FEDERATED INSURANCE SERIES, N-30D, 1997-02-28

FEDERATED INSURANCE SERIES
N-30D, 1997-02-28

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PRESIDENT'S MESSAGE

Dear Fellow Shareholder:

I am pleased to present the Annual Report to Shareholders for Federated
American Leaders Fund II, a portfolio of Federated Insurance Series.

As a shareholder, your money has been at work in a portfolio of
approximately 75 leading American corporations across 12 key business and
industrial sectors.

In the continued favorable stock market, the fund's portfolio performed very
well. Contributing to the strong total return of 21.58% were income
distributions of $0.18 per share, capital gains distributions of $0.09 per
share, and a significant 19% increase in net asset value.* Over the
reporting period, fund net assets nearly tripled to reach $142.2 million.

Thank you for participating in the long-term growth opportunities of
American companies through Federated American Leaders Fund II. We trust you
were pleased with the positive performance of your investment. As always, we
welcome your comments and suggestions.

Sincerely,

[Graphic]

J. Christopher Donahue
President
February 15, 1997

* Performance quoted represents past performance and is not indicative of
future performance. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Performance information does not reflect the charges
and expenses of a variable annuity or variable life insurance contract.

FEDERATED AMERICAN LEADERS FUND II

MANAGEMENT DISCUSSION AND ANALYSIS

The Standard & Poor's 500 Stock Index ("S&P 500")* registered a total return
of 8.34% for the fourth quarter of 1996, and 22.96% for the full year 1996.
For the two-year period ended December 31, 1996, the total return for the
S&P 500 was 69.17%, making 1995-1996 one of the strongest two-year periods
in the past 50 years. Major indices continued to reach new all time highs in
the fourth quarter as investors reacted positively to election results and
the favorable economic environment including moderate growth, subdued
inflation, stable interest rates and rising corporate profits.

Our forecast for the economy for 1997 is for this environment to continue
with real Gross Domestic Product growth of roughly 2.5% and corporate profit
increases of 5% to 7%. Net inflows into the U.S. stock market should remain
strong, especially into mutual funds. With the market strength of the past
two years, many traditional measures of value suggest the market may have
reached levels of over-valuation. We share some of these concerns. However,
a multiple of 17 times estimated 1997 earnings for the S&P 500 does not seem
unreasonable in the current economic environment, and we see many factors
which are very positive for U.S. equities. The U.S. is the world leader in
information technology, which has helped us to become an export powerhouse
as world markets are expanding more rapidly.
While we do not attempt to time the market, we recognize we are in a higher
risk market environment despite the positives which we can identify.
Therefore, our current strategy is more defensive than that of six months
ago. The current portfolio is well diversified among the 12 market sectors
with modest overweights in energy and utilities. The technology sector is
slightly underweighted. The current structure is consistent with our value
and momentum disciplines which reflect few areas of compelling mis-valuation.

For 1996, the Federated American Leaders Fund II portfolio had a total
return of 21.58%.** While falling short of the S&P 500, the fund's
performance was competitive with other growth and income funds. Market
strength in 1996 was more concentrated in large capitalization stocks that
dominate the S&P 500, particularly in the latter half of the year. While we
want to own stocks of America's leading companies, we pay close attention to
valuation, which causes us to sell or avoid some large well-known stocks
with high price to earnings ratios, in favor of more attractively valued
companies.

Although we have become more selective, we believe the market still offers
good investment values in certain types of stocks. We particularly favor
companies which are restructuring and/or will be beneficiaries of industry
consolidation as is occurring in aerospace and banking. Lockheed Martin and
Chase Manhattan are good examples of these themes. We also favor dominant
companies which are both domestic and global leaders such as General
Electric and General Motors.

* The Standard & Poor's 500 Stock Index, 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. This index is unmanaged and actual
investments cannot be made in an index.

** Performance quoted represents past performance and is not indicative of
future performance. Investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Performance information does not reflect the charges
and expenses of a variable annuity or variable life insurance contract.

FEDERATED AMERICAN LEADERS FUND II
GROWTH OF $10,000 INVESTED IN THE FEDERATED AMERICAN LEADERS FUND II

The graph below illustrates the hypothetical investment of $10,000 in the
Federated American Leaders Fund II (the "Fund") from February 10, 1994
(start of performance) to December 31, 1996, compared to the Standard and
Poor's 500 Index (S&P 500)+ and the Lipper Growth and Income Funds Average
(LGIFA).++

Graphic representation omitted; see Appendix A.

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1996
1 Year.............................................21.58%
Start of Performance (2/10/94).....................18.03%

* The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 and the LGIFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.

+ The S&P 500 is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. The
index is unmanaged.
++ The LGIFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the category, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees that
the SEC requires to be reflected in a fund's performance.

FEDERATED AMERICAN LEADERS FUND II
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 94.3%
BASIC INDUSTRY -- 6.6%
20,400 Betzdearborn, Inc. $ 1,193,400
28,000 Consolidated Papers, Inc. 1,375,500
27,500 Great Lakes Chemical Corp. 1,285,625
35,000 International Paper Co. 1,413,125
37,500 Monsanto Co. 1,457,812
65,000 Morton International, Inc. 2,648,750
Total 9,374,212
CONSUMER DURABLES -- 3.1%
37,500 General Motors Corp. 2,090,624
101,500 Rubbermaid, Inc. 2,309,125
Total 4,399,749
CONSUMER NON-DURABLES -- 12.9%
24,800 Avon Products, Inc. 1,416,700
32,000 CPC International, Inc. 2,480,000
52,500 Heinz (H.J.) Co. 1,876,875
73,000 IBP, Inc. 1,770,250
37,000 Kimberly-Clark Corp. 3,524,250
23,000 Philip Morris Cos., Inc. 2,590,375
35,000 Tambrands, Inc. 1,430,624
18,400 Unilever N.V., ADR 3,224,600
Total 18,313,674
ENERGY MINERALS -- 9.0%
18,900 Chevron Corp. 1,228,500
16,000 Exxon Corp. 1,568,000
10,000 Mobil Corp. 1,222,500
50,000 Occidental Petroleum Corp. 1,168,750
10,000 Royal Dutch Petroleum Co., ADR 1,707,500
</TABLE>

<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
ENERGY MINERALS -- CONTINUED
13,000 Texaco, Inc. $ 1,275,625
65,000 USX Marathon Group 1,551,875
62,662 Union Pacific Resources Group, Inc. 1,832,864
28,600 Unocal Corp. 1,161,874
Total 12,717,488
FINANCE -- 13.0%
45,000 Aflac, Inc. 1,923,750
25,508 Allstate Corp. 1,476,276
12,500 CIGNA Corp. 1,707,813
17,000 Chase Manhattan Corp. 1,517,250
13,000 Citicorp 1,339,000
19,600 Dean Witter, Discover & Co. 1,298,500
56,500 Federal National Mortgage Association 2,104,625
23,000 Marsh & McLennan Cos., Inc. 2,392,000
26,000 National City Corp. 1,166,750
25,000 Republic New York Corp. 2,040,625
33,533 Travelers Group, Inc. 1,521,560
Total 18,488,149
HEALTH CARE -- 10.0%
42,500 Abbott Laboratories 2,156,875
26,500 American Home Products Corp. 1,553,563
30,000 Bausch & Lomb, Inc. 1,050,000
90,000 (a)Biomet, Inc. 1,361,250
22,000 Bristol-Myers Squibb Co. 2,392,500
47,700 Columbia/HCA Healthcare Corp. 1,943,775
70,800 (a)Healthsource, Inc. 929,250
19,000 Merck & Co., Inc. 1,505,750
30,000 United Healthcare Corp. 1,350,000
Total 14,242,963
</TABLE>

<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
PRODUCER MANUFACTURING -- 5.4%
17,800 General Electric Co. $ 1,759,975
41,500 Ingersoll-Rand Co. 1,846,750
14,200 Loews Corp. 1,338,350
28,500 Textron, Inc. 2,686,125
Total 7,631,200
RETAIL TRADE -- 4.7%
43,900 Dayton-Hudson Corp. 1,723,075
52,000 Dillard Department Stores, Inc., Class A 1,605,500
30,000 Sears, Roebuck & Co. 1,383,750
85,000 Wal-Mart Stores, Inc. 1,944,375
Total 6,656,700
SERVICES -- 4.9%
71,500 Block (H&R), Inc. 2,073,500
96,500 Browning-Ferris Industries, Inc. 2,533,125
14,000 Disney (Walt) Co. 974,750
19,000 Gannett Co., Inc. 1,422,625
Total 7,004,000
TECHNOLOGY -- 10.9%
38,500 AMP, Inc. 1,477,438
6,900 Automatic Data Processing, Inc. 295,838
1,050 Boeing Co. 111,694
45,500 Electronic Data Systems Corp. 1,967,875
40,000 General Motors Corp., Class H 2,250,000
26,400 Hewlett-Packard Co. 1,326,600
14,000 Intel Corp. 1,833,125
13,900 International Business Machines Corp. 2,098,900
9,270 Lockheed Martin Corp. 848,205
28,560 Lucent Technologies, Inc. 1,320,900
25,000 Rockwell International Corp. 1,521,875
9,000 (a)Solectron Corp. 480,375
Total 15,532,825
</TABLE>

<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
TRANSPORTATION -- 0.9%
15,000 (a)AMR Corp. $ 1,321,874
UTILITIES -- 12.9%
34,500 AT&T Corp. 1,500,750
30,000 (a)Columbia Gas System, Inc. 1,908,750
44,100 Enron Corp. 1,901,813
28,000 FPL Group, Inc. 1,288,000
47,000 GTE Corp. 2,138,500
101,000 MCI Communications Corp. 3,301,438
109,100 Pacific Gas & Electric Co. 2,291,100
76,000 Pacific Telesis Group 2,793,000
55,600 Southern Co. 1,257,950
Total 18,381,301
TOTAL COMMON STOCKS (IDENTIFIED COST $117,159,609) 134,064,135
PREFERRED STOCKS -- 1.7%
TECHNOLOGY -- 1.7%
30,600 Microsoft Corp., Conv. Pfd. (IDENTIFIED COST $2,444,175) 2,451,825
(B)REPURCHASE AGREEMENTS -- 3.6%
$ 5,130,000 BT Securities Corporation, 6.90%, dated 12/31/1996, due 1/2/1997
(AT AMORTIZED COST) 5,130,000
TOTAL INVESTMENTS (IDENTIFIED COST $124,733,784)(C) $ 141,645,960
</TABLE>

(a) Non-income producing security.

(b) The repurchase agreement is fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investment in the repurchase agreement is through
participation in a joint account with other Federated funds.

(c) The cost of investments for federal tax purposes amounts to
$124,736,051. The net unrealized appreciation of investments on a federal
tax basis amounts to $16,909,909 which is comprised of $18,525,108
appreciation and $1,615,199 depreciation at December 31, 1996.

Note: The categories of investments are shown as a percentage of net assets
($142,216,464) at December 31, 1996.

The following acronyms are used throughout this portfolio:

ADR -- American Depositary Receipt

(See Notes which are an integral part of the Financial Statements)

FEDERATED AMERICAN LEADERS FUND II
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost, $124,733,784
and tax cost, $124,736,051) $ 141,645,960
Cash 15,361
Income receivable 320,777
Receivable for investments sold 521,723
Receivable for shares sold 516,775
Total assets $143,020,596
LIABILITIES:
Payable for investments purchased 544,984
Payable for shares redeemed 249,683
Accrued expenses 9,465
Total liabilities 804,132
Net Assets for 9,322,235 shares outstanding $ 142,216,464
NET ASSETS CONSIST OF:
Paid in capital $ 121,468,683
Net unrealized appreciation of investments 16,912,176
Accumulated net realized gain on investments 3,724,287
Undistributed net investment income 111,318
Total Net Assets $ 142,216,464
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$142,216,464 / 9,322,235 shares outstanding $15.26
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED AMERICAN LEADERS FUND II
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>

INVESTMENT INCOME:
Dividends $ 1,888,201
Interest 323,745
Total income 2,211,946
EXPENSES:
Investment advisory fee $ 693,045
Administrative personnel and services fee 125,000
Custodian fees 26,802
Transfer and dividend disbursing agent fees and expenses 18,072
Directors'/Trustees' fees 1,936
Auditing fees 10,000
Legal fees 2,920
Portfolio accounting fees 44,751
Share registration costs 24,823
Printing and postage 30,939
Insurance premiums 3,303
Miscellaneous 11,527
Total expenses 993,118
Waivers --
Waiver of investment advisory fee (203,603)
Net expenses 789,515
Net investment income 1,422,431
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 3,780,324
Net change in unrealized appreciation of investments 12,783,766
Net realized and unrealized gain on investments 16,564,090
Change in net assets resulting from operations $ 17,986,521
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED AMERICAN LEADERS FUND II
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 1,422,431 $ 385,529
Net realized gain (loss) on investments ($3,738,194 and
$460,510 net gains, respectively, as computed for federal 3,780,324 418,832
tax purposes)
Net change in unrealized appreciation of investments 12,783,766 4,129,761
Change in net assets resulting from operations 17,986,521 4,934,122
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (1,311,113) (386,024)
Distributions in excess of net investment income -- (10,010)
Distributions from net realized gains (450,672) --
Change in net assets resulting from distributions to (1,761,785) (396,034)
shareholders
SHARE TRANSACTIONS --
Proceeds from sale of shares 89,014,893 45,176,314
Net asset value of shares issued to shareholders in payment
of distributions declared 1,761,418 396,398
Cost of shares redeemed (13,298,117) (3,997,296)
Change in net assets resulting from share transactions 77,478,194 41,575,416
Change in net assets 93,702,930 46,113,504
NET ASSETS:
Beginning of period 48,513,534 2,400,030
End of period (including undistributed net investment
income of $111,318 and $0, respectively) $142,216,464 $48,513,534
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED AMERICAN LEADERS FUND II
FINANCIAL HIGHLIGHTS

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

* Computed on an annualized basis.

(a) 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.

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

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

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

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

(See Notes which are an integral part of the Financial Statements)

FEDERATED AMERICAN LEADERS FUND II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. ORGANIZATION
Federated Insurance Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of eight portfolios. The financial
statements included herein are only those of Federated American Leaders Fund
II (the "Fund"), a diversified portfolio. The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The primary investment objective of the Fund is to achieve
long-term growth of capital. The Fund's secondary objective is to provide
income.

Effective April 15, 1996, the Board of Trustees ("Trustees") changed the
name of the Trust from Insurance Management Series to Federated Insurance
Series and the name of the Fund from Equity Growth and Income Fund to
Federated American Leaders Fund II.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.

INVESTMENT VALUATIONS -- Listed equity securities are valued at the last
sale price reported on a national securities exchange. Short-term securities
are valued at the prices provided by an independent pricing service.
However, short-term securities with remaining maturities of sixty days or
less at the time of purchase may be valued at amortized cost, which
approximates fair market value.

REPURCHASE AGREEMENTS -- It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System, or to have segregated within the custodian bank's
vault, all securities held as collateral under repurchase agreement
transactions. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.

The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Trustees. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.

Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
short term capital gain distributions. The following reclassifications have
been made to the financial statements.

INCREASE (DECREASE)
ACCUMULATED NET UNDISTRIBUTED NET
REALIZED GAIN/LOSS INVESTMENT INCOME
($10,010) $10,010

Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.

USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.

OTHER -- Investment transactions are accounted for on the trade date.

3. SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).

Transactions in shares were as follows:

YEAR ENDED
DECEMBER 31,
1996 1995
Shares sold 6,346,064 3,870,639
Shares issued to shareholders in payment of 124,400 32,670
distributions declared
Shares redeemed (938,427) (359,502)
Net change resulting from share transactions 5,532,037 3,543,807

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.75% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can modify
or terminate this voluntary waiver at any time at its sole discretion.

ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.

ORGANIZATIONAL EXPENSES -- Organizational and start-up administrative
service expenses of $47,855 were borne initially by the Adviser. The Fund
has agreed to reimburse the Adviser for the organizational and start-up
administrative expenses during the five-year period following the effective
date. For the period ended December 31, 1996, the Fund paid $9,571 pursuant
to this agreement.

GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.

5. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1996, were as follows:

PURCHASES $ 153,455,140
SALES $ 78,730,697

INDEPENDENT AUDITORS' REPORT

To the Board of Trustees of the Federated Insurance Series
and Shareholders of FEDERATED AMERICAN LEADERS FUND II:

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated American Leaders Fund
II (a portfolio of the Federated Insurance Series) as of December 31, 1996,
and the related statement of operations for the year then ended, the
statement of changes in net assets for the years ended December 31, 1996 and
1995, and the financial highlights for the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated
American Leaders Fund II as of December 31, 1996, the results of its
operations, the changes in its net assets and its financial highlights for
the respective stated periods in conformity with generally accepted
accounting principles.

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
February 7, 1997

TRUSTEES

John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward J. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts

OFFICERS

John F. Donahue
Chairman

J. Christopher Donahue
President

Edward C. Gonzales
Executive Vice President

John W. McGonigle
Executive Vice President, Treasurer, and Secretary

Richard B. Fisher
Vice President

S. Elliott Cohan
Assistant Secretary

Variable funds are not bank deposits or obligations, are not 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. Investment in variable funds involves investment
risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the fund's prospectus which contains facts
concerning its objective and policies, management fees, expenses and other
information.

FEDERATED
AMERICAN
LEADERS
FUND II

ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1996

FEDERATED INSURANCE SERIES

[Graphic]

Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

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

Cusip 313916405
G00843-01 (2/97)

PRESIDENT'S MESSAGE

Dear Shareholder:

I am pleased to present the Annual Report to Shareholders for Federated
Utility Fund II, a portfolio of Federated Insurance Series.

The fund is an attractive way to help your money earn dividend income, with
some opportunities for growth, from an investment sector that supplies
critical services to society. At the end of the reporting period, the fund's
60 common and preferred stock holdings were spread across the electric,
telecommunication, natural gas and international utilities.

Despite a relatively weak environment for utility stocks during 1996 (the
total return for the Standard & Poor's Utility Index* was 3.08%) Federated
Utility Fund II produced a strong total return of 11.56%.** Contributing to
this performance was $0.41 per share in income, $0.05 per share in capital
gains, and a 7% increase in net asset value. On December 31, 1996, net
assets reached $63.6 million -- a significant increase over the $30 million
in net assets at the beginning of the period.

Thank you for participating in the income and growth opportunities of
utility stocks through Federated Utility Fund II. We hope you are pleased
with the fund's strong relative performance. As always, we welcome your
comments and suggestions.

Sincerely,

/s/ J. Christopher Donahue

J. Christopher Donahue

President

February 15, 1997

* Standard & Poor's Utility Index is an unmanaged index of common stocks
from forty different electric and natural gas utilities indicating daily
changes in the price of the stocks. Investments cannot be made in an index.

** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Performance information does not reflect the charges
and expenses of a variable annuity or variable life insurance contract.

FEDERATED UTILITY FUND II

MANAGEMENT DISCUSSION AND ANALYSIS

1996 was an exciting year for the utility industry, complete with mergers
and acquisitions, spin-offs and landmark legislation. We witnessed proposed
combinations of huge companies at handsome premiums to pre-announcement
stock prices. In telecommunications, British Telecommunications agreed to
buy MCI Communications at a 43% premium to create the fourth largest long
distance company in the world. A number of electric utilities proposed
mergers with other electric utilities, some on a friendly basis and others
on a hostile basis. A new buzzword developed for the industry as well. The
concept of "convergence," in which an electric utility merges with a natural
gas utility to become a total energy provider brought some innovative merger
announcements. Enron Corporation, the largest marketer of natural gas in
North America agreed to buy Portland General, a low cost electric utility in
the western United States at a 48% premium. More recently, Duke Power agreed
to merge with PanEnergy at a 19% premium. With a combined market
capitalization of $23 billion, this represents the largest merger to date in
the industry, creating a powerhouse total energy provider.

Some electric companies made acquisitions outside the United States, with
numerous transactions in the United Kingdom and Australia power industries.
And Southern Company, the largest domestic electric utility bought 80% of
Consolidated Electric Power Asia, the largest independent power producer in
Asia, continuing its strategy to derive an increasing percentage of its
income internationally. On the opposing side of the spectrum, AT&T
Corporation has completed the spin-off of its Lucent Technology and NCR
Corporation subsidiaries. Clearly, many utility managements are positioning
their companies to thrive in the more competitive environment of the future.
The portfolio has benefited from its ownership in a number of these takeover
candidates.

On the legislative front, deregulation continues to move forward. The
President signed the landmark telecommunications bill in February 1996,
beginning the lengthy process of bringing competition to the local and long
distance markets. Electric deregulation is progressing on a state-by-state
basis, with 42 states currently studying legislation. Our observation is
that efforts to bring competition to the utility industry are progressing
very slowly, allowing the companies time to improve their balance sheets and
cost structures, to work with their commissions and legislatures, and
increasingly to find synergistic merger partners. Furthermore, key states
such as California and Pennsylvania have proposed electric utility reform
which is quite positive for the utility companies in those states and which
is being studied as a model by other states.

The fund posted a total return of 11.56% for the period ended December 31,
1996,* far surpassing the 3.08% return of the Standard & Poor's ("S&P")
Utility Index. It should be noted that Standard & Poor's removed telephone
utilities from its utility index and placed them in a separate S&P
Communications Index** on July 10, 1996. In the future we will compare the
fund's performance with both the S&P Utility Index, representing electric
and natural gas sectors, and the S&P Communications Index.

* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost. Performance information
does not reflect the charges and expenses of a variable annuity or variable
life insurance contract.

** Standard & Poor's Communications Index is an unmanaged index of common
stocks from telephone utilities indicating daily changes in the price of the
stocks. Investments cannot be made in an index.

The portfolio's performance was bolstered by an 11% allocation to natural
gas, a sector which enjoyed a total return of nearly 33% in 1996. This
performance dwarfed that of the S&P electrics sector, down 0.33% for the
year and the S&P telephones sector, which was up only 1.01% in 1996. While
natural gas stocks benefited from strong natural gas prices and merger
speculation, the interest-sensitive electrics were held back by a poorly
performing bond market. Telephones suffered from a combination of rising
interest rates, entering the year in an overbought position and investor
concerns regarding telecom deregulation.

An allocation of 8% to international utilities contributed to the
portfolio's return, as international utilities significantly outperformed
domestic utilities in 1996. Finally, the portfolio holds 23% in non-utility
common stocks and convertible securities which diversify away some of the
interest rate risk inherent in utilities and which have contributed
significantly to the defensive characteristics of the portfolio.

OUTLOOK

We expect to see more electric utility company mergers in 1997 and a
continuation of the convergence theme. The Federal Energy Regulatory
Commission has recently issued guidelines which should quicken the pace of
completing proposed electric utility mergers. This is welcome news. The
premiums being paid and the synergistic savings resulting from these
combinations should benefit the stocks. Additionally, we should see further
competitive rulings from state utility commissions and legislatures,
reducing uncertainty in the group. On the telephone front, recent
deregulation guidelines proposed by the Federal Communications Commission
exhibit a slow and less harsh approach to the process, resulting in positive
performances by these stocks. Lastly, utilities retain their defensive
investment qualities as the general stock market becomes increasingly
volatile. In fact, the fund has outperformed the S&P 500 Stock Index*** in
17 of the 20 periods in which the Index corrected by 2% or more since 1990.
As well, the fund has outperformed the 30-year Treasury Bond return in 17 of
the 18 periods in which the Treasury Bond corrected by 3% or more since
1990. We will strive to maintain the defensive qualities of the fund while
seeking a competitive return.

