRID INSTRUMENTS

Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference to
changes in the price of an underlying asset or by reference to another benchmark
(such as interest rates, currency exchange rates or indices). Hybrid instruments
also include convertible securities with conversion terms related to an
underlying asset or benchmark.

The risks of investing in hybrid instruments reflect a combination of the risks
of investing in securities, options, futures and currencies, and depend upon the
terms of the instrument. Thus, an investment in a hybrid instrument may entail
significant risks in addition to those associated with traditional fixed income
or convertible securities. Hybrid instruments are also potentially more volatile
and carry greater market risks than traditional instruments.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS

DELAYED DELIVERY TRANSACTIONS

SECURITIES LENDING

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Securities lending activities are subject to market and credit risks.

ASSET COVERAGE

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.

EQUITY SECURITIES INVESTMENT RISKS

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.

RISKS OF FOREIGN INVESTING

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

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

EURO RISKS

LIQUIDITY RISKS

Trading opportunities are more limited for equity securities issued by companies
located in emerging market countries. This may make it more difficult to sell or
buy a security at a favorable price or time. Consequently, the Fund may have to
accept a lower price to sell a security, sell other securities to raise cash or
give up an investment opportunity, any of which could have a negative effect on
the Fund's performance. Infrequent trading may also lead to greater price
volatility.

OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

STOCK MARKET RISKS

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

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, or
geographic region, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that sector or
geographic region.

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.

RISKS OF INVESTING IN EMERGING MARKET COUNTRIES

LEVERAGE RISKS

STATE INSURANCE REGULATIONS

VARIABLE ASSET REGULATIONS

Federated Prime Money Fund II

How is the Fund Organized?

The Fund is a diversified portfolio of Federated Insurance Series (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 15, 1993. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities. The Trust changed its name from Insurance Management
Series to Federated Insurance Series on November 14, 1995. The Fund changed its
name from Prime Money Fund to Federated Prime Money Fund II on February 26,
1996. The Fund's investment adviser is Federated Investment Management Company
(Adviser). The Adviser, formerly known as Federated Advisers, changed its name
effective March 31, 1999.

Securities in Which the Fund Invests

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

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. Fixed
income securities provide more regular income than equity securities. However,
the returns on fixed income securities are limited and normally do not increase
with the issuer's earnings. This limits the potential appreciation of fixed
income securities as compared to equity securities.

A security's yield measures the annual income earned on a security as a
percentage of its price. Securities with higher credit risks generally have
higher yields. A security's yield will increase or decrease depending upon
whether it costs less (a "discount") or more (a "premium") than the principal
amount. Under normal market conditions, securities with longer maturities will
also have higher yields. 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.

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. Investors regard treasury securities as having the lowest credit
risk.

AGENCY SECURITIES

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a "GSE"). Some GSEs
are supported by the full faith and credit of the United States. 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. Investors regard
agency securities as having low credit risk, but not as low as Treasury
securities.

CORPORATE DEBT SECURITIES

COMMERCIAL PAPER

DEMAND INSTRUMENTS

ASSET BACKED SECURITIES

Asset Backed Securities are payable from pools of 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 also take the form of commercial
paper or notes.

Historically, borrowers are more likely to refinance their mortgage than any
other type of consumer debt or short term commercial debt. In addition, some
asset backed securities use prepayment to buy addition assets, rather than
paying off the securities. Therefore, although asset backed securities may have
some prepayment risks, they generally do not present the same degree of risk as
mortgage backed securities.

BANK INSTRUMENTS

Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit
and banker's acceptances. Instruments denominated in U.S. dollars and
issued by Non-U.S. branches of U.S. or foreign banks are commonly referred
to as Eurodollar instruments. Instruments denominated in U.S. dollars and
issued by U.S. branches of foreign banks are referred to as Yankee
instruments.

CREDIT ENHANCEMENT

Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security.
Following a default, these assets may be sold and the proceeds paid to
security's holders. Either form of credit enhancement reduces credit risk by
providing another source of payment for a fixed income security.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are transactions in which a 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 an
agreed upon interest rate effective for the period the Fund owns the security
subject to repurchase. The agreed upon interest rate is unrelated to the
interest rate on the underlying security. The Funds will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker/dealers, which are deemed by the Adviser to be creditworthy.

Repurchase agreements are subject to credit risk.

REVERSE REPURCHASE AGREEMENTS

Reverse repurchase agreements are repurchase agreements in which a Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risk. In addition, Reverse repurchase agreements create leverage risk
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.

DELAYED DELIVERY TRANSACTIONS

Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund purchases 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 purchase 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 purchased may vary from the purchase prices. Therefore, delayed
delivery transactions create market risk for the Fund. Delayed delivery
transactions also involve credit risk in the event of a counterparty default.

SECURITIES LENDING

A Fund may lend portfolio securities to firms that the Adviser has determined
are creditworthy. In return, it will receive either cash or liquid securities as
collateral from the borrower. A Fund will reinvest cash collateral in securities
that qualify as an otherwise acceptable investment for the Fund. However, the
Fund must pay interest to the borrower for the use of any cash collateral. If
the market value of the loaned securities increases, the borrower must furnish
additional collateral. While portfolio securities are on loan, the borrower pays
the Fund the equivalent of any dividends or interest received on them. Loans are
subject to termination at the option of the Fund or the borrower. The Fund will
not have the right to vote on securities while they are being lent, but it will
terminate a loan in anticipation of any important vote. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash collateral to a
securities lending agent or broker.

Securities lending activities are subject to market risk and credit risk.

ASSET COVERAGE

In order to secure its obligations in connection with when-issued, and
delayed-delivery transactions, the Fund will "cover" such transactions, as
required under applicable interpretations of the SEC, either by owning the
underlying securities; entering into an offsetting transaction; or segregating,
earmarking, or depositing into an escrow account readily marketable securities
in an amount at all times equal to or exceeding the Fund's commitment with
respect to these instruments or contracts. As a result, use of these instruments
will impede the Fund's ability to freely trade the assets being used to cover
them, which could result in harm to the Fund.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.

INVESTMENT RATINGS

A nationally recognized rating service's two highest rating categories are
determined without regard for sub-categories and gradations. For example,
securities rated A-1+, A-1 or A-2 by Standard & Poor's ("S&P"), Prime-1 or
Prime-2 by Moody's Investors Service, Inc. ("Moody's"), or F-1(+ or -) or F-2 (+
or -) by Fitch IBCA, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Fund will limit its investments in
securities rated in the second highest short-term rating category (e.g., A-2 by
S&P, Prime-2 by Moody's or F-2 (+ or -) by Fitch) to not more than 5% of its
total assets, with not more than 1% invested in the securities of any one
issuer. The Fund will follow applicable regulations in determining whether a
security rated by more than one rating service can be treated as being in one of
the two highest short-term rating categories; currently, such securities must be
rated by two rating services in one of their two highest rating categories. See
"Regulatory Compliance."

CONCENTRATION OF INVESTMENTS

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

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

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.

SECTOR RISKS

INTEREST RATE RISKS

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

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 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.

LEVERAGE RISKS

STATE INSURANCE REGULATIONS

VARIABLE ASSET REGULATIONS

DETERMINING MARKET VALUE OF SECURITIES

The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.

The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than 0.5 of 1% between the two values. The Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material dilution or
other unfair results arising from differences between the two methods of
determining net asset value.

Federated Utility Fund II

How is the Fund Organized?

The Fund is a diversified portfolio of Federated Insurance Series (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 15, 1993. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities. The Trust changed its name from Insurance Management
Series to Federated Insurance Series on November 14, 1995. The Fund changed its
name from Utility Fund to Federated Utility Fund II on February 26, 1996.

The Fund's investment adviser is Federated Investment Management Company
(Adviser). The Adviser, formerly known as Federated Advisers, changed its name
effective March 31, 1999.

Securities in Which the Fund Invests

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

EQUITY SECURITIES

COMMON STOCKS

PREFERRED STOCKS

INTERESTS IN OTHER LIMITED LIABILITY COMPANIES

Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.

REAL ESTATE INVESTMENT TRUSTS (REITS)

WARRANTS

FIXED INCOME 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

CORPORATE DEBT SECURITIES

COMMERCIAL PAPER

DEMAND INSTRUMENTS

ZERO COUPON SECURITIES

There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. In addition, some securities give
the issuer the option to deliver additional securities in place of cash interest
payments, thereby increasing the amount payable at maturity. These are referred
to as pay-in-kind or PIK securities.

CONVERTIBLE SECURITIES

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

FOREIGN SECURITIES

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

* 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

DEPOSITARY RECEIPTS

HEDGING

DERIVATIVE CONTRACTS

The Fund may trade in the following types of derivative contracts:

FUTURES CONTRACTS

The Fund may buy/sell financial futures contracts.

OPTIONS

The Fund may:

* buy put options on portfolio securities and financial futures contracts in
anticipation of a decrease in the value of the underlying asset.

* write call options on portfolio securities and financial futures contracts to
generate income from premiums, and in anticipation of a decrease or only limited
increase in the value of the underlying asset. If a call written by the Fund is
exercised, the Fund foregoes any possible profit from an increase in the market
price of the underlying asset over the exercise price plus the premium received.

* buy or write options to close out existing options positions.

When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.

Although the Fund reserves the right to write covered call options on its entire
portfolio, it will not write such options on more than 25% of its total assets
unless a higher limit is authorized by its Board.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS

DELAYED DELIVERY TRANSACTIONS

SECURITIES LENDING

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Securities lending activities are subject to market risks and credit risks.

ASSET COVERAGE

In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations 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.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

INVESTMENT RATINGS

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

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

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.

EQUITY SECURITIES INVESTMENT RISKS

SECTOR 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.

RISKS RELATED TO COMPANY SIZE

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

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

RISKS OF FOREIGN INVESTING

CURRENCY RISKS

EURO RISKS

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

RISKS OF INVESTING IN EMERGING MARKET COUNTRIES

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 may 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.

CREDIT RISKS

FIXED INCOME INVESTMENT RISKS

INTEREST RATE RISKS

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.

CALL RISKS

PREPAYMENT RISKS

Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate mortgages
when mortgage rates fall. This results in the prepayment of mortgage backed
securities with higher interest rates. Conversely, prepayments due to
refinancings decrease when mortgage rates increase. This extends the life of
mortgage backed securities with lower interest rates. Other economic factors can
also lead to increases or decreases in prepayments. Increases in prepayments of
high interest rate mortgage backed securities, or decreases in prepayments of
lower interest rate mortgage backed securities, may reduce their yield and
price. These factors, particularly the relationship between interest rates and
mortgage prepayments, make the price of mortgage backed securities more volatile
than many other types of fixed income securities with comparable credit risks.

The Fund may have to reinvest the proceeds of mortgage prepayments in other
fixed income securities with lower interest rates, higher prepayment risks, or
other less favorable characteristics.

LIQUIDITY RISKS

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

OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

SECTOR RISKS

LEVERAGE RISKS

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

VARIABLE ASSET REGULATIONS

The Fund is also subject to variable contract asset regulations prescribed by
the U.S. Treasury Department under Section 817(h) of the Internal Revenue Code.
After a one year start-up period, the regulations generally require that, as of
the end of each calendar quarter or within 30 days thereafter, no more than 55%
of the total assets of the Fund may be represented by any one investment, no
more than 70% of the total assets of the Fund may be represented by any two
investments, no more than 80% of the total assets of the Fund may be represented
by any three investments, and no more than 90% of the total assets of the Fund
may be represented by any four investments. In applying these diversification
rules, all securities of the same issuer, all interests in the same real
property project, and all interests in the same commodity are each treated as a
single investment. In the case of government securities, each government agency
or instrumentality shall be treated as a separate issuer. If the Fund fails to
achieve the diversification required by the regulations, unless relief is
obtained from the Internal Revenue Service, the contracts invested in the Fund
will not be treated as annuity, endowment, or life insurance contracts.

STATE INSURANCE REGULATIONS

The Fund is intended to be a funding vehicle for variable annuity contracts and
variable life insurance policies offered by certain insurance companies. The
contracts will seek to be offered in as many jurisdictions as possible. Certain
states have regulations concerning, among other things, the concentration of
investments, sales and purchases of futures contracts, and short sales of
securities. If applicable, the Fund may be limited in its ability to engage in
such investments and to manage its portfolio with desired flexibility. The Fund
will operate in material compliance with the applicable insurance laws and
regulations of each jurisdiction in which contracts will be offered by the
insurance companies which invest in the Fund.

What Do Shares Cost?

The net asset value (NAV) per Share of Federated American Leaders Fund II,
Federated Growth Strategies Fund II, Federated Utility Fund II, Federated Fund
for U.S. Government Securities II, Federated High Income Bond Fund II, Federated
International Equity Fund II and Federated Equity Income Fund II fluctuates and
is based on the market value of all securities and other
assets of the Fund.

Mixed Funding and Shared Funding

The Funds engage in mixed funding and shared funding. Although the Funds do not
currently foresee any disadvantage to contract owners due to differences in
redemption rates, tax treatment, or other considerations resulting from mixed
funding or shared funding, the Trustees will closely monitor the operation of
mixed funding and shared funding and will consider appropriate action to avoid
material conflicts and take appropriate action in response to any material
conflicts which occur. Such action could result in one or more participating
insurance companies withdrawing their investment in the Funds.

How is the Fund Sold?

Under the Distributor's Contract with the Funds, the Distributor
(Federated Securities Corp.) offers Shares on a continuous, best-efforts
basis.

SHAREHOLDER SERVICES

The Funds may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.

SUPPLEMENTAL PAYMENTS

Investment professionals receive such fees for providing distribution- related
or shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Funds or other
special events at recreational-type facilities, or items of material value.
These payments will be based upon the amount of Shares the investment
professional sells or may sell and/or upon the type and nature of sales or
marketing support furnished by the investment professional.

Subaccounting Services

Redemption in Kind

Although the Funds intend to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Funds' portfolio securities.

Because the Funds have elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Funds are obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.

Massachusetts Partnership Law

Account and Share Information

VOTING RIGHTS

As of March 23, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares of Federated American Leaders Fund II:
Aetna Insurance Co. of America, Hartford, CT owned approximately 6,752,893
shares (35.11%); Aetna Life Insurance & Annuity Co., Hartford, CT owned
approximately 6,041,920 shares (31.41%); Life of Virginia, Richmond, VA owned
approximately 3,576,598 shares (18.60%); and Great-West Life & Annuity Ins. Co.,
Englewood, CO owned approximately 1,187,440 shares (6.17%).

As of March 23, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares of Federated Equity Income Fund II:
Aetna Retirement Services, Hartford, Connecticut, owned approximately 1,974,880
shares (47.89%) and Aetna Retirement Services, Hartford Connecticut, owned
approximately 2,013,781 shares (48.83%).

As of March 23, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares of Federated Fund for U.S. Government
Securities II: Aetna Retirement Services, Hartford, Connecticut, owned
approximately 603,415 shares (5.64%); Lincoln Benefit Life Co., Lincoln,
Nebraska, owned approximately 700,097 shares (6.54%); Provident Mutual Life &
Annuity Company of America, Valley Forge, Pennsylvania, owned approximately
846,639 shares (7.91%); Aetna Retirement Services, Hartford, Connecticut, owned
approximately 1,397,961 shares (13.06%); Great-West Life & Annuity Insurance
Company, Englewood, Colorado, owned approximately 2,589,379 shares (24.19%); and
United of Omaha Life Insurance Company, Omaha, Nebraska, owned approximately
2,656,353 shares (24.82%).

As of March 23, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares of Federated Growth Strategies Fund
II: Aetna Retirement Services 61286272-0, Hartford, CT owned approximately
1,955,346 shares (55.25%); and Aetna Retirement Services 710294708-0, Hartford,
CT owned approximately 1,524,083 shares (43.07%).