THEMES

1) High quality domestic utilities with superior dividend growth prospects.

2) Defensive non-utility holdings, mostly in the form of convertible bonds
and preferred stocks.

3) Diversified international utility holdings.

*** Standard & Poor's 500 Stock Index is an unmanaged composite index of
common stocks in industrial, transportation, and financial and public
utility companies, and can be used to compare the total returns of funds
whose portfolios are invested primarily in common stocks. Investments cannot
be made in an index.

COMMENTS REGARDING SELECTED PURCHASES

SPRINT CORP. -- Sprint enjoys the highest revenue and volume growth of the
long distance telephone companies. We purchased the stock at an attractive
price compared to its peers and compared to its historical price/earnings
multiple relative to the market.

SALOMON BROTHERS DECS, SERIES CINCINNATI BELL, 7.625% -- This Salomon
Brothers preferred stock is convertible into the common stock of Cincinnati
Bell, a midwest local and long distance telephone service provider whose
expected long-term earnings growth rate is 23%. We believe that its other
businesses, including telemarketing services, information management and
billing services, and yellow pages publication are undervalued.

TOSCO CORP. 5.75% CONVERTIBLE PREFERRED STOCK -- Tosco is a highly
successful oil refiner, wholesaler, gas retailer and operator of convenience
stores. We purchased the convertible preferred stock issued as part of the
company's financing for its proposed acquisition of Unocal Corp.

SUNAMERICA PERCS 8.5% -- SunAmerica is one of the best positioned companies
in the growing annuity and retirement savings market. We purchased this high
yielding convertible preferred to complement our holding of the SunAmerica
7.25% STRYPES.

FEDERATED UTILITY FUND II

GROWTH OF $10,000 INVESTED IN THE FEDERATED UTILITY FUND II

The graph below illustrates the hypothetical investment of $10,000 in the
Federated Utility Fund II (the "Fund") from February 10, 1994 (start of
performance) to December 31, 1996, compared to the Standard & Poor's 500
Index (S&P 500)+ and the Standard & Poor's Utility Index (SPXU).+

GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX A

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1996
1 Year 11.56%
Start of Performance (2/10/94) 10.63%

* The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 and SPXU have been adjusted to reflect
reinvestment of dividends on securities in the indices.

+ The S&P 500 and the SPXU are not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the Fund's
performance. The indices are unmanaged.

FEDERATED UTILITY FUND II
PORTFOLIO OF INVESTMENTS

DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<S> <C> <C>
COMMON STOCKS--79.4%
CONSUMER DURABLES--1.2%
24,300 Ford Motor Co. $ 774,563
CONSUMER NON-DURABLES--1.9%
10,800 Philip Morris Cos., Inc. 1,216,350
ELECTRIC UTILITIES: CENTRAL--12.0%
58,700 CMS Energy Corp. 1,973,787
23,300 Cinergy Corp. 777,637
75,000 DPL, Inc. 1,837,500
54,600 Illinova Corp. 1,501,500
38,900 NIPSCO Industries, Inc. 1,541,412
Total 7,631,836
ELECTRIC UTILITIES: EAST--5.6%
50,000 DQE, Inc. 1,450,000
28,200 GPU, Inc. 948,225
45,000 Peco Energy Co. 1,136,250
Total 3,534,475
ELECTRIC UTILITIES: SOUTH--14.8%
55,700 Duke Power Co. 2,576,125
57,100 FPL Group, Inc. 2,626,600
69,600 Southern Co. 1,574,700
54,300 TECO Energy, Inc. 1,309,988
33,000 Texas Utilities Co. 1,344,750
Total 9,432,163
ELECTRIC UTILITIES: WEST--7.3%
50,400 Pacificorp 1,033,200
66,200 Pinnacle West Capital Corp. 2,101,850
35,300 Portland General Corp. 1,482,600
Total 4,617,650
</TABLE>

FEDERATED UTILITY FUND II
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
ENERGY MINERALS--0.5%
3,100 Exxon Corp. $ 303,800
FINANCE--4.0%
48,500 Meditrust, REIT 1,940,000
8,500 Mellon Bank Corp. 603,500
Total 2,543,500
MAJOR U.S. TELECOMMUNICATIONS--17.8%
12,600 AT&T Corp. 548,100
29,800 Ameritech Corp. 1,806,625
50,000 BellSouth Corp. 2,018,750
39,700 GTE Corp. 1,806,350
63,900 MCI Communications Corp. 2,088,731
38,700 Pacific Telesis Group 1,422,225
6,700 SBC Communications, Inc. 346,725
32,500 Sprint Corp. 1,295,938
Total 11,333,444
NATURAL GAS DISTRIBUTION--4.9%
52,400 MCN Corp. 1,513,050
3,400 New Jersey Resources Corp. 99,450
48,900 Pacific Enterprises 1,485,338
Total 3,097,838
NON-U.S. UTILITIES--6.2%
13,500 CPT Telefonica del Peru S.A., 254,813
Class B, ADR
30,000 Iberdrola S.A. 425,188
15,400 Korea Electric Power Corp., 315,700
ADR
43,300 National Power Co. PLC, ADR 1,466,787
241,800 STET-Societa Finanziaria 816,892
Telefonica S.P.A.
9,000 Telecomunicacoes Brasileras, 688,500
ADR
Total 3,967,880
</TABLE>

FEDERATED UTILITY FUND II
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
OIL/GAS TRANSMISSION--2.3%
15,100 Panenergy Corp. $ 679,500
21,000 Williams Cos., Inc. (The) 787,500
Total 1,467,000
OTHER TELEPHONE/COMMUNICATIONS--0.5%
13,500 Frontier Corp. 305,437
WATER SUPPLY--0.4%
12,800 American Water Works Co., Inc. 264,000
TOTAL COMMON STOCKS 50,489,936
(IDENTIFIED COST $46,114,384)
CONVERTIBLE PREFERRED STOCKS--15.0%
BASIC INDUSTRY--1.6%
32,900 Coeur d'Alene Mines Corp., 575,750
Conv. Pfd., 7.00%
2,800 International Paper Co., 129,755
Cumulative Conv. Pfd., $2.63
7,700 Merrill Lynch & Co., Inc., 308,962
STRYPES, Series IML 6.25%
Total 1,014,467
CABLE-0.7%
20,500 Merrill Lynch & Co., Inc., 456,125
STRYPES, Series Cox, 6.00%
CELLULAR TELEPHONE--0.9%
20,200 Airtouch Communications, Inc., 550,450
DECS, Series B, 6.00%
CONSUMER NON-DURABLES--0.5%
6,200 Amcor Ltd., PRIDES 316,200
ENERGY MINERALS--1.0%
12,100 (a)Tosco Corp., Conv. Pfd., 630,713
5.75%
FINANCE--5.2%
7,500 Aetna Services Inc., Conv. 595,312
Pfd., 6.25%
4,500 Merrill Lynch & Co., Inc., 299,250
STRYPES, Series Sun America
7.25%
16,000 Merrill Lynch & Co., Inc., 1,076,000
STRYPES, Series MGIC, $3.12
9,500 Salomon, Inc., DECS, Series 289,750
FSA, 7.625%
</TABLE>

FEDERATED UTILITY FUND II
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
OR VALUE
FOREIGN PAR IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS--CONTINUED
FINANCE--continued
10,900 Salomon, Inc., DECS, Series $ 656,725
Cincinnati Bell, $3.48
10,000 SunAmerica, Inc., PERCS, 8.5% 422,500
Total 3,339,537
OIL/GAS TRANSMISSION--1.4%
10,000 Williams Cos., Inc. (The), 885,000
Conv. Pfd., $3.50
SERVICES--2.0%
2,800 Alco Standard Corp., ACES, 267,400
$5.04
25,000 Browning-Ferris Industries, 712,500
Inc., ACES, $2.58
24,900 Hollinger International 286,350
Publishing, Inc., Conv. Pfd.,
$.95
Total 1,266,250
TECHNOLOGY--1.7%
13,500 Microsoft Corp., Conv. Pfd., 1,081,687
2.75%
TOTAL CONVERTIBLE PREFERRED 9,540,429
STOCKS (IDENTIFIED COST
$8,995,460)
CONVERTIBLE CORPORATE BONDS--3.6%
HEALTH CARE--1.2%
$ 470,000 Alza Corp., Conv. Bond, 5.00%, 453,550
5/1/2006
270,000 Tenet Healthcare Corp., Conv. 280,800
Bond, 6.00%, 12/1/2005
Total 734,350
NON-U.S. UTILITIES--1.2%
245,000 Korea Electric Power Corp., 245,612
Conv. Bond, 5.00%, 8/1/2001
450,000 (a)New World Infrastructure, 532,688
Conv. Bond, 5.00%, 7/15/2001
Total 778,300
RETAIL TRADE--0.4%
240,000 Saks Holdings, Inc., Conv. 221,549
Bond, 5.50%, 9/15/2006
TECHNOLOGY--0.9%
525,000 (a)Solectron Corp., Conv. Bond, 572,156
6.00%, 3/1/2006
TOTAL CONVERTIBLE CORPORATE 2,306,355
BONDS (IDENTIFIED COST
$2,194,809)
</TABLE>

FEDERATED UTILITY FUND II
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
(b)REPURCHASE AGREEMENT--3.9%
$ 2,450,000 BT Securities Corporation,
6.90%, dated 12/31/1996, due
1/2/1997
(AT AMORTIZED COST) $ 2,450,000
TOTAL INVESTMENTS (IDENTIFIED $ 64,786,720
COST $59,754,653)(c)
</TABLE>

(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At December 31, 1996, these securities
amounted to $1,735,557 which represents 2.73% of net assets.

(c) The cost of investments for federal tax purposes amounts to $59,773,122.
The net unrealized appreciation of investments on a federal tax basis
amounts to $5,013,598 which is comprised of $5,441,092 appreciation and
$427,494 depreciation at December 31, 1996.

Note: The categories of investments are shown as a percentage of net assets
($63,557,536) at December 31, 1996.

The following acronyms are used throughout this portfolio:

ACES -- Adjustable Convertible Extendable Securities
ADR -- American Depositary Receipt
DECS -- Dividend Enhanced Convertible Stock
PERCS -- Preferred Equity Redemption Cumulative Stock
PLC -- Public Limited Company
PRIDES -- Preferred Redeemable Increased Dividend Equity Securities
REIT -- Real Estate Investment Trust
STRYPES -- Structured Yield Product Exchangeable for Stock

(See Notes which are an integral part of the Financial Statements)

FEDERATED UTILITY FUND II
STATEMENT OF ASSETS AND LIABILITIES

DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value
(identified cost $59,754,653,
and tax cost $59,773,122) $ 64,786,720
Cash 789
Income receivable 197,174
Receivable for investments sold 355,942
Receivable for shares sold 64,887
Total assets 65,405,512
LIABILITIES:
Payable for investments purchased $ 1,708,514
Payable for shares redeemed 114,911
Net payable for foreign currency exchange 1,152
contracts
Payable for taxes withheld 4,022
Accrued expenses 19,377
Total liabilities 1,847,976
Net Assets for 5,382,230 shares outstanding $ 63,557,536
NET ASSETS CONSIST OF:
Paid in capital $ 56,986,551
Net unrealized appreciation of investments and translation of
assets and liabilities
in foreign currency 5,032,196
Accumulated net realized gain on investments and 1,447,599
foreign currency transactions
Undistributed net investment income 91,190
Total Net Assets $ 63,557,536
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$63,557,536 / 5,382,230 shares outstanding $11.81
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED UTILITY FUND II
STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $ 2,052,676
$53,469)
Interest 250,263
Total income 2,302,939
EXPENSES:
Investment advisory fee $ 361,797
Administrative personnel and services fee 125,000
Custodian fees 29,963
Transfer and dividend disbursing agent fees and 17,870
expenses
Directors'/Trustees' fees 2,005
Auditing fees 10,000
Legal fees 3,060
Portfolio accounting fees 47,784
Share registration costs 9,743
Printing and postage 36,476
Insurance premiums 4,138
Miscellaneous 12,382
Total expenses 660,218
Waiver of investment advisory fee (248,058)
Net expenses 412,160
Net investment income 1,890,779
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain on investments and foreign 1,471,710
currency transactions
Net change in unrealized appreciation of investments and
translation of assets and
liabilities in foreign currency 2,758,768
Net realized and unrealized gain on investments 4,230,478
and foreign currency
Change in net assets resulting from operations $ 6,121,257
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED UTILITY FUND II
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 1,890,779 $ 552,993
Net realized gain (loss) on
investments and foreign currency
transactions ($1,464,419 and
$202,587, respectively, as
computed
for federal tax purposes) 1,471,710 192,681
Net change in unrealized
appreciation (depreciation) of
investments
and translation of assets and 2,758,768 2,281,446
liabilities in foreign currency
Change in net assets resulting 6,121,257 3,027,120
from operations
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net (1,821,526) (545,930)
investment income
Distributions from net realized
gains on investments and foreign
currency transactions (192,047) --
Change in net assets resulting (2,013,573) (545,930)
from distributions to
shareholders
SHARE TRANSACTIONS --
Proceeds from sale of shares 36,577,954 27,140,255
Net asset value of shares issued
to shareholders in payment of
distributions declared 2,013,573 542,617
Cost of shares redeemed (8,821,081) (1,458,826)
Change in net assets resulting 29,770,446 26,224,046
from share transactions
Change in net assets 33,878,130 28,705,236
NET ASSETS:
Beginning of period 29,679,406 974,170
End of period (including
undistributed net investment
income
of $91,190 and $5,636, $ 63,557,536 $ 29,679,406
respectively)
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED UTILITY FUND II
FINANCIAL HIGHLIGHTS

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

* Computed on an annualized basis.

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

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

(d) Represents total commissions paid on portfolio securities divided by
total portfolio shares purchased or sold on which commissions were charged.

(See Notes which are an integral part of the Financial Statements)

FEDERATED UTILITY FUND II
NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

1. ORGANIZATION

Federated Insurance Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Fund consists of eight portfolios. The financial
statements included herein are only those of Federated Utility Fund II (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The investment objective of the Fund is to achieve high
current income and moderate capital appreciation.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.

INVESTMENT VALUATIONS -- Listed foreign and domestic corporate bonds, other
fixed income and asset-backed securities, and unlisted securities and
private placement securities are generally valued at the mean of the latest
bid and asked price as furnished by an independent pricing service. Listed
foreign and domestic equity securities are valued at the last sale price
reported on a national securities exchange. Short-term securities are valued
at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less at the
time of purchase may be valued at amortized cost, which approximates fair
market value.

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.

Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions. The following reclassifications have been
made to the financial statements.

INCREASE/(DECREASE)
ACCUMULATED
NET REALIZED UNDISTRIBUTED NET
GAIN/LOSS INVESTMENT INCOME
($16,301) $16,301

Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.

Withholding taxes on foreign interest and dividends have been provided for
in accordance with the Fund's understanding of the applicable country's tax
rules and rates.

FOREIGN EXCHANGE CONTRACTS -- The Fund may enter into foreign currency
commitments for the delayed delivery of securities or foreign currency
exchange transactions. Purchased contracts are used to acquire exposure to
foreign currencies; whereas, contracts to sell are used to hedge the Fund's
securities against currency fluctuations. Risks may arise upon entering into
these transactions from the potential inability of counter-parts to meet the
terms of their commitments and from unanticipated movements in security
prices or foreign exchange rates. The foreign currency transactions are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded for financial statement purpose as unrealized until
the settlement date.

At December 31, 1996, the Fund had an outstanding foreign currency
commitment as set forth below:
<TABLE>
<CAPTION>
IN
CONTRACTS SETTLEMENT CONTRACTS TO EXCHANGE CONTRACTS APPRECIATION
SOLD DATE DELIVER/RECEIVE FOR AT VALUE (DEPRECIATION)
<S> <S> <C> <C> <C> <C>
Spanish January 9, 1997 17,403,229 $132,899 $134,051 ($1,152)
Peseta 1997
</TABLE>

FOREIGN CURRENCY TRANSLATION -- The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FC") are translated into U.S. dollars based on the rate
of exchange of such currencies against U.S. dollars on the date of
valuation. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are adjusted when reported by the custodian
bank. The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.

Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales
of FCs, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in
the value of assets and liabilities other than investments in securities at
fiscal year end, resulting from changes in the exchange rate.

RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the
issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria established by the Trustees. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.

Additional information on each restricted security held at December 31, 1996
is as follows:

SECURITY ACQUISITION DATE ACQUISITION COST
New World Infrastructure, LTD 05/15/96 $450,000
Solectron Corp. 02/15/96-08/14/96 508,097
Tosco Corp. 12/10/96-12/20/96 607,669

OTHER -- Investment transactions are accounted for on the trade date.

3. SHARES OF BENEFICIAL INTEREST

The Declaration of Fund permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).

Transactions in shares were as follows:

YEAR ENDED
DECEMBER 31,
1996 1995
Shares sold 3,296,405 2,677,407
Shares issued to shareholders in payment of 180,323 52,774
distributions declared
Shares redeemed (785,968) (143,617)
Net change resulting from share transactions 2,690,760 2,586,564

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

ORGANIZATIONAL EXPENSES -- Organizational and start-up administrative
service expenses of $49,266 were borne initially by the Adviser. The Fund
has agreed to reimburse the Adviser for the organizational and start-up
administrative expenses during the five-year period following effective
date. For the period ended December 31, 1996, the Fund paid $9,853 pursuant
to this agreement.

GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.

5. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1996, were as follows:

PURCHASES $59,634,640
SALES $29,860,077

6. CONCENTRATION OF CREDIT RISK

The Fund invests in securities of non-U.S. issuers. Although the Fund
maintains a diversified investment portfolio, the political or economic
developments within a particular country or region may have an adverse
effect on the ability of domiciled issuers to meet their obligations.
Additionally, political or economic developments may have an effect on the
liquidity and volatility of portfolio securities and currency holdings.

At December 31, 1996, the diversification of countries was as follows:

PERCENTAGE OF
COUNTRY NET ASSETS
Brazil 1.1%
China 0.8%
Italy 1.3%
Korea 0.9%
Peru 0.4%
Spain 0.7%
United Kingdom 2.3%
INDEPENDENT AUDITORS' REPORT

To the Board of Trustees of the Federated Insurance Series
and Shareholders of FEDERATED UTILITY FUND II:

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated Utility Fund II, (a
portfolio of the Federated Insurance Series) as of December 31, 1996, and
the related statement of operations for the year then ended, the statement
of changes in net assets for the years ended December 31, 1996 and 1995, and
the financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated
Utility Fund II as of December 31, 1996, the results of its operations, the
changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
February 7, 1997

TRUSTEES

John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts

OFFICERS

John F. Donahue
Chairman

J. Christopher Donahue
President

Edward C. Gonzales
Executive Vice President

John W. McGonigle
Executive Vice President, Treasurer, and Secretary

Richard B. Fisher
Vice President

S. Elliott Cohan
Assistant Secretary

This report is authorized for distribution to prospective investors only
when preceded or accompanied by the fund's prospectus which contains facts
concerning its objective and policies, management fees, expenses, and other
information.

FEDERATED UTILITY
FUND II

ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1996

FEDERATED INSURANCE SERIES

[Graphic]

Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

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

Cusip 313916108
G00845-01 (2/97)

PRESIDENT'S MESSAGE

Dear Shareholder:

I am pleased to present the Annual Report to Shareholders for Federated Fund
for U.S. Government Securities II, a portfolio of Federated Insurance
Series.

This report covers the 12-month period from January 1, 1996, through
December 31, 1996. It begins with a commentary by the fund's portfolio
manager, which is followed by a complete listing of the fund's holdings and
its financial statements.

To help your money pursue an attractive level of income, the fund invests
primarily in short-to-intermediate-term U.S. government mortgage-backed
securities and U.S. Treasury notes and U.S. agency debentures.

During the reporting period, stronger economic growth forced interest rates
to rise, which combined with mixed economic signals to cause a high degree
of volatility in the bond market. In this environment, Federated Fund for
U.S. Government Securities II produced a net total return of 4.20% versus a
5-year U.S. Treasury return of 2.32%.* Consistent with its objective of
providing current income, the fund paid a strong dividend stream that
totaled $0.57 per share, in addition to capital gains of $0.04 per share. On
December 31, 1996, total net assets reached $34.9 million -- a significant
increase over the $12.3 million in total net assets at the beginning of the
reporting period.

Thank you for pursuing income opportunities through Federated Fund for U.S.
Government Securities II. We will continue to keep you up to date on your
progress. Your comments and suggestions are always welcome.

Sincerely,

[Graphic]

J. Christopher Donahue
President
February 15, 1997

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II

MANAGEMENT DISCUSSION AND ANALYSIS

Federated Fund for U.S. Government Securities II, a portfolio of Federated
Insurance Series, provides shareholders a professionally managed portfolio
of U.S. government securities. The fund is managed for specific maturity
levels according to management's assumptions on market risk and volatility.
Current investment strategy emphasizes a diversified range of mortgage
securities with coupons averaging 7.53% and a weighted average effective
duration of 4.1 years.

The U.S. Treasury market in 1996 offered lackluster returns to investors
versus 1995's awesome returns and played second fiddle to the stellar gains
in the equity market. Shorter duration U.S. Treasuries posted slightly
positive returns, while the longer end of the curve produced negative
returns. The theme throughout 1996 was a trading range environment, amidst
swift and sharp market movements based on shifting Federal Reserve Board
expectations. Given this environment, the mortgage-backed securities sector
was the best performing fixed income sector during 1996. On a total rate of
return basis for the year, mortgages outperformed their Treasury
counterparts by over 200 basis points. The fundamentals and technicals in
the mortgage market were attractive for most of 1996 with relatively benign
prepayment rates.

During this time period, the fund focused on purchases of discount and
current 15- and 30-year mortgage securities. The fund also continued to hold
a core position in U.S. Treasuries and agency debentures. These securities
have been added for call protection as well as capital gain potential. This
strategy provided the fund, for the fiscal year ended December 31, 1996, a
net total rate of return of 4.20% versus a blend of the Lehman Government
and Mortgage Indices* return of 4.50%.

Overall, our view on the mortgage market is one of fair value when viewed
from an historical perspective. However, the tight spreads in other fixed
income markets combined with the general desire for higher yields portrays a
favorable outlook for the mortgage market moving into 1997.

As of December 31, 1996, total net assets were $34.9 million and the average
30-day SEC net yield was 5.96%** based upon the net asset value per share of
$10.09.

* The 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, the index calculates total returns
for 1 month, 3-month and 12-month, and 10-year periods, and year-to-date.
The 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. The 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. These indices are unmanaged.
Investments cannot be made in an index.

** Performance quoted represents past performance and is not indicative of
future performance. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Performance information does not reflect the charges
and expenses of a variable annuity or variable life insurance contract.

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II

GROWTH OF $10,000 INVESTED IN THE FEDERATED FUND FOR U.S. GOVERNMENT
SECURITIES II

The graph below illustrates the hypothetical investment of $10,000 in the
Federated Fund for U.S. Securities II (the "Fund") from March 28, 1994
(start of performance) to December 31, 1996 compared to the Lehman Brothers
5-Year Treasury Bellwether Index (LB5TB)+ and the Lipper U.S. Mortgage Funds
Average (LUSMFA).++

Graphic representation omitted; see Appendix C

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1996
1 Year....................................................4.20%
Start of Performance (3/28/94)............................5.62%

* The Fund's performance assumes the reinvestment of all dividends and
distributions. The LB5TB and LUSMFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.