As of March 23, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares of Federated High Income Bond Fund II:
Life of Virginia, Richmond, VA owned approximately 5,117,079 shares (25.69%);
Aetna Retirement Services 710294708-0, Hartford, CT owned approximately
4,356,643 shares (21.87%); Aetna Retirement Services 61286272-0, Hartford, CT
owned approximately 2,638,198 shares (13.25%); Lincoln Benefit Life Co.,
Lincoln, NE owned approximately 1,685,617 shares (8.46%); and Conseco Variable
Insurance Co., Carmel, IN owned approximately 1,157,904 shares (5.81%).

As of March 23, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares of Federated International Equity Fund
II: Conseco Variable Insurance Company, Carmel, Indiana, owned approximately
178,981 shares (5.27%); Safeco Mutual Funds, Seattle, Washington, owned
approximately 318,669 shares (9.39%); Aetna Retirement Services, Hartford,
Connecticut, owned approximately 1,111,187 shares (32.75%); and Aetna Retirement
Services, Hartford, Connecticut, owned approximately 1,761,268 shares (51.90%).

As of March 23, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares of Federated Prime Money Fund II:
Glenbrook Life and Annuity Company, Palatine, Illinois, owned approximately
7,916,803 shares (6.51%); Aetna Retirement Services, Hartford, Connecticut,
owned approximately 8,772,553 shares (7.21%); Kansas City Life Insurance Co.,
Kansas City, Missouri, owned approximately 9,719,404 shares (7.99%); People's
Benefit Life Ins. Co., Cedar Rapids, Iowa, owned approximately 9,983,792 shares
(8.20%); First Variable Life Cash Management, Kansas City, Missouri, owned
approximately 11,601,697 shares (9.53%); Valley Forge Life Insurance Co.,
Wethersfield, Connecticut, owned approximately 18,443,975 shares (15.16%); and
United of Omaha Life Insurance Co., Omaha, Nebraska, owned approximately
36,433,921 shares (29.94%).

As of March 23, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares Federated Utility Fund II: Life of
Virginia, Richmond, VA, owned approximately 3,218,006 shares (29.55%); Aetna
Retirement Services 710294708-0, Hartford, CT owned approximately 1,890,670
shares (17.36%); Aetna Retirement Services 61286272-0, Hartford, CT owned
approximately 1,724,514 shares (15.84%); Lincoln Benefit Life Co., Lincoln, NE
owned approximately 832,114 shares (7.64%); Safeco Mutual Funds, Seattle, WA
owned approximately 708,822 shares (6.51%); and Provident Mutual Life & Annuity
Co. of America, Valley Forge, PA owned approximately 661,796 shares (6.08%).

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

Tax Information

FEDERAL INCOME TAX

The Funds intend to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.

A Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by a Fund.

FOREIGN INVESTMENTS

If a Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.

Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.

If a Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.

If more than 50% of the value of a Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.

Who Manages and Provides Services to the Funds?

BOARD OF TRUSTEES

The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each person's
name, address, birth date, present position(s) held with the Trust, principal
occupations for the past five years and positions held prior to the past five
years, total compensation received as a Trustee from the Trust for its most
recent fiscal year, and the total compensation received from the Federated Fund
Complex for the most recent calendar year. The Trust is comprised of eight funds
and The Federated Fund Complex is comprised of 54 investment companies, whose
investment advisers are affiliated with the Fund's Adviser.

As of March 23, 1999, the Fund's Board and Officers as a group owned less than
1% of the Funds' outstanding Shares.

<TABLE>
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TITLE FOR PAST 5 YEARS FROM TRUST** FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+ Chief Executive Officer and Director or Trustee of the $0 $0 for the
Birth Date: July 28, 1924 Federated Fund Complex; Chairman and Director, Federated Trust and
Federated Investors Tower Investors, Inc.; Chairman and Trustee, Federated Investment 54 other investment
1001 Liberty Avenue Management Company; Chairman and Director, Federated companies
Pittsburgh, PA Investment Counseling and Federated Global Investment in the Fund Complex
CHAIRMAN AND TRUSTEE Management Corp.; Chairman, Passport Research, Ltd.

THOMAS G. BIGLEY Director or Trustee of the Federated Fund Complex; Director, $1,591.19 $113,860.22 for the
Birth Date: February 3, 1934 Member of Executive Committee, Children's Hospital of Trust and
15 Old Timber Trail Pittsburgh; formerly: Senior Partner, Ernst & Young LLP; 54 other investment
Pittsburgh, PA Director, MED 3000 Group, Inc.; Director, Member of companies
TRUSTEE Executive Committee, University of Pittsburgh. in the Fund Complex

NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TITLE FOR PAST 5 YEARS FROM TRUST** FUND COMPLEX
JOHN T. CONROY, JR. Director or Trustee of the Federated Fund Complex; $1,750.56 $125,264.48 for the
Birth Date: June 23, 1937 President, Investment Properties Corporation; Senior Vice Trust and
Wood/IPC Commercial Dept. President, John R. Wood and Associates, Inc., Realtors; 54 other investment
John R. Wood Associates, Inc. Partner or Trustee in private real estate ventures in companies
Realtors Southwest Florida; formerly: President, Naples Property in the Fund Complex
3255 Tamiami Trail North Management, Inc. and Northgate Village Development
Naples, FL Corporation.
TRUSTEE

NICHOLAS CONSTANTAKIS Director or Trustee of the Federated Fund Complex; formerly: $1,591.19 $47,958.02 for the
Birth Date: Partner, Andersen Worldwide SC. Trust and
September 3, 1939 29 other investment
175 Woodshire Drive companies
Pittsburgh, PA in the Fund Complex
TRUSTEE

WILLIAM J. COPELAND Director or Trustee of the Federated Fund Complex; Director $1,750.56 $125,264.48 for the
Birth Date: July 4, 1918 and Member of the Executive Committee, Michael Baker, Inc.; Trust and
One PNC Plaza-23rd Floor formerly: Vice Chairman and Director, PNC Bank, N.A., and 54 other investment
Pittsburgh, PA PNC Bank Corp.; Director, Ryan Homes, Inc. companies
TRUSTEE Previous Postions: Director, United Refinery; Director, in the Fund Complex
Forbes Fund; Chairman, Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.

JAMES E. DOWD, ESQ. Director or Trustee of the Federated Fund Complex; Attorney- $1,750.56 $125,264.48 for the
Birth Date: May 18, 1922 at-law; Director, The Emerging Germany Fund, Inc. Trust and
571 Hayward Mill Road Previous Postions: President, Boston Stock Exchange, Inc.; 54 other investment
Concord, MA Regional Administrator, United States Securities and companies
TRUSTEE Exchange Commission. in the Fund Complex

LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund Complex; Professor $1,591.19 $113,860.22 for the
Birth Date: of Medicine, University of Pittsburgh; Medical Director, Trust and
October 11, 1932 University of Pittsburgh Medical Center - Downtown; 54 other investment
3471 Fifth Avenue Hematologist, Oncologist, and Internist, University of companies
Suite 1111 Pittsburgh Medical Center; Member, National Board of in the Fund Complex
Pittsburgh, PA Trustees, Leukemia Society of America.
TRUSTEE

EDWARD L. FLAHERTY, JR., Director or Trustee of the Federated Fund Complex; Attorney $1,750.56 $125,264.48 for the
ESQ. # of Counsel, Miller, Ament, Henny & Kochuba; Director Trust and
Birth Date: June 18, 1924 Emeritus, Eat'N Park Restaurants, Inc.; formerly: Counsel, 54 other investment
Miller, Ament, Henny Horizon Financial, F.A., Western Region; Partner, Meyer and companies
& Kochuba Flaherty. in the Fund Complex
205 Ross Street
Pittsburgh, PA
TRUSTEE

PETER E. MADDEN Director or Trustee of the Federated Fund Complex; formerly: $1,591.19 $113,860.22 for the
Birth Date: March 16, 1942 Representative, Commonwealth of Massachusetts General Court; Trust and
One Royal Palm Way President, State Street Bank and Trust Company and State 54 other investment
100 Royal Palm Way Street Corporation. companies
Palm Beach, FL Previous Postions: Director, VISA USA and VISA in the Fund Complex
TRUSTEE International; Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation.

JOHN E. MURRAY, JR., J.D., Director or Trustee of the Federated Fund Complex; $1,591.19 $113,860.22 for the
S.J.D. President, Law Professor, Duquesne University; Consulting Trust and
Birth Date: Partner, Mollica & Murray. 54 other investment
December 20, 1932 Previous Postions: Dean and Professor of Law, University of companies
President, Duquesne Pittsburgh School of Law; Dean and Professor of Law, in the Fund Complex
University Villanova University School of Law.
Pittsburgh, PA
TRUSTEE

NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TITLE FOR PAST 5 YEARS FROM TRUST** FUND COMPLEX
WESLEY W. POSVAR Director or Trustee of the Federated Fund Complex; $1,591.19 $113,860.22 for the
Birth Date: President, World Society of Ekistics (metropolitan Trust and
September 14, 1925 planning), Athens; Professor, International Politics; 54 other investment
1202 Cathedral Management Consultant; Trustee, Carnegie Endowment for companies
of Learning International Peace, RAND Corporation, Online Computer in the Fund Complex
University of Pittsburgh Library Center, Inc., National Defense University and
Pittsbugh, PA U.S. Space Foundation; President Emeritus, University of
TRUSTEE Pittsburgh; Founding Chairman, National Advisory Council for
Environmental Policy and Technology, Federal Emergency
Management Advisory Board; Trustee, Czech Management Center,
Prague.

Previous Postions: Professor, United States Military
Academy; Professor, United States Air Force Academy.

MARJORIE P. SMUTS Director or Trustee of the Federated Fund Complex; Public $1,591.19 $113,860.22 for the
Birth Date: June 21, 1935 Relations/Marketing/Conference Planning. Trust and
4905 Bayard Street Previous Postions: National Spokesperson, Aluminum Company 54 other investment
Pittsburgh, PA of America; business owner. companies
TRUSTEE in the Fund Complex

JOHN S. WALSH++ Director or Trustee of some of the Federated Funds; $0 $0 for the
Birth Date: President and Director, Heat Wagon, Inc.; President and Trust and
November 28, 1957 Director, Manufacturers Products, Inc.; President, Portable 23 other investment
2007 Sherwood Drive Heater Parts, a division of Manufacturers Products, Inc.; companies
Valparaiso, IN Director, Walsh & Kelly, Inc.; formerly: Vice President, in the Fund Complex
TRUSTEE Walsh & Kelly, Inc.

J. CHRISTOPHER DONAHUE+* President or Executive Vice President of the Federated Fund $0 $0 for the
Birth Date: April 11, 1949 Complex; Director or Trustee of some of the Funds in the Trust and
Federated Investors Tower Federated Fund Complex; President and Director, Federated 16 other investment
1001 Liberty Avenue Investors, Inc.; President and Trustee, Federated Investment companies
Pittsburgh, PA Management Company; President and Director, Federated in the Fund Complex
PRESIDENT AND TRUSTEE Investment Counseling and Federated Global Investment
Management Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services Company; Director,
Federated Services Company.

EDWARD C. GONZALES Trustee or Director of some of the Funds in the Federated $0 $0 for the
Birth Date: October 22, 1930 Fund Complex; President, Executive Vice President and Trust and
Federated Investors Tower Treasurer of some of the Funds in the Federated Fund Complex 1 other investment
1001 Liberty Avenue Vice Chairman, Federated Investors, Inc.; Vice President, company
Pittsburgh, PA Federated Investment Management Company and Federated in the Fund Complex
EXECUTIVE VICE PRESIDENT Investment Counseling, Federated Global Investment
Management Corp. and Passport Research, Ltd.; Executive Vice
President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company.

JOHN W. MCGONIGLE Executive Vice President and Secretary of the Federated Fund $0 $0 for the
Birth Date: Complex; Executive Vice President, Secretary, and Director, Trust and
October 26, 1938 Federated Investors, Inc.; Trustee, Federated Investment 54 other investment
Federated Investors Tower Management Company; Director, Federated Investment companies
1001 Liberty Avenue Counseling and Federated Global Investment Management Corp.; in the Fund Complex
Pittsburgh, PA Director, Federated Services Company; Director, Federated
EXECUTIVE VICE PRESIDENT Securities Corp.
AND SECRETARY

RICHARD J. THOMAS Treasurer of the Federated Fund Complex; Vice President - $0 $0 for the
Birth Date: June 17, 1954 Funds Financial Services Division, Federated Investors, Trust and
Federated Investors Tower Inc.; Formerly: various management positions within Funds 54 other investment
1001 Liberty Avenue Financial Services Division of Federated Investors, Inc. companies
Pittsburgh, PA in the Fund Complex
TREASURER

RICHARD B. FISHER President or Vice President of some of the Funds in the $0 $0 for the
Birth Date: May 17, 1923 Federated Fund Complex; Director or Trustee of some of the Trust and
Federated Investors Tower Funds in the Federated Fund Complex; Executive Vice 6 other investment
1001 Liberty Avenue President, Federated Investors, Inc.; Chairman and Director, companies
Pittsburgh, PA Federated Securities Corp. in the Fund Complex
VICE PRESIDENT

NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TITLE FOR PAST 5 YEARS FROM TRUST** FUND COMPLEX
HENRY A. FRANTZEN Chief Investment Officer of this Fund and various other $0 $0 for the
Birth Date: Funds in the Federated Fund Complex; Executive Vice Trust and
November 28, 1942 President, Federated Investment Counseling, Federated Global 3 other investment
Federated Investors Tower Investment Management Corp., Federated Investment Management companies
1001 Liberty Avenue Company and Passport Research, Ltd.; Registered in the Fund Complex
Pittsburgh, PA Representative, Federated Securities Corp.; Vice President,
CHIEF INVESTMENT OFFICER Federated Investors, Inc.; Formerly: Executive Vice
President, Federated Investment Counseling
Institutional Portfolio Management Services
Division; Chief Investment Officer/Manager,
International Equities, Brown Brothers Harriman
& Co.; Managing Director, BBH Investment
Management Limited.

WILLIAM D. DAWSON, III Chief Investment Officer of this Fund and various other $0 $0 for the
Birth Date: March 3, 1949 Funds in the Federated Fund Complex; Executive Vice Trust and
Federated Investors Tower President, Federated Investment Counseling, Federated Global 41 other investment
1001 Liberty Avenue Investment Management Corp., Federated Investment Management companies
Pittsburgh, PA Company and Passport Research, Ltd.; Registered in the Fund Complex
CHIEF INVESTMENT OFFICER Representative, Federated Securities Corp.; Portfolio
Manager, Federated Administrative Services;
Vice President, Federated Investors, Inc.;
Formerly: Executive Vice President and Senior
Vice President, Federated Investment Counseling
Institutional Portfolio Management Services
Division; Senior Vice President, Federated
Investment Management Company and Passport
Research, Ltd.

J. THOMAS MADDEN Chief Investment Officer of this Fund and various other $0 $0 for the
Birth Date: Funds in the Federated Fund Complex; Executive Vice Trust and
October 22, 1945 President, Federated Investment Counseling, Federated Global 12 other investment
Federated Investors Tower Investment Management Corp., Federated Investment Management companies
1001 Liberty Avenue Company and Passport Research, Ltd.; Vice President, in the Fund Complex
Pittsburgh, PA Federated Investors, Inc.; Formerly: Executive Vice
CHIEF INVESTMENT President and Senior Vice President, Federated Investment
OFFICER Counseling Institutional Portfolio Management Services
Division; Senior Vice President, Federated Investment
Management Company and Passport Research, Ltd.
</TABLE>

+ Mr. Donahue is the father of J. Christopher Donahue, President and
Trustee of the Trust.

** The aggregate compensation is provided for the Trust which is comprised of
eight portfolios.

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for the
Funds.

The Adviser is a wholly owned subsidiary of Federated.

OTHER RELATED SERVICES

BROKERAGE TRANSACTIONS

RESEARCH SERVICES

ADMINISTRATOR

Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Funds. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:

<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million

</TABLE>

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Funds' portfolio investments for a fee based on the
Funds' assets plus out-of-pocket expenses.

CUSTODIAN

State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Funds. Foreign instruments purchased by the Funds are
held by foreign banks participating in a network coordinated by State Street
Bank.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Funds pay the transfer agent a fee based on the size, type, and
number of accounts and transactions made by
shareholders.

INDEPENDENT PUBLIC ACCOUNTANTS

Deloitte and Touche LLP is the independent public accountant for the Funds.

FEES PAID BY THE FUND FOR SERVICES

FEDERATED AMERICAN LEADERS FUND II

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31 1998 1997 1996
<S> <C> <C> <C>
Advisory Fee Earned $2,758,350 $1,671,330 $693,045
Advisory Fee Reduction 29,986 198,839 203,603
Brokerage Commissions 608,534 226,100 234,623
Administrative Fee 277,306 169,740 125,000
12B-1 FEE NA
SHAREHOLDER SERVICES FEE NA

</TABLE>

FEDERATED EQUITY INCOME FUND II

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31 1998 1997 1996
<S> <C> <C> <C>
Advisory Fee Earned $344,437 $ 96,582 NA
Advisory Fee Reduction 195,710 43,970 NA
Brokerage Commissions 59,502 33,449 NA
Administrative Fee 125,000 113,358 NA
12B-1 FEE NA
SHAREHOLDER SERVICES FEE NA

</TABLE>

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31 1998 1997 1996
<S> <C> <C> <C>
Advisory Fee Earned $516,404 $278,740 $141,092
Advisory Fee Reduction 68,594 211,328 141,092
Brokerage Commissions 0 0 0
Administrative Fee 125,000 125,000 125,000
12B-1 FEE NA
SHAREHOLDER SERVICES FEE NA

</TABLE>

FEDERATED GROWTH STRATEGIES FUND II

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31 1998 1997 1996
<S> <C> <C> <C>
Advisory Fee Earned $404,516 $245,993 $ 51,083
Advisory Fee Reduction 167,071 168,091 51,083
Brokerage Commissions 110,394 100,717 26,305
Administrative Fee 125,000 125,002 125,000
12B-1 FEE NA
SHAREHOLDER SERVICES FEE NA

</TABLE>

FEDERATED HIGH INCOME BOND FUND II

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31 1998 1997 1996
<S> <C> <C> <C>
Advisory Fee Earned $1,119,042 $637,608 $240,233
Advisory Fee Reduction 0 95,075 203,132
Brokerage Commissions 0 0 0
Administrative Fee 140,924 125,002 125,000
12B-1 FEE NA
SHAREHOLDER SERVICES FEE NA

</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31 1998 1997 1996
<S> <C> <C> <C>
Advisory Fee Earned $474,194 $273,830 $106,851
Advisory Fee Reduction 223,688 273,316 106,851
Brokerage Commissions 555,576 291,180 104,437
Administrative Fee 125,000 125,002 125,000
12B-1 FEE NA
SHAREHOLDER SERVICES FEE NA

</TABLE>

FEDERATED PRIME MONEY FUND II

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31 1998 1997 1996
<S> <C> <C> <C>
Advisory Fee Earned $417,405 $306,771 $154,455
Advisory Fee Reduction 4,302 123,674 154,455
Brokerage Commissions 0 0 0
Administrative Fee 125,000 125,002 125,000
12B-1 FEE NA
SHAREHOLDER SERVICES FEE NA

</TABLE>

FEDERATED UTILITY FUND II

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31 1998 1997 1996
<S> <C> <C> <C>
Advisory Fee Earned $944,508 $579,563 $361,797
Advisory Fee Reduction 82,754 208,884 248,058
Brokerage Commissions 334,849 184,051 81,701
Administrative Fee 125,002 125,002 125,000
12B-1 FEE NA
SHAREHOLDER SERVICES FEE NA

</TABLE>

How Do the Funds Measure Performance?

The Funds may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.

Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in any
Fund's or any class of Shares' expenses; and various other factors.

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

FEDERATED AMERICAN LEADERS FUND II

Total returns given for the one-year and start of performance periods ended
December 31, 1998.

Yield given for the 30-day period ended December 31, 1998.

<TABLE>
<CAPTION>
START OF
PERFORMANCE ON
30-DAY PERIOD 1 YEAR FEBRUARY 10, 1994
<S> <C> <C> <C>
Total Return NA 17.62% 20.73%
Yield 1.07% NA NA

</TABLE>

FEDERATED EQUITY INCOME FUND II

Total returns given for the one-year and start of performance periods ended
December 31, 1998.

Yield is given for the 30-day period ended December 31, 1998.

<TABLE>
<CAPTION>
START OF
PERFORMANCE ON
30-DAY PERIOD 1 YEAR JANUARY 30, 1997
<S> <C> <C> <C>
Total Return NA 15.57% 18.15%
Yield 1.69% NA NA

</TABLE>

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES FUND II

Total returns given for the one-year and start of performance periods ended
December 31, 1998.

Yield is given for the 30-day period ended December 31, 1998.

<TABLE>
<CAPTION>
START OF
PERFORMANCE ON
30-DAY PERIOD 1 YEAR MARCH 28, 1994
<S> <C> <C> <C>
Total Return NA 7.66% 6.66%
Yield 5.01% NA NA

</TABLE>

FEDERATED GROWTH STRATEGIES FUND II

Total returns given for the one-year and start of performance periods ended
December 31, 1998.

Yield given for the 30-day period ended December 31, 1998.

<TABLE>
<CAPTION>
START OF
PERFORMANCE ON
30-DAY PERIOD 1 YEAR NOVEMBER 9, 1995
<S> <C> <C> <C>
Total Return NA 17.44% 22.85%
Yield NA NA NA

</TABLE>

FEDERATED HIGH INCOME BOND FUND II

Total returns given for the one-year and start of performance periods ended
December 31, 1998.

Yield given for the 30-day period ended December 31, 1998.

<TABLE>
<CAPTION>
START OF
PERFORMANCE ON
30-DAY PERIOD 1 YEAR MARCH 1, 1994
<S> <C> <C> <C>
Total Return NA 2.70% 9.49%
Yield 8.38% NA NA

</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II

Total returns given for the one-year and start of performance periods ended
December 31, 1998.

Yield is given for the 30-day period ended December 31, 1998.

<TABLE>
<CAPTION>
START OF
PERFORMANCE ON
30-DAY PERIOD 1 YEAR MAY 8, 1995
<S> <C> <C> <C>
Total Return NA 25.57% 12.75%
Yield (1.18)% NA NA

</TABLE>

FEDERATED PRIME MONEY FUND II

Total returns given for the one-year and start of performance periods ended
December 31, 1998.

Yield and Effective Yield are given for the seven-day period ended December 31,
1998.

<TABLE>
<CAPTION>
START OF
PERFORMANCE ON
7-DAY PERIOD 1 YEAR NOVEMBER 21, 1994
<S> <C> <C> <C>
Total Return NA 4.92% 4.94%
Yield 4.52% NA NA
Effective Yield 4.62% NA NA

</TABLE>

FEDERATED UTILITY FUND II

Total returns given for the one-year and start of performance periods ended
December 31, 1998.

Yield given for the 30-day period ended December 31, 1998.

<TABLE>
<CAPTION>
START OF
PERFORMANCE ON
30-DAY PERIOD 1 YEAR FEBRUARY 10, 1994
<S> <C> <C> <C>
Total Return NA 13.95% 14.42%
Yield 2.53% NA NA

</TABLE>

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

YIELD

YIELD (FEDERATED PRIME MONEY FUND II)

The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated by: determining
the net change in the value of a hypothetical account with a balance of one
Share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional Shares purchased with
dividends earned from the original one Share and all dividends declared on the
original and any purchased Shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7. The effective yield is calculated by compounding the unannualized
base-period return by: adding 1 to the base period return, raising the sum to
the 365/7th power; and subtracting 1 from the result.

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

* references to ratings, rankings and financial publications and/or
performance comparisons of Shares to certain indices;

* charts, graphs and illustrations using the Funds' returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;

* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and

* information about the mutual fund industry from sources such as the Investment
Company Institute.

The Funds may compare its performance, or performance for the types of
securities in which it invests, to a variety of other investments, including
federally insured bank products such as bank savings accounts, certificates of
deposit, and Treasury bills.

The Funds may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

DOW JONES INDUSTRIAL AVERAGE

STANDARD & POOR'S DAILY STOCK PRICE INDEX

Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a composite
index of common stocks in industrial, transportation, and financial and public
utility companies, can be used to compare to the total returns of funds whose
portfolios are invested primarily in common stocks. In addition, the Standard &
Poor's index assumes reinvestments of all dividends paid by stocks listed on its
index. Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in the Standard & Poor's figures.

LIPPER ANALYTICAL SERVICES, INC.

Lipper Analytical Services, Inc., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Trust may quote its Lipper ranking in various fund
categories in advertising and sales literature.

LIPPER HIGH CURRENT YIELD AVERAGE

Lipper High Current Yield Average is composed of approximately 141 funds which
invest at least 65% of their assets in investment grade debt issues (rated in
top four grades) with dollar-weighted average maturities of five to ten years.
From time to time, Federated High Income Bond Fund II will compare its total
return to the average total return of the funds comprising the average for the
same calculation period.

LIPPER UTILITY FUND AVERAGE

Lipper Utility Fund Average is composed of approximately 87 funds which invest
65% of their equity portfolio in utility stocks. From time to time, Federated
Utility Fund II will compare its total return to the average total return of the
funds comprising the average for the same calculation period.

LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) INDEX

Lehman Brothers Government/Corporate (Total) Index is comprised of approximately
5,000 issues which include: nonconvertible bonds publicly issued by the U.S.
government or its agencies; corporate bonds guaranteed by the U.S. government
and quasi-federal corporations; and publicly issued, fixed-rate, non-convertible
domestic bonds of companies in industry, public utilities and finance. The
average maturity of these bonds approximates nine years. Tracked by Lehman
Brothers, Inc., the index calculates total returns for one month, three month,
twelve month, and ten year periods and year-to-date.

LEHMAN BROTHERS GOVERNMENT/CORPORATE (LONG-TERM) INDEX

Lehman Brothers Government/Corporate (Long-Term) Index is composed of the same
types of issues as defined above. However, the average maturity of the bonds
included in this index approximates 22 years.

LEHMAN BROTHERS GOVERNMENT INDEX

Lehman Brothers Government Index is an unmanaged index comprised of all publicly
issued, non-convertible domestic debt of the U.S. government, or any agency
thereof, or any quasi-federal corporation and of corporate debt guaranteed by
the U.S. government. Only notes and bonds with a minimum outstanding principal
of $1 million and a minimum maturity of one year are included.

LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX

Lehman Brothers Mortgage-Backed Securities Index includes 15- and 30-year
fixed-rated securities backed by mortgage pools of the Government National
Mortgage Association, Federal Home Loan Mortgage Corporation, and Federal
National Mortgage Corporation. Graduated payment mortgages and balloons
are included in the index.

MORNINGSTAR, INC.

BANK RATE MONITOR NATIONAL INDEX

Bank Rate Monitor National Index, Miami Beach, Florida, is a financial reporting
service which publishes weekly average rates of 50 leading bank and thrift
institution money market deposit accounts. The rates published in the index are
an average of the personal account rates offered on the Wednesday prior to the
date of publication by ten of the largest banks and thrifts in each of the five
largest Standard Metropolitan Statistical Areas. Account minimums range upward
from $2,500 in each institution, and compounding methods vary. If more than one
rate is offered, the lowest rate is used. Rates are subject to change at any
time specified by the institution.

MONEY

Money, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day compound (effective) yield.
From time to time, the Fund will quote its Money ranking in advertising and
sales literature.

STANDARD & POOR'S UTILITY

Standard & Poor's Utility Index is an unmanaged index of common stocks from 40
different utilities. This index indicates daily changes in the price of the
stocks. The index also provides figures for changes in price from the beginning
of the year to date, and for a 12-month period.

DOW JONES UTILITY INDEX

Dow Jones Utility Index is an unmanaged index comprised of fifteen utility
stocks that tracks changes in price daily and over a six month period. The index
also provides the highs and lows for each of the past five years.

MORGAN STANLEY EUROPE, AUSTRALIA, AND FAR EAST (EAFE) INDEX

Morgan Stanley Europe, Australia, and Far East (EAFE) Index is a market
capitalization weighted foreign securities index, which is widely used to
measure the performance of European, Australian, New Zealand and Far Eastern
stock markets. The index covers approximately 1,020 companies drawn from 18
countries in the above regions. The index values its securities daily in both
U.S. dollars and local currency and calculates total returns monthly. EAFE U.S.
dollar total return is a net dividend figure less Luxembourg withholding tax.
The EAFE is monitored by Capital International, S.A., Geneva, Switzerland.

SALOMON BROTHERS WORLD EQUITY INDEX

Salomon Brothers World Equity Index Ex U.S. is a capitalization-weighted
index comprised of equities from 22 countries excluding the United States.

FT ACTUARIES WORLD - EX U.S. INDEX

FT Actuaries World - Ex U.S. index is comprised of 1,740 stocks, excluding
U.S. stocks, jointly compiled by the Financial Times Ltd., Goldman, Sachs &
Co., and NatWest Securities Ltd. in conjunction with the Institute of
Actuaries and the Faculty of Actuaries.

STANDARD & POOR'S LOW-PRICED INDEX

Standard & Poor's Low-Priced Index compares a group of approximately twenty
actively traded stocks priced under $25 for one month periods and year-to-date.

LIPPER GROWTH FUND AVERAGE

Lipper Growth Fund Average is an average of the total returns for 251 growth
funds tracked by Lipper Analytical Services, Inc., an independent mutual fund
rating service.

LIPPER GROWTH FUND INDEX

Lipper Growth Fund Index is an average of the net asset-valuated total returns
for the top 30 growth funds tracked by Lipper Analytical Services, Inc.

LEHMAN BROTHERS HIGH YIELD INDEX

Lehman Brothers High Yield Index and its sub-indices are based on credit quality
and/or duration. The Lehman Brothers High Yield Index covers the universe of
fixed rate, publicly issued, non-investment grade debt registered with the SEC.
All bonds included in the High Yield Index must be dollar-denominated and
non-convertible and have at least one year remaining to maturity and an
outstanding par value of at least $100 million. Generally securities must be
rated Ba1 or lower by Moody's Investors Service, including defaulted issues. If
no Moody's rating is available, bonds must be rated BB+ or lower by S&P; and if
no S&P rating is available, bonds must be rated below investment grade by Fitch.
A small number of unrated bonds is included in the index; to be eligible they
must have previously held a high yield rating or have been associated with a
high yield issuer, and must trade accordingly.

Who is Federated Investors, Inc.?

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

EQUITY FUNDS

CORPORATE BOND FUNDS

GOVERNMENT FUNDS

In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.

MONEY MARKET FUNDS

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield -
J. Thomas Madden; U.S. fixed income - William D. Dawson, III; and global
equities and fixed income - Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.

MUTUAL FUND MARKET

FEDERATED CLIENTS OVERVIEW

Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

INSTITUTIONAL CLIENTS

BANK MARKETING

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Financial Information

The Financial Statements for the Funds for the fiscal year ended December 31,
1998 are incorporated herein by reference to the Annual Reports to Shareholders
of the Funds dated December 31, 1998.