+ The LB5TB is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. The
index is unmanaged.

++ The LUSMFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the category, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees that
the SEC requires to be reflected in a fund's performance.

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II PORTFOLIO OF INVESTMENTS

DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
INTERMEDIATE-TERM U.S. GOVERNMENT OBLIGATIONS--15.9%
$ 900,000 Federal Farm Credit Bank, 9.00%, 3/7/2000 $ 973,863
1,000,000 Federal Farm Credit Bank, 8.65%, 10/1/1999 1,064,800
1,000,000 Federal Home Loan Bank, 6.83%, 7/17/2001 1,021,530
2,500,000 Federal Home Loan Bank, 5.94%, 4/30/1998 2,508,400
TOTAL INTERMEDIATE-TERM U.S. GOVERNMENT
OBLIGATIONS (IDENTIFIED COST $5,521,084) 5,568,593
LONG-TERM U.S. GOVERNMENT OBLIGATIONS--62.1%
8,606,915 Federal Home Loan Mortgage Corp., 6.00%-9.00%, 8,604,005
9/1/2010-7/1/2026
5,726,305 Federal National Mortgage Association, 5,644,353
6.50%-8.00%, 8/1/2011-8/1/2026
7,277,516 Government National Mortgage Association,
6.50%-11.00%,
9/15/2015-8/15/2026 7,466,900
TOTAL LONG-TERM U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $21,643,589) 21,715,258
U.S. TREASURY OBLIGATIONS--19.0%
690,000 U.S. Treasury Bonds, 11.25%, 2/15/2015 1,019,247
1,320,000 U.S. Treasury Bonds, 9.25%, 2/15/2016 1,675,766
900,000 U.S. Treasury Notes, 7.50%, 5/15/2002 951,903
1,000,000 U.S. Treasury Notes, 7.25%, 8/15/2004 1,051,690
1,000,000 U.S. Treasury Notes, 5.75%, 8/15/2003 969,360
1,000,000 U.S. Treasury Notes, 5.00%, 2/15/1999 982,330
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST 6,650,296
$6,571,330)
(A)REPURCHASE AGREEMENT--2.0%
715,000 BT Securities Corp., 6.90%, dated 12/31/1996, due
1/2/1997
(AT AMORTIZED COST) 715,000
TOTAL INVESTMENTS (IDENTIFIED COST $ 34,649,147
$34,451,003)(B)
</TABLE>

(a) The repurchase agreement is fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investment in the repurchase agreements is through
participation in a joint account with other Federated funds.

(b) The cost of investments for federal tax purposes amounts to $34,451,003.
The net unrealized appreciation of investments on a federal tax basis
amounts to $198,144 which is comprised of $311,993 appreciation and $113,849
depreciation at December 31, 1996.

Note: The categories of investments are shown as a percentage of net assets
($34,964,547) at December 31, 1996.

(See Notes which are an integral part of the Financial Statements)

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
STATEMENT OF ASSETS AND LIABILITIES

DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value $ 34,649,147
(identified and tax cost $34,451,003)
Income receivable 401,755
Receivable for shares sold 208,424
Total assets 35,259,326
LIABILITIES:
Payable for shares redeemed $ 265,901
Capital gain distribution payable 403
Payable to Bank 13,124
Accrued expenses 15,351
Total liabilities 294,779
Net Assets for 3,466,312 shares outstanding $ 34,964,547
NET ASSETS CONSIST OF:
Paid in capital $ 34,827,248
Net unrealized appreciation of investments 198,144
Accumulated net realized loss on investments (129,895)
Undistributed net investment income 69,050
Total Net Assets $ 34,964,547
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PROCEEDS PER SHARE:
$34,964,547 / 3,466,312 shares outstanding $10.09
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar roll $ 1,599,538
expense of $28,615)
EXPENSES:
Investment advisory fee $ 141,092
Administrative personnel and 125,000
services fee
Custodian fees 22,574
Transfer and dividend disbursing 17,199
agent fees and expenses
Directors'/Trustees' fees 2,234
Auditing fees 7,000
Legal 2,805
fees
Portfolio accounting fees 49,022
Share registration costs 7,068
Printing and postage 35,599
Insurance premiums 2,766
Miscellaneous 14,741
Total expenses 427,100
Waivers and reimbursements --
Waiver of investment advisory $ (141,092)
fee
Reimbursement of other operating (96,851)
expenses
Total waivers and (237,943)
reimbursements
Net expenses 189,157
Net investment income 1,410,381
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (129,895)
Net change in unrealized 21,469
appreciation of investments
Net realized and unrealized loss (108,426)
on investments
Change in net assets resulting $ 1,301,955
from operations
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 1,410,381 $ 304,371
Net realized gain (loss) on
investments ($129,895 net loss and
$68,245 net gain respectively, as (129,895) 68,245
computed for federal tax purposes)
Net change in unrealized 21,469 176,675
appreciation (depreciation)
Change in net assets resulting 1,301,955 549,291
from operations
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment (1,344,598) (301,104)
income
Distributions from net realized (68,239) --
gains
Change in net assets resulting (1,412,837) (301,104)
from distributions to
shareholders
SHARE TRANSACTIONS --
Proceeds from sale of shares 36,293,161 13,444,158
Net asset value of shares issued to
shareholders in payment of
distributions declared 1,406,120 292,129
Cost of shares redeemed (14,888,081) (2,964,009)
Change in net assets resulting 22,811,200 10,772,278
from share transactions
Change in net assets 22,700,318 11,020,465
NET ASSETS:
Beginning of period 12,264,229 1,243,764
End of period (including
undistributed net investment income of
$69,050 and $3,267, respectively) $ 34,964,547 $12,264,229
</TABLE>

(See Notes which are an integral part of the Financial Statements)

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

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

* Computed on an annualized basis.

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

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

(See Notes which are an integral part of the Financial Statements)

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

1. ORGANIZATION

Federated Insurance Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of eight portfolios. The financial
statements included herein are only those of Federated Fund for U.S.
Government Securities II (the "Fund"), a diversified portfolio. The
financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is
limited to the portfolio in which shares are held. The investment objective
of the Fund is to provide current income.
Effective April 15, 1996, the Board of Trustees ("Trustees") changed the
name of the Trust from Insurance Management Series to Federated Insurance
Series and the name of the Fund from U.S. Government Bond Fund to Federated
Fund for U.S. Government Securities II.

2. SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS -- U.S. government securities are generally valued at
the mean of the latest bid and asked price as furnished by an independent
pricing service. Short-term securities are valued at the prices provided by
an independent pricing service. However, short-term securities with
remaining maturities of sixty days or less at the time of purchase may be
valued at amortized cost, which approximates fair market value.

The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.

At December 31, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $129,895, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:

EXPIRATION YEAR EXPIRATION AMOUNT
2004 $129,895

DOLLAR ROLL TRANSACTIONS -- The Fund enters into dollar roll transactions,
with respect to mortgage securities issued by GNMA, FNMA and FHLMC, in which
the Fund sells mortgage securities to financial institutions and
simultaneously agrees to accept substantially similar (same type, coupon and
maturity) securities at a later date at an agreed upon price. Dollar roll
transactions are short-term financing arrangements which will not exceed
twelve months. The Fund will use the proceeds generated from the
transactions to invest in short-term investments, which may enhance the
Fund's current yield and total return.

OTHER -- Investment transactions are accounted for on the trade date.

3. SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).

Transactions in shares were as follows:

YEAR ENDED
DECEMBER 31,
1996 1995
Shares sold 3,618,961 1,332,658
Shares issued to shareholders in payment of 140,342 28,952
distributions declared
Shares redeemed (1,484,884) (294,269)
Net change resulting from share transactions 2,274,419 1,067,341

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.

PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.

ORGANIZATIONAL EXPENSES -- Organizational expenses of $51,572 were borne
initially by the Adviser. The Fund has agreed to reimburse the Adviser for
the organizational expenses during the five-year period following effective
date. For the period ended December 31, 1996, the Fund paid $10,314 pursuant
to this agreement.

GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.

5. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1996, were as follows:

PURCHASES $47,059,314
SALES $21,895,093

INDEPENDENT AUDITORS' REPORT

To the Board of Trustees of the Federated Insurance Series
and Shareholders of FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II:

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the Federated Fund for U.S.
Government Securities II, (a portfolio of the Federated Insurance Series) as
of December 31, 1996, and the related statement of operations for the year
then ended, the statement of changes in net assets for the years ended
December 31, 1996 and 1995, and the financial highlights for the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Fund
for U.S. Government Securities II as of December 31, 1996, the results of
its operations, the changes in its net assets, and its financial highlights
for the respective stated periods in conformity with generally accepted
accounting principles.

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
February 7, 1997

TRUSTEES

OFFICERS

John F. Donahue
Chairman

J. Christopher Donahue
President

Edward C. Gonzales
Executive Vice President

John W. McGonigle
Executive Vice President, Treasurer, and Secretary

Richard B. Fisher
Vice President

S. Elliott Cohan
Assistant Secretary

FEDERATED FUND
FOR U.S.
GOVERNMENT SECURITIES II

ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1996

FEDERATED INSURANCE SERIES

[Graphic]
Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

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

Cusip 313916207
G00846-01 (2/97)

PRESIDENT'S MESSAGE

Dear Fellow Shareholder:

I am pleased to present the Annual Report to Shareholders for Federated High
Income Bond Fund II, a portfolio of Federated Insurance Series.

Federated High Income Bond Fund II not only withstood a difficult
environment for bonds during the period, it performed well, as high-yield
bonds outperformed other types of bonds.* The rising economy tended to
improve the earnings and cash flow of companies that issue high-yield bonds.

The fund also benefited from expert security selection and broad
diversification across more than 200 high-yield bonds representing the
entire business and industrial spectrum.

Contributing to the fund's strong 12-month total return of 14.31% were
income distributions of $0.88 per share and a 5% increase in net asset value
for the period ended December 31, 1996.** Over the period, fund assets more
than tripled to reach $66 million.

Thank you for participating in the income opportunities of high-yield
corporate bonds through Federated High Income Bond Fund II. We trust you
were pleased with the income and total performance generated by your
investment. As always, we welcome your comments and suggestions.

Sincerely,

/s/ J. Christopher Donahue

J. Christopher Donahue
President
February 15, 1997

* Lower rated bonds involve a higher degree of risk than investment grade
bonds in return for higher yield potential.

** Performance quoted reflects past performance and is not indicative of
future results. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Performance information does not reflect the charges and
expenses of a variable annuity or variable life insurance contract.

FEDERATED HIGH INCOME BOND FUND II

MANAGEMENT DISCUSSION AND ANALYSIS

During 1996, the high yield bond market delivered very attractive returns to
investors. The recession that many economic forecasters expected to begin in
1996 failed to materialize. Instead, the domestic economy continued its
pattern of moderate economic growth coupled with low inflation. In this
environment, stock prices rose while high quality bond prices fell as
interest rates, in response to the stronger economic growth, moved higher.
However, high-yield bond prices actually increased as the better than
expected economic environment, which reduced investors' fears of negative
credit outcomes, offset the general rise in interest rates. For example, the
yield spread between the First Boston High Yield Index* and Treasuries
narrowed from 484 basis points to 355 basis points during the year, more
than offsetting the approximately 85 basis point rise in the rate for
10-year Treasury securities. The technical environment for high-yield bonds
was also very strong during the year. Over $70 billion worth of new issues
were easily absorbed by strong demand. Moderate economic growth, low default
rates, and strong demand resulted in superior performance for high-yield
bonds relative to high quality bonds. For example, the Lehman Brothers High
Yield Bond Index** returned 11.35% while the Lehman Brothers Aggregate Bond
Index***, a measure of high quality bond performance, returned 3.63%.

Federated High Income Bond Fund II outperformed the Lehman Brothers High
Yield Bond Index** during 1996 returning 14.31% versus 11.35% for the Index.
Several factors were responsible for the fund's strong performance. First,
the fund had a greater portion of its assets allocated to the single B
sector than the Index. Given the general rise in interest rates, the more
credit sensitive single B sector outperformed the more interest rate
sensitive double B sector by over 450 basis points. The fund also benefited
by substantial merger and acquisition activity involving high-yield issuers.
For example, Continental Cablevision, Pace Industries, Motor Wheel, Park
Communications and TransOcean Container were all acquired by stronger
entities during the year. In most cases the securities held by the fund were
subsequently retired at very attractive prices. The fund also benefited from
its underweight position in the restaurant sector which performed poorly
during the year. Finally, the fund benefited from good security selection
during the period as deteriorating credit situations were minimal. On the
negative side, the fund's underweight in specialty retail and gaming hurt
performance as these sectors outperformed the overall market. Also, the
fund's overweight in the broadcasting sector negatively impacted
performance.

As we look out into 1997 we remain optimistic on the outlook for high-yield
securities. We believe that economic growth will continue to be moderate,
inflation will remain under control and interest rates should remain in a
trading range. From a macro-economic standpoint this is a very attractive
scenario for high-yield securities as issuer creditworthiness should remain
at acceptable levels. The technical environment is also attractive. Demand
for high-yield securities should continue to be strong. We believe these two
factors will result in a narrowing of the yield spread or risk premium
between high-yield bonds and Treasuries. However, the yield spread between
high-yield bonds and Treasuries ended 1996 at its low point for this
economic cycle. This has two implications. First, the relative total return
advantage of highyield bonds over high quality bonds will probably not
approach the roughly 775 basis points advantage experienced in 1996. Second,
individual companies which do not meet expectations will be dealt with
harshly by the market as current spread levels leave little room for
disappointment.

* First Boston High Yield Index is an unmanaged trader priced portfolio
constructed to mirror the public high-yield debt market. Investments cannot
be made in an index.

** Lehman Brothers High Yield Bond Index is an unmanaged index which
includes fixed rate, public nonconvertible, non-investment grade issues
that are rated Ba1 or lower by Moody's Investor Service. Investments
cannot be made in an index.

*** Lehman Brothers Aggregate Bond Index is an unmanaged total return index
measuring both the capital price changes and income provided by the
underlying universe of securities, weighted by market value outstanding.
Investments cannot be made in an index.

FEDERATED HIGH INCOME BOND FUND II

GROWTH OF $10,000 INVESTED IN THE FEDERATED HIGH INCOME BOND FUND II

The graph below illustrates the hypothetical investment of $10,000 in the
Federated High Income Bond Fund II (the "Fund") from March 1, 1994 (start of
performance) to December 31, 1996, compared to the Lehman Brothers Single B
Rated Index (LBSBRI),+ and the Lipper High Current Yield Funds Average
(LHCYFA).++

GRAPHIC REPRESENTATION OMITTED SEE APPENDIX A

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1996
1 Year 14.31%
Start of Performance (3/1/94) 10.48%

* The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBSBRI and the LHCYFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.

+ The LBSBRI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. The
index is unmanaged.

++ The LHCYFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the category, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees that
the SEC requires to be reflected in a fund's performance.

FEDERATED HIGH INCOME BOND FUND II
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- 95.4%
AEROSPACE & DEFENSE -- 0.2%
$ 150,000 Tracor, Inc., Sr. Sub. Note, 10.875%, 8/15/2001 $ 160,125
AUTOMOTIVE -- 3.1%
300,000 Aftermarket Technology Co., Sr. Sub. Note, 12.00%, 8/1/2004 336,750
75,000 (a)Blue Bird Body Co., Sr. Sub. Note, 10.75%, 11/15/2006 78,562
550,000 Collins & Aikman Products Co., Sr. Sub. Note, 11.50%, 4/15/2006 605,000
350,000 Exide Corp., Sr. Note, 10.00%, 4/15/2005 365,750
75,000 JPS Automotive Products Corp., Sr. Note, 11.125%, 6/15/2001 80,812
350,000 Lear Corp., Sub. Note, 9.50%, 7/15/2006 376,250
100,000 Lear Seating Corp., Sr. Sub. Note, 11.25%, 7/15/2000 102,500
100,000 Lear Seating Corp., Sub. Note, 8.25%, 2/1/2002 101,250
50,000 (a)Safelite Glass Corp., Sr. Sub. Note, 9.875%, 12/15/2006 51,625
Total 2,098,499
BANKING -- 1.5%
700,000 (a)First Nationwide Escrow Corp., Sr. Sub. Note, 10.625%, 10/1/2003 756,000
200,000 First Nationwide Holdings, Inc., Sr. Note, 12.25%, 5/15/2001 226,500
Total 982,500
BEVERAGE & TOBACCO -- 1.1%
100,000 (a)Delta Beverage Group Inc., Sr. Note, 9.75%, 12/15/2003 103,000
250,000 Dimon, Inc., Sr. Note, 8.875%, 6/1/2006 261,250
400,000 Dr. Pepper Bottling Holdings Co., Sr. Disc. Note, 0/11.625%, 2/15/2003 379,000
Total 743,250
BROADCAST RADIO & TV -- 7.3%
90,000 Chancellor Broadcasting Co., Sr. Sub. Note, 12.50%, 10/1/2004 101,700
250,000 Chancellor Broadcasting Co., Sr. Sub. Note, 9.375%, 10/1/2004 253,125
250,000 Granite Broadcasting Corp., Sr. Sub. Note, 10.375%, 5/15/2005 257,500
675,000 Heritage Media Corp., Sr. Sub. Note, 8.75%, 2/15/2006 652,219
</TABLE>

FEDERATED HIGH INCOME BOND FUND II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
BROADCAST RADIO & TV -- CONTINUED
$ 250,000 Jacor Communications, Inc., Sr. Sub. Note, 9.75%, 12/15/2006 $ 256,875
300,000 Lamar Advertising Co., Sr. Sub. Note, 9.625%, 12/1/2006 309,750
200,000 NWCG Holding Corp., Sr. Disc. Note, 13.50% accrual, 6/15/1999 167,500
125,000 Park Communications, Inc., Sr. Note, 13.75%, 5/15/2004 141,875
300,000 Pegasus Media, Note, 12.50%, 7/1/2005 325,500
400,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 431,000
525,000 SFX Broadcasting, Inc., Sr. Sub. Note, 10.75%, 5/15/2006 555,188
150,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 12/15/2003 153,750
425,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 9/30/2005 435,625
50,000 Sullivan Broadcast Holdings Inc., Deb., 13.25%, 12/15/2006 46,250
400,000 Sullivan Broadcast Holdings Inc., Sr. Sub. Note, 10.25%, 12/15/2005 406,000
375,000 Young Broadcasting, Inc., Sr. Sub. Note, 10.125%, 2/15/2005 390,000
Total 4,883,857
BUILDING & DEVELOPMENT -- 0.2%
150,000 (a)Building Materials Corporation of America, Sr. Note, 8.625%,
12/15/2006 150,000
BUSINESS EQUIPMENT & SERVICES -- 3.0%
500,000 Knoll Inc., Sr. Sub. Note, 10.875%, 3/15/2006 553,750
400,000 Monarch Acquisition Corp., Sr. Note, 12.50%, 7/1/2003 470,000
500,000 (a)Outsourcing Solutions, Inc., Sr. Sub. Note, 11.00%, 11/1/2006 525,000
400,000 United Stationers Supply Co., Sr. Sub. Note, 12.75%, 5/1/2005 446,000
Total 1,994,750
CABLE TELEVISION -- 10.4%
200,000 (a)Australis Holdings Pty Limited, Unit, 0/15.00%, 11/1/2002 116,000
275,000 Australis Media Limited, Unit, 0/15.75%, 5/15/2003 162,250
550,000 Bell Cablemedia PLC, Sr. Disc. Note, 0/11.95%, 7/15/2004 484,000
200,000 CF Cable TV, Inc., Sr. Secd. 2nd Priority Note, 11.625%, 2/15/2005 233,500
300,000 CS Wireless Systems, Inc., Sr. Disc. Note, 0/11.375%, 3/1/2006 109,500

</TABLE>

FEDERATED HIGH INCOME BOND FUND II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
CABLE TELEVISION -- CONTINUED
$ 150,000 Cablevision Systems Corp., Sr. Sub. Deb., 9.875%, 2/15/2013 $ 148,125
100,000 Cablevision Systems Corp., Sr. Sub. Note, 10.50%, 5/15/2016 103,375
100,000 Cablevision Systems Corp., Sr. Sub. Note, 9.25%, 11/1/2005 99,000
400,000 Cablevision Systems Corp., Sr. Sub. Note, 9.875%, 5/15/2006 412,000
275,000 Charter Communications Southeast, L.P., Sr. Note, 11.25%, 3/15/2006 286,344
475,000 Comcast UK Cable, Deb., 0/11.20%, 11/15/2007 337,250
250,000 Diamond Cable Co., Sr. Disc. Note, 0/11.75%, 12/15/2005 178,125
500,000 EchoStar Satellite Broadcasting Corp., Sr. Disc. Note, 0/13.125%,
3/15/2004 380,000
475,000 International Cabletel, Inc., Sr. Disc. Note, 0/12.75%, 4/15/2005 356,250
675,000 International Cabletel, Inc., Sr. Disc. Note, 0/11.50%, 2/1/2006 460,687
400,000 Le Groupe Videotron Ltee, Sr. Note, 10.625%, 2/15/2005 441,000
200,000 Lenfest Communications Inc., Sr. Sub. Note, 10.50%, 6/15/2006 211,000
350,000 Peoples Choice TV Corp., Unit, 0/13.125%, 6/1/2004 150,500
250,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%,
12/1/2007 266,875
200,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%,
3/15/2005 214,500
150,000 Rogers Cablesystems Ltd., Sr. Sub. Gtd. Note, 11.00%, 12/1/2015 162,000
1,450,000 TeleWest PLC, Sr. Disc. Deb., 0/11.00%, 10/1/2007 1,009,563
650,000 UIH Australia/Pacific, Sr. Disc. Note, 0/14.00%, 5/15/2006 341,250
150,000 Wireless One, Inc., Sr. Note, 13.00%, 10/15/2003 147,000
100,000 Wireless One, Inc., Unit, 0/13.50%, 8/1/2006 49,000
Total 6,859,094
CHEMICALS & PLASTICS -- 5.7%
175,000 Arcadian Partners L.P., Sr. Note, Series B, 10.75%, 5/1/2005 194,250
350,000 (a)Astor Corp., Sr. Sub. Note, 10.50%, 10/15/2006 362,687
300,000 Buckeye Cellulose Corp., Sr. Sub. Note, 9.25%, 9/15/2008 311,250
250,000 Crain Industries, Inc., Sr. Sub. Note, 13.50%, 8/15/2005 283,125