Investment Ratings

STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS

AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

CC-The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.

MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS

CAA-Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA-Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C-Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS

CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C-Bonds are imminent default in payment of interest or principal.

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS

* Leading market positions in well established industries.

* High rates of return on funds employed.

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

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

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

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

A-2-Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.

FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS

FITCH-1-(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.

FITCH-2-(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.

Addresses

FEDERATED INSURANCE SERIES

Federated Investors Funds

5800 Corporate Drive

Pittsburgh, PA 15237-7000

DISTRIBUTOR

Federated Securities Corp.

Federated Investors Tower

1001 Liberty Avenue

Pittsburgh, PA 15222-3779

INVESTMENT ADVISERS

Federated Investment Management Company

Federated Investors Tower

1001 Liberty Avenue

Pittsburgh, PA 15222-3779

Federated Global Investment Management Corp.

175 Water Street

New York, NY 10038-4965

SUB-ADVISER

Federated Global Investment Management Corp.

175 Water Street

New York, NY 10038-4965

CUSTODIAN

State Street Bank and Trust Company

P.O. Box 8600

Boston, MA 02266-8600

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company

P.O. Box 8600

Boston, MA 02266-8600

INDEPENDENT PUBLIC ACCOUNTANTS

Deloitte & Touche LLP

125 Summer Street

Boston, MA 02110-1617

PROSPECTUS

Federated Utility Fund II

A Portfolio of Federated Insurance Series

A mutual fund seeking to achieve high current income and moderate capital
appreciation by investing in securities of utility companies.

April 20, 1999

CONTENTS

Risk/Return Summary 1

What are the Fund's Investment Strategies? 2

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

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

What Do Shares Cost? 5

How is the Fund Sold? 5

How to Purchase and Redeem Shares 5

Account and Share Information 6

Who Manages the Fund? 6

Financial Information 8

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

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.

* 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 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 (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
1 Year 13.95% 28.58% 14.78%
Start of Performance 1 14.42% 23.18% 14.13%

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

What are the Fund's Investment Strategies?

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)

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

RISKS RELATED TO INVESTING FOR VALUE

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

RISKS OF INVESTING IN AMERICAN DEPOSITARY RECEIPTS

What Do Shares Cost?

How is the Fund Sold?

How to Purchase and Redeem Shares

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

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

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

Account and Share Information

DIVIDENDS

The Fund declares and pays any dividends annually.

Shares of the Fund will begin earning dividends if owned on the record date.
Dividends of the Fund are automatically reinvested in additional Shares.

TAX INFORMATION

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

Who Manages the Fund?

The Adviser has delegated daily management of some of the Fund assets to the
Sub-Adviser, Federated Global Investment Management Corp., who is paid by the
Adviser and not by the Fund based on the portion of foreign securities the
Sub-Adviser manages. The Sub-Adviser's address is 175 Water Street, New York, NY
10038-4965.

THE FUND'S PORTFOLIO MANAGERS ARE:

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
1996. Manager and a Vice President of the Fund's investment 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 investment adviser. Mr. Collins served
as Vice President/Portfolio Manager of international equity portfolios at
Arnhold and Bleichroeder, Inc. from 1994 to 1995. He served as an Assistant
Vice President/Portfolio Manager for international equities at the College
Retirement Equities Fund from 1986 to 1994. Mr. Collins is a Chartered
Financial Analyst and received his M.B.A. in finance from the Wharton
School of the University of Pennsylvania.

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 investment adviser. From May 1979 through October
1997, Mr. Lazarchic was employed with American Express Financial Corp.,
initially as an Analyst and then as a Vice President/Senior
Portfolio Manager. Mr. Lazarchic is a Chartered Financial Analyst. He
received his M.B.A. from Kent State University.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.75% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses. For the fiscal year ended
December 31, 1998, the Fund's adviser earned 0.68% of the Fund's average net
assets.

YEAR 2000 READINESS

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

Financial Information

FINANCIAL HIGHLIGHTS

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

This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.

Financial Highlights

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
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>

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.

[Graphic]

Federated
World-Class Investment Manager

PROSPECTUS

Federated Utility Fund II

A Portfolio of Federated Insurance Series

APRIL 20, 1999

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

[Graphic]

Federated Utility Fund II
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 313916108

3113008A (4/99)

[Graphic]

STATEMENT OF ADDITIONAL INFORMATION

Federated Utility Fund II

A Portfolio of Federated Insurance Series

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Utility Fund II (Fund),
dated April 20, 1999. This SAI incorporates by reference the Fund's Annual
Report. Obtain the prospectus or the Annual Report without charge by calling
1-800-341-7400.

APRIL 20, 1999

[Graphic]
Federated
World-Class Investment Manager
Federated Utility Fund II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor

3113008B (4/99)

[Graphic]

CONTENTS

How is the Fund Organized? 1

Securities in Which the Fund Invests 1

What Do Shares Cost? 9

Mixed Funding and Shared Funding 9

How is the Fund Sold? 10

Subaccounting Services 10

Redemption in Kind 10

Massachusetts Partnership Law 10

Account and Share Information 11

Tax Information 11

Who Manages and Provides Services to the Fund? 12

How Does the Fund Measure Performance? 15

Who is Federated Investors, Inc.? 17

Financial Information 18

Investment Ratings 18

Addresses 20

How is the Fund Organized?

The Fund is a diversified portfolio of Federated Insurance Series (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 15, 1993. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities. The Trust changed its name from Insurance Management
Series to Federated Insurance Series on November 14, 1995. The Fund changed its
name from Utility Fund to Federated Utility Fund II on February 26, 1996.

The Fund's investment adviser is Federated Investment Management Company
(Adviser). The Adviser, formerly known as Federated Advisers, changed its name
effective March 31, 1999.

Securities in Which the Fund Invests

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

EQUITY SECURITIES

COMMON STOCKS

PREFERRED STOCKS

INTERESTS IN OTHER LIMITED LIABILITY COMPANIES

Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.

REAL ESTATE INVESTMENT TRUSTS (REITS)

WARRANTS

FIXED INCOME 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

CORPORATE DEBT SECURITIES

COMMERCIAL PAPER

DEMAND INSTRUMENTS

ZERO COUPON SECURITIES

There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. In addition, some securities give
the issuer the option to deliver additional securities in place of cash interest
payments, thereby increasing the amount payable at maturity. These are referred
to as pay-in-kind or PIK securities.

CONVERTIBLE SECURITIES

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

FOREIGN SECURITIES

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

* 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

DEPOSITARY RECEIPTS

HEDGING

DERIVATIVE CONTRACTS

The Fund may trade in the following types of derivative contracts:

FUTURES CONTRACTS

The Fund may buy/sell financial futures contracts.

OPTIONS

The Fund may:

* buy put options on portfolio securities and financial futures contracts in
anticipation of a decrease in the value of the underlying asset; and

Buy or write options to close out existing options positions.

When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS

DELAYED DELIVERY TRANSACTIONS

SECURITIES LENDING

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Securities lending activities are subject to market risks and credit risks.

ASSET COVERAGE

In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations 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.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

INVESTMENT RATINGS

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.

EQUITY SECURITIES INVESTMENT RISKS

SECTOR 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.

RISKS RELATED TO COMPANY SIZE

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

RISKS OF FOREIGN INVESTING

CURRENCY RISKS

EURO RISKS

RISKS OF INVESTING IN EMERGING MARKET COUNTRIES

CREDIT RISKS

FIXED INCOME INVESTMENT RISKS

INTEREST RATE RISKS

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.

CALL RISKS

PREPAYMENT RISKS

The Fund may have to reinvest the proceeds of mortgage prepayments in other
fixed income securities with lower interest rates, higher prepayment risks, or
other less favorable characteristics.

LIQUIDITY RISKS

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

OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

SECTOR RISKS

LEVERAGE RISKS

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

VARIABLE ASSET REGULATIONS

The Fund is also subject to variable contract asset regulations prescribed by
the U.S. Treasury Department under Section 817(h) of the Internal Revenue Code.
After a one year start-up period, the regulations generally require that, as of
the end of each calendar quarter or within 30 days thereafter, no more than 55%
of the total assets of the Fund may be represented by any one investment, no
more than 70% of the total assets of the Fund may be represented by any two
investments, no more than 80% of the total assets of the Fund may be represented
by any three investments, and no more than 90% of the total assets of the Fund
may be represented by any four investments. In applying these diversification
rules, all securities of the same issuer, all interests in the same real
property project, and all interests in the same commodity are each treated as a
single investment. In the case of government securities, each government agency
or instrumentality shall be treated as a separate issuer. If the Fund fails to
achieve the diversification required by the regulations, unless relief is
obtained from the Internal Revenue Service, the contracts invested in the Fund
will not be treated as annuity, endowment, or life insurance contracts.

STATE INSURANCE REGULATIONS

The Fund is intended to be a funding vehicle for variable annuity contracts and
variable life insurance policies offered by certain insurance companies. The
contracts will seek to be offered in as many jurisdictions as possible. Certain
states have regulations concerning, among other things, the concentration of
investments, sales and purchases of futures contracts, and short sales of
securities. If applicable, the Fund may be limited in its ability to engage in
such investments and to manage its portfolio with desired flexibility. The Fund
will operate in material compliance with the applicable insurance laws and
regulations of each jurisdiction in which contracts will be offered by the
insurance companies which invest in the Fund.

INVESTMENT LIMITATIONS

SELLING SHORT AND BUYING ON MARGIN

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

ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Fund will not issue senior securities except that the Fund may borrow money
directly or through reverse repurchase agreements as a temporary, extraordinary
or emergency measure to facilitate management of the portfolio by enabling the
Fund to meet redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous, and then only in amounts not in
excess of one-third of the value of its total assets; provided that, while
borrowings and reverse repurchase agreements outstanding exceed 5% of the Fund's
total assets, any such borrowings will be repaid before additional investments
are made. The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage purposes.

PLEDGING ASSETS

The Fund will not mortgage, pledge or hypothecate any assets except to secure
permitted borrowings. In those cases, it may mortgage, pledge or hypothecate
assets having a market value not exceeding the lesser of the dollar amounts
borrowed or 15% of the value of its total assets at the time of borrowing. For
purposes of this limitation, the following are not deemed to be pledges: margin
deposits for the purchase and sale of futures contracts and related options, any
segregation or collateral arrangements made in connection with options
activities or the purchase of securities on a when-issued basis.

CONCENTRATION OF INVESTMENTS

The Fund will not purchase securities, if, as a result of such purchase, 25% or
more of its total assets would be invested in securities of companies engaged
principally in any one industry other than the utilities industry. However, the
Fund may at any time invest 25% or more of its total assets in cash or cash
items and securities issued and/or guaranteed by the U.S. government, its
agencies or instrumentalities.

INVESTING IN COMMODITIES

The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except that the Fund may purchase and sell futures
and stock index futures contracts and related options.

INVESTING IN REAL ESTATE

LENDING CASH OR SECURITIES

UNDERWRITING

DIVERSIFICATION OF INVESTMENTS

With respect to 75% of its total assets, the Fund will not purchase the
securities of any one issuer (other than cash, cash items or securities issued
and/or guaranteed by the U.S. government, its agencies or instrumentalities, and
repurchase agreements collateralized by such securities) if, as a result, more
than 5% of its total assets would be invested in the securities of that issuer.
Also, the Fund will not purchase more than 10% of any class of the outstanding
voting securities of any one issuer. For these purposes, the Fund considers
common stock and all preferred stock of an issuer each as a single class,
regardless of priorities, series, designations or other differences.

INVESTING IN RESTRICTED AND ILLIQUID SECURITIES

The Fund will not invest more than 15% of its net assets in illiquid securities,
including, among others, repurchase agreements providing for settlement more
than seven days after notice, over-the-counter options and certain restricted
securities not determined to be liquid under criteria established by the
Trustees.

INVESTING IN PUT OPTIONS

The Fund will not purchase put options on securities, unless the securities are
held in the Fund's portfolio and not more than 5% of the Fund's total assets
would be invested in premiums on open put option positions.

WRITING COVERED CALL OPTIONS

For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

* for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;

* in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;

* for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;

* futures contracts and options are valued at market values established by the
exchanges on which they are traded at the close of trading on such exchanges.
Options traded in the over-the-counter market are valued according to the mean
between the last bid and the last asked price for the option as provided by an
investment dealer or other financial institution that deals in the option. The
Board may determine in good faith that another method of valuing such
investments is necessary to appraise their fair market value.

* for all other securities, at fair value as determined in good faith by
the Board.

TRADING IN FOREIGN SECURITIES

What Do Shares Cost?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.

Mixed Funding and Shared Funding

How is the Fund Sold?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), offers Shares on a continuous, best-efforts basis.

SHAREHOLDER SERVICES

SUPPLEMENTAL PAYMENTS

Investment professionals receive such fees for providing

Subaccounting Services

Certain participating insurance companies may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Participating insurance companies holding Shares in a fiduciary,
agency, custodial or similar capacity may charge or pass through subaccounting
fees as part of or in addition to normal trust or agency account fees. They may
also charge fees for other services that may be related to the ownership of
Shares. This information should, therefore, be read together with any agreement
between the customer and the participating insurance company about the services
provided, the fees charged for those services, and any restrictions and
limitations imposed.

Redemption in Kind

Massachusetts Partnership Law

Account and Share Information

VOTING RIGHTS

As of March 23, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Life of Virginia, Richmond, VA, owned
approximately 3,218,006 shares (29.55%); Aetna Retirement Services 710294708-0,
Hartford, CT owned approximately 1,890,670 shares (17.36%); Aetna Retirement
Services 61286272-0, Hartford, CT owned approximately 1,724,514 shares (15.84%);
Lincoln Benefit Life Co., Lincoln, NE owned approximately 832,114 shares
(7.64%); Safeco Mutual Funds, Seattle, WA owned approximately 708,822 shares
(6.51%); and Provident Mutual Life & Annuity Co. of America, Valley Forge, PA
owned approximately 661,796 shares (6.08%).

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

Tax Information

FEDERAL INCOME TAX

FOREIGN INVESTMENTS

Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.

Who Manages and Provides Services to the Fund?

BOARD OF TRUSTEES

The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of eight
funds and The Federated Fund Complex is comprised of 54 investment companies,
whose investment advisers are affiliated with the Fund's Adviser.

As of March 23, 1999, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.

<TABLE>
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST 5 YEARS FROM TRUST** FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+ Chief Executive Officer $0 $0 for the Trust and
Birth Date: July 28, 1924 and Director or Trustee 54 other investment
Federated Investors Tower of the Federated Fund companies in the
1001 Liberty Avenue Complex; Chairman and Fund Complex
Pittsburgh, PA Director, Federated
CHAIRMAN AND TRUSTEE Investors, Inc.;
Chairman and Trustee,
Federated Investment
Management Company;
Chairman and Director,
Federated Investment
Counseling and Federated
Global Investment
Management Corp.;
Chairman, Passport
Research, Ltd.

THOMAS G. BIGLEY Director or Trustee of the Federated Fund $1,591.19 $113,860.22 for the
Birth Date: February 3, 1934 Complex; Director, Member of Executive Trust and 54 other
15 Old Timber Trail Committee, Children's Hospital of investment companies
Pittsburgh, PA Pittsburgh; formerly: Senior Partner, Ernst & in the Fund Complex
TRUSTEE Young LLP; Director, MED 3000 Group,
Inc.; Director, Member of Executive
Committee, University of Pittsburgh.

JOHN T. CONROY, JR. Director or Trustee of the Federated Fund $1,750.56 $125,264.48 for the
Birth Date: June 23, 1937 Complex; President, Investment Properties Trust and 54 other
Wood/IPC Commercial Dept. Corporation; Senior Vice President, investment companies
John R. Wood Associates, Inc. Realtors John R. Wood and Associates, Inc., Realtors; in the Fund Complex
3255 Tamiami Trial North Partner or Trustee in private real estate
Naples, FL ventures in Southwest Florida; formerly:
TRUSTEE President, Naples Property Management,
Inc. and Northgate Village Development
Corporation.

NICHOLAS P. CONSTANTAKIS Director or Trustee of the Federated Fund $1,591.19 $47,958.02 for the
Birth Date: September 3, 1939 Complex; formerly: Partner, Andersen Trust and 29 other
175 Woodshire Drive Worldwide SC. investment companies
Pittsburgh, PA in the Fund Complex
TRUSTEE

WILLIAM J. COPELAND Director or Trustee of the Federated Fund $1,750.56 $125,264.48 for the
Birth Date: July 4, 1918 Complex; Director and Member of the Trust and 54 other
One PNC Plaza-23rd Floor Executive Committee, Michael Baker, Inc.; investment companies
Pittsburgh, PA formerly: Vice Chairman and Director, PNC in the Fund Complex
TRUSTEE Bank, N.A. and PNC Bank Corp.; Director,
Ryan Homes, Inc.
Previous Postions: Director, United Refinery;
Director, Forbes Fund; Chairman, Pittsburgh
Foundation; Chairman, Pittsburgh Civic Light
Opera.

JAMES E. DOWD, ESQ. Director or Trustee of the Federated Fund $1,750.56 $125,264.48 for the
Birth Date: May 18, 1922 Complex; Attorney-at-law; Director, The Trust and 54 other
571 Hayward Mill Road Emerging Germany Fund, Inc. investment companies
Concord, MA Previous Postions: President, Boston Stock in the Fund Complex
TRUSTEE Exchange, Inc.; Regional Administrator,
United States Securities and Exchange
Commission.

LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund $1,591.19 $113,860.22 for the
Birth Date: October 11, 1932 Complex; Professor of Medicine, University Trust and 54 other
3471 Fifth Avenue of Pittsburgh; Medical Director, University of investment companies
Suite 1111 Pittsburgh Medical Center-Downtown; in the Fund Complex
Pittsburgh, PA Hematologist, Oncologist, and Internist,
TRUSTEE University of Pittsburgh Medical Center;
Member, National Board of Trustees,
Leukemia Society of America.

EDWARD L. FLAHERTY, JR., ESQ.# Director or Trustee of the Federated Fund $1,750.56 $125,264.48 for the
Birth Date: June 18, 1924 Complex; Attorney, of Counsel, Miller, Trust and 54 other
Miller, Ament, Henny & Kochuba Ament, Henny & Kochuba; Director investment companies
205 Ross Street Emeritus, Eat'N Park Restaurants, Inc.; in the Fund Complex
Pittsburgh, PA formerly: Counsel, Horizon Financial, F.A.,
TRUSTEE Western Region; Partner, Meyer and
Flaherty.

<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST 5 YEARS FROM TRUST** FUND COMPLEX
<S> <C> <C> <C>
PETER E. MADDEN Director or Trustee of $1,591.19 $113,860.22 for the
Birth Date: March 16, 1942 the Federated Fund Trust and 54 other
One Royal Palm Way Complex; formerly: investment companies
100 Royal Palm Way Representative, in the Fund Complex
Palm Beach, FL Commonwealth of
TRUSTEE Massachusetts General
Court; President, State
Street Bank and Trust
Company and State
Street Corporation.
Previous Postions:
Director, VISA USA and
VISA International;
Chairman and Director,
Massachusetts Bankers
Association; Director,
Depository Trust
Corporation.

JOHN E. MURRAY, JR., J.D., S.J.D. Director or Trustee of the Federated Fund $1,591.19 $113,860.22 for the
Birth Date: December 20, 1932 Complex; President, Law Professor, Trust and 54 other
President, Duquesne University Duquesne University; Consulting Partner, investment companies
Pittsburgh, PA Mollica & Murray. in the Fund Complex
TRUSTEE Previous Postions: Dean and Professor of
Law, University of Pittsburgh School of
Law; Dean and Professor of Law,
Villanova University School of Law.

WESLEY W. POSVAR Director or Trustee of the Federated Fund $1,591.19 $113,860.22 for the
Birth Date: September 14, 1925 Complex; President, World Society of Trust and 54 other
1202 Cathedral of Learning Ekistics (metropolitan planning), Athens; investment companies
University of Pittsburgh Professor, International Politics; in the Fund Complex
Pittsbugh, PA Management Consultant; Trustee, Carnegie
TRUSTEE Endowment for International Peace, RAND
Corporation, Online Computer Library
Center, Inc., National Defense University
and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding
Chairman, National Advisory Council for
Environmental Policy and Technology,
Federal Emergency Management Advisory
Board; Trustee, Czech Management Center,
Prague.
Previous Postions: Professor, United States
Military Academy; Professor, United States
Air Force Academy.

MARJORIE P. SMUTS Director or Trustee of the Federated Fund $1,591.19 $113,860.22 for the
Birth Date: June 21, 1935 Complex; Public Relations/Marketing/ Trust and 54 other
4905 Bayard Street Conference Planning. investment companies
Pittsburgh, PA Previous Postions: National Spokesperson, in the Fund Complex
TRUSTEE Aluminum Company of America; business
owner.

JOHN S. WALSH++ Director or Trustee of some of the Federated $0 $0 for the Trust and
Birth Date: November 28, 1957 Funds; President and Director, Heat Wagon, 23 other investment
2007 Sherwood Drive Inc.; President and Director, Manufacturers companies in the
Valparaiso, IN Products, Inc.; President, Portable Heater Fund Complex
TRUSTEE Parts, a division of Manufacturers Products,
Inc.; Director, Walsh & Kelly, Inc.; formerly:
Vice President, Walsh & Kelly, Inc.

J. CHRISTOPHER DONAHUE+* President or Executive Vice President of the $0 $0 for the Trust and
Birth Date: April 11, 1949 Federated Fund Complex; Director or 16 other investment
Federated Investors Tower Trustee of some of the Funds in the companies in the
1001 Liberty Avenue Federated Fund Complex; President and Fund Complex
Pittsburgh, PA Director, Federated Investors, Inc.; President
PRESIDENT AND TRUSTEE and Trustee, Federated Investment
Management Company; President and
Director, Federated Investment
Counseling and Federated Global
Investment Management Corp.; President,
Passport Research, Ltd.; Trustee,
Federated Shareholder Services Company;
Director, Federated Services Company.

EDWARD C. GONZALES Trustee or Director of some of the Funds in $0 $0 for the Trust and
Birth Date: October 22, 1930 the Federated Fund Complex; President, 1 other investment
Federated Investors Tower Executive Vice President and Treasurer of company in the
1001 Liberty Avenue some of the Funds in the Federated Fund Fund Complex
Pittsburgh, PA Complex; Vice Chairman, Federated
EXECUTIVE VICE PRESIDENT Investors, Inc.; Vice President, Federated
Investment Management Company and
Federated Investment Counseling,
Federated Global Investment Management
Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.

JOHN W. MCGONIGLE Executive Vice President and Secretary of $0 $0 for the Trust and
Birth Date: October 26, 1938 the Federated Fund Complex; Executive Vice 54 other investment
Federated Investors Tower President, Secretary and Director, Federated companies in the
1001 Liberty Avenue Investors, Inc.; Trustee, Federated Fund Complex
Pittsburgh, PA Investment Management Company;
EXECUTIVE VICE PRESIDENT Director, Federated Investment Counseling
and SECRETARY and Federated Global Investment
Management Corp.; Director, Federated
Services Company; Director, Federated
Securities Corp.

RICHARD J. THOMAS Treasurer of the Federated Fund Complex; $0 $0 for the Trust and
Birth Date: June 17, 1954 Vice President-Funds Financial Services 54 other investment
Federated Investors Tower Division, Federated Investors, Inc.; formerly: companies in the
1001 Liberty Avenue various management positions within Funds Fund Complex
Pittsburgh, PA Financial Services Division of Federated
TREASURER Investors, Inc.

<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST 5 YEARS FROM TRUST** FUND COMPLEX
<S> <C> <C> <C>
RICHARD B. FISHER President or Vice $0 $0 for the Trust and
Birth Date: May 17, 1923 President of some of the 6 other investment
Federated Investors Tower Funds in the Federated companies in the
1001 Liberty Avenue Fund Complex; Director Fund Complex
Pittsburgh, PA or Trustee of some of the
VICE PRESIDENT Funds in the Federated
Fund Complex; Executive
Vice President,
Federated Investors,
Inc.; Chairman and
Director, Federated
Securities Corp.

HENRY A. FRANTZEN Chief Investment Officer of this Fund and $0 $0 for the Trust and
Birth Date: November 28, 1942 various other Funds in the Federated Fund 3 other investment
Federated Investors Tower Complex; Executive Vice President, companies in the
1001 Liberty Avenue Federated Investment Counseling, Fund Complex
Pittsburgh, PA Federated Global Investment Management
CHIEF INVESTMENT OFFICER Corp., Federated Investment Management
Company and Passport Research, Ltd.;
Registered Representative, Federated
Securities Corp.; Vice President,
Federated Investors, Inc.; formerly:
Executive Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services Division;
Chief Investment Officer/Manager,
International Equities, Brown Brothers
Harriman & Co.; Managing Director, BBH
Investment Management Limited.

WILLIAM D. DAWSON, III Chief Investment Officer of this Fund and $0 $0 for the Trust and
Birth Date: March 3, 1949 various other Funds in the Federated Fund 41 other investment
Federated Investors Tower Complex; Executive Vice President, companies in the
1001 Liberty Avenue Federated Investment Counseling, Fund Complex
Pittsburgh, PA Federated Global Investment Management
CHIEF INVESTMENT OFFICER Corp., Federated Investment Management
Company and Passport Research, Ltd.;
Registered Representative, Federated
Securities Corp.; Portfolio Manager,
Federated Administrative Services; Vice
President, Federated Investors, Inc.;
formerly: Executive Vice President and
Senior Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services Division;
Senior Vice President, Federated
Investment Management Company and
Passport Research, Ltd.

J. THOMAS MADDEN Chief Investment Officer of this Fund and $0 $0 for the Trust and
Birth Date: October 22, 1945 various other Funds in the Federated Fund 12 other investment
Federated Investors Tower Complex; Executive Vice President, companies in the
1001 Liberty Avenue Federated Investment Counseling, Fund Complex
Pittsburgh, PA Federated Global Investment Management
CHIEF INVESTMENT OFFICER Corp., Federated Investment Management
Company and Passport Research, Ltd.;
Vice President, Federated Investors,
Inc.; formerly: Executive Vice
President and Senior Vice President,
Federated Investment Counseling
Institutional Portfolio Management
Services Division; Senior Vice
President, Federated Investment
Management Company and Passport
Research, Ltd.

</TABLE>

+ Mr. Donahue is the father of J. Christopher Donahue, President and
Trustee of the Trust.

** The aggregate compensation is provided for the Trust which is comprised of
eight portfolios.

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly owned subsidiary of Federated.

OTHER RELATED SERVICES

BROKERAGE TRANSACTIONS

RESEARCH SERVICES

ADMINISTRATOR

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

INDEPENDENT PUBLIC ACCOUNTANTS

Deloitte and Touche LLP is the independent public accountant for the Fund.

FEES PAID BY THE FUND FOR SERVICES

FOR THE YEAR ENDED DECEMBER 31 1998 1997 1996
Advisory Fee Earned $944,508 $579,563 $361,797
Advisory Fee Reduction 82,754 208,884 248,058
Brokerage Commissions 334,849 184,051 81,701
Administrative Fee 125,002 125,002 125,000
12B-1 FEE NA
SHAREHOLDER SERVICES FEE NA

How Does the Fund Measure Performance?

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns given for the one-year and start of performance periods ended
December 31, 1998.

Yield given for the 30-day period ended December 31, 1998.

START OF PERFORMANCE
30-DAY PERIOD 1 YEAR ON FEBRUARY 10, 1994
Total Return NA 13.95% 14.42%
Yield 2.53% NA NA

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

YIELD

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;

* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and

* information about the mutual fund industry from sources such as the Investment
Company Institute.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

LIPPER ANALYTICAL SERVICES, INC.

Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "utility funds"
category in advertising and sales literature.

LIPPER UTILITY FUND AVERAGE

Lipper Utility Fund Average is composed of approximately 87 funds which invest
65% of their equity portfolio in utility stocks. From time to time, the Fund
will compare its total return to the average total return of the funds
comprising the average for the same calculation period.

DOW JONES INDUSTRIAL AVERAGE

Dow Jones Industrial Average is an unmanaged index representing share prices of
major industrial corporations, public utilities and transportation companies.
Produced by the Dow Jones & Company, it is cited as a principal indicator of
market conditions.

STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500

COMMON STOCKS

Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a composite
index of common stocks in industry, transportation, financial and public utility
companies, can be used to compare to the total returns of funds whose portfolios
are invested primarily in common stocks. In addition, the S&P index assumes
reinvestment of all dividends paid by stocks listed on its index. Taxes due on
any of these distributions are not included, nor are brokerage or other fees
calculated in the S&P figures.

STANDARD & POOR'S UTILITY INDEX

DOW JONES UTILITY INDEX

Dow Jones Utility Index is an unmanaged index comprised of 15 utility stocks
that tracks changes in price daily and over a six month period. The index also
provides the highs and lows for each of the past five years.

MORNINGSTAR, INC.

Who is Federated Investors, Inc.?

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

EQUITY FUNDS

CORPORATE BOND FUNDS

GOVERNMENT FUNDS

MONEY MARKET FUNDS

MUTUAL FUND MARKET

FEDERATED CLIENTS OVERVIEW

Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

INSTITUTIONAL CLIENTS

Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.

BANK MARKETING

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Financial Information

The Financial Statements for the Fund for the fiscal year ended December 31,
1998, are incorporated herein by reference to the Annual Report to Shareholders
of Federated Utility Fund II dated December 31, 1998.

Investment Ratings

STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS

AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

BB-Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.

CC-The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.

MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS

CAA-Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA-Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C-Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS

CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C-Bonds are imminent default in payment of interest or principal.

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS

* Leading market positions in well established industries.

* High rates of return on funds employed.

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

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

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

STANDARD AND POOR'S COMMERCIAL PAPER RATINGS

A-2-Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.

FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS

FITCH-1-(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.

FITCH-2-(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.

Addresses

FEDERATED UTILITY FUND II

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

DISTRIBUTOR

Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

INVESTMENT ADVISER

Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

SUB-ADVISER

Federated Global Investment Management Corp.
175 Water Street
New York, NY 10038-4965

CUSTODIAN

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

INDEPENDENT PUBLIC ACCOUNTANTS

Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110-1617

PROSPECTUS

Federated Fund for U.S. Government Securities II

A Portfolio of Federated Insurance Series

A mutual fund seeking to provide current income by investing in U.S. government
securities.

APRIL 20, 1999

CONTENTS

Risk/Return Summary 1

What are the Fund's Investment Strategies? 2

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

What are the Specific Risks of Investing in the Fund? 5

What Do Shares Cost? 6

How is the Fund Sold? 7

How to Purchase and Redeem Shares 7

Account and Share Information 7

Who Manages the Fund? 7

Financial Information 9

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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.

RISK/RETURN BAR CHART

[Graphic]

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 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
1 Year 7.66% 7.91% 6.13% 9.60%
Start of
Performance 1 6.66% 8.19% 6.91% 7.40%

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

What are the Fund's Investment Strategies?

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.

What are the Principal Securities in Which the Fund Invests?

FIXED INCOME SECURITIES

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

MORTGAGE BACKED SECURITIES

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

PRIVATE ISSUE CMOS

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

SPECIAL TRANSACTIONS

DELAYED DELIVERY TRANSACTIONS

TO BE ANNOUNCED SECURITIES (TBAS)

DOLLAR ROLLS

REPURCHASE AGREEMENTS

ASSET COVERAGE

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

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.