</TABLE>

FEDERATED HIGH INCOME BOND FUND II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
CHEMICALS & PLASTICS -- CONTINUED
$ 50,000 Foamex L.P., Sr. Note, 11.25%, 10/1/2002 $ 53,500
250,000 Foamex L.P., Sr. Sub. Deb., 11.875%, 10/1/2004 270,312
500,000 Harris Chemical North America, Inc., Sr. Note, 10.25% 7/15/2001 525,000
500,000 (a)ISP Holding, Inc., Sr. Note, 9.00%, 10/15/2003 510,000
383,000 Polymer Group, Inc., Sr. Note, 12.25%, 7/15/2002 417,470
450,000 RBX Corp., Sr. Sub. Note, Series B, 11.25%, 10/15/2005 383,063
425,000 Sterling Chemicals Holdings, Inc., Sr. Disc. Note, 0/13.50%, 8/15/2008 246,500
75,000 Sterling Chemicals, Inc., Sr. Sub. Note, 11.75%, 8/15/2006 79,500
150,000 Uniroyal Technology Corp., Sr. Secd. Note, 11.75%, 6/1/2003 150,375
Total 3,787,032
CLOTHING & TEXTILES -- 2.0%
250,000 (a)Pillowtex Corp., Sr. Sub. Note, 10.00%, 11/15/2006 261,563
1,000,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 1,037,500
Total 1,299,063
CONSUMER PRODUCTS -- 3.3%
400,000 American Safety Razor Co., Sr. Note, 9.875%, 8/1/2005 424,500
150,000 Herff Jones, Inc., Sr. Sub. Note, 11.00%, 8/15/2005 162,187
150,000 Hosiery Corp. of America, Inc., Sr. Sub. Note, 13.75%, 8/1/2002 165,750
450,000 (a)ICON Fitness Corp., Sr. Disc. Note, 0/13.00%, 11/15/2006 242,437
150,000 ICON Health & Fitness, Inc., Sr. Sub. Note, 13.00%, 7/15/2002 170,437
525,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%, 12/15/2003 523,688
100,000 (a)Rayovac Corp., Sr. Sub. Note, 10.25%, 11/1/2006 103,875
450,000 Simmons Co., Sr. Sub. Note, 10.75%, 4/15/2006 475,875
Total 2,268,749
CONTAINER & GLASS PRODUCTS -- 2.8%
575,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.75%, 8/15/2004 603,750
450,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.95%, 10/15/2004 478,125
300,000 Packaging Resources Inc., Sr. Note, 11.625%, 5/1/2003 318,000
</TABLE>

FEDERATED HIGH INCOME BOND FUND II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED

CONTAINER & GLASS PRODUCTS -- CONTINUED
$ 300,000 (a)Plastic Containers, Inc., Sr. Secd. Note, 10.00%, 12/15/2006 $ 311,250
100,000 (a)U.S. Can Corp., Sr. Sub. Note, 10.125%, 10/15/2006 105,250
Total 1,816,375
COSMETICS & TOILETRIES -- 1.1%
50,000 Revlon Consumer Products Corp., Note, 9.375%, 4/1/2001 51,313
625,000 Revlon Consumer Products Corp., Sr. Sub. Note, 10.50%, 2/15/2003 657,813
Total 709,126
ECOLOGICAL SERVICES & EQUIPMENT -- 1.1%
450,000 (a)Allied Waste North America, Inc., Sr. Sub. Note, 10.25%, 12/1/2006 473,625
200,000 ICF Kaiser International, Inc., Sr. Sub. Note, 13.00%, 12/31/2003 189,000
225,000 (b)Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%, 2/15/2003 90,000
Total 752,625
ELECTRONICS -- 0.5%
275,000 Advanced Micro Devices, Inc., Sr. Secd. Note, 11.00%, 8/1/2003 299,750
FINANCIAL INTERMEDIARIES -- 0.5%
300,000 ContiFinancial Corp., Sr. Note, 8.375%, 8/15/2003 310,125
FOOD & DRUG RETAILERS -- 2.7%
375,000 Carr-Gottstein Foods Co., Sr. Sub. Note, 12.00%, 11/15/2005 399,844
550,000 Ralph's Grocery Co., Sr. Note, 10.45%, 6/15/2004 585,750
175,000 Ralph's Grocery Co., Sr. Sub. Note, 11.00%, 6/15/2005 184,625
525,000 Smith's Food & Drug Centers, Inc., Sr. Sub. Note, 11.25%, 5/15/2007 581,438
Total 1,751,657
FOOD PRODUCTS -- 2.6%
250,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 12.25%, 2/1/2005 260,000
650,000 (a)International Home Foods, Inc., Sr. Sub. Note, 10.375%, 11/1/2006 679,250
100,000 PMI Acquisition Corp., Sr. Sub. Note, 10.25%, 9/1/2003 103,750
200,000 Specialty Foods Corp., Sr. Note, 11.125%, 10/1/2002 189,000
100,000 Specialty Foods Corp., Sr. Sub. Note, 11.25%, 8/15/2003 76,500
</TABLE>

FEDERATED HIGH INCOME BOND FUND II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
FOOD PRODUCTS -- CONTINUED
$ 350,000 Van de Kamp's, Inc., Sr. Sub. Note, 12.00%, 9/15/2005 $ 387,625
Total 1,696,125
FOOD SERVICES -- 0.2%
100,000 Americold Corp., Sr. Sub. Note, 12.875%, 5/1/2008 103,500
FOREST PRODUCTS -- 3.5%
50,000 Container Corp. of America, Sr. Note, 11.25%, 5/1/2004 54,562
100,000 Container Corp. of America, Sr. Note, 9.75%, 4/1/2003 105,500
300,000 Four M Corp., Sr. Note, 12.00%, 6/1/2006 315,000
200,000 Repap New Brunswick, 2nd Priority Sr. Secd. Note, 10.625%,
4/15/2005 210,000
550,000 Riverwood International Corp., Sr. Sub. Note, 10.875%, 4/1/2008 511,500
500,000 S. D. Warren Co., Sr. Sub. Note, 12.00%, 12/15/2004 540,625
100,000 Stone Container Corp., Sr. Note, 11.50%, 10/1/2004 105,750
150,000 Stone Container Corp., Sr. Note, 11.875%, 8/1/2016 159,000
300,000 (a)Uniforet Inc., Sr. Note, 11.125%, 10/15/2006 280,500
Total 2,282,437
HEALTHCARE -- 3.3%
675,000 Dade International, Inc., Sr. Sub. Note, 11.125%, 5/1/2006 734,062
250,000 (a)Genesis Health Ventures, Inc., Sr. Sub. Note, 9.25%, 10/1/2006 258,125
200,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.75%, 6/15/2005 211,500
150,000 (a)Prime Succession Acquisition Corp., Sr. Sub. Note, 10.75%, 8/15/2004 163,125
100,000 (a)Rose Hills Acquisition Corp., Sr. Sub. Note, 9.50%, 11/15/2004 102,500
650,000 Tenet Healthcare Corp., Sr. Sub. Note, 10.125%, 3/1/2005 721,500
Total 2,190,812
HOTELS, MOTELS, INNS & CASINOS -- 0.6%
350,000 Courtyard by Marriott II LP, Sr. Note, 10.75%, 2/1/2008 371,875
INDUSTRIAL PRODUCTS & EQUIPMENT -- 4.0%
400,000 Cabot Safety Acquisition Corp., Sr. Sub. Note, 12.50%, 7/15/2005 448,000
</TABLE>

FEDERATED HIGH INCOME BOND FUND II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
INDUSTRIAL PRODUCTS & EQUIPMENT -- CONTINUED
$ 400,000 (a)Euramax International PLC, Sr. Sub. Note, 11.25%, 10/1/2006 $ 416,000
150,000 Fairfield Manufacturing Co., Inc., Sr. Sub. Note, 11.375%, 7/1/2001 157,500
250,000 (a)Hawk Corp., Sr. Note, 10.25%, 12/1/2003 256,250
250,000 IMO Industries, Inc., Sr. Sub. Note, 11.75%, 5/1/2006 235,000
300,000 (a)International Knife & Saw, Inc., Sr. Sub. Note, 11.375%, 11/15/2006 310,500
100,000 Johnstown America Industries, Inc., Sr. Sub. Note, 11.75%, 8/15/2005 96,500
250,000 Mettler-Toledo, Inc., Sr. Sub. Note, 9.75%, 10/1/2006 264,375
500,000 Unifrax Investment Corp., Sr. Note, 10.50%, 11/1/2003 511,250
Total 2,695,375
LEISURE & ENTERTAINMENT -- 4.2%
650,000 AMF Group, Inc., Sr. Sub. Disc. Note, 0/12.25%, 3/15/2006 430,625
100,000 AMF Group, Inc., Sr. Sub. Note, 10.875%, 3/15/2006 105,750
300,000 Cobblestone Golf Group, Inc., Sr. Note, 11.50%, 6/1/2003 313,875
150,000 Premier Parks, Inc., Sr. Note, 12.00%, 8/15/2003 164,625
875,000 Six Flags Theme Parks, Sr. Sub. Disc. Note, 0/12.25%, 6/15/2005 831,250
925,000 Viacom, Inc., Sub. Deb., 8.00%, 7/7/2006 898,406
Total 2,744,531
MACHINERY & EQUIPMENT -- 2.3%
500,000 Alvey Systems, Inc., Sr. Sub. Note, 11.375%, 1/31/2003 528,750
350,000 (a)Clark Material Handling Corp., Sr. Note, 10.75%, 11/15/2006 364,875
233,000 Primeco Inc., Sr. Sub. Note, 12.75%, 3/1/2005 266,785
350,000 (a)Tokheim Corp., Sr. Sub. Note, 11.50%, 8/1/2006 373,625
Total 1,534,035
METALS & MINING -- 0.8%
500,000 Royal Oak Mines, Sr. Sub. Note, 11.00%, 8/15/2006 510,000
OIL & GAS -- 3.9%
500,000 (a)Abraxas Petroleum Corp., Sr. Note, 11.50%, 11/1/2004 536,250
100,000 Falcon Drilling Co., Inc., Sr. Note, 8.875%, 3/15/2003 101,625
</TABLE>

FEDERATED HIGH INCOME BOND FUND II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
OIL & GAS -- CONTINUED
$ 150,000 Falcon Drilling Co., Inc., Sr. Note, 9.75%, 1/15/2001 $ 157,875
50,000 Falcon Drilling Co., Inc., Sr. Sub. Note, 12.50%, 3/15/2005 56,062
450,000 Forcenergy Gas Exploration, Inc., Sr. Sub. Note, 9.50%, 11/1/2006 470,250
100,000 Giant Industries, Inc., Sr. Sub. Note, 9.75%, 11/15/2003 104,500
275,000 (a)HS Resources, Inc., Sr. Sub. Note, 9.25%, 11/15/2006 283,937
50,000 HS Resources, Inc., Sr. Sub. Note, 9.875%, 12/1/2003 52,500
250,000 Mesa Operating Company, Sr. Sub. Disc. Note, 0/11.625%, 7/1/2006 173,750
100,000 Mesa Operating Company, Sr. Sub. Note, 10.625%, 7/1/2006 109,000
475,000 United Meridian Corp., Sr. Sub. Note, 10.375%, 10/15/2005 523,688
Total 2,569,437
PRINTING & PUBLISHING -- 2.7%
750,000 Affiliated Newspaper Investments, Inc., Sr. Disc. Note, 0/13.25%,
7/1/2006 618,750
150,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%, 7/1/2004 164,250
300,000 Hollinger International Publishing, Inc., Sr. Sub. Note, 9.25%, 2/1/2006 298,125
250,000 K-III Communications Corp., Company Guarantee, Series B, 8.50%,
2/1/2006 246,563
450,000 (a)Petersen Publishing Co., L.L.C., Sr. Sub. Note, 11.125%, 11/15/2006 471,375
Total 1,799,063
REAL ESTATE -- 0.8%
500,000 Trizec Finance Ltd., Sr. Note, 10.875%, 10/15/2005 553,125
RETAILERS -- 0.7%
425,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 437,750
SERVICES -- 1.4%
300,000 Coinmach Corp., Sr. Note, 11.75%, 11/15/2005 324,750
400,000 (a)Intertek Finance PLC, Sr. Sub. Note, 10.25%, 11/1/2006 418,000
200,000 (a)Ryder TRS, Inc., Sr. Sub. Note, 10.00%, 12/1/2006 208,500
Total 951,250
</TABLE>

FEDERATED HIGH INCOME BOND FUND II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
STEEL -- 2.8%
$ 275,000 Acme Metals, Inc., Sr. Secd. Disc. Note, 0/13.50%, 8/1/2004 $ 284,625
50,000 Armco, Inc., Sr. Note, 9.375%, 11/1/2000 50,875
100,000 Bar Technologies, Inc., Company Guarantee, 13.50%, 4/1/2001 102,750
300,000 Bayou Steel Corp., 1st Mtg. Note, 10.25%, 3/1/2001 277,500
400,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 376,000
300,000 GS Technologies Operating Co., Inc., Sr. Note, 12.00%, 9/1/2004 313,125
225,000 GS Technologies Operating Co., Inc., Sr. Note, 12.25%, 10/1/2005 236,812
200,000 Republic Engineered Steel, Inc., 1st Mtg. Note, 9.875%, 12/15/2001 188,250
Total 1,829,937
SURFACE TRANSPORTATION -- 3.3%
425,000 AmeriTruck Distribution Corp., Sr. Sub. Note, 12.25%, 11/15/2005 429,250
250,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 276,250
300,000 Great Dane Holdings, Inc., Sr. Sub. Deb., 12.75%, 8/1/2001 302,250
400,000 (a)Statia Terminals, 1st Mtg. Note, 11.75%, 11/15/2003 412,000
500,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 542,500
200,000 Trism, Inc., Sr. Sub. Note, 10.75%, 12/15/2000 193,000
Total 2,155,250
TELECOMMUNICATIONS & CELLULAR -- 9.7%
350,000 American Communications Services Inc., Sr. Disc. Note, 0/12.75%,
4/1/2006 197,750
250,000 Arch Communications Group, Inc., Sr. Disc. Note, 0/10.875%,
3/15/2008 144,375
500,000 Brooks Fiber Properties, Inc., Sr. Disc. Note, 0/10.875%, 3/1/2006 335,000
550,000 (a)Brooks Fiber Properties, Inc., Sr. Disc. Note, 0/11.875%, 11/1/2006 352,000
375,000 Cellular Communications International, Inc., Sr. Disc. Note, 13.25%
accrual, 8/15/2000 261,562
100,000 Fonorola, Inc., Sr. Secd. Note, 12.50%, 8/15/2002 109,375
850,000 Intermedia Communications of Florida, Inc., Sr. Disc. Note, 0/12.50%,
5/15/2006 563,125
</TABLE>

FEDERATED HIGH INCOME BOND FUND II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
TELECOMMUNICATIONS & CELLULAR -- CONTINUED
$ 750,000 Millicom International Cellular S. A., Sr. Disc. Note, 0/13.50%,
6/1/2006 $ 466,875
175,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/11.50%, 9/1/2003 136,938
450,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.75%, 8/15/2004 308,813
250,000 Nextlink Communications, L.L.C., Sr. Note, Series AI, 12.50%,
4/15/2006 269,375
250,000 Paging Network, Inc., Sr. Sub. Note, 10.00%, 10/15/2008 254,063
375,000 Paging Network, Inc., Sr. Sub. Note, 10.125%, 8/1/2007 383,906
400,000 PanAmSat, L.P., Sr. Sub. Disc. Note, 0/11.375%, 8/1/2003 373,000
100,000 PhoneTel Technologies, In, Sr. Note, 12.00%, 12/15/2006 103,750
450,000 Sygnet Wireless, Inc., Sr. Note, 11.50%, 10/1/2006 466,875
775,000 Teleport Communications Group, Inc., Sr. Disc. Note, 0/11.125%,
7/1/2007 536,688
75,000 Teleport Communications Group, Inc., Sr. Note, 9.875%, 7/1/2006 80,438
350,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 332,500
700,000 Vanguard Cellular Systems, Inc., Deb., 9.375%, 4/15/2006 708,750
Total 6,385,158
UTILITIES -- 2.0%
75,000 CalEnergy Co., Inc., Sr. Note, 9.50%, 9/15/2006 77,437
800,000 California Energy Co., Inc., Sr. Disc. Note, 0/10.25%, 1/15/2004 848,000
350,000 El Paso Electric Co., 1st Mtg. Note, 9.40%, 5/1/2011 372,393
Total 1,297,830
TOTAL CORPORATE BONDS (IDENTIFIED COST $60,744,333) 62,974,067
</TABLE>

FEDERATED HIGH INCOME BOND FUND II
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
PREFERRED STOCKS -- 2.2%
BROADCAST RADIO & TV -- 0.4%
2,500 Chancellor Broadcasting Co., PIK Pfd., 12.25% $ 280,000
PRINTING & PUBLISHING -- 1.1%
3,450 K-III Communications Corp., Cumulative PIK Pfd., Series B, 11.625% 351,124
3,500 K-III Communications Corp., Pfd., Series D, $10.00 343,875
Total 694,999
TELECOMMUNICATIONS & CELLULAR -- 0.3%
165 PanAmSat Corp., PIK Pfd., 12.75% 201,887
UTILITIES -- 0.5%
2,710 El Paso Electric Co., PIK Pfd., Series A, 11.40% 301,903
TOTAL PREFERRED STOCKS (IDENTIFIED COST $1,334,325) 1,478,789
COMMON STOCKS -- 0.1%
BROADCAST RADIO & TV -- 0.1%
1,250 Park Communications, Inc., Warrants 5/6/2004 25,000
15 (a)Pegasus Media, Class B 4,500
800 Sullivan Broadcast Holdings Inc., Class B 8,000
Total 37,500
CABLE TELEVISION -- 0.0%
82 (a)CS Wireless Systems, Inc. 0
450 Wireless One, Inc., Warrants 10/19/2000 450
Total 450
CHEMICALS & PLASTICS -- 0.0%
425 Sterling Chemicals Holdings, Inc., Warrants 1/1/2008 14,875
CONSUMER PRODUCTS -- 0.0%
50 Hosiery Corp. of America, Inc. 275
ECOLOGICAL SERVICES & EQUIPMENT -- 0.0%
960 ICF Kaiser International, Inc., Warrants 12/31/1998 480
FOOD & DRUG RETAILERS -- 0.0%
884 Grand Union Co. 4,420
</TABLE>

FEDERATED HIGH INCOME BOND FUND II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED

PRINTING & PUBLISHING -- 0.0%
50 Affiliated Newspaper $ 3,000
STEEL -- 0.0%
100 (a)Bar Technologies, Inc., Warrants 4/1/2001 6,000
TELECOMMUNICATIONS & CELLULAR -- 0.0%
375 Cellular Communications International, Inc., Warrants 1/1/2001 7,500
TOTAL COMMON STOCKS (IDENTIFIED COST $68,983) 74,500
(c)REPURCHASE AGREEMENT -- 0.4%
295,000 BT Securities Corporation, 6.90%, dated 12/31/1996, due 1/2/1997
(AT AMORTIZED COST) 295,000
TOTAL INVESTMENTS (IDENTIFIED COST $62,442,641)(d) $ 64,822,356
</TABLE>

(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At December 31, 1996, these securities
amounted to $10,048,186 which represents 15% of net assets.

(b) Non-income producing security.

Mid-American Waste Systems, Inc.: On January 22, 1997, Mid-American filed
for protection under Chapter 11 of the Bankruptcy Code. The company has
agreed to be acquired by USA Waste Services, Inc. The timing and outcome of
this potential transaction is uncertain.

(c) The repurchase agreement is fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investment in the repurchase agreement is through
participation in a joint account with other Federated funds.

(d) The cost of investments for federal tax purposes amounts to $62,464,490.
The net unrealized appreciation of investments on a federal tax basis
amounts to $2,357,866 which is comprised of $2,882,306 appreciation and
$524,440 depreciation at December 31, 1996.

Note: The categories of investments are shown as a percentage of net assets
($66,043,310) at December 31, 1996.

The following acronym(s) are used throughout this portfolio:

GTD -- Guaranty
LLC -- Limited Liability Corporation
LP -- Limited Partnership
PIK -- Payment in Kind
PLC -- Public Limited Company

(See Notes which are an integral part of the Financial Statements)

FEDERATED HIGH INCOME BOND FUND II
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost $62,442,641 and
tax cost $62,464,490) $ 64,822,356
Cash 42,730
Income receivable 1,237,150
Receivable for shares sold 219,158
Total assets 66,321,394
LIABILITIES:
Payable for investments purchased $ 236,309
Payable for shares redeemed 25,303
Accrued expenses 16,472
Total liabilities 278,084
Net Assets for 6,450,008 shares outstanding $ 66,043,310
NET ASSETS CONSIST OF:
Paid in capital $ 63,269,852
Net unrealized appreciation of investments 2,379,715
Accumulated net realized gain on investments 283,948
Undistributed net investment income 109,795
Total Net Assets $ 66,043,310
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$66,043,310 / 6,450,008 shares outstanding $10.24
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED HIGH INCOME BOND FUND II
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 19,194
Interest 3,998,585
Total income 4,017,779
EXPENSES:
Investment advisory fee $ 240,233
Administrative personnel and services fee 125,000
Custodian fees 26,616
Transfer and dividend disbursing agent
fees and expenses 13,777
Directors'/Trustees' fees 1,456
Auditing fees 10,000
Legal fees 2,831
Portfolio accounting fees 66,789
Share registration costs 12,095
Printing and postage 41,932
Insurance premiums 2,877
Miscellaneous 13,884
Total expenses 557,490
Waivers and reimbursements --
Waiver of investment advisory fee $ (203,132)
Reimbursement of other operating expenses (32,285)
Total waivers and reimbursements (235,417)
Net expenses 322,073
Net investment income 3,695,706
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 290,512
Net change in unrealized appreciation of 2,051,764
investments
Net realized and unrealized gain on investments 2,342,276
Change in net assets resulting from operations $6,037,982
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED HIGH INCOME BOND FUND II
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 3,695,706 $ 717,145
Net realized gain (loss) on investments ($290,512 and $8,035, net
gain, respectively, as computed for federal tax purposes) 290,512 5,784
Net change in unrealized appreciation 2,051,764 493,099
Change in net assets resulting from operations 6,037,982 1,216,028
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (3,613,374) (687,618)
SHARE TRANSACTIONS --
Proceeds from sale of shares 55,826,183 21,185,904
Net asset value of shares issued to shareholders in payment of
distributions declared 3,612,247 686,601
Cost of shares redeemed (15,984,743) (3,692,843)
Change in net assets resulting from share transactions 43,453,687 18,179,662
Change in net assets 45,878,295 18,708,072
NET ASSETS:
Beginning of period 20,165,015 1,456,943
End of period (including undistributed net investment income
of $109,795 and $27,463, respectively) $ 66,043,310 $20,165,015
</TABLE>

(See Notes which are an integral part of the Financial Statements)

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

* Computed on an annualized basis.

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

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

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

(See Notes which are an integral part of the Financial Statements)

FEDERATED HIGH INCOME BOND FUND II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. ORGANIZATION

Effective April 15, 1996, the Board of Trustees (the "Trustees") changed the
name of the Trust from Insurance Management Series to Federated Insurance
Series and the name of the Fund from Corporate Bond Fund to Federated High
Income Bond Fund II.

2. SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS -- Listed Corporate bonds are generally valued at the
mean of the latest bid and asked price as furnished by an independent
pricing service. Listed equity securities are valued at the last sale price
reported on a national securities exchange. Short-term securities are valued
at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less at the
time of purchase may be valued at amortized cost, which approximates fair
market value.

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.

RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. Many restricted securities may be resold in
the secondary market in transactions exempt from registration. In some
cases, the restricted securities may be resold without registration upon
exercise of a demand feature. Such restricted securities may be determined
to be liquid under criteria established by the Board of Trustees. The Fund
will not incur any registration costs upon such resales. The Fund's
restricted securities are valued at the price provided by dealers in the
secondary market or, if no market prices are available, at the fair value as
determined by the Fund's pricing committee.

Additional information on each restricted security held at December 31, 1996
is as follows:
<TABLE>
<CAPTION>
SECURITY FUND
ACQUISITION ACQUISITION
DATE COST
<S> <C> <C>
Abraxas Petroleum Corp. 11/5/96 $ 501,750
Allied Waste North America, Inc. 11/25/96 452,250
Astor Corp. 10/2/96 351,625
Australias Holdings Pty Limited 10/29/96 115,009
Bar Technologies, Inc. 8/28/96 5,588
Blue Bird Body Co. 11/13/96 74,771
Brooks Fiber Properties Inc. 11/1/96 315,064
Building Materials Corporation of America 12/4/96 149,253
Clark Material Handling Corp. 11/22/96-12/19/96 352,500
CS Wireless System, Inc. 2/16/96 0
Delta Beverage Group Inc. 12/12/96 100,000
Euramax International Plc. 9/18/96 404,063
First Nationwide Escrow Corp. 9/13/96 705,000
Genesis Health Ventures Inc. 10/1/96 250,000
Hawk Corporation 11/22/96 250,000
HS Resources, Inc. 11/22/96 273,576
ICON Fitness Corp. 11/15/96 232,883
International Home Foods Inc. 10/29/96-11/4/96 653,125
International Knife & Saw, Inc. 10/31/96 300,000
Intertek Finance Plc. 10/21/96 400,000
ISP Holdings, Inc. 10/15/96 498,605
Outsourcing Solutions, Inc. 10/31/96 503,750
Pegasus Media 6/30/95-01/2/96 1,250
Petersen Publishing Co. 11/20/96-5/12/96 454,500
Pillowtex Corporation 11/6/96 250,000
Plastic Containers, Inc. 12/11/96 304,500
Prime Succession Acquisition Corp. 7/13/96 150,000
Rayovac Corp. 10/17/96 100,000
Rose Hills Acquisition Corp. 11/14/96 100,000
Ryder TRS, Inc. 11/20/96 200,000
Safelite Glass Corp. 12/13/96 50,000
Statia Terminals 11/22/96 400,000
Tokheim Corporation 8/16/96-9/4/96 357,969
Uniforet Inc. 10/7/96 300,000
U.S. Can Corp. 10/10/96 100,000
</TABLE>

INVESTMENT RISKS -- Although the Fund has a diversified portfolio, the Fund
has 95.4% of its portfolio invested in lower rated and comparable quality
unrated high yield securities. Investments in higher yield securities are
accomplished by a greater degree of credit risk and the risk tends to be
more sensitive to economic conditions than higher rated securities. The risk
of loss due to default by the issuer may be significantly great for the
holders of high yielding securities because such securities are generally
unsecured and are often subordinated to other creditors of the issuer. The
Fund held a defaulted security with a value of $90,000, representing 0.14%
of the Fund's net assets at December 31, 1996.

OTHER -- Investment transactions are accounted for on the trade date.

3. SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).

Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
<S> <C> <C>
Shares sold 5,638,009 2,211,100
Shares issued to shareholders in payment of 365,049 71,640
distributions declared
Shares redeemed (1,611,816) (388,244)
Net change resulting from share transactions 4,391,242 1,894,496
</TABLE>

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.60% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee and reimburse certain
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and reimbursement at any time at its sole discretion.

ORGANIZATIONAL EXPENSES -- Organizational expenses of $16,313 and start-up
administrative service expenses of $31,507 were borne initially by the
Adviser. The Fund has agreed to reimburse the Adviser for the organizational
and start-up administrative expenses during the five year period following
effective date. For the period ended December 31, 1996, the Fund paid $3,263
and $6,301, respectively, pursuant to this agreement.

GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.

5. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 63,184,177
SALES $ 19,547,998
</TABLE>

INDEPENDENT AUDITORS' REPORT

To the Board of Trustees of the Federated Insurance Series
and Shareholders of FEDERATED HIGH INCOME BOND FUND II:

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated High Income Bond Fund
II (a portfolio of the Federated Insurance Series) as of December 31, 1996,
and the related statement of operations for the year then ended, the
statement of changes in net assets for the years ended December 31, 1996 and
1995, and the financial highlights for the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated High
Income Bond Fund II as of December 31, 1996, the results of its operations,
the changes in its net assets and its financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
February 7, 1997

TRUSTEES

OFFICERS

John F. Donahue
Chairman

J. Christopher Donahue
President
Edward C. Gonzales
Executive Vice President

John W. McGonigle
Executive Vice President, Treasurer, and Secretary

Richard B. Fisher
Vice President

S. Elliott Cohan
Assistant Secretary

FEDERATED HIGH INCOME BOND FUND II
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1996

FEDERATED INSURANCE SERIES

[Graphic]

Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

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

[Graphic]

Cusip 313916306
G00844-01 (2/97)

PRESIDENT'S MESSAGE

Dear Shareholder:

I am pleased to present the Annual Report to Shareholders for Federated
Prime Money Fund II, a portfolio of Federated Insurance Series.

During the reporting period, the fund kept shareholders' ready cash working
every day while maintaining a stable share price of $1.00.*

To pursue a competitive daily yield, the fund invests in a portfolio of
high-quality money market securities. Over the 12-month reporting period,
the fund paid a total of $0.05 per share in dividends to shareholders. On
December 31, 1996, total net assets reached $45.7 million -- a significant
increase over the $17.8 million in total net assets at the beginning of the
reporting period.

Thank you for keeping your ready cash working and accessible through
Federated Prime Money Fund II. We will continue to keep you up to date on
your investment, and welcome your comments and suggestions.

Sincerely,

[Graphic]

J. Christopher Donahue
President
February 15, 1997

* Although money market funds seek to maintain a share value of $1.00, there
is no guarantee that they will do so. An investment in the fund is neither
insured nor guaranteed by the U.S. government.

FEDERATED PRIME MONEY FUND II

MANAGEMENT DISCUSSION AND ANALYSIS

Federated Prime Money Fund II invests in money market instruments maturing
in thirteen months or less. The average maturity of these securities,
computed on a dollar weighted basis, is restricted to 90 days or less.
Portfolio securities must be rated in one of the two highest short-term
rating categories by one or more of the nationally recognized statistical
rating organizations or be of comparable quality to securities having such
ratings. Typical security types include, but are not limited to: commercial
paper, certificates of deposit, time deposits, variable rate instruments and
repurchase agreements.

U.S. economic growth has slowed in a nearly ideal fashion. Labor markets are
still tight, but monthly payroll gains have downshifted from 233,000 per
month in the first half of the year to 171,000 over the second half. Home
building has slowed as well. Offsetting this consumer slowdown, however,
manufacturing is strengthening. The National Association of Purchasing
Managers Index* has increased to 54.00% for December while industrial
production and capacity utilization have also been high. So while the
economy remains mixed, overall it appears to be advancing at a moderate and
sustainable pace.

The lingering concern is that tight labor markets and gently rising wage
pressures will prove inflationary. To date, however, price pressures have
been evident only in the food and energy sectors. Elsewhere in the economy,
systematic price pressures are largely absent. The consumer price index rose
at a rate of just 3.30% over the past 12 months while the producer price
index increased by 2.90% for the same period.

Thirty day commercial paper started the reporting period at 5.27% on
February 1, 1996, and rose very modestly to 5.35%. This lack of movement
reflects the 5.25% federal funds target maintained by the Federal Reserve
Board for the entire 12-month time period. The money market yield curve
steepened substantially throughout the reporting period. One month
commercial paper rates rose 8 basis points while the six-month rates rose 42
basis points.

The target average maturity range for Federated Prime Money Fund II began
the reporting period at 40-50 days and was shortened to the 35-45 day range
in July, reflecting the changing economic and monetary sentiment. Given the
concentrated nature of much of the fund's current asset base, however, the
actual average maturity has been much lower. In structuring the fund, there
is continued emphasis placed on positioning 30-35% of the fund's core assets
in variable rate demand notes and accomplishing a modest barbell structure.

During the 12 months ended December 31, 1996, the net assets of Federated
Prime Money Fund II increased from $17.8 million to $45.7 million while the
7-day net yield increased from 4.61% to 4.77%.** The effective average
maturity of the fund on December 31, 1996, was 28 days.

* The National Association of Purchasing Manager's Index is a diffusion
index that measures the economic activity of the largest manufacturers in
the United States.

** Performance quoted represents past performance and is not indicative of
future results. Yield will vary. Performance information does not reflect
the charges and expenses of a variable annuity or variable life insurance
contract.

FEDERATED PRIME MONEY FUND II
PORTFOLIO OF INVESTMENTS

DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
BANK NOTES -- 2.2%
BANKING -- 2.2%
$1,000,000 Harris Trust & Savings Bank, Chicago, 5.500%, 3/26/1997 $ 999,867
COMMERCIAL PAPER -- 20.6%
BANKING -- 5.4%
500,000 ABN AMRO Bank N.V., Amsterdam, 5.794%, 3/6/1997 494,996
1,000,000 Bank of Nova Scotia, Toronto, 5.510%, 1/6/1997 999,246
500,000 Commerzbank U.S. Finance, Inc., (Guaranteed by Commerzbank AG,
Frankfurt), 5.709%, 3/18/1997 494,142
500,000 Svenska Handelsbanken, Inc., (Guaranteed by Svenska Handelsbanken,
Stockholm), 5.531%, 2/12/1997 496,862
Total 2,485,246
FINANCE - AUTOMOTIVE -- 6.5%
2,000,000 Ford Motor Credit Corp., 5.427%, 3/13/1997 1,979,016
1,000,000 General Motors Acceptance Corp., 5.456%, 6/9/1997 976,548
Total 2,955,564
FINANCE - COMMERCIAL -- 4.3%
1,000,000 Beta Finance, Inc., 5.775% - 5.783%, 1/13/1997 - 3/13/1997 993,531
1,000,000 General Electric Capital Corp., 5.764%, 1/29/1997 995,644
Total 1,989,175
FINANCE - RETAIL -- 4.4%
2,000,000 New Center Asset Trust, A1+/P1 Series, 5.402%, 1/27/1997 1,992,301
TOTAL COMMERCIAL PAPER 9,422,286
SHORT-TERM NOTES -- 6.0%
FINANCE - AUTOMOTIVE -- 1.5%
672,273 Nationsbank Auto Owner Trust 1996-A, 5.776%, 8/15/1997 672,629
</TABLE>

FEDERATED PRIME MONEY FUND II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
FINANCE - EQUIPMENT -- 3.4%
$ 772,306 Capita Equipment Receivables Trust 1996-1, 5.600%, 10/15/1997 $ 772,306
773,412 Navistar Financial 1996-B Owner Trust, 5.490%, 11/20/1997 773,412
Total 1,545,718
FINANCE - CONSUMER -- 1.1%
500,000 Silver REMIC Trust I 1996-1, 5.700%, 1/15/1998 500,000
TOTAL SHORT-TERM NOTES 2,718,347
(A)NOTES - VARIABLE -- 17.9%
BANKING -- 11.3%
180,000 Alabama State IDA, (Wellborn Cabinet, Inc.), Tax Revenue Bonds,
(Amsouth Bank N.A., Birmingham LOC), 5.800%, 1/1/1997 180,000
200,000 Capital One Funding Corp., (Series 1995-A), (Bank One, Indianapolis, IN
LOC), 5.95%, 1/2/1997 200,000
190,000 Denver Urban Renewal Authority, (Series 1992-B), (Banque Paribas,
Paris LOC), 5.900%, 1/2/1997 190,000
200,000 Franklin County, OH, (Edison Wielding), (Series 1995), (Huntington
National Bank, Columbus, OH LOC), 6.050%, 1/2/1997 200,000
1,000,000 Kenny, Donald R. and Cheryl A., (Series 1996-C), (Star Bank, NA,
Cincinnati LOC), 5.980%, 1/2/1997 1,000,000
278,000 Maryland State IDFA, (Human Genome), (Series 1994), (First National
Bank of Maryland, Baltimore LOC), 5.938%, 1/6/1997 278,000
375,000 Mississippi Business Finance Corp., Metalloy Project, (Comerica Bank,
Detroit, MI LOC), 5.900%, 1/1/1997 375,000
385,000 Pelham City, IDB, (Columbus Bank and Trust Co., GA LOC), 6.130%,
1/2/1997 385,000
550,000 REAL I Funding Corp., Casto Realty Investments Series 1996,
(Huntington National Bank, Columbus, OH LOC), 5.930%, 1/2/1997 550,000
380,000 Roby Company Ltd. Partnership, (Huntington National Bank,
Columbus, OH LOC), 5.930%, 1/2/1997 380,000
1,000,000 SMM Trust, (Series 1996-V), (Morgan Guaranty Trust Co., New York
Swap Agreement), 5.581%, 2/24/1997 1,000,000
</TABLE>

FEDERATED PRIME MONEY FUND II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)NOTES - VARIABLE -- CONTINUED
BANKING -- CONTINUED
$ 185,000 Southeast Regional Holdings, LLC, (Series 1995-A), (Columbus Bank and
Trust Co., GA LOC), 6.130%, 1/2/1997 $ 185,000
253,000 Vista Funding Corp., (Series 1994-A), (Fifth Third Bank of Northwestern
OH LOC), 5.98%, 1/2/1997 253,000
Total 5,176,000
INSURANCE -- 4.4%
1,000,000 General American Life Insurance Co., 5.806%, 1/23/1997 1,000,000
1,000,000 Transamerica Occidental Life Insurance Company, 5.304%, 1/30/1997 1,000,000
Total 2,000,000
SOVEREIGN GOVERNMENT -- 2.2%
1,000,000 (b)Short Term Asset Corp., Secured Class F-1 Bonds, (European Bank
for Reconstruction and Development LIQ), 5.626%, 1/13/1997 1,000,000
TOTAL NOTES - VARIABLE 8,176,000
GOVERNMENT AGENCIES -- 17.5%
8,000,000 Federal National Mortgage Association, 6.500%, 1/2/1997 7,998,556
GOVERNMENT AGENCY OBLIGATIONS -- 1.8%
U.S. TREASURY NOTES -- 1.8%
800,000 6.875%, 2/28/1997-3/31/1997 802,407
(C)REPURCHASE AGREEMENTS -- 16.4%
2,090,000 CIBC Wood Gundy Securities Corp., 6.900%, dated 12/31/1996,
due 1/2/1997 2,090,000
2,200,000 Fuji Government Securities, Inc., 6.900%, dated 12/31/1996, due
1/2/1997 2,200,000
</TABLE>

FEDERATED PRIME MONEY FUND II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C)REPURCHASE AGREEMENTS -- CONTINUED
$2,200,000 PaineWebber Group, Inc., 6.850%, dated 12/31/1996, due
1/2/1997 $ 2,200,000
1,000,000 Swiss Bank Capital Markets, 6.800%, dated 12/31/1996, due
1/2/1997 1,000,000
TOTAL REPURCHASE AGREEMENTS 7,490,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(D) $37,607,463
</TABLE>

(a) Current rate and next reset date shown.

(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At December 31, 1996 these securities
amounted to $1,000,000 which represents 2.2% of net assets.

(c) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investments in the repurchase agreements are through
participation in joint accounts with other Federated funds.

(d) Also represents cost for federal tax purposes.

Note: The categories of investments are shown as a percentage of net assets
($45,655,332) at December 31, 1996.

The following acronyms are used throughout this portfolio:

IDA -- Industrial Development Authority
IDB -- Industrial Development Bond
IDFA -- Industrial Development Finance Authority
LIQ -- Liquidity Agreement
LLC -- Limited Liability Corporation
LOC -- Letter of Credit
REMIC -- Real Estate Mortgage Investment Conduit

(See Notes which are an integral part of the Financial Statements)

FEDERATED PRIME MONEY FUND II
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 7,490,000
Investments in securities 30,117,463
Total investments in securities, at amortized cost and value $37,607,463
Cash 8,062,347
Income receivable 99,159
Receivable for shares sold 427,135
Total assets 46,196,104
LIABILITIES:
Payable for shares redeemed 518,160
Accrued expenses 22,612
Total liabilities 540,772
Net Assets for 45,655,332 shares outstanding $45,655,332
NET ASSETS VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$45,655,332 / 45,655,332 shares outstanding $1.00
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED PRIME MONEY FUND II
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C> <C>

INVESTMENT INCOME:
Interest $ 1,694,866
EXPENSES:
Investment advisory fee $ 154,455
Administrative personnel and services fee 125,000
Custodian fees 28,125
Transfer and dividend disbursing agent fees and expenses 24,203
Directors'/Trustees' fees 1,916
Auditing fees 8,500
Legal fees 3,631
Portfolio accounting fees 40,451
Share registration costs 8,075
Printing and postage 21,717
Insurance premiums 2,795
Miscellaneous 5,310
Total expenses 424,178
Waivers and reimbursements --
Waiver of investment advisory fee $(154,455)
Reimbursement of other operating expenses (21,235)
Total waivers and reimbursements (175,690)
Net expenses 248,488
Net investment income $1,446,378
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED PRIME MONEY FUND II
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 1,446,378 $ 415,530
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (1,446,378) (415,530)
SHARE TRANSACTIONS --
Proceeds from sale of shares 214,683,781 39,232,023
Net asset value of shares issued to shareholders in payment
of distributions declared 1,446,378 414,549
Cost of shares redeemed (188,312,731) (22,360,936)
Change in net assets resulting from share transactions 27,817,428 17,285,636
Change in net assets 27,817,428 17,285,636
NET ASSETS:
Beginning of period 17,837,904 552,268
End of period $ 45,655,332 $ 17,837,904
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED PRIME MONEY FUND II
FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.05 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.05) (0.05) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 4.75% 5.20% 0.50%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80% 0.80% 0.80%*
Net investment income 4.68% 5.12% 4.26%*
Expense waiver/reimbursement(c) 0.57% 2.69% 71.84%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $45,655 $17,838 $552
</TABLE>

* Computed on an annualized basis.

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

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

(See Notes which are an integral part of the Financial Statements)

FEDERATED PRIME MONEY FUND II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. ORGANIZATION

Federated Insurance Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of eight portfolios. The financial
statements included herein are only those of Federated Prime Money Fund II
(the "Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The investment objective of the Fund is to provide current
income consistent with stability of principal and liquidity.
Effective April 15, 1996, the Board of Trustees ("Trustees") changed the
name of the Trust from Insurance Management Series to Federated Insurance
Series and the name of the Fund from Prime Money Fund to Federated Prime
Money Fund II.

2. SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS -- The Fund's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under the
Act.

The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.

At December 31, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $134, which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:

EXPIRATION YEAR EXPIRATION AMOUNT
2004 $134

RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. Many restricted securities may be resold in
the secondary market in transactions exempt from registration. In some
cases, the restricted securities may be resold without registration upon
exercise of a demand feature. Such restricted securities may be determined
to be liquid under criteria established by the Board of Trustees. The Trust
will not incur any registration costs upon such resales. Restricted
securities are valued at amortized cost in accordance with Rule 2a-7 under
the Investment Company Act of 1940.

Additional information on each restricted security held at December 31, 1996
is as follows:

SECURITY ACQUSITION DATE ACQUISITION COST
Short Term Asset Corp. 5/7/1996 $1,000,000

OTHER -- Investment transactions are accounted for on the trade date.

3. SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value). At
December 31, 1996, capital paid in aggregated $45,655,332. Transactions in
capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
<S> <C> <C>
Shares sold 214,683,781 39,232,023
Shares issued to shareholders in payment of 1,446,378 414,549
distributions declared
Shares redeemed (188,312,731) (22,360,936)
Net change resulting from share transactions 27,817,428 17,285,636
</TABLE>

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.50% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee and/or reimburse certain
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and/or reimbursement at any time at its sole discretion.

ORGANIZATIONAL EXPENSES -- Organizational expenses of $22,431 were borne
initially by the Adviser. The Fund has agreed to reimburse the Adviser for
the organizational expenses during the five-year period following the Fund's
effective date. For the period ended December 31, 1996, the Fund paid $4,486
pursuant to this agreement.

GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.

INDEPENDENT AUDITORS' REPORT

To the Board of Trustees of the Federated Insurance Series
and Shareholders of FEDERATED PRIME MONEY FUND II:

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the Federated Prime Money Fund II
(a portfolio of the Federated Insurance Series) as of December 31, 1996, and
the related statement of operations for the year then ended, the statement
of changes in net assets for the years ended December 31, 1996 and 1995, and
the financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of the
securities owned as of December 31, 1996, by correspondence with the
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Federated
Prime Money Fund II as of December 31, 1996, the results of its operations,
the changes in its net assets and its financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
February 7, 1997

TRUSTEES

OFFICERS

John F. Donahue
Chairman

J. Christopher Donahue
President

Edward C. Gonzales
Executive Vice President

John W. McGonigle
Executive Vice President, Treasurer, and Secretary

Richard B. Fisher
Vice President

S. Elliott Cohan
Assistant Secretary

Variable funds are not bank deposits or obligations, are not 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. Investment in variable funds involves investment
risk, including possible loss of principal. Although money market funds seek
to maintain a stable net asset value of $1.00 per share, there is no
assurance they will be able to do so.

FEDERATED
PRIME
MONEY
FUND II

ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1996

FEDERATED INSURANCE SERIES

[Graphic]
Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

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

Cusip 313916504
G00842-01 (2/97)

PRESIDENT'S MESSAGE

Dear Shareholder:

I am pleased to present the Annual Report to Shareholders for Federated
International Equity Fund II, a portfolio of Federated Insurance Series.

This report covers the 12-month period from January 1, 1996 through December
31, 1996. It begins with a commentary by the fund's portfolio manager, which
is followed by a complete listing of the fund's international stock holdings
and the financial statements.
Federated International Equity Fund II brings you long-term growth
opportunities through a broadly diversified portfolio of stocks issued by
companies throughout the world. Investing in international stocks can help
to smooth out periodic ups and downs in U.S. stock performance because
international markets respond to different influences than U.S. markets.*

In 1996, the international stock market, as measured by the Morgan
Stanley/Capital International - Europe, Australia, Far East Index ("EAFE
Index"),** turned in positive total return of 4.40% after a very weak 1995.
In this improved international climate, Federated International Equity Fund
II outperformed the overall international market with a total return of
8.32%.*** Contributing to the fund's total return were income distributions
totaling $0.05 per share and a net asset value increase of 8%. At the end of
the reporting period, total assets stood at $17.8 million -- up considerably
from $4.8 million on the first day of the period.

Thank you for participating in the long-term growth opportunities of
international stocks through Federated International Equity Fund II. We look
forward to keeping you informed about your investment's progress.

Sincerely,

[Graphic]

J. Christopher Donahue
President
February 15, 1997

* Foreign investing involves special risks including currency risk,
increased volatility of foreign securities, and differences in auditing and
other financial standards.

** Morgan Stanley/Capital International - Europe, Australia, Far East Index
is an unmanaged, market capitalization weighed foreign securities index,
which is widely used to measure the performance of European, Australian, New
Zealand and Far Eastern stock markets. Investments cannot be made in an
index.

*** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Performance information does not reflect the charges
or expenses of a variable annuity or variable life insurance contract.