CREDIT RISK

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.

What Do Shares Cost?

How is the Fund Sold?

How to Purchase and Redeem Shares

* 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 AND CAPITAL GAINS

The Fund declares and pays any dividends annually.

Shares of the Fund will begin earning dividends if owned on the record date.
Dividends of the Fund are automatically reinvested in additional Shares.

TAX INFORMATION

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

Who Manages the Fund?

THE FUND'S PORTFOLIO MANAGERS ARE:

TODD A. ABRAHAM

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 Adviser from 1993 to 1996. Ms. Foody-Malus received her M.B.A. in
Accounting/Finance from the University of Pittsburgh.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.60% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses. For the fiscal year ended
December 31, 1998, the Fund's Adviser earned 0.52% of the Fund's average net
assets.

YEAR 2000 READINESS

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

Financial Information

FINANCIAL HIGHLIGHTS

This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.

Financial Highlights

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>

</TABLE>

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.

[Graphic]

Federated

World-Class Investment Manager

Federated Fund for U.S. Government Securities II

A Portfolio of Federated Insurance Series

Prospectus

APRIL 20, 1999

[Graphic]

Federated

Federated Fund for U.S. Government Securities II
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 313916207
3113007A (4/99)

[Graphic]

STATEMENT OF ADDITIONAL INFORMATION
Federated Fund for U.S. Government
Securities II

A Portfolio of Federated Insurance Series

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Fund for U.S. Government
Securities II (Fund), dated April 20, 1999. This SAI incorporates by reference
the Fund's Annual Report. Obtain the prospectus or the Annual Report without
charge by calling 1-800-341-7400.

APRIL 20, 1999

[Graphic]
Federated
World-Class Investment Manager
Federated Fund for U.S. Government Securities II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor

3113007B (4/99)

[Graphic]

CONTENTS

How is the Fund Organized? 1

Securities in Which the Fund Invests 1

What Do Shares Cost? 7

Mixed Funding and Shared Funding 7

How is the Fund Sold? 7

Subaccounting Services 8

Redemption in Kind 8

Massachusetts Partnership Law 8

Account and Share Information 9

Tax Information 9

Who Manages and Provides Services to the Fund? 10

How Does the Fund Measure Performance? 13

Who is Federated Investors, Inc.? 15

Financial Information 16

Addresses 16

How is the Fund Organized?

The Fund is a diversified portfolio of Federated Insurance Series (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 15, 1993. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities. The Trust changed its name from Insurance Management
Series to Federated Insurance Series on November 14, 1995. The Fund changed its
name from U.S. Government Bond Fund to Federated Fund for U.S. Government
Securities II on February 26, 1996. The Fund's investment adviser is Federated
Investment Management Company (Adviser). The Adviser, formerly known as
Federated Advisers, changed its name effective March 31, 1999.

Securities in Which the Fund Invests

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

FIXED INCOME 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

MORTGAGE BACKED SECURITIES

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

SEQUENTIAL CMOS

PACS, TACS AND COMPANION CLASSES

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.

IOS AND POS

FLOATERS AND INVERSE FLOATERS

Z CLASSES AND RESIDUAL CLASSES

ZERO COUPON SECURITIES

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are subject to credit risk.

REVERSE REPURCHASE AGREEMENTS

Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risk. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.

DELAYED DELIVERY TRANSACTIONS

TO BE ANNOUNCED SECURITIES (TBAS)

DOLLAR ROLLS

SECURITIES LENDING

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Securities lending activities are subject to market risks and credit risks.

ASSET COVERAGE

In order to secure its obligations in connection with special transactions, the
Fund will either own the underlying assets, enter into an offsetting transaction
or set aside readily marketable securities with a value that equals or exceeds
the Fund's obligations. Unless the Fund has other readily marketable assets to
set aside, it cannot trade assets used to secure such obligations entering into
an offsetting derivative contract or terminating a special transaction. This may
cause the Fund to miss favorable trading opportunities or to realize losses on
special transactions.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.

INTEREST RATE RISKS

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.

RISKS ASSOCIATED WITH COMPLEX CMOS

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.

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.

LEVERAGE RISKS

STATE INSURANCE REGULATIONS

VARIABLE ASSET REGULATIONS

The Fund is also subject to variable contract asset regulations prescribed by
the U.S. Treasury Department under Section 817(h) of the Internal Revenue Code.
After a one year start-up period, the regulations generally require that, as of
the end of each calendar quarter or within 30 days thereafter, no more than 55%
of the total assets of the Fund may be represented by any one investment, no
more than 70% of the total assets of the Fund may be represented by any two
investments, no more than 80% of the total assets of the Fund may be represented
by any three investments, and no more than 90% of the total assets of the Fund
may be represented by any four investments. In applying these diversification
rules, all securities of the same issuer, all interests of the same real
property project and all interests in the same commodity are each treated as a
single investment. In the case of government securities, each government agency
or instrumentality shall be treated as a separate issuer. If the Fund fails to
achieve the diversification required by the regulations, unless relief is
obtained from the Internal Revenue Service, the contracts invested in the fund
will not be treated as annuity, endowment, or life insurance contracts.

INVESTMENT LIMITATIONS

SELLING SHORT AND BUYING ON MARGIN

ISSUING SENIOR SECURITIES AND BORROWING MONEY

PLEDGING ASSETS

CONCENTRATION OF INVESTMENTS

DIVERSIFICATION OF INVESTMENTS

INVESTING IN REAL ESTATE

INVESTING IN COMMODITIES

The Fund will not purchase or sell commodities, commodity contracts or commodity
futures contracts.

UNDERWRITING

LENDING CASH OR SECURITIES

The Fund will not lend any of its assets, except portfolio securities up to
one-third of the value of its total assets. This shall not prevent the Fund from
purchasing or holding corporate or U.S. government bonds, debentures, notes,
certificates of indebtedness or other debt securities of an issuer, entering
into repurchase agreements, or engaging in other transactions which are
permitted by the Fund's investment objective and policies or the Trust's
Declaration of Trust.

INVESTING IN RESTRICTED AND ILLIQUID SECURITIES

The Fund has no present intention to borrow money in excess of 5% of the value
of its net assets during the coming fiscal year.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

* for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;

* for all other securities at fair value as determined in good faith by the
Board.

What Do Shares Cost?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.

Mixed Funding and Shared Funding

The Fund does engage in mixed funding and shared funding. Although the Fund does
not currently foresee any disadvantage to contract owners due to differences in
redemption rates, tax treatment or other considerations resulting from mixed
funding or shared funding, the Trustees will closely monitor the operation of
mixed funding and shared funding and will consider appropriate action to avoid
material conflicts and take appropriate action in response to any material
conflicts which occur. Such action could result in one or more participating
insurance companies withdrawing their investment in the Fund.

How is the Fund Sold?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

SHAREHOLDER SERVICES

SUPPLEMENTAL PAYMENTS

Investment professionals receive such fees for providing distribution- related
or shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.

Subaccounting Services

Certain participating insurance companies may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Participating insurance companies holding Shares in a fiduciary,
agency, custodial or similar capacity may charge or pass through subaccounting
fees as part of or in addition to normal trust or agency account fees. They may
also charge fees for other services that may be related to the ownership of
Shares. This information should, therefore, be read together with any agreement
between the customer and the participating insurance company about the services
provided, the fees charged for those services and any restrictions and
limitations imposed.

Redemption in Kind

Massachusetts Partnership Law

Account and Share Information

VOTING RIGHTS

As of March 23, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Aetna Retirement Services, Hartford,
Connecticut, owned approximately 603,415 shares (5.64%); Lincoln Benefit Life
Co., Lincoln, Nebraska, owned approximately 700,097 shares (6.54%); Provident
Mutual Life & Annuity Company of America, Valley Forge, Pennsylvania, owned
approximately 846,639 shares (7.91%); Aetna Retirement Services, Hartford,
Connecticut, owned approximately 1,397,961 shares (13.06%); Great-West Life &
Annuity Insurance Company, Englewood, Colorado, owned approximately 2,589,379
shares (24.19%); and United of Omaha Life Insurance Company, Omaha, Nebraska,
owned approximately 2,656,353 shares (24.82%).

Tax Information

FEDERAL INCOME TAX

Who Manages and Provides Services to the Fund?

BOARD OF TRUSTEES

The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of nine
funds and the Federated Fund Complex is comprised of 54 investment companies,
whose investment advisers are affiliated with the Fund's Adviser.

As of March 23, 1999, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.

<TABLE>

WILLIAM J. COPELAND Director or Trustee of the Federated Fund Complex; $1,750.56 $125,264.48 for the Trust
Birth Date: July 4, 1918 Director and Member of the Executive Committee, and 54 other investment
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman and companies in the
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank Corp.; Fund Complex
TRUSTEE Director, Ryan Homes, Inc.
Retired Previous Positions: Director, United Refinery;
Director, Forbes Fund; Chairman, Pittsburgh
Foundation; Chairman, Pittsburgh Civic Light Opera.
JAMES E. DOWD, ESQ. Director or Trustee of the Federated Fund Complex; $1,750.56 $125,264.48 for the Trust
Birth Date: May 18, 1922 Attorney-at-law; Director, The Emerging Germany and 54 other investment
571 Hayward Mill Road Fund, Inc. companies in the
Concord, MA Retired Previous Positions: President, Boston Stock Fund Complex
TRUSTEE Exchange, Inc.; Regional Administrator, United States
Securities and Exchange Commission.
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund Complex; $1,591.19 $113,860.22 for the Trust
Birth Date: October 11, 1932 Professor of Medicine, University of Pittsburgh; and 54 other investment
3471 Fifth Avenue Medical Director, University of Pittsburgh Medical companies in the
Suite 1111 Center - Downtown; Hematologist, Oncologist, and Fund Complex
Pittsburgh, PA Internist, University of Pittsburgh Medical Center;
TRUSTEE Presbyterian and Montefiore Hospitals; Member,
National Board of Trustees, Leukemia Society of
America.
EDWARD L. FLAHERTY, JR.,
ESQ. # Director or Trustee of the Federated Fund Complex; $1,750.56 $125,264.48 for the Trust
Birth Date: June 18, 1924 Attorney, of Counsel, Miller, Ament, Henny & and 54 other investment
Miller, Ament,
Henny & Kochuba Kochuba; Director Emeritus, Eat'N Park Restaurants, companies in the
205 Ross Street Inc.; formerly: Counsel, Horizon Financial, F.A., Fund Complex
Pittsburgh, PA Western Region; Partner, Meyer and Flaherty.
TRUSTEE

JOHN S. WALSH++ Director or Trustee of some of the Federated Funds; $0 $0 for the Trust
Birth Date: November 28, 1957 President and Director, Heat Wagon, Inc.; President and 23 other investment
2007 Sherwood Drive and Director, Manufacturers Products, Inc.; President, companies in the
Valparaiso, IN Portable Heater Parts, a division of Manufacturers Fund Complex
TRUSTEE Products, Inc.; Director, Walsh & Kelly, Inc.; formerly:
Vice President, Walsh & Kelly, Inc.

J. CHRISTOPHER DONAHUE+* President or Executive Vice President of the Federated $0 $0 for the Trust and
Birth Date: April 11, 1949 Fund Complex; Director or Trustee of some of the 16 other investment
Federated Investors Tower Funds in the Federated Fund Complex; President and companies in the
1001 Liberty Avenue Director, Federated Investors, Inc.; President and Fund Complex
Pittsburgh, PA Trustee, Federated Investment Management
PRESIDENT and TRUSTEE Company; President and Director, Federated
Investment Counseling and Federated Global
Investment Management Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder
Services Company; Director, Federated Services
Company.
EDWARD C. GONZALES Trustee or Director of some of the Funds in the $0 $0 for the Trust and
Birth Date: October 22, 1930 Federated Fund Complex; President, Executive Vice 1 other investment
Federated Investors Tower President and Treasurer of some of the Funds in the company in the
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated Fund Complex
Pittsburgh, PA Investors, Inc.; Vice President, Federated Investment
EXECUTIVE VICE PRESIDENT Management Company and Federated Investment
Counseling, Federated Global Investment
Management Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated
Securities Corp.; Trustee, Federated Shareholder
Services Company.
JOHN W. MCGONIGLE Executive Vice President and Secretary of the $0 $0 for the Trust
Birth Date: October 26, 1938 Federated Fund Complex; Executive Vice President, and 54 other investment
Federated Investors Tower Secretary, and Director, Federated Investors, Inc.; companies in the
1001 Liberty Avenue Trustee, Federated Investment Management Fund Complex
Pittsburgh, PA Company; Director, Federated Investment Counseling
EXECUTIVE VICE PRESIDENT
AND SECRETARY and Federated Global Investment
Management Corp.; Director, Federated Services
Company; Director, Federated Securities Corp.
RICHARD J. THOMAS Treasurer of the Federated Fund Complex; Vice $0 $0 for the Trust and
Birth Date: June 17, 1954 President-Funds Financial Services Division, 54 other investment
Federated Investors Tower Federated Investors, Inc.; Formerly: various companies in the
1001 Liberty Avenue management positions within Funds Financial Fund Complex
Pittsburgh, PA Services Division of Federated Investors, Inc.
TREASURER

<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST** FUND COMPLEX
<S> <C> <C> <C>
RICHARD B. FISHER President or Vice President of $0 $0 for the Trust and
Birth Date: May 17, 1923 some of the Funds in the 6 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Director or Trustee of some of Fund Complex
Pittsburgh, PA the Funds in the Federated
VICE PRESIDENT Fund Complex; Executive Vice
President, Federated
Investors, Inc.; Chairman and
Director, Federated Securities
Corp.
HENRY A. FRANTZEN Chief Investment Officer of this Fund and various $0 $0 for the Trust and
Birth Date: November 28, 1942 other Funds in the Federated Fund Complex; 3 other investment
Federated Investors Tower Executive Vice President, Federated Investment companies in the
1001 Liberty Avenue Counseling, Federated Global Investment Fund Complex
Pittsburgh, PA Management Corp., Federated Investment
CHIEF INVESTMENT OFFICER Management Company and Passport Research, Ltd.;
Registered Representative, Federated Securities
Corp.; Vice President, Federated Investors, Inc.;
formerly: Executive Vice President, Federated
Investment Counseling Institutional Portfolio
Management Services Division; Chief Investment
Officer/Manager, International Equities, Brown
Brothers Harriman & Co.; Managing Director, BBH
Investment Management Limited.
WILLIAM D. DAWSON, III Chief Investment Officer of this Fund and various $0 $0 for the Trust and
Birth Date: March 3, 1949 other Funds in the Federated Fund Complex; 41 other investment
Federated Investors Tower Executive Vice President, Federated Investment companies in the
1001 Liberty Avenue Counseling, Federated Global Investment Fund Complex
Pittsburgh, PA Management Corp., Federated Investment
CHIEF INVESTMENT OFFICER Management Company and Passport Research, Ltd.;
Registered Representative, Federated Securities
Corp.; Portfolio Manager, Federated Administrative
Services; Vice President, Federated Investors, Inc.;
formerly: Executive Vice President and Senior Vice
President, Federated Investment Counseling
Institutional Portfolio Management Services Division;
Senior Vice President, Federated Investment
Management Company and Passport Research, Ltd.
J. THOMAS MADDEN Chief Investment Officer of this Fund and various $0 $0 for the Trust
Birth Date: October 22, 1945 other Funds in the Federated Fund Complex; and 12 other investment
Federated Investors Tower Executive Vice President, Federated Investment companies in the
1001 Liberty Avenue Counseling, Federated Global Investment Fund Complex
Pittsburgh, PA Management Corp., Federated Investment
CHIEF INVESTMENT OFFICER Management Company and Passport Research, Ltd.;
Vice President, Federated Investors, Inc.;
formerly: Executive Vice President and Senior
Vice President, Federated Investment Counseling
Institutional Portfolio Management Services
Division; Senior Vice President, Federated
Investment Management Company and Passport
Research, Ltd.