FEDERATED INTERNATIONAL EQUITY FUND II

MANAGEMENT DISCUSSION AND ANALYSIS

The fourth quarter of 1996 showed a continuation of the trends seen
throughout most of the year. The main features of the international markets
were the continued weakness in Japan and the devaluation of its currency,
and the strength in Europe. As a whole, the international markets, as
measured by the EAFE Index, once again trailed the strong performance of the
surging U.S. market, which gained 8.1% for the last quarter and 23.2% for
the year. By contrast, the EAFE Index produced a meager gain of 1.59% for
the October - December period and 6.05% for the 12-month period ended
December 31, 1996.

Concern over the continuing difficult outlook for Japanese equities led
management of the fund to maintain a fairly low weighting in Japan, which
amounted to 25.4% of the fund's assets at year-end. The fund's weighting in
the European markets was raised from 48.4% to 50.0% during the reporting
period. Strong performances out of key markets, such as Argentina and Brazil
of 12.7% and 7.9% respectively, contributed to the fund's performance with
the Latin American exposure amounting to 3.6% of the fund's assets at the
end of December.

Looking forward to 1997, we would like to briefly touch on the outlook for
the various regions of the world in which the fund invests. Beginning with
Japan, we feel that the devaluation of the currency, which has taken place
over the past year and a half, will continue to enhance the profitability of
Japanese manufacturers and export-oriented companies for some time to come.
Moreover, we feel that the downward pressure on the yen from these levels of
roughly Y115:US$1 will be greatly diminished.

In Europe, 1997 will bring increased anticipation of the implementation of
European Monetary Union, which is scheduled to be launched with the adoption
of the "euro" as the single currency at the start of 1999. Conservative
fiscal policies should continue to be adhered to as the adopting countries
attempt to reach the goal set out in the Maastricht Treaty of government
deficits of no more than 3% of Gross Domestic Product. This conservative
stance may retard the economic recovery that is gradually getting under way;
but it will also mean that there will be little threat of inflationary
pressure over the course of the year and for some time beyond.

In terms of the equity markets, opportunities should continue to be found in
companies that are restructuring their businesses in order to compete
effectively in this new, more open environment. We are very positive on the
outlook, especially as more and more managements are beginning to think and
act more like genuine defenders of shareholder value.

Turning to Asia (excluding Japan), our focus will be on companies that are
able to withstand the increased competitive pressure from Japan resulting
from a cheaper yen. Another major consideration for the companies of the
region, especially in Singapore and Korea, is the state of the semiconductor
cycle. A slowdown in this key area of the global electronics industry should
have a negative impact on the earnings of many of the publicly traded
companies of the region.
Finally, the transition of Hong Kong from British colonial status to a
Chinese territory will set the tone for the area. Assuming the transfer goes
reasonably smoothly, which we believe that it will, the Hong Kong market
should be in for another good year following its 33% gain for 1996.

Looking to Latin America, we are positive on the outlook for the region as
economic growth should accelerate from last year's rate and inflation should
continue to abate. The kidnapping in Peru only serves to highlight the fact
that the revolutionary tactics of the past do not have the same political
impact in the current environment of democratic rule. We believe that
valuations will be attractive and growth opportunities will continue to
abound as trade barriers fall.

FEDERATED INTERNATIONAL EQUITY FUND II

GROWTH OF $10,000 INVESTED IN THE FEDERATED INTERNATIONAL EQUITY FUND II

The graph below illustrates the hypothetical investment of $10,000 in the
Federated International Equity Fund II (the "Fund") from May 8, 1995 (start
of performance) to December 31, 1996, compared to the Morgan Stanley/Capital
International - Europe, Australia, Far-East Index (EAFE).+

[Graphic Representation Omitted. See Appendix A]

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1996
1 Year 8.32%
Start of Performance (5/8/95) 7.17%

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY
MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The EAFE has been adjusted to reflect reinvestment of
dividends on securities in the index.

+ The EAFE is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The index
is unmanaged.

FEDERATED INTERNATIONAL EQUITY FUND II
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- 93.0%
ARGENTINA -- 0.5%
BANKING -- 0.1%
753 Banco Frances del Rio de la Plata S.A., ADR $ 20,714
ENERGY SOURCES -- 0.1%
700 YPF Sociedad Anonima, ADR 17,675
MULTI-INDUSTRY -- 0.1%
2,745 Compania Naviera Perez Companc S.A., Class B 19,301
REAL ESTATE -- 0.1%
502 (a)IRSA Inversiones y Representaciones S.A., GDR 15,939
TELECOMMUNICATIONS -- 0.1%
700 Telefonica de Argentina S.A., ADR 18,113
TOTAL ARGENTINA 91,742
AUSTRALIA -- 2.6%
BANKING -- 0.3%
10,000 Westpac Banking, Corp., Sydney 56,911
BROADCASTING & PUBLISHING -- 0.6%
19,000 News Corp. Ltd. 100,278
ENERGY SOURCES -- 0.4%
11,000 Woodside Petroleum Ltd. 80,351
FINANCIAL SERVICES -- 0.2%
6,300 (b)Commonwealth Installment Receipt Trustee Ltd. 39,209
LEISURE & TOURISM -- 0.2%
11,000 (a)Aristocrat Leisure Ltd. 28,591
REAL ESTATE -- 0.9%
8,320 Lend Lease Corp. Ltd. 161,361
TOTAL AUSTRALIA 466,701
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
AUSTRIA -- 0.4%
AUTOMOBILE -- 0.3%
900 (a)KTM Motorradholding AG $ 50,284
MANUFACTURING -- 0.1%
210 Vae Eisenbahnsyst 23,834
TOTAL AUSTRIA 74,118
BELGIUM -- 0.4%
MERCHANDISING -- 0.4%
1,200 Delhaize -- Le Lion 71,295
TOTAL BELGIUM 71,295
BRAZIL -- 0.4%
TELECOMMUNICATIONS -- 0.3%
700,000 (a)Telecomunicacoes Brasileras 50,188
UTILITIES - ELECTRICAL & GAS -- 0.1%
95,000 (a)Light Participacoes S.A. 23,038
TOTAL BRAZIL 73,226
CHILE -- 0.2%
BANKING -- 0.1%
400 (a)Banco BHIF, ADR 6,550
300 (a)Banco de A. Edwards, ADR 5,400
Total 11,950
ENERGY EQUIPMENT & SERVICES -- 0.0%
100 (a)(b)Chilectra S.A., ADR 5,413
METALS - NON FERROUS -- 0.0%
100 Sociedad Quimica Y Minera De Chile, ADR 5,413
TELECOMMUNICATIONS -- 0.1%
100 Compania Telecomunicacion Chile, ADR 10,113
TOTAL CHILE 32,889
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
COLUMBIA -- 0.2%
BANKING -- 0.2%
700 Banco Ganadero S.A., ADR $ 18,463
700 Banco Industrial Colombiano, ADR 14,525
TOTAL COLUMBIA 32,988
FRANCE -- 6.7%
AUTOMOBILE -- 0.4%
650 Peugeot S.A. 73,162
BANKING -- 1.0%
720 CLF -- Dexia France 62,723
826 Compagnie Financiere de Paribas, Class A 55,863
1,346 Credit Commerical De France 62,261
Total 180,847
BEVERAGE & TOBACCO -- 0.5%
330 LVMH (Moet-Hennessy) 92,160
BUILDING MATERIALS & COMPONENTS -- 0.4%
1,070 Lafarge-Coppee 64,198
BUSINESS & PUBLIC SERVICES -- 0.3%
770 Havas S.A. 54,019
ELECTRONIC COMPONENTS, INSTRUMENTS -- 0.4%
1,518 Schneider S.A. 70,188
ENERGY SOURCES -- 0.4%
800 Total SA-B 65,067
FOOD & HOUSEHOLD PRODUCTS -- 0.8%
1,810 Etablissements Economiques du Casino Guichard-Perrachon 84,282
440 Group Danon BSN S.A. 61,313
Total 145,595
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
FRANCE -- CONTINUED
HEALTH & PERSONAL CARE -- 0.4%
228 Clarins $ 33,441
500 Rhone-Poulenc Rorer, Inc. 39,063
Total 72,504
INSURANCE -- 0.9%
1,177 AXA 74,860
2,360 Scor S.A. 83,011
Total 157,871
LEISURE & TOURISM -- 0.4%
498 Accor S.A. 63,060
MISCELLANEOUS MATERIALS & COMMODITIES -- 0.4%
550 Compagnie de St. Gobain 77,807
MULTI-INDUSTRY -- 0.4%
695 Lyonnaise des Eaux S.A. 64,684
TOTAL FRANCE 1,181,162
GERMANY -- 6.6%
AUTOMOBILE -- 1.1%
2,780 (a)Daimler Benz AG 191,500
BANKING -- 1.6%
3,750 (a)Commerzbank AG, Frankfurt 95,285
1,860 Deutsche Bank, AG 86,908
3,280 Dresdner Bank AG, Frankfurt 98,264
Total 280,457
CHEMICALS -- 1.1%
2,720 BASF AG 104,784
2,300 Bayer AG 93,865
Total 198,649
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
GERMANY -- CONTINUED
ELECTRICAL & ELECTRONICS -- 0.4%
1,630 Siemens AG $ 76,797
ELECTRONIC COMPONENTS, INSTRUMENTS -- 0.3%
3,800 (a)Rofin -- Sinar Technologies, Inc. 44,650
FOOD & HOUSEHOLD PRODUCTS -- 0.0%
58 (a)Henkel KGAA 2,782
HEALTH & PERSONAL CARE -- 0.4%
250 Schering AG 21,104
695 Schwarz Pharma AG 51,488
Total 72,592
MACHINERY & ENGINEERING -- 1.0%
120 Linde AG 73,304
227 Mannesmann AG 98,394
Total 171,698
UTILITIES - ELECTRICAL & GAS -- 0.7%
950 RWE AG 40,252
1,605 Veba AG 92,829
Total 133,081
TOTAL GERMANY 1,172,206
HONG KONG -- 4.3%
BANKING -- 0.4%
3,000 HSBC Holdings PLC 64,193
BROADCASTING & PUBLISHING -- 0.3%
116,000 Oriental Press Group 52,117
FINANCIAL SERVICES -- 0.5%
86,000 Aeon Credit Service 27,519
41,000 Peregrine Investment 70,237
Total 97,756
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
HONG KONG -- CONTINUED
HEALTH & PERSONAL CARE -- 0.4%
19,000 (a)(b)Shanghai Industrial Holdings Ltd. $ 69,274
MULTI-INDUSTRY -- 0.5%
12,000 Hutchison Whampoa 94,253
REAL ESTATE -- 1.9%
58,000 Amoy Properties Ltd. 83,612
8,000 Cheung Kong Holdings 71,110
24,000 (a)(b)Cheung Kong Infrastructure 63,611
23,000 China Resources Enterprises Ltd. 51,742
40,000 (a)Winsor Property Holdings Ltd. 64,387
Total 334,462
TELECOMMUNICATIONS -- 0.3%
32,000 Hong Kong Telecom 51,509
TOTAL HONG KONG 763,564
INDIA -- 0.6%
AUTOMOBILE -- 0.1%
1,800 (a)(b)Mahindra and Mahindra, GDR 21,150
ELECTRICAL & ELECTRONICS -- 0.1%
3,700 (a)(b)Crompton Greaves Ltd., GDR 14,338
ENERGY EQUIPMENT & SERVICES -- 0.2%
1,400 (a)(b)Bombay Suburban Electric Supply, GDR 28,875
MACHINERY & ENGINEERING -- 0.1%
1,500 (a)(b)Larsen & Toubro Ltd., GDR 21,863
METALS - NON FERROUS -- 0.1%
750 (a)(b)Hindalco Industries Ltd., GDR 18,469
TOTAL INDIA 104,695
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
INDONESIA -- 1.1%
BANKING -- 0.1%
40,500 (a)PT Bank Negara Indonesia $ 21,433
BUILDING MATERIALS & COMPONENTS -- 0.2%
9,000 PT Semen Gresik 28,959
FOREST PRODUCTS & PAPER -- 0.1%
26,620 Pab K Tjiwi Kimia 26,485
MINING -- 0.1%
12,000 Tambang Timah 21,846
RECREATION, OTHER CONSUMER GOODS -- 0.3%
14,000 PT Modern Photo Film Co. 44,454
TOBACCO -- 0.1%
4,000 PT Gudang Garam 17,273
TRANSPORTATION - ROAD & RAIL -- 0.2%
21,533 PT Steady Safe 27,577
TOTAL INDONESIA 188,027
ITALY -- 1.8%
BANKING -- 0.6%
6,500 Banca Populare Di Milano 32,993
7,400 IMI Instituto Mobiliare 63,415
Total 96,408
BUILDING MATERIALS & COMPONENTS -- 0.1%
3,500 (a)Unicem S.P.A. 22,841
ENERGY -- OIL & GAS -- 0.3%
9,500 Eni S.P.A. 48,752
FOREST PRODUCTS & PAPER -- 0.3%
12,700 Burgo (Cartiere) S.P.A. 58,602
MERCHANDISING -- 0.0%
285 (a)La Rinascente S.P.A., Warrants, Expire 11/30/99 126
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
ITALY -- CONTINUED
TELECOMMUNICATIONS -- 0.5%
9,600 STET-Societa Finanziaria Telefonica S.P.A. $ 43,665
17,150 Telecom Italia Mobile 43,355
Total 87,020
TOTAL ITALY 313,749
JAPAN -- 24.7%
BROADCASTING & PUBLISHING -- 0.6%
200 Asahi Broadcasting Corp. 18,651
7,000 Ikegami Tsushinki 42,129
6,000 Shochiku Co. 51,809
Total 112,589
BUSINESS & PUBLIC SERVICES -- 1.0%
10,000 Dai Nippon Printing Co. Ltd. 175,287
CHEMICALS -- 0.9%
14,000 Shiseido Co. 161,989
CONSTRUCTION & HOUSING -- 1.0%
15,000 Nippon Comsys Corp. 170,970
DATA PROCESSING & REPRODUCTION -- 1.0%
5,000 Konami Co. 170,538
ELECTRICAL & ELECTRONICS -- 4.0%
8,000 Matsushita Kotobuk Electric 208,618
30,000 Minolta Co. 181,591
10,000 Pioneer Electronic Corp. 190,830
2,000 Sony Corp. 131,077
Total 712,116
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
JAPAN -- CONTINUED
ELECTRONIC COMPONENTS, INSTRUMENTS -- 3.7%
5,000 Canare Electric Co. Ltd. $ 109,231
3,000 Hirose Electric 173,819
8,000 Hitachi Maxell 176,841
3,000 Kyocera Corp. 187,031
Total 646,922
FINANCIAL SERVICES -- 0.8
3,000 Promise Co. Ltd. 147,656
HEALTH & PERSONAL CARE -- 1.1%
7,000 Sankyo Co. 198,256
MACHINERY & ENGINEERING -- 2.0%
17,000 Amada Co. 132,114
5,000 JGC Corp. 37,519
18,000 Mitsubishi Heavy Industries Ltd. 142,994
9,000 Tsubakimoto Chain 48,183
Total 360,810
MERCHANDISING -- 0.8%
10,000 Mycal Corp. 145,065
PHARMACEUTICALS -- 1.5%
11,000 Taisho Pharmaceutical Co. 259,304
REAL ESTATE -- 1.6%
13,000 Daito Trust Construction 144,807
32,000 (a)Tokyo Tatemono Co. Ltd. 143,684
Total 288,491
RECREATION, OTHER CONSUMER GOODS -- 2.3%
6,000 Fuji Photo Film Co. 197,910
3,000 Nintendo Corp. Ltd. 214,748
Total 412,658
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
JAPAN -- CONTINUED
TOBACCO -- 0.8%
20 (b)Japan Tobacco Inc. $ 135,567
TELECOMMUNICATIONS -- 1.6%
13 DDI Corp. 85,986
25 Nippon Telegraph & Telephone Corp. 189,535
Total 275,521
TOTAL JAPAN 4,373,739
KOREA -- 1.2%
AUTOMOBILE -- 0.1%
340 (a)Dongah Tire Ind. 23,699
BANKING -- 0.3%
2,100 Korea Exchange Bank 19,012
2,400 Shinhan Bank 38,542
Total 57,554
BEVERAGE & TOBACCO -- 0.2%
270 Lotte Chilsung Beverage Co. 38,024
CHEMICALS -- 0.2%
1,600 Pacific Corp. 31,621
FOREST PRODUCTS & PAPER -- 0.1%
800 Hankuk Paper Manufacturing Co. 15,716
METALS - STEEL -- 0.1%
1,100 Dongkuk Steel Mill 21,740
TELECOMMUNICATIONS -- 0.2%
1,854 (a)Korea Mobile Telecomm Corp., ADR 23,870
TOTAL KOREA 212,224
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
MALAYSIA -- 2.2%
BANKING -- 0.2%
4,000 Malayan Banking Berhad $ 44,348
ELECTRONIC COMPONENTS, INSTRUMENTS -- 0.2%
8,000 Malaysian Pacific Industries 31,043
FINANCIAL SERVICES -- 0.3%
27,000 Malaysian Industrial Development Berhad 50,247
MACHINERY & ENGINEERING -- 0.3%
10,000 UMW Holdings Berhad 46,723
MISCELLANEOUS MATERIALS & COMMODITIES -- 0.3%
64,000 Berjaya Group Berhad 54,484
MULTI-INDUSTRY -- 0.5%
54,000 Time Engineering 100,067
REAL ESTATE -- 0.2%
17,000 Eastern and Oriental Berhad 32,984
TRANSPORTATION - ROAD & RAIL -- 0.2%
14,000 Metacorp Berhad 35,755
TOTAL MALAYSIA 395,651
MEXICO -- 1.0%
BANKING -- 0.1%
2,100 (a)(b)Grupo Financiero Bancomer, S.A. de C.V., Class B, ADR 16,806
BEVERAGE & TOBACCO -- 0.3%
11,000 Fomento Economico Mexicano, S.A. de C.V., Class B 37,729
400 Pan American Beverage, Class A 18,750
Total 56,479
BUILDING MATERIALS & COMPONENTS -- 0.1%
2,200 (a)Cemex S.A., Class B, ADR 17,119
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
MEXICO -- CONTINUED
CONSTRUCTION & HOUSING -- 0.1%
1,400 (a)Empresas ICA Sociedad Controladora S.A., ADR $ 20,475
DATA PROCESSING & REPRODUCTION -- 0.1%
1,000 (a)(b)Acer, Inc., ADR 17,125
FOOD & HOUSEHOLD PRODUCTS -- 0.1%
17,000 (a)Grupo Corvi S.A., Class UBL 11,662
METALS - STEEL -- 0.1%
1,700 (a)Tubos de Acero de Mexico S.A., ADR 26,988
TELECOMMUNICATIONS -- 0.1%
400 Telefonos de Mexico, Class L, ADR 13,200
TOTAL MEXICO 179,854
NETHERLANDS -- 4.1%
BROADCASTING & PUBLISHING -- 0.5%
600 Wolters Kluwer N.V. 79,757
CONSTRUCTION & HOUSING -- 0.4%
3,870 Boskalis Westminster 78,454
ELECTRONIC COMPONENTS, INSTRUMENTS -- 1.0%
3,700 (a)ASM Lithography Holding N.V. 184,946
FINANCIAL SERVICES -- 1.4%
2,200 ABN -- Amro Holdings N.V. 143,226
2,322 ING Groep N.V. 83,654
Total 226,880
MERCHANDISING -- 0.4%
1,775 Vendex International 75,976
MULTI - INDUSTRY -- 0.4%
1,110 Hunter Douglas N.V. 74,900
TOTAL NETHERLANDS 720,913
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
NEW ZEALAND -- 1.0%
BUILDING MATERIALS & COMPONENTS -- 0.4%
21,000 Fletcher Challenge Building $ 64,581
FOOD PROCESSING -- 0.3%
70,000 Wrightson Ltd. 60,870
TRANSPORTATION - AIRLINES -- 0.3%
22,000 Air New Zealand Ltd., Class B 59,724
TOTAL NEW ZEALAND 185,175
NORWAY -- 0.3%
METALS - NON FERROUS -- 0.3%
3,450 Elkem A/S, Class A 56,491
TOTAL NORWAY 56,491
PAKISTAN -- 0.0%
ENERGY SOURCES -- 0.0%
300 (a)Hub Power Co., GDR 6,225
TOTAL PAKISTAN 6,225
PHILIPPINES -- 0.6%
BANKING -- 0.2%
2,200 Philippine Commercial International Bank 28,859
CONSTRUCTION & HOUSING -- 0.1%
95,130 (a)Davao Union Cement Corp., Class B 26,767
ENERGY SOURCES -- 0.2%
108,000 (a)Belle Corp. 29,977
REAL ESTATE -- 0.1%
43,200 (a)Filinvest Land, Inc. 13,469
TOTAL PHILIPPINES 99,072
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
RUSSIA -- 1.3%
ENERGY - OIL & GAS -- 0.5%
1,700 (a)Lukoil Oil Co., ADR $ 79,900
UTILITIES - ELECTRICAL & GAS -- 0.8%
600,000 (b)Irkutskenergo, RDC 79,200
2,400 (a)Mosenergo, ADR 73,800
Total 153,000
TOTAL RUSSIA 232,900
SINGAPORE -- 2.3%
AUTOMOBILE -- 0.2%
3,000 Cycle & Carriage Ltd. 36,661
BANKING -- 0.5%
9,000 Hong Leong Finance Ltd. 31,258
5,000 United Overseas Bank Ltd. 55,742
Total 87,000
BROADCASTING & PUBLISHING -- 0.1%
1,000 Singapore Press Holdings Ltd. 19,724
MACHINERY & ENGINEERING -- 0.4%
5,000 Far East Levingston Shipbuilding Ltd. 26,084
10,000 Sembawang Corp. Ltd 52,884
Total 78,968
MISCELLANEOUS MATERIALS & COMMODITIES -- 0.3%
82,000 Roly International Holdings 59,860
MULTI-INDUSTRY -- 0.3%
17,000 Wing Tai Holdings Ltd. 48,596
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
SINGAPORE -- CONTINUED
REAL ESTATE -- 0.5%
7,000 City Developments $ 63,032
6,000 Straits Steamship Land Ltd. 19,210
1,500 (a)Straits Steamship Land Ltd., Warrants, Expire 12/12/00 1,619
Total 83,861
TOTAL SINGAPORE 414,670
SPAIN -- 2.5%
CONSTRUCTION & HOUSING -- 0.5%
880 Fomento de Construcciones y Contratas S.A. 82,018
ENERGY SOURCES -- 0.3%
1,740 Repsol S.A. 66,745
INSURANCE -- 0.3%
760 Corp Mapfre S.A. 46,305
MACHINERY & ENGINEERING -- 0.3%
385 Zardoya-Otis S.A. 44,780
TELECOMMUNICATIONS -- 0.3%
2,400 Telefonica de Espana 55,737
UTILITIES - ELECTRICAL & GAS -- 0.8%
1,100 Empresa Nac De Electridad 78,290
5,200 Iberdrola S.A. 73,699
Total 151,989
TOTAL SPAIN 447,574
SWEDEN -- 2.0%
BROADCASTING & PUBLISHING -- 0.1%
750 Marieberg Tidnings AB, Class A 18,365
FOREST PRODUCTS & PAPER -- 0.3%
4,200 Stora Kopparbergs, Class A 57,889
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
SWEDEN -- CONTINUED
HEALTH & PERSONAL CARE -- 0.5%
1,720 Astra AB, Class A $ 84,992
INDUSTRIAL COMPONENTS -- 0.2%
900 Autoliv AB 39,458
INSURANCE -- 0.4%
2,680 Skandia Forsakrings AB 75,843
METALS - STEEL -- 0.5%
7,800 Avesta Sheffield AB 84,063
TOTAL SWEDEN 360,610
SWITZERLAND -- 4.3%
BANKING -- 0.3%
500 CS Holding AG 51,363
FOOD & HOUSEHOLD PRODUCTS -- 0.3%
51 Nestle S.A. 54,753
HEALTH & PERSONAL CARE -- 1.3%
116 Novartis AG 132,852
12 Roche Holding AG 93,373
Total 226,225
INSURANCE -- 0.5%
315 Zurich Versicherungsgesellschaft 87,546
LEISURE & TOURISM -- 0.4%
32 Reiseburo Kuoni AG, Class B 77,699
MACHINERY & ENGINEERING -- 0.3%
50 ABB AG 62,196
MANUFACTURING -- 0.5%
150 Sulzer AG 86,627
MULTI-INDUSTRY -- 0.2%
300 Oerlikon- Buhrle Holding AG 29,585
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
SWITZERLAND -- CONTINUED
TRANSPORTATION - AIRLINES -- 0.5%
100 (a)Swissair AG $ 80,911
TOTAL SWITZERLAND 756,905
THAILAND -- 0.5%
BANKING -- 0.2%
1,600 Bangkok Bank Public Co., Ltd. 15,472
2,100 Krung Thai Bank PLC 4,053
30,000 Siam City Bank 28,075
Total 47,600
FINANCIAL SERVICES -- 0.2%
11,300 Industrial Finance Corporation of Thailand 30,623
UTILITIES - ELECTRICAL & GAS -- 0.1%
900 PTT Exploration and Production Public Co. 12,984
TOTAL THAILAND 91,207
UNITED KINGDOM -- 19.2%
AEROSPACE & MILITARY TECHNOLOGY -- 0.7%
5,834 British Aerospace PLC 127,734
BANKING -- 0.5%
4,962 Barclays PLC 85,063
BROADCASTING & PUBLISHING -- 1.3%
21,000 Mirror Group PLC 77,351
7,600 Pearson 97,002
3,400 Reed International PLC 63,958
Total 238,311
BUILDING MATERIALS & COMPONENTS -- 0.3%
37,000 Rugby Group PLC 59,585
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
UNITED KINGDOM -- CONTINUED
BUSINESS & PUBLIC SERVICES -- 1.1%
7,903 BAA $ 65,531
8,600 Chubb Security 47,958
6,300 Premier Farnell PLC 80,949
Total 194,438
CHEMICALS -- 0.5%
3,623 Boc Group PLC 54,249
2,700 Imperial Chemical Industries PLC 35,594
Total 89,843
CONSTRUCTION & HOUSING -- 0.7%
7,400 Berkeley Group PLC 77,905
6,583 Redland PLC 41,616
Total 119,521
ELECTRICAL & ELECTRONICS -- 0.4%
9,800 General Electric Co. PLC 64,304
ENERGY SOURCES -- 0.4%
6,173 British Petroleum Co. PLC 74,031
FOOD & HOUSEHOLD PRODUCTS -- 1.4%
7,900 Cadbury Schweppes PLC 66,724
7,031 Grand Metropolitan PLC 55,174
5,353 Reckitt & Colman PLC 66,305
6,500 Safeway PLC 44,878
Total 233,081
FOOD PROCESSING -- 0.3%
22,000 Asda Group 46,359
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
UNITED KINGDOM -- CONTINUED
FOREST PRODUCTS & PAPER -- 1.0%
16,923 Bunzl PLC $ 67,698
19,700 David S. Smith (Holdings) PLC 105,301
Total 172,999
HEALTH & PERSONAL CARE -- 1.3%
3,100 Glaxo Wellcome PLC 50,454
4,523 Smithkline Beecham Corp. 62,611
4,000 Zeneca Group 112,729
Total 225,794
INDUSTRIAL COMPONENTS -- 0.4%
10,900 Delta PLC 71,428
INSURANCE -- 1.1%
5,800 General Accident 75,916
16,159 Guardian Royal Exchange 77,099
20,000 Sedgwick Group PLC 44,886
Total 197,901
LEISURE & TOURISM -- 1.3%
8,000 Carlton Communications PLC 70,118
7,000 Compass Group 74,353
15,579 Ladbroke Group PLC 61,921
3,100 Rank Group PLC 23,262
Total 229,654
MACHINERY & ENGINEERING -- 0.4%
4,118 Siebe PLC 76,476
MANUFACTURING -- 0.7%
15,070 Cookson Group 61,189
20,500 FKI PLC 71,295
Total 132,484
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
UNITED KINGDOM -- CONTINUED
MERCHANDISING -- 0.9%
5,100 Boots Co. PLC $ 52,599
4,800 Marks & Spencer PLC 40,459
8,700 Smith, W.H. Group PLC 63,793
Total 156,851
METALS - NON FERROUS -- 0.4%
4,361 RTZ Corp. PLC 70,081
MISCELLANEOUS MATERIALS & COMMODITIES -- 0.8%
17,000 Caradon PLC 69,899
10,000 Morgan Crucible Co. PLC 74,867
Total 144,766
MULTI-INDUSTRY -- 0.2%
8,300 Tomkins PLC 38,393
RECREATION, OTHER CONSUMER GOODS -- 0.4%
3,050 EMI Group PLC 72,096
TELECOMMUNICATIONS -- 1.0%
10,200 British Telecommunication PLC 69,025
18,900 (a)(b)Pace Micro Technology PLC 74,473
9,200 Racal Electronic PLC 40,349
Total 183,847
TRANSPORTATION - ROAD & RAIL -- 0.4%
11,200 Cowie Group PLC 77,711
TRANSPORTATION - SHIPPING -- 0.2%
3,272 Peninsular & Oriental Steam Navigation Co. 33,129
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
UNITED KINGDOM -- CONTINUED
UTILITIES - ELECTRICAL & GAS -- 0.8%
10,210 National Power Co. PLC $ 85,360
5,200 Powergen PLC 50,958
Total 136,318
WHOLESALE & INTERNATIONAL TRADE -- 0.3%
11,000 Inchcape PLC 51,071
TOTAL UNITED KINGDOM 3,403,269
TOTAL COMMON STOCKS (IDENTIFIED COST $15,401,380) 16,502,841
PREFERRED STOCKS -- 2.2%
BRAZIL -- 1.2%
AUTOMOBILE -- 0.1%
2,700 (a)Cofap-Cia Fab Peca, Preference 20,787
BANKING -- 0.1%
50,000 Banco Itau S.A., Preference 21,653
ENERGY SOURCES -- 0.2%
230,000 (a)Petroleo Brasileiro S.A., Preference 36,633
MERCHANDISING -- 0.1%
445,000 Lojas Renner S.A., Preference 20,556
METALS - STEEL -- 0.0%
7,268,000 (a)Usinas Siderurgicas de Minas Gerais, Pfd. 7,413
TELECOMMUNICATIONS -- 0.1%
94,000 (a)Telecomunicacoes de Sao Paulo S.A., Preference 20,354
UTILITIES - ELECTRICAL & GAS -- 0.6%
140,000 Centrais Eletricas Brasileiras, Preference, Series B 52,007
524,000 Companhia Energetica de Minas Gerais, Preference 17,851
228,000 (a)Eletropaulo-Electricidade de Sao Paulo S.A., Preference, Class B 33,681
Total 103,539
TOTAL BRAZIL 230,935
</TABLE>

FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>

SHARES,
FOREIGN
CURRENCY
PAR
AMOUNT OR
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>
PREFERRED STOCKS -- CONTINUED
GERMANY -- 0.4%
FOOD & HOUSEHOLD PRODUCTS -- 0.1%
322 Henkel KGAA, Pfd. $ 16,175
MACHINERY & ENGINEERING -- 0.3%
180 Gea AG, Vorzugsaktien 56,674
TOTAL GERMANY 72,849
JAPAN -- 0.6 %
BANKING -- 0.6%
2 (b)Sakura Finance (Bermuda), Conv. Pfd., Series 144A 106,398
TOTAL JAPAN 106,398
TOTAL PREFERRED STOCKS (IDENTIFIED COST $386,693) 410,182
CORPORATE BONDS -- 0.1%
JAPAN -- 0.1%
BANKING -- 0.1%
2,000,000 (b)Sumitomo Bank Ltd., Osaka, Conv. Bond, .75%, 5/31/2001
(IDENTIFIED COST $18,360) 18,284
(C)REPURCHASE AGREEMENT -- 4.4%
$ 775,000 BT Securities Corporation, 6.90%, dated 12/31/1996, due 1/2/1997
(AT AMORTIZED COST) 775,000
TOTAL INVESTMENTS (IDENTIFIED COST $16,581,433)(D) $17,706,307
</TABLE>

(a) Non-income producing security.

(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Security laws. At December 31, 1996, these securities amounted
to $730,055 which represents 4.1% of net assets.

(d) The cost of investments for federal tax purposes amounts to $16,592,552.
The net unrealized appreciation of investments on a federal tax basis
amounts to $1,113,755 which is comprised of $1,609,725 appreciation and
$495,970 depreciation at December 31, 1996.

Note: The categories of investments are shown as a percentage of net assets
($17,751,716) at December 31, 1996.

The following acronym(s) are used throughout this portfolio:

ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
PLC -- Public Limited Company
RDC -- Russian Depositary Certificates

(See Notes which are an integral part of the Financial Statements)

FEDERATED INTERNATIONAL EQUITY FUND II
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost $16,581,433,
and tax cost $16,592,552) $ 17,706,307
Cash 2,631
Cash denominated in foreign currencies (at cost $2,152) 2,170
Income receivable 25,451
Receivable for investments sold 60,470
Receivable for shares sold 45,803
Total assets 17,842,832
LIABILITIES:
Payable for investments purchased $ 56,427
Payable for shares redeemed 1,226
Net payable for foreign currency exchange contracts purchased 149
Payable for taxes withheld 2,742
Accrued expenses 30,572
Total liabilities 91,116
Net Assets for 1,590,287 shares outstanding $ 17,751,716
NET ASSETS CONSIST OF:
Paid in capital $ 16,785,472
Net unrealized appreciation of investments and translation of assets
and liabilities in foreign currency 1,124,568
Accumulated net realized loss on investments and foreign currency transactions (181,293)
Undistributed net investment income 22,969
Total Net Assets $ 17,751,716
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$17,751,716 / 1,590,287 shares outstanding $11.16
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED INTERNATIONAL EQUITY FUND II
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $25,197) $ 167,834
Interest (net of foreign taxes withheld of $25) 60,920
Total income 228,754
EXPENSES:
Investment advisory fee $ 106,851
Administrative personnel and services fee 125,000
Custodian fees 88,527
Transfer and dividend disbursing agent fees and expenses 10,547
Directors'/Trustees' fees 1,614
Auditing fees 10,000
Legal fees 10,700
Portfolio accounting fees 56,406
Share registration costs 5,795
Printing and postage 33,484
Insurance premiums 2,639
Miscellaneous 8,278
Total expenses 459,841
Waivers and reimbursements --
Waiver of investment advisory fee $ (106,851)
Reimbursement of other operating expenses (218,956)
Total waivers and reimbursements (325,807)
Net expenses 134,034
Net investment income 94,720
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized loss on investments and foreign currency transactions (231,600)
Net change in unrealized appreciation of investments and translation of assets and
liabilities in foreign currency 1,010,299
Net realized and unrealized gain on investments and foreign currency 778,699
Change in net assets resulting from operations $ 873,419
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED INTERNATIONAL EQUITY FUND II
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>

YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1996 1995 *
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 94,720 $ 20,303
Net realized gain (loss) on investments and foreign currency
transactions ($155,662 net loss, and $17,096 net loss, respectively,
as computed for federal tax purposes) (231,600) (10,299)
Net change in unrealized appreciation (depreciation) of investments
and translation of assets and liabilities in foreign currency 1,010,299 114,269
Change in net assets resulting from operations 873,419 124,273
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (31,449) --
SHARE TRANSACTIONS --
Proceeds from sale of shares 12,772,774 4,707,043
Net asset value of shares issued to shareholders in payment of
distributions declared 31,448 --
Cost of shares redeemed (654,035) (71,757)
Change in net assets resulting from share transactions 12,150,187 4,635,286
Change in net assets 12,992,157 4,759,559
NET ASSETS:
Beginning of period 4,759,559 --
End of period (including undistributed net investment income of
$22,969 and $31,397, respectively) $ 17,751,716 $ 4,759,559
</TABLE>

*For the period from May 5, 1995 (date of initial public investment) to
December 31, 1995.

(See Notes which are an integral part of the Financial Statements)

FEDERATED INTERNATIONAL EQUITY FUND II
FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>

YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1996 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.35 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.11** 0.07
Net realized and unrealized gain (loss) on investments
and foreign currency 0.75 0.28
Total from investment operations 0.86 0.35
LESS DISTRIBUTIONS
Distributions from net investment income (0.05) --
NET ASSET VALUE, END OF PERIOD $11.16 $10.35
TOTAL RETURN(B) 8.32% 3.50%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.25% 1.22%*
Net investment income 0.89% 1.63%*
Expense waiver/reimbursement(c) 3.05% 11.42%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $17,752 $4,760
Average commission rate paid(d) $0.0030 --
Portfolio turnover 103% 34%
</TABLE>

* Computed on an annualized basis.

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

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

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

(d) Represents total commissions paid on portfolio securities divided by
total portfolio shares purchased or sold on which commissions were charged.

(See Notes which are an integral part of the Financial Statements)

FEDERATED INTERNATIONAL EQUITY FUND II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. ORGANIZATION

Federated Insurance Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of eight portfolios. The financial
statements included herein are only those of Federated International Equity
Fund II (the "Fund"), a diversified portfolio. The financial statements of
the other portfolios are presented separately. The assets of each portfolio
are segregated and a shareholder's interest is limited to the portfolio in
which shares are held. The investment objective of the Fund is to obtain a
total return on its assets.

Effective April 15, 1996, the Board of Trustees ("Trustees") changed the
name of the Trust from Insurance Management Series to Federated Insurance
Series and the name of the Fund from International Stock Fund to Federated
International Equity Fund II.

2. SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS -- Market values of the Fund's foreign and domestic
equity securities are determined according to the last reported sale price
on a recognized securities exchange, if available. If unavailable, or if the
securities trade over the counter, the securities are generally valued at
the last reported bid price. Short-term foreign and domestic securities are
valued at the prices provided by an independent pricing service. However,
short-term foreign and domestic securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value.

Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions and passive foreign investment companies. The
following reclassifications have been made to the financial statements.
<TABLE>
<CAPTION>

ACCUMULATED NET UNDISTRIBUTED NET
PAID-IN CAPITAL REALIZED GAIN/LOSS INVESTMENT INCOME
<C> <C> <C>
$2,651 $69,048 $(71,699)
</TABLE>

Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.

FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. However, federal taxes may be
imposed on the Fund upon the disposition of certain investments in passive
foreign investment companies.

Withholding taxes on foreign interest and dividends have been provided for
in accordance with the Fund's understanding of the applicable country's tax
rules and rates.

At December 31, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $172,758, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of distributions to
shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:
<TABLE>
<CAPTION>

EXPIRATION DATE AMOUNT
<C> <C>
2003 $ 17,096
2004 155,662
</TABLE>

FOREIGN EXCHANGE CONTRACTS -- The Fund may enter into foreign currency
commitments for the delayed delivery of securities or foreign currency
exchange transactions. Purchased contracts are used to acquire exposure to
foreign currencies; whereas, contracts to sell are used to hedge the Fund's
securities against currency fluctuations. Risks may arise upon entering
these transactions from the potential inability of counterparties to meet
the terms of their commitments and from unanticipated movements in security
prices or foreign exchange rates. The foreign currency transactions are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded for financial statement purposes as unrealized until
the settlement date.

At December 31, 1996, the Fund had outstanding foreign currency commitments
as set forth below:
<TABLE>
<CAPTION>

UNREALIZED
SETTLEMENT CONTRACTS TO IN EXCHANGE CONTRACTS APPRECIATION
SALES DATE DELIVER / RECEIVE FOR AT VALUE (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
Indonesian Rupiah 1/06/97 23,558,925 $ 9,961 $ 9,974 $ (13)
Japanese Yen 1/06/97 2,925,235 25,174 25,259 (85)
Japanese Yen 1/07/97 2,865,637 24,661 24,744 (83)
59,796 59,977 (181)
<CAPTION>

PURCHASES
Malaysian Ringgit 1/02/97 134,302 53,146 53,178 32
Net Unrealized Appreciation (Depreciation) on Foreign Exchange Contracts $ (149)
</TABLE>

RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the
issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria established by the Directors. The Fund will not incur any
registration costs upon such resales.

Additional information on each restricted security held at December 31, 1996
is as follows:
<TABLE>
<CAPTION>

ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
Acer, Inc., ADR 7/19/96 $ 14,675
Bombay Suburban Electric Suppy, GDR 2/29/96 20,160
Cheung Kong Infrastructure 7/11/96 - 8/22/96 39,400
Chilectra S.A., ADR 2/28/96 5,428
Commonwealth Installment Receipt Trustee Ltd. 7/15/96 30,301
Crompton Greaves Ltd., GDR 7/1/96 - 7/2/96 30,611
Grupo Financiero Bancomer, S.A. de C.V., ADR 11/6/95 - 1/29/96 13,303
Hindalco Industries, Ltd., GDR 1/22/96 15,125
Irkutskenergo, RDC 10/10/96 67,200
Japan Tobacco, Inc. 6/17/96 - 11/12/96 150,698
Larsen & Toubro Ltd., GDR 6/5/96 29,850
Mahindra and Mahindra, GDR 1/22/96 - 2/2/96 13,500
Pace Micro Technology, PLC 6/20/96 50,174
Sakura Finance (Bermuda) Conv. Pfd. 9/12/96 108,794
Shanghai Industrial Holdings Ltd. 5/23/96 18,064
Sumitomo Bank Ltd., Osaka, Conv. Bond 6/6/96 18,360
</TABLE>

OTHER -- Investment transactions are accounted for on the trade date.

3. SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>

YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1996 1995(A)
<S> <C> <C>
Shares sold 1,188,525 466,748
Shares issued to shareholders in payment of distributions declared 3,009 --
Shares redeemed (60,899) (7,096)
Net change resulting from share transactions 1,130,635 459,652
</TABLE>

(a) For the Period from May 5, 1995 (date of initial public investment) to
December 31, 1995.

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE -- Federated Global Research Corp., the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 1.00% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive any portion of its fee
and/or reimburse certain operating expenses of the Fund. The Adviser can
modify or terminate this voluntary waiver and/or reimbursement at any time
at its sole discretion.

PORTFOLIO ACCOUNTING FEES -- FServ maintains the Trust's accounting records
for which it receives a fee. The fee is based on the level of the Trust's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational expenses of $15,465 were borne
initially by the Adviser. The Fund has agreed to reimburse the Adviser for
the organizational expenses during the five-year period following the
effective date. For the period ended December 31, 1996, the Fund paid $1,804
pursuant to this agreement.

GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.

5. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 21,183,704
SALES $ 9,050,967
</TABLE>

6. CONCENTRATION OF CREDIT RISK

INDEPENDENT AUDITORS' REPORT

To the Board of Trustees of the Federated Insurance Series
and the Shareholders of FEDERATED INTERNATIONAL EQUITY FUND II:

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated International Equity
Fund II (a portfolio of the Federated Insurance Series) as of December 31,
1996, the related statement of operations for the year then ended, the
statement of changes in net assets for the year ended December 31, 1996 and
for the period from May 5, 1995 to December 31, 1995, and the financial
highlights for the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated
International Equity Fund II as of December 31, 1996, the results of its
operations, the changes in its net assets and its financial highlights for
the respective stated periods in conformity with generally accepted
accounting principles.

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
February 7, 1997

TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts

OFFICERS
John F. Donahue
Chairman
J. Christopher Donahue
President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
S. Elliott Cohan
Assistant Secretary

This report is authorized for distribution to prospective investors only
when preceded or accompanied by the fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses, and other
information.

FEDERATED INTERNATIONAL EQUITY
FUND II

ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1996
FEDERATED INSURANCE SERIES

[Graphic]

Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779

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

Cusip 313916603
G01077-01 (2/97)

[Graphic]

PRESIDENT'S MESSAGE

Dear Shareholder:

I am pleased to present the Annual Report to Shareholders for Federated
Growth Strategies Fund II, a portfolio of Federated Insurance Series.

The fund is managed to pursue long-term growth through a highly diversified
portfolio of mid- and large-capitalization stocks selected for their strong
price and earnings momentum. The fund's portfolio includes common stocks
representing 12 key business and industrial sectors. Many holdings are
familiar names that you will recognize immediately.

In what was yet another strong year for stocks, this diversified portfolio
produced an excellent total return of 24.32%, primarily through a
significant increase in net asset value.* During the period, fund assets
soared from less $0.5 million to reach nearly $17 million.

Thank you for joining other shareholders in the long-term growth
opportunities of American companies through Federated Growth Strategies Fund
II. We trust you were pleased with the positive performance of your
investment. As always, we welcome your comments and suggestions.

Sincerely,

/s/ J. Christopher Donahue

J. Christopher Donahue
President
February 15, 1997

* Performance quoted reflects past performance and is not indicative of
future results. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Performance information does not reflect the charges and
expenses of a variable annuity or variable life insurance contract.

FEDERATED GROWTH STRATEGIES FUND II

MANAGEMENT DISCUSSION AND ANALYSIS

The fourth quarter of 1996 had many great anecdotes and quotes (not the
least of which was made by the Federal Reserve Board Chairman, Alan
Greenspan), but we believe the quarter can be accurately summarized in four
points:

* bond yields declined, though modestly and not in a straight line, with the
30-year Treasury moving from almost 6-7/8% to 6-5/8%;

* big stocks (as measured by Standard & Poor's 500 Index ("S&P 500")* did
well, up 8.3%, and outperformed smaller stocks (Standard & Poor's 600
SmallCap Index* returned 5.7%, NASDAQ Over-the-Counter Composite Index**
rose 5.2%), but all finished the year up around 22% and within 1.8% of each
other;

* market breadth narrowed considerably, with Nifty-Fifty talk renewed, as
positive earnings releases were concentrated within the larger capitalized
stocks; and

* the quarter ended with a good deal of confusion with regard to the
strength of the economy, with both stocks and bonds retracing part of the
quarter's gains.

Stocks from certain sectors that did well the first three quarters of 1996
continued to outperform in the fourth, namely, those in Industrial Services
and Electronic Technology (lead by General Electric and Intel,
respectively). Energy and Finance stocks also had a strong quarter, guided
by energy service companies and banks. Retail stocks had a notable reversal
as the group, with strong performance through the end of September, was
flat-to-down in the last quarter of 1996.

We continue to expect that the market will be disappointed with the rate of
growth generated by the economy over the next several quarters. As this
happens, money should flow into stocks that are less sensitive to the
strength of the economy. Consequently, we continue to favor sectors that
offer the potential for strong secular growth, namely Technology, Finance,
and Health Care. We are also underweighted in economically sensitive sectors
such as Producer Manufacturing, Retail, Transportation, and Utilities.

COMMENTS REGARDING SELECTED HOLDINGS OR PURCHASES

CINCINNATI BELL -- Half-local phone company and half-billing/marketing
company, there should be strong growth from the non-phone side as national
wireless companies have contracted to outsource their billing and marketing
services through Cincinnati Bell.