</TABLE>

** The aggregate compensation is provided for the Trust which is comprised of
nine portfolios.

+ Mr. Donahue is the father of J. Christopher Donahue, President and
Trustee of the Trust.

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly owned subsidiary of Federated.

The Adviser shall not be liable to the Trust or any Fund shareholder for any
losses that may be sustained in the purchase, holding or sale of any security or
for anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
imposed upon it by its contract with the Trust.

OTHER RELATED SERVICES

BROKERAGE TRANSACTIONS

RESEARCH SERVICES

ADMINISTRATOR

AVERAGE AGGREGATE DAILY
MAXIMUM NET ASSETS OF THE FEDERATED ADMINISTRATIVE FEE FUNDS 0.150 of 1% on the
first $250 million 0.125 of 1% on the next $250 million 0.100 of 1% on the next
$250 million 0.075 of 1% on assets in excess of $750 million

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

INDEPENDENT PUBLIC ACCOUNTANTS

Deloitte & Touche LLP is the independent public accountant for the Fund.

FEES PAID BY THE FUND FOR SERVICES

FOR THE YEAR ENDED
DECEMBER 31 1998 1997 1996
Advisory Fee Earned $516,404 $278,790 $141,092
Advisory Fee Reduction 68,594 211,328 141,092
Brokerage Commissions 0 0 0
Administrative Fee 125,000 125,000 125,000
SHAREHOLDER SERVICES FEE NA N/A N/A

How Does the Fund Measure Performance?

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns given for the one-year and Start of Performance periods ended
December 31, 1998.

Yield is given for the 30-day period ended December 31, 1998.

START OF
PERFORMANCE
30-DAY ON MARCH 28,
PERIOD 1 YEAR 5 YEARS 10 YEARS 1994
Total Return NA 7.66% NA NA 6.66%
Yield 5.01% NA NA NA NA

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

YIELD

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

* references to ratings, rankings and financial publications and/or
performance comparisons of Shares to certain indices;

* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and

* information about the mutual fund industry from sources such as the Investment
Company Institute.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

LIPPER ANALYTICAL SERVICES, INC.

LEHMAN BROTHERS MORTGAGE INDEX

Lehman Brothers Mortgage Index covers the mortgage backed pass-through
securities of the Government National Mortgage Association, the Federal National
Mortgage Association, and the Federal Home Loan Mortgage Corporation.

LEHMAN BROTHERS GOVERNMENT INDEX

Lehman Brothers Government Index includes the Treasury and Agency Indices. The
Treasury component includes public obligations of the U.S. Treasury that have
remaining maturities of more than one year. The Agency component includes both
callable and noncallable agency securities, quasi-federal corporations, and
corporate or foreign debt guaranteed by the U.S. government.

LEHMAN BROTHERS MORTGAGE BACKED SECURITIES INDEX

Lehman Brothers Mortgage Backed Securities Index includes 15- and 30-year
fixed-rate securities backed by mortgage pools of the Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), and
Federal National Mortgage Corporation (FNMA). Graduated payment mortgages (GPMs)
and balloons are included in the index.

MORNINGSTAR, INC.,

Who is Federated Investors, Inc.?

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

EQUITY FUNDS

CORPORATE BOND FUNDS

GOVERNMENT FUNDS

MONEY MARKET FUNDS

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment
Officers are Executive Vice Presidents of the Federated advisory
companies.

MUTUAL FUND MARKET

FEDERATED CLIENTS OVERVIEW

Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

INSTITUTIONAL CLIENTS

Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.

BANK MARKETING

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Financial Information

The Financial Statements for the Fund for the fiscal year ended December 31,
1998, are incorporated herein by reference to the Annual Report to Shareholders
of Federated Fund for U.S. Government Securities II dated December 31, 1998.

Addresses

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

DISTRIBUTOR

Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779

INVESTMENT ADVISER

Federated Investment Management Company

Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

CUSTODIAN

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

INDEPENDENT PUBLIC ACCOUNTANTS

Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110-1617

PROSPECTUS
Federated International Equity Fund II

A Portfolio of Federated Insurance Series

A mutual fund seeking to obtain a total return on its assets by investing in
equity securities of foreign issuers located in at least three different
countries outside of the United States.

APRIL 20, 1999

CONTENTS

Risk/Return Summary 1

What are the Fund's Investment Strategies? 2

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

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

What Do Shares Cost? 6

How is the Fund Sold? 6

How to Purchase and Redeem Shares 6

Account and Share Information 6

Who Manages the Fund? 7

Financial Information 8

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

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. 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.

RISK/RETURN BAR CHART

[Graphic]

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 3.14%.

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
1 Year 25.57% 20.00%
Start of Performance 1 12.75% 8.80%

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

What are the Fund's Investment Strategies?

PORTFOLIO TURNOVER

TEMPORARY INVESTMENTS

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

EQUITY SECURITIES

COMMON STOCKS

PREFERRED STOCKS

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

RISKS OF FOREIGN INVESTING

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

LIQUIDITY RISKS

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

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.

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 is the Fund Sold?

How to Purchase and Redeem Shares

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

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

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

Account and Share Information

DIVIDENDS

The Fund declares and pays any dividends annually.

Shares of the Fund will begin earning dividends if owned on the record date.
Dividends of the Fund are automatically reinvested in additional Shares.

TAX INFORMATION

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

Who Manages the Fund?

The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Global Investment Management Corp. The Adviser manages the
Fund's assets, including buying and selling portfolio securities. The Adviser's
address is 175 Water Street, New York, NY 10038-4965.

THE FUND'S PORTFOLIO MANAGERS ARE:

DREW J. COLLINS

HENRY A. FRANTZEN

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

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 1.00% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses. For the fiscal year ended
December 31, 1998, the Fund's Adviser earned 0.53% of the Fund's average net
assets.

YEAR 2000 READINESS

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

Financial Information

FINANCIAL HIGHLIGHTS

This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.

Financial Highlights

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>

</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.

[Graphic]
Federated
World-Class Investment Manager
PROSPECTUS

Federated International Equity Fund II

A Portfolio of (Federated Insurance Series)

APRIL 23, 1999

[Graphic]
Federated
Federated International Equity Fund II
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 313916603

G01078-01 (4/99)

[Graphic]

STATEMENT OF ADDITIONAL INFORMATION
Federated International Equity Fund II

A Portfolio of Federated Insurance Series

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated International Equity Fund
II (Fund), dated April 20, 1999. This SAI incorporates by reference the Fund's
Annual Report. Obtain the prospectus or the Annual Report without charge by
calling 1-800-341-7400.

APRIL 20, 1999

[Graphic]
Federated
World-Class Investment Manager
Federated International Equity Fund II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor

G01078-02 (4/99)

[Graphic]

CONTENTS

How is the Fund Organized? 1

Securities in Which the Fund Invests 1

What Do Shares Cost? 9

Mixed Funding and Shared Funding 9

How is the Fund Sold? 9

Subaccounting Services 9

Redemption in Kind 9

Massachusetts Partnership Law 10

Account and Share Information 10

Tax Information 10

Who Manages and Provides Services to the Fund? 11

How Does the Fund Measure Performance? 14

Who is Federated Investors, Inc.? 16

Financial Information 17

Investment Ratings 17

Addresses 19

How is the Fund Organized?

The Fund is a diversified portfolio of Federated Insurance Series (Trust). The
Trust is an open-end, management investment company that was established under
the laws of the Commonwealth of Massachusetts on September 15, 1993. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities. The Trust changed its name from Insurance Management
Series to Federated Insurance Series on November 14, 1995. The Fund changed its
name from International Stock Fund to Federated International Equity Fund II on
February 26, 1996. The Fund's investment adviser is Federated Global Investment
Management Corp. (Adviser). The Adviser, formerly known as Federated Global
Research Corp., changed its name effective January 7, 1999.

Securities in Which the Fund Invests

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

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

DEPOSITARY RECEIPTS

Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are not traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
Receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.

FOREIGN EXCHANGE CONTRACTS

FOREIGN GOVERNMENT SECURITIES

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 additional types of equity securities in which the Fund
invests.

COMMON STOCKS

PREFERRED STOCKS

INTERESTS IN OTHER LIMITED LIABILITY COMPANIES

Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.

REAL ESTATE INVESTMENT TRUSTS (REITS)

WARRANTS

FIXED INCOME SECURITIES

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

TREASURY SECURITIES

Treasury securities are direct obligations of the government of a foreign
country.

AGENCY SECURITIES

CORPORATE DEBT SECURITIES

COMMERCIAL PAPER

DEMAND INSTRUMENTS

BANK INSTRUMENTS

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.

INVESTMENT RATINGS FOR INVESTMENT GRADE SECURITIES

The fixed income securities in which the Fund will invest will possess a minimum
credit rating of A as assigned by Standard & Poor's or A by Moody's Investors
Service, Inc., or, if unrated, judged by the Adviser to be of comparable
quality. The Adviser will determine whether a security is investment grade based
upon the credit ratings given by one or more nationally recognized rating
services. For example, Standard & Poor's, a rating service, assigns ratings to
investment grade securities (AAA, AA, A, and BBB) based on their assessment of
the likelihood of the issuer's inability to pay interest or principal (default)
when due on each security. Lower credit ratings correspond to higher credit
risk. If a security has not received a rating, the Fund must rely entirely upon
the Adviser's credit assessment that the security is comparable to investment
grade.

DERIVATIVE CONTRACTS

The Fund may trade in the following types of derivative contracts.

FUTURES CONTRACTS

OPTIONS

The Fund may:

* Buy call options on securities, securities indices and financial futures
contracts in anticipation of an increase in value of the underlying asset;

* Buy put options on securities, securities indices and financial futures
contracts in anticipation of a decrease in the value of the underlying asset;
and

* Buy or write options to close out existing positions.

When the Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.

SWAPS

Currency Swaps

Currency swap agreements provide for interest payments in different currencies.
The parties might agree to exchange the notional principal amount as well.

HYBRID INSTRUMENTS

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS

DELAYED DELIVERY TRANSACTIONS

SECURITIES LENDING

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Securities lending activities are subject to market and credit risks.

ASSET COVERAGE

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.

EQUITY SECURITIES INVESTMENT RISKS

CURRENCY RISKS

RISKS OF FOREIGN INVESTING

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

EURO RISKS

LIQUIDITY RISKS

OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

STOCK MARKET RISKS

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, or
geographic region, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that sector or
geographic region.

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.

RISKS OF INVESTING IN EMERGING MARKET COUNTRIES

LEVERAGE RISKS

STATE INSURANCE REGULATIONS

VARIABLE ASSET REGULATIONS

INVESTMENT LIMITATIONS

DIVERSIFICATION OF INVESTMENTS

With respect to 75% of the value of its total assets, the Fund will not purchase
securities of any one issuer (other than securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities) if as a
result more than 5% of the value of its total assets would be invested in the
securities of that issuer, or if it would own more than 10% of the outstanding
voting securities of any one issuer.

ACQUIRING SECURITIES

The Fund will not acquire more than 10% of the outstanding voting securities of
any one issuer.

CONCENTRATION OF INVESTMENTS

The Fund will not invest 25% or more of its total assets in securities of
issuers having their principal business activities in the same industry.

BORROWING

The Fund will not borrow money except as a temporary measure for extraordinary
or emergency purposes and then only in amounts up to one-third of the value of
its total assets, including the amount borrowed. This borrowing provision is not
for investment leverage but solely to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of portfolio
securities would be inconvenient or disadvantageous. The Fund will not purchase
securities while outstanding borrowings exceed 5% of the value of its total
assets.

PLEDGING ASSETS

The Fund will not mortgage, pledge, or hypothecate assets, except when necessary
for permissible borrowings. Neither the deposit of underlying securities or
other assets in escrow in connection with the writing of put or call options or
the purchase of securities on a when-issued basis, nor margin deposits for the
purchase and sale of financial futures contracts and related options are deemed
to be a pledge.

BUYING ON MARGIN

The Fund will not purchase any securities on margin, but may obtain such
short-term credits as are necessary for clearance of transactions, except that
the Fund may make margin payments in connection with its use of financial
futures contracts or related options and transactions.

ISSUING SENIOR SECURITIES

The Fund will not issue senior securities except in connection with borrowing
money directly or through reverse repurchase agreements or as required by
forward commitments to purchase securities or currencies.

UNDERWRITING

The Fund will not underwrite or participate in the marketing of securities of
other issuers, except as it may be deemed to be an underwriter under federal
securities law in connection with the disposition of its portfolio securities.

INVESTING IN REAL ESTATE

The Fund will not invest in real estate, although it may invest in securities
secured by real estate or interests in real estate or issued by companies,
including real estate investment trusts, which invest in real estate or
interests therein.

INVESTING IN COMMODITIES

The Fund will not purchase or sell commodities or commodity contracts, except
that the Fund may purchase and sell financial futures contracts and options on
financial futures contracts, provided that the sum of its initial margin
deposits for financial futures contracts held by the Fund, plus premiums paid by
it for open options on financial futures contracts, may not exceed 5% of the
fair market value of the Fund's total assets, after taking into account the
unrealized profits and losses on those contracts. Further, the Fund may engage
in foreign currency transactions and purchase or sell forward contracts with
respect to foreign currencies and related options.

LENDING CASH OR SECURITIES

The Fund will not lend any assets except portfolio securities. This shall not
prevent the purchase or holding of bonds, debentures, notes, certificates of
indebtedness, or other debt securities of an issuer, repurchase agreements or
other transactions which are permitted by the Fund's investment objective and
policies or its Declaration of Trust.

SELLING SHORT

The Fund will not sell securities short unless (1) it owns, or has a right to
acquire, an equal amount of such securities, or (2) it has segregated an amount
of its other assets equal to the lesser of the market value of the securities
sold short or the amount required to acquire such securities. The segregated
amount will not exceed 10% of the Fund's net assets. While in a short position,
the Fund will retain the securities, rights, or segregated assets.

To comply with registration requirements in certain states, the Fund (1) will
limit short sales of securities of any class of any one issuer to the lesser of
2% of the Fund's net assets or 2% of the securities of that class, (2) will make
short sales only on securities listed on recognized stock exchanges. These
restrictions do not apply to short sales of securities the Fund holds or has a
right to acquire without the payment of any further consideration. (If state
requirements change, these restrictions may be revised without shareholder
notification.)

PURCHASING SECURITIES TO EXERCISE CONTROL

The Fund will not purchase securities of a company for the purpose of exercising
control or management.

INVESTING IN RESTRICTED AND ILLIQUID SECURITIES

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

DEALING IN PUTS AND CALLS

The Fund will not write call options on securities unless the securities are
held in the Fund's portfolio or the Fund is entitled to them in deliverable form
without further payment or the Fund has segregated cash in the amount of any
further payments. The Fund will not purchase put options on securities unless
the securities or an offsetting call option is held in the Fund's portfolio. The
Fund may also purchase, hold or sell (i) contracts for future delivery of
securities or currencies and (ii) warrants granted by the issuer of the
underlying securities.

The Fund has no present intent to borrow money or pledge securities in excess of
5% of the value of its total assets in the coming fiscal year.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

* for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;

* in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;

* for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;

* for all other securities, at fair value as determined in good faith by
the Board.

TRADING IN FOREIGN SECURITIES

What Do Shares Cost?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.

Mixed Funding and Shared Funding

How is the Fund Sold?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

SHAREHOLDER SERVICES

The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated [Investors, Inc. (Federated)], for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.

SUPPLEMENTAL PAYMENTS

Subaccounting Services

Redemption in Kind

Massachusetts Partnership Law

Account and Share Information

VOTING RIGHTS

As of March 23, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Conseco Variable Insurance Company,
Carmel, Indiana, owned approximately 178,981 shares (5.27%); Safeco Mutual
Funds, Seattle, Washington, owned approximately 318,669 shares (9.39%); Aetna
Retirement Services, Hartford, Connecticut, owned approximately 1,111,187 shares
(32.75%); and Aetna Retirement Services, Hartford, Connecticut, owned
approximately 1,761,268 shares (51.90%).

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

Tax Information

FEDERAL INCOME TAX

FOREIGN INVESTMENTS

Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.

Who Manages and Provides Services to the Fund?

BOARD OF TRUSTEES

As of March 23, 1999, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.

<TABLE>

THOMAS G. BIGLEY Director or Trustee of the Federated Fund Complex; Director, Member $1,591.19 $113,860.22 for the
Birth Date: of Executive Committee, Children's Hospital of Pittsburgh; formerly: Trust and 54 other
February 3, 1934 Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; investment companies
15 Old Timber Trail Director, Member of Executive Committee, University of Pittsburgh. in the Fund Complex
Pittsburgh, PA
TRUSTEE

JOHN T. CONROY, JR. Director or Trustee of the Federated Fund Complex; President, $1,750.56 $125,264.48 for the
Birth Date: June 23, 1937 Investment Properties Corporation; Senior Vice President, John R. Trust and 54 other
Wood/IPC Commercial Dept. Wood and Associates, Inc., Realtors; Partner or Trustee in private investment companies
John R. Wood Associates, real estate ventures in Southwest Florida; formerly: President, in the Fund Complex
Inc. Realtors Naples Property Management, Inc. and Northgate Village
3255 Tamiami Trial North Development Corporation.
Naples, FL
TRUSTEE

NICHOLAS CONSTANTAKIS Director or Trustee of the Federated Fund Complex; formerly: Partner, $1,591.19 $47,958.02 for the
Birth Date: Andersen Worldwide SC. Trust and 29 other
September 3, 1939 investment companies
175 Woodshire Drive in the Fund Complex
Pittsburgh, PA
TRUSTEE

WILLIAM J. COPELAND Director or Trustee of the Federated Fund Complex; Director and $1,750.56 $125,264.48 for the
Birth Date: July 4, 1918 Member of the Executive Committee, Michael Baker, Inc.; formerly: Trust and 54 other
One PNC Plaza-23rd Floor Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; investment companies
Pittsburgh, PA Director, Ryan Homes, Inc. in the Fund Complex
TRUSTEE Retired Previous Positions: Director, United Refinery; Director, Forbes
Fund; Chairman, Pittsburgh Foundation; Chairman, Pittsburgh Civic
Light Opera.

JAMES E. DOWD, ESQ. Director or Trustee of the Federated Fund Complex; Attorney-at-law; $1,750.56 $125,264.48 for the
Birth Date: May 18, 1922 Director, The Emerging Germany Fund, Inc. Trust and 54 other
571 Hayward Mill Road Retired Previous Positions: President, Boston Stock Exchange, Inc.; investment companies
Concord, MA Regional Administrator, United States Securities and Exchange in the Fund Complex
TRUSTEE Commission.

LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund Complex; Professor of $1,591.19 $113,860.22 for the
Birth Date: Medicine, University of Pittsburgh; Medical Director, University of Trust and 54 other
October 11, 1932 Pittsburgh Medical Center - Downtown; Hematologist, Oncologist, investment companies
3471 Fifth Avenue and Internist, University of Pittsburgh Medical Center; Presbyterian in the Fund Complex
Suite 1111 and Montefiore Hospitals; Member, National Board of Trustees,
Pittsburgh, PA Leukemia Society of America.
TRUSTEE

<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST** AND FUND COMPLEX
<S> <C> <C> <C>
EDWARD L. FLAHERTY, JR., Director or Trustee of the Federated Fund Complex; Attorney $1,750.56 $125,264.48 for the
ESQ. # of Counsel, Miller, Ament, Henny & Kochuba; Director Emeritus, Trust and 54 other
Birth Date: June 18, 1924 Eat'N Park Restaurants, Inc.; formerly: investment companies
Miller, Ament, Henny & Counsel, Horizon Financial, F.A., Western Region; Partner, Meyer in the Fund Complex
Kochuba and Flaherty.
205 Ross Street
Pittsburgh, PA
TRUSTEE

PETER E. MADDEN Director or Trustee of the Federated Fund Complex; formerly: $1,591.19 $113,860.22 for the
Birth Date: Representative, Commonwealth of Massachusetts General Court; Trust and 54 other
March 16, 1942 President, State Street Bank and Trust Company and State investment companies
One Royal Palm Way Street Corporation. in the Fund Complex
100 Royal Palm Way Retired Previous Positions: Director, VISA USA and VISA International;
Palm Beach, FL Chairman and Director, Massachusetts Bankers Association; Director,
TRUSTEE Depository Trust Corporation.

JOHN E. MURRAY, JR., Director or Trustee of the Federated Fund Complex; President, Law $1,591.19 $113,860.22 for the
J.D., S.J.D. Professor, Duquesne University; Consulting Partner, Mollica & Murray. Trust and 54 other
Birth Date: Retired Previous Positions: Dean and Professor of Law, University of investment companies
December 20, 1932 Pittsburgh School of Law; Dean and Professor of Law, Villanova in the Fund Complex
President, Duquesne University School of Law.
University
Pittsburgh, PA
TRUSTEE

WESLEY W. POSVAR Director or Trustee of the Federated Fund Complex; President, World $1,591.19 $113,860.22 for the
Birth Date: Society of Ekistics (metropolitan planning), Athens; Professor, Trust and 54 other
September 14, 1925 International Politics; Management Consultant; Trustee, Carnegie investment companies
1202 Cathedral of Endowment for International Peace, RAND Corporation, Online in the Fund Complex
Learning Computer Library Center, Inc., National Defense University and
University of Pittsburgh U.S. Space Foundation; President Emeritus, University of Pittsburgh;
Pittsbugh, PA Founding Chairman, National Advisory Council for Environmental Policy
TRUSTEE and Technology, Federal Emergency Management Advisory Board;
Trustee, Czech Management Center, Prague.
Retired Previous Positions: Professor, United States Military Academy;
Professor, United States Air Force Academy.

MARJORIE P. SMUTS Director or Trustee of the Federated Fund Complex; Public Relations/ $1,591.19 $113,860.22 for the
Birth Date: Marketing/Conference Planning. Trust and 54 other
June 21, 1935 Retired Previous Positions: National Spokesperson, Aluminum investment companies
4905 Bayard Street Company of America; business owner. in the Fund Complex
Pittsburgh, PA
TRUSTEE

JOHN S. WALSH++ Director or Trustee of some of the Federated Funds; President and $0 $0 for the Trust and
Birth Date: Director, Heat Wagon, Inc.; President and Director, Manufacturers 23 other investment
November 28, 1957 Products, Inc.; President, Portable Heater Parts, a division of companies in the
2007 Sherwood Drive Manufacturers Products, Inc.; Director, Walsh & Kelly, Inc.; Fund Complex
Valparaiso, IN formerly: Vice President, Walsh & Kelly, Inc.
TRUSTEE

J. CHRISTOPHER DONAHUE+* President or Executive Vice President of the Federated Fund Complex; $0 $0 for the Trust and
Birth Date: Director or Trustee of some of the Funds in the Federated Fund 16 other investment
April 11, 1949 Complex; President and Director, Federated Investors, Inc.; President companies in the
Federated Investors Tower and Trustee, Federated Investment Management Company; President Fund Complex
1001 Liberty Avenue and Director, Federated Investment Counseling and Federated Global
Pittsburgh, PA Investment Management Corp.; President, Passport Research, Ltd.;
PRESIDENT and TRUSTEE Trustee, Federated Shareholder Services Company; Director,
Federated Services Company.

EDWARD C. GONZALES Trustee or Director of some of the Funds in the Federated Fund Complex; $0 $0 for the Trust and
Birth Date: President, Executive Vice President and Treasurer of some of the Funds 1 other investment
October 22, 1930 in the Federated Fund Complex; Vice Chairman, Federated Investors, company in the
Federated Investors Tower Inc.; Vice President, Federated Investment Management Company and Fund Complex
1001 Liberty Avenue Federated Investment Counseling, Federated Global Investment
Pittsburgh, PA Management Corp. and Passport Research, Ltd.; Executive Vice
EXECUTIVE VICE PRESIDENT President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company.

JOHN W. MCGONIGLE Executive Vice President and Secretary of the Federated Fund $0 $0 for the Trust and
Birth Date: Complex; Executive Vice President, Secretary, and Director, 54 other investment
October 26, 1938 Federated Investors, Inc.; Trustee, Federated Investment companies in the
Federated Investors Tower Management Company; Director, Federated Investment Fund Complex
1001 Liberty Avenue Counseling and Federated Global Investment Management
Pittsburgh, PA Corp.; Director, Federated Services Company; Director, Federated
EXECUTIVE VICE Securities Corp.
PRESIDENT
and SECRETARY

<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST** AND FUND COMPLEX
<S> <C> <C> <C>
RICHARD J. THOMAS Treasurer of the Federated Fund Complex; Vice President - $0 $0 for the Trust and
Birth Date: June 17, 1954 Funds Financial Services Division, Federated Investors, Inc.; 54 other investment
Federated Investors Tower Formerly: various management positions within Funds Financial companies in the
1001 Liberty Avenue Services Fund Complex Services Division of Federated
Pittsburgh, PA Investors, Inc.
TREASURER

RICHARD B. FISHER President or Vice President of some of the Funds in the Federated $0 $0 for the Trust and
Birth Date: May 17, 1923 Fund Complex; Director or Trustee of some of the Funds in the 6 other investment
Federated Investors Tower Federated Fund Complex; Executive Vice President, Federated Investors, companies in the
1001 Liberty Avenue Inc.; Chairman and Director, Federated Securities Corp. Fund Complex
Pittsburgh, PA
VICE PRESIDENT

HENRY A. FRANTZEN Chief Investment Officer of this Fund and various other Funds in $0 $0 for the Trust and
Birth Date: the Federated Fund Complex; Executive Vice President, Federated 3 other investment
November 28, 1942 Investment Counseling, Federated Global Investment Management companies in the
Federated Investors Tower Corp., Federated Investment Management Company and Passport Fund Complex
1001 Liberty Avenue Research, Ltd.; Registered Representative, Federated Securities
Pittsburgh, PA Corp.; Vice President, Federated Investors, Inc.; formerly: Executive
CHIEF INVESTMENT Vice President, Federated Investment Counseling Institutional Portfolio
OFFICER Management Services Division; Chief Investment Officer/Manager,
International Equities, Brown Brothers Harriman & Co.;
Managing Director, BBH Investment Management Limited.

WILLIAM D. DAWSON, III Chief Investment Officer of this Fund and various other Funds in the $0 $0 for the Trust and
Birth Date: March 3, 1949 Federated Fund Complex; Executive Vice President, Federated 41 other investment
Federated Investors Tower Investment Counseling, Federated Global Investment Management companies in the
1001 Liberty Avenue Corp., Federated Investment Management Company and Passport Fund Complex
Pittsburgh, PA Research, Ltd.; Registered Representative, Federated Securities
CHIEF INVESTMENT Corp.; Portfolio Manager, Federated Administrative Services; Vice
OFFICER President, Federated Investors, Inc.; formerly: Executive Vice
President and Senior Vice President, Federated Investment Counseling
Institutional Portfolio Management Services Division; Senior Vice
President, Federated Investment Management Company and
Passport Research, Ltd.

J. THOMAS MADDEN Chief Investment Officer of this Fund and various other Funds in the $0 $0 for the Trust and
Birth Date: Federated Fund Complex; Executive Vice President, Federated 12 other investment
October 22, 1945 Investment Counseling, Federated Global Investment Management companies in the
Federated Investors Tower Corp., Federated Investment Management Company and Passport Fund Complex
1001 Liberty Avenue Research, Ltd.; Vice President, Federated Investors, Inc.; formerly:
Pittsburgh, PA Executive Vice President and Senior Vice President, Federated
CHIEF INVESTMENT Investment Counseling Institutional Portfolio Management Services
OFFICER Division; Senior Vice President, Federated Investment Management
Company and Passport Research, Ltd.

</TABLE>

** The aggregate compensation is provided for the Trust which is comprised of
nine portfolios.

+ Mr. Donahue is the father of J. Christopher Donahue, President and
Trustee of the Trust.

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly-owned subsidiary of Federated.

OTHER RELATED SERVICES

BROKERAGE TRANSACTIONS

RESEARCH SERVICES

ADMINISTRATOR

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

INDEPENDENT PUBLIC ACCOUNTANTS

Deloitte & Touche LLP is the independent public accountant for the Fund.

FEES PAID BY THE FUND FOR SERVICES

FOR THE YEAR ENDED DECEMBER 31 1998 1997 1996
Advisory Fee Earned $474,194 $273,830 $106,851
Advisory Fee Reduction 223,688 273,316 106,851
Brokerage Commissions 555,576 291,180 104,437
Administrative Fee 125,000 125,002 125,000
SHAREHOLDER SERVICES FEE NA NA NA

How Does the Fund Measure Performance?

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns given for the one-year and Start of Performance periods ended
December 31, 1998.

Yield is given for the 30-day period ended December 31, 1998.

START OF PERFORMANCE
30-DAY PERIOD 1 YEAR ON MAY 8, 1995
Total Return NA 25.57% 12.75%
Yield (1.18)% NA NA

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

YIELD

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;

* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and

* information about the mutual fund industry from sources such as the Investment
Company Institute.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

LIPPER ANALYTICAL SERVICES, INC.

Lipper Analytical Services, Inc., for example, makes comparative calculations
for one-month, three-month, one-year, and five-year periods which assume the
reinvestment of all capital gains distributions and income dividends.

MORGAN STANLEY EUROPE, AUSTRALIA, AND FAR EAST (EAFE)

Morgan Stanley Europe, Australia, and Far East (EAFE) index is a market
capitalization weighted foreign securities index, which is widely used to
measure the performance of European, Australian, New Zealand and Far Eastern
stock markets. The index covers approximately 1,020 companies drawn from 18
countries in the above regions. The index values its securities daily in both
U.S. dollars and local currency and calculates total returns monthly. EAFE U.S.
dollar total return is a net dividend figure less Luxembourg withholding tax.
The EAFE is monitored by Capital International, S.A., Geneva, Switzerland.

SALOMON BROTHERS WORLD EQUITY INDEX EX U.S.

Salomon Brothers World Equity Index Ex U.S. is a capitalization-weighted
index comprised of equities from 22 countries excluding the United States.

FT ACTUARIES WORLD-EX U.S.

FT Actuaries World-Ex U.S. index is comprised of 1,740 stocks, excluding
U.S. stocks, jointly compiled by the Financial Times Ltd., Goldman, Sachs &
Co., and NatWest Securities Ltd. in conjunction with the Institute of
Actuaries and the Faculty of Actuaries.

Who is Federated Investors, Inc.?

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

EQUITY FUNDS

CORPORATE BOND FUNDS

GOVERNMENT FUNDS

MONEY MARKET FUNDS

MUTUAL FUND MARKET

FEDERATED CLIENTS OVERVIEW

Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

INSTITUTIONAL CLIENTS

BANK MARKETING

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Financial Information

The Financial Statements for the Fund for the fiscal year ended December 31,
1998, are incorporated herein by reference to the Annual Report to Shareholders
of Federated International Equity Fund II dated December 31, 1998.