CALENERGY -- A major independent power producer, CalEnergy owns and operates
geothermal and fossil fuel plants around the world and should be a major
beneficiary of demand for energy from developing countries.

HARMAN INTERNATIONAL -- One of the leading high-end loudspeaker
manufacturers in the world, Harman is enjoying a secular shift to higher
quality sound systems within cars, homes, theaters and PC systems.

MASTECH -- A fast growing, project-oriented computer programming firm,
Mastech should experience strong demand for its services as companies seek
assistance in systems integration and the development of application
software.

CONSECO -- A leading consolidator of the U.S. insurance industry, Conseco
should benefit from the strength of its product offerings of annuities and
supplemental insurance to the growing "senior" market.

* Standard & Poor's 600 SmallCap Index and Standard & Poor's 500 Stock Index
are unmanaged composite indices of common stocks in industrial,
transportation, and financial and public utility companies, and can be used
to compare the total returns of funds whose portfolios are invested
primarily in common stocks. Investments cannot be made in an index.

** NASDAQ Over-the-Counter Composite Index is an unmanaged index covering
4,500 stocks traded over-the-counter. It represents many small company
stocks but is heavily influenced by about 100 of the largest NASDAQ stocks.
Investments cannot be made in an index.

FEDERATED GROWTH STRATEGIES FUND II

GROWTH OF $10,000 INVESTED IN THE FEDERATED GROWTH STRATEGIES FUND II

The graph below illustrates the hypothetical investment of $10,000 in the
Federated Growth Strategies Fund II (the "Fund") from November 9, 1995
(start of performance) to December 31, 1996, compared to the Standard &
Poor's 500 Stock Index ("S&P 500")+ and the Lipper Growth Fund Index
(LGFI).++

GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX A

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1996
1 Year 24.32%
Start of Performance (11/9/95) 24.04%

* The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 and the LGFI have been adjusted to reflect
reinvestment of dividends on securities in the indices.

+ The S&P 500 is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. The
index is unmanaged.

++ The LGFI is not adjusted to reflect any sales charges. However, these
total returns are reported net of expenses or other fees that the SEC
requires to be reflected in a fund's performance. The index is unmanaged.

FEDERATED GROWTH STRATEGIES FUND II
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>

SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 91.3%
BASIC INDUSTRY -- 4.8%
3,300 Caraustar Industries, Inc. $ 109,725
4,300 Monsanto Co. 167,163
3,000 Potash Corporation of Saskatchewan, Inc. 255,000
1,400 Praxair, Inc. 64,575
7,000 (a)Royal Plastics Group Ltd. 130,375
4,500 (a)Steel Dynamics, Inc. 86,063
Total 812,901
CONSUMER DURABLES -- 3.7%
4,700 Callaway Golf Co. 135,125
2,300 Carlisle Cos., Inc. 139,150
1,900 Harley Davidson, Inc. 89,300
3,100 Harman International Industries, Inc. 172,437
3,300 K2, Inc. 90,750
Total 626,762
CONSUMER NON-DURABLES -- 6.8%
2,000 (a)Applied Analytical Industries Inc. 38,250
1,500 Avon Products, Inc. 85,687
400 CPC International, Inc. 31,000
1,900 Campbell Soup Co. 152,475
2,800 Coca-Cola Co. 147,350
1,400 Kimberly-Clark Corp. 133,350
400 (a)Mossimo, Inc. 4,950
3,400 Nike, Inc., Class B 203,150
1,800 Philip Morris Cos., Inc. 202,725
3,400 (a)Tommy Hilfiger Corp. 163,200
Total 1,162,137
</TABLE>

FEDERATED GROWTH STRATEGIES FUND II
<TABLE>
<CAPTION>

SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
ENERGY MINERALS -- 8.0%
2,600 (a)BJ Services Co. $ 132,600
6,300 (a)Benton Oil & Gas Co. 142,537
1,004 British Petroleum Co. PLC, ADR 141,872
2,400 (a)Global Marine, Inc. 49,500
5,500 (a)Oryx Energy Co. 136,125
3,700 (a)Petroleum Geo-Services, ADR 144,300
3,400 (a)Reading & Bates Corp. 90,100
5,200 (a)Rowan Companies, Inc. 117,650
2,500 Unocal Corp. 101,563
1,600 (a)Western Atlas, Inc. 113,400
7,400 YPF Sociedad Anonima, ADR 186,850
Total 1,356,497
FINANCE -- 16.9%
3,550 Aflac, Inc. 151,762
3,800 Bank of New York Co., Inc. 128,250
2,400 Charter One Financial, Inc. 100,800
2,000 Citicorp 206,000
2,600 Conseco, Inc. 165,750
700 Federal Home Loan Mortgage Corp. 77,087
3,400 Federal National Mortgage Association 126,650
1,000 First USA, Inc. 34,625
3,200 Greenpoint Financial Corp. 151,200
5,550 MBNA Corp. 230,325
2,200 Mellon Bank Corp. 156,200
2,000 Morgan Stanley Group, Inc. 114,250
1,800 NationsBank Corp. 175,950
5,700 Charles Schwab Corp. 182,400
7,200 SunAmerica, Inc. 319,500
4,100 TCF Financial Corp. 178,350
</TABLE>

FEDERATED GROWTH STRATEGIES FUND II
<TABLE>
<CAPTION>

SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
FINANCE -- CONTINUED
4,666 Travelers Group, Inc. $ 211,720
600 Wells Fargo & Co. 161,850
Total 2,872,669
HEALTH CARE -- 12.8%
3,600 (a)Acuson Corp. 87,750
2,200 American Home Products Corp. 128,975
2,300 (a)Amgen, Inc. 125,062
3,400 (a)Centocor, Inc. 121,550
2,900 (a)Geltex Pharmaceuticals, Inc. 70,325
2,800 (a)Genzyme Corp. 60,900
1,400 Guidant Corp. 79,800
1,800 HBO & Co. 106,875
3,400 (a)HCIA, Inc. 117,300
1,300 (a)HEALTHSOUTH Rehabilitation 50,213
2,300 Johnson & Johnson 114,425
1,700 Eli Lilly & Co. 124,100
2,300 Merck & Co., Inc. 182,275
6,200 (a)Ornda Healthcorp 181,350
1,100 (a)PacifiCare Health Systems, Inc., Class B 93,775
2,400 Pfizer, Inc. 198,900
800 (a)Quintiles Transnational Corp. 53,000
3,000 Teva Pharmaceutical Industries, Ltd., ADR 150,750
1,700 Warner-Lambert Co. 127,500
Total 2,174,825
PRODUCER MANUFACTURING -- 5.2%
6,200 (a)Cable Design Technologies, Class A 192,975
2,600 Danka Business Systems, PLC, ADR 91,975
1,200 General Electric Co. 118,650
1,800 Greenfield Industries, Inc. 55,125
</TABLE>

FEDERATED GROWTH STRATEGIES FUND II
<TABLE>
<CAPTION>

SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
PRODUCER MANUFACTURING -- CONTINUED
2,000 (a)Thermo Electron Corp. $ 82,500
2,500 Tyco International, Ltd. 132,188
3,200 (a)U.S. Filter Corp. 101,600
3,200 (a)U.S. Office Products Co. 109,200
Total 884,213
RETAIL TRADE -- 3.7%
5,100 (a)General Nutrition Cos., Inc. 86,062
1,400 (a)Kohl's Corp. 54,950
4,500 (a)MSC Industrial Direct Co. 166,500
5,400 (a)Safeway, Inc. 230,850
1,500 (a)Vons Companies, Inc. 89,813
Total 628,175
SERVICES -- 3.8%
4,500 (a)CalEnergy Co., Inc. 151,312
2,300 (a)HFS, Inc. 137,425
200 (a)International Network Services 6,038
2,400 (a)PanAmSat Corp. 67,200
6,000 Reynolds & Reynolds Co., Class A 156,000
4,000 (a)USA Waste Services, Inc. 127,500
Total 645,475
TECHNOLOGY -- 19.3%
1,900 (a)3Com Corp. 139,413
3,300 (a)ADC Telecommunications, Inc. 102,712
1,600 (a)Adtran, Inc. 66,400
1,000 Altera Corp. 72,687
2,400 (a)Analog Devices, Inc. 81,300
4,800 (a)BA Merchant Services, Inc., Class A 85,800
2,000 (a)Cadence Design Systems, Inc. 79,500
3,200 (a)Ceridian Corp. 129,600
</TABLE>

FEDERATED GROWTH STRATEGIES FUND II
<TABLE>
<CAPTION>

SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
TECHNOLOGY -- CONTINUED
2,200 (a)Cisco Systems, Inc. $ 139,975
4,300 (a)Cognex Corp. 79,550
1,000 (a)Compaq Computer Corp. 74,250
3,100 (a)DST Systems, Inc. 97,262
3,600 (a)Dupont Photomasks, Inc. 163,350
2,200 Electronic Data Systems Corp. 95,150
2,900 Ericsson LM, Class B 87,544
1,400 (a)FORE Systems, Inc. 46,025
1,400 First Data Corp. 51,100
1,700 (a)HNC Software 53,125
4,700 (a)Ingram Micro, Inc., Class A 108,100
2,000 Intel Corp. 261,875
2,800 (a)LSI Logic Corp. 74,900
2,400 Lucent Technologies, Inc. 111,000
5,000 (a)Mastech Corp. 95,000
2,200 (a)Microsoft Corp. 181,775
2,700 (a)Oracle Corp. 112,725
3,100 (a)Ortel Corp. 74,400
2,100 (a)SCI Systems, Inc. 93,713
2,600 (a)Solectron Corp. 138,775
8,950 (a)StorMedia, Inc. 144,319
1,000 (a)U.S. Robotics Corp. 72,000
2,000 Wyle Labs 79,000
2,100 (a)Xilinx, Inc. 77,306
Total 3,269,631
TRANSPORTATION -- 0.3%
2,200 Comair Holdings, Inc. 52,800
</TABLE>

FEDERATED GROWTH STRATEGIES FUND II
<TABLE>
<CAPTION>

SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
UTILITIES -- 6.0%
5,000 CMS Energy Corp. $ 168,125
2,800 Cincinnati Bell, Inc. 172,550
400 FPL Group, Inc. 18,400
2,700 Pinnacle West Capital Corp. 85,725
3,500 Sonat, Inc. 180,250
4,100 (a)Trescomm International, Inc. 32,800
5,850 The Williams Cos., Inc. 219,375
5,600 (a)WorldCom, Inc. 145,950
Total 1,023,175
TOTAL COMMON STOCKS (IDENTIFIED COST $14,020,185) 15,509,260
PREFERRED STOCKS -- 1.5%
FINANCE -- 1.0%
2,900 First USA, Inc., Cumulative PRIDES, $1.99 171,100
TRANSPORTATION -- 0.5%
1,200 Continental Airlines, Inc., Conv. Pfd., $4.25 80,250
TOTAL PREFERRED STOCKS (IDENTIFIED COST $220,888) 251,350
(b)REPURCHASE AGREEMENT -- 8.0%
1,355,000 BT Securities Corporation, 6.90%, dated 12/31/1996, due 1/2/1997
(AT AMORTIZED COST) 1,355,000
TOTAL INVESTMENTS (IDENTIFIED COST $15,596,073)(c) $ 17,115,610
</TABLE>

(a) Non-income producing security.

(c) The cost of investments for federal tax purposes amounts to $15,604,345.
The net unrealized appreciation of investments on a federal tax basis
amounts to $1,511,265 which is comprised of $1,695,675 appreciation and
$184,410 depreciation at December 31, 1996.

Note: The categories of investments are shown as a percentage of net assets
($16,984,849) at December 31, 1996.

The following acronyms are used throughout this portfolio:

ADR -- American Depositary Receipt
PLC -- Public Limited Company
PRIDES -- Preferred Redeemable Increased Dividend Equity Securities

(See Notes which are an integral part of the Financial Statements)

FEDERATED GROWTH STRATEGIES FUND II
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost $15,596,073 and
tax cost $15,604,345) $ 17,115,610
Cash 3,239
Income receivable 8,431
Receivable for investments sold 34,806
Receivable for shares sold 8,382
Total assets 17,170,468
LIABILITIES:
Payable for investments purchased $ 160,004
Payable for taxes withheld 191
Accrued expenses 25,424
Total liabilities 185,619
Net Assets for 1,326,805 shares outstanding $ 16,984,849
NET ASSETS CONSIST OF:
Paid in capital $ 15,326,540
Net unrealized appreciation of investments 1,519,537
Accumulated net realized gain on investments 101,412
Undistributed net investment income 37,360
Total Net Assets $ 16,984,849
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$16,984,849 / 1,326,805 shares outstanding $12.80
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED GROWTH STRATEGIES FUND II
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 62,159
Interest 33,509
Total income 95,668
EXPENSES:
Investment advisory fee $ 51,083
Administrative personnel and services fee 125,000
Custodian fees 47,198
Transfer and dividend disbursing agent fees and expenses 16,032
Directors'/Trustees' fees 835
Auditing fees 8,000
Legal fees 1,593
Portfolio accounting fees 45,865
Share registration costs 4,941
Printing and postage 16,611
Insurance premiums 3,801
Miscellaneous 583
Total expenses 321,542
Waivers and reimbursements --
Waiver of investment advisory fee $ (51,083)
Reimbursement of other operating expenses (212,264)
Total waivers and reimbursements (263,347)
Net expenses 58,195
Net investment income 37,473
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 101,778
Net change in unrealized appreciation of investments 1,511,965
Net realized and unrealized gain on investments 1,613,743
Change in net assets resulting from operations $ 1,651,216
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED GROWTH STRATEGIES FUND II
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>

YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1996 1995 (a)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 37,473 $ 589
Net realized gain (loss) on investments ($110,051 net gain and
$368 net loss, respectively, as computed for federal tax purposes) 101,778 (368)
Net change in unrealized appreciation of investments 1,511,965 7,572
Change in net assets resulting from operations 1,651,216 7,793
NET EQUALIZATION CREDITS (DEBITS) -- 72,517 506
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (700) --
SHARE TRANSACTIONS (EXCLUSIVE OF AMOUNTS ALLOCATED TO NET
INVESTMENT INCOME) --
Proceeds from sale of shares 15,118,252 365,048
Net asset value of shares issued to shareholders in payment of
distributions declared 698 --
Cost of shares redeemed (224,666) (5,815)
Change in net assets resulting from share transactions 14,894,284 359,233
Change in net assets 16,617,317 367,532
NET ASSETS:
Beginning of period 367,532 --
End of period (including undistributed net investment income of
$37,360 and $1,095, respectively) $ 16,984,849 $ 367,532
</TABLE>

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

(See Notes which are an integral part of the Financial Statements)

FEDERATED GROWTH STRATEGIES FUND II
FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>

YEAR ENDED
DECEMBER 31,
1996 1995(a)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.30 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.03
Net realized and unrealized gain on investments 2.45 0.27
Total from investment operations 2.50 0.30
LESS DISTRIBUTIONS
Distributions from net investment income (0.004) --
NET ASSET VALUE, END OF PERIOD $12.80 $10.30
TOTAL RETURN(b) 24.32% 3.00%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.85% 0.85%*
Net investment income 0.55% 1.91%*
Expense waiver/reimbursement(c) 3.87% 76.95%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $16,985 $368
Average commission rate paid(d) $0.0376 --
Portfolio turnover 96% 4%
</TABLE>

* Computed on an annualized basis.

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

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

(d) Represents total commissions paid on portfolio securities divided by
total portfolio shares purchased or sold on which a commission were charged.
This disclosure is required for fiscal years beginning on or after September
1, 1996.

(See Notes which are an integral part of the Financial Statements)

FEDERATED GROWTH STRATEGIES FUND II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. ORGANIZATION

The investment objective of the Fund is capital appreciation.

Effective April 15, 1996, the Board of Trustees ("Trustees") changed the
name of the Trust from Insurance Management Series to Federated Insurance
Series and the name of the Fund from Growth Stock Fund to Federated Growth
Strategies Fund II.

2. SIGNIFICANT ACCOUNTING POLICIES

The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Trustees . Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.

Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
accumulated equalization and foreign currency transactions. The following
reclassifications have been made to the financial statements.
<TABLE>
<CAPTION>

INCREASE (DECREASE)
<CAPTION>
ACCUMULATED
NET REALIZED UNDISTRIBUTED NET
PAID-IN CAPITAL GAIN/LOSS INVESTMENT INCOME
<C> <C> <C>
$73,023 $2 $(73,025)
</TABLE>

Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.

EQUALIZATION -- The Fund follows the accounting practice known as
equalization. With equalization, a portion of the proceeds from sales and
costs of redemptions of fund shares (equivalent, on a per share basis, to
the amount of undistributed net investment income on the date of the
transaction) is credited or charged to undistributed net investment income.
As a result, undistributed net investment income per share is unaffected by
sales or redemptions of fund shares.

OTHER -- Investment transactions are accounted for on the trade date.

3. SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value).

Transactions in shares were as follows:
<TABLE>
<CAPTION>

YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1996 1995 (a)
<S> <C> <C>
Shares sold 1,310,281 36,267
Shares issued to shareholders in payment of distributions declared 64 --
Shares redeemed (19,226) (581)
Net change resulting from share transactions 1,291,119 35,686
</TABLE>

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

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.75% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee and/or reimburse certain
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and/or reimbursement at any time at its sole discretion.

GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.

5. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 20,084,833
SALES $ 6,274,674
</TABLE>

INDEPENDENT AUDITORS' REPORT

To the Board of Trustees of the Federated Insurance Series
and the Shareholders of FEDERATED GROWTH STRATEGIES FUND II:

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated Growth Strategies Fund
II (a portfolio of the Federated Insurance Series) as of December 31, 1996,
and the related statement of operations for the year then ended, the
statement of changes in net assets for the years ended December 31, 1996 and
the period from November 9, 1995 to December 31, 1995, and the financial
highlights for the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Growth
Strategies Fund II as of December 31, 1996, the results of its operations,
the changes in its net assets and its financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
February 7, 1997

TRUSTEES

FEDERATED GROWTH STRATEGIES FUND II

ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1996

FEDERATED INSURANCE SERIES

[Graphic]

Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779

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

[Graphic]

Cusip 313916702
G00433-07 (2/97)

FEDERATED INSURANCE SERIES

A. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Federated American Leaders Fund II (the `Fund'') is represented by a solid
line. The Standard & Poor's 500 Index (the `S&P 500'') is represented by
a dotted line and the Lipper Growth and Income Funds Average (the
`LGIFA'') is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Fund, the S&P 500 and the LGIFA. The `x'' axis reflects
computation periods from 2/10/94 to 12/31/96. The `y'' axis reflects the
cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the fund as compared to the S&P 500 and the
LGIFA. The ending values were $16,143, $16,998, and $15,445, respectively.
The legend in the bottom quadrant of the graphic presentation indicates the
fund's Average Annual Total Returns for the one-year period ended 12/31/96
and from the fund's start of performance (2/10/94) to 12/31/96. The total
returns were 21.58% and 18.03%, respectively.

B. The graphic presentation here displayed consists of a line graph
titled `Growth of $10,000 Invested in the Federated Utility Fund II (the
`Fund''). The corresponding components of the line graph are listed
underneath. The Fund is represented by a solid line. The Standard & Poor's
Utility Index is represented by a broken line. The Standard & Poor's 500
Index is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a hypothetical $10,000
purchase in the Fund, Standard & Poor's Utility Index and Standard & Poor's
500 Index. The "y" axis reflects the cost of the investment. The "x" axis
reflects computation periods from the Fund's start of performance, 2/10/94
through 12/31/96. The right margin reflects the ending value of the
hypothetical investment in the Fund as compared to the Standard & Poor's
Utility Index and Standard & Poor's 500 Index; the ending values are
$13,389, 13,930 and $16,998, respectively.

C. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath. The
Federated Fund for U.S. Government Securities II (the `Fund'') is
represented by a solid line. The Lehman Brothers 5-Year Treasury
Bellwether Index (the `LB5TB'') is represented by a dotted line and the
Lipper U.S. Mortgage Funds Average (the `LUSMFA'') is represented by a
broken line. The line graph is a visual representation of a comparison of
change in value of a $10,000 hypothetical investment in the Fund, the LB5TB
and the LUSMFA. The `x'' axis reflects computation periods from 3/28/94
to 12/31/96. The `y'' axis reflects the cost of the investment. The
right margin reflects the ending value of the hypothetical investment in
the fund as compared to the LB5TB and the LUSMFA. The ending values were
$11,631, $11,846, and $11,901, respectively. The legend in the bottom
quadrant of the graphic presentation indicates the fund's Average Annual
Total Returns for the one-year period ended 12/31/96 and from the fund's
start of performance (3/28/94) to 12/31/96. The total returns were 4.20%
and 5.62%, respectively.

D. The graphic presentation here displayed consists of a line graph
titled `Growth of $10,000 Invested in the Federated High Income Bond Fund
II (the `Fund''). The corresponding components of the line graph are
listed underneath. The Fund is represented by a solid line. The Lehman
Brothers Single B Rated Index is represented by a dotted line. The Lipper
High Current Yield Funds Average is represented by a broken line. The line
graph is a visual representation of a comparison of change in value of a
hypothetical $10,000 purchase in the Fund, Lehman Brothers Single B Rated
Index and Lipper High Current Yield Funds Average. The "y" axis reflects
the cost of the investment. The "x" axis reflects computation periods from
the Fund's start of performance, 3/1/94 through 12/31/96. The right margin
reflects the ending value of the hypothetical investment in the Fund as
compared to the Lehman Brothers Single B Rated Index and Lipper High
Current Yield Funds Average; the ending values are $13,264, $12,995 and
$12,451, respectively.

E. The graphic presentation here displayed consists of a line graph
titled `Growth of $10,000 Invested in the Federated International Equity
Fund II (the `Fund''). The corresponding components of the line graph are
listed underneath. The Fund is represented by a solid line. The Morgan
Stanley/Capital International - Europe, Australia, Far-East Index is
represented by a dotted line. The line graph is a visual representation of
a comparison of change in value of a hypothetical $10,000 purchase in the
Fund and Morgan Stanley/Capital International - Europe, Australia, Far-East
Index. The "y" axis reflects the cost of the investment. The "x" axis
reflects computation periods from the Fund's start of performance, 5/8/95
through 12/31/96. The right margin reflects the ending value of the
hypothetical investment in the Fund as compared to the Morgan
Stanley/Capital International - Europe, Australia, Far-East Index; the
ending values are $11,211 and $11,158, respectively.

F. The graphic presentation here displayed consists of a line graph
titled `Growth of $10,000 Invested in the Federated Growth Strategies Fund
II (the `Fund''). The corresponding components of the line graph are
listed underneath. The Fund is represented by a solid line. The Standard &
Poor's 500 Stock Index is represented by a dotted line. The Lipper Growth
Fund Index is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a hypothetical $10,000
purchase in the Fund, Standard & Poor's 500 Stock Index and Lipper Growth
Fund Index. The "y" axis reflects the cost of the investment. The "x" axis
reflects computation periods from the Fund's start of performance, 11/9/95
through 12/31/96. The right margin reflects the ending value of the
hypothetical investment in the Fund as compared to the Standard & Poor's
500 Stock Index and Lipper Growth Fund Index; the ending values are
$12,805, $12,847 and $12,090, respectively.