FEDERATED INSURANCE SERIES, N-30D, 1999-02-26

FEDERATED INSURANCE SERIES
N-30D, 1999-02-26

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ANNUAL REPORT

President's Message

Dear Shareholder:

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

This report covers the 12-month fiscal year period from January 1, 1998 through
December 31, 1998. It begins with a commentary by the fund's portfolio manager,
which is followed by a complete listing of the fund's stock holdings and the
financial statements.

As a shareholder, your money has been at work in a diversified portfolio of
leading American corporations. At the end of the reporting period, the fund's 85
stock holdings were diversified across 12 key business and industrial sectors.
Many of the holdings-including Anheuser Busch, AT&T, Boeing, Exxon, General
Motors, IBM, K Mart, Merck, and Wal-Mart-are household names.

In a strong and highly volatile stock market, the fund's portfolio produced a
total return of 17.62%. 1 Contributing to the total return were income of $0.10
per share, capital gains of $1.25 per share, and a 10% increase in net asset
value. The fund's net assets reached $418 million at the end of the reporting
period.

Thank you for choosing Federated American Leaders Fund II as a diversified,
professionally managed way to participate in the long-term growth potential of
leading American companies. We hope 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, 1999

1 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.

Management Discussion and Analysis

The year of 1998 was an extremely difficult year for active value managers. The
Standard & Poor's 500 Index's ("S&P 500") 28.6% 1 return was dominated by a
handful of ultra-large growth oriented Technology, Pharmaceutical and Telephone
companies. The return for the average stock in the S&P 500, as measured by the
equal-weighted S&P 500, was only 12.8%. This nearly 16% disparity between the
average stock and the market itself is something the market has not experienced
in the last 25 years. Small capitalization stocks provided negative returns for
the year. Value stocks, due to cyclical concerns and weak commodity prices,
returned 14.7% as measured by Standard & Poor's ("S&P") Value Index2 and 15.6%
by the Russell 1000 Value Index.3 This is the worst relative performance for S&P
Value versus S&P Growth since the inception of both indicies. In this difficult
environment the fund delivered an annualized total return of 17.62%.4 This
performance compares favorably to our mutual fund peers: the average Lipper
Growth & Income Fund returned 15.61%5 and the average Morningstar Large-Cap
Value Fund returned 12.0%.6 We are obviously not pleased with our relative
performance versus the S&P 500, but given our investment style and market
conditions the returns are not unreasonable. It is worth noting that
historically, after periods of extremely narrow market leadership dominated by a
handful of growth stocks, active value management has provided superior returns.
Of course, past performance is not indicative of future results.

As mentioned above, leading sectors for the year were Technology, Communication
Services, and Health Care. Lagging sectors included Basic Materials,
Transportation, and Energy. Aiding relative performance for the year was
favorable security performances in the Utilities (PECO Energy Co. and Public
Service Enterprises Group, Inc.) and Basic Materials sector, and underweight in
the poor performing Finance sector as well as strong performances by Sun
Microsystems, Inc., Brunswick Corp., Viacom, Inc., Tricon Global Restaurants,
Inc., and Wal-Mart Stores. More than offsetting these positive influences were
underweight positions in the strong performing Technology, Communication
Services, and Health Care sectors as well as unfavorable relative security
performance in the Energy (Occidental Petroleum Corp. and Schlumberger Ltd.),
Consumer Cyclicals (Toys 'R' Us, Inc., and Dillards, Inc.), Capital Goods (Deere
& Co.) and Technology sectors.

1 The Standard & Poor's 500 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.

2 The Standard & Poor's Value Index is an unmanaged index constructed by sorting
the S&P 500 based on their price/book ratios, with the low price/book companies
forming the value index and the high price/book companies making up the growth
index.

3 The Russell 1000 Value Index is an unmanaged index that measures the
performance of those Russell 1000 companies with lower price-to-book ratios and
lower forecasted growth values.

4 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.

5 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the respective categories indicated. Lipper returns do not take sales charges
into account.

6 Morningstar is a privately owned company that tracks the performance
statistics of more than 8,000 U.S. registered mutual funds.

As we enter 1999, the markets are faced with numerous challenges. At a
price-to-earnings ratio nearing 30 times, a price-to-book ratio north of 8 times
and a dividend yield of 1.3%, the S&P 500 is in uncharted valuation territory
for this point in any business cycle. Confidence in the demographically led
"cult of equities" and the nirvana of low inflation seem to be outweighing fears
of a deteriorating profit landscape and continued global political and economic
turmoil. Given the "tulip bulb" like behavior of the Internet stocks and the
market's ability to shake off some of the earnings disappointments provided by
former super-cap global leaders, it appears that speculation has worked its way
into the market. In this type of environment, we believe that our value
disciplines- identifying leading companies which are temporarily out of favor
and appear inexpensive relative to their history relative to the market as well
as to their expected growth-should provide a more reasonable ride as rationality
works its way back into the market.

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

"Graphic representation "A" omitted. See Appendix."

[Graphic]

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1998 1 Year 17.62%
Start of Performance (2/10/94) 20.73%

The graph above illustrates the hypothetical investment of $10,000 1 in the
Federated American Leaders Fund II (the "Fund") from February 10, 1994 (start of
performance) to December 31, 1998, compared to the Standard and Poor's 500 Index
(S&P 500)2 and the Lipper Growth and Income Funds Average (LGIFA).3

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 THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.

1 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.

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

3 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 Securities and
Exchange Commission requires to be reflected in a fund's performance.

Portfolio of Investments

December 31, 1998

<TABLE>

SHARES VALUE
<C> <S> <C>

COMMON STOCKS-98.9%
BASIC MATERIALS-6.5%

412,835 Archer-Daniels-Midland Co. $ 7,095,602
176,600 Barrick Gold Corp. 3,443,700
264,700 Corn Products International, Inc. 8,040,263
32,000 Dow Chemical Co. 2,910,000
127,000 Nucor Corporation 5,492,750
TOTAL 26,982,315
CAPITAL GOODS-11.2%

112,084 AMP, Inc. 5,835,373
42,000 Allied-Signal, Inc. 1,861,125
208,900 Boeing Co. 6,815,363
105,798 Browning-Ferris Industries, Inc. 3,008,631
146,400 Crown Cork & Seal Co., Inc. 4,510,950
119,500 Deere & Co. 3,958,438
72,500 Ingersoll-Rand Co. 3,402,969
63,700 Johnson Controls, Inc. 3,758,300
62,400 Philips Electronics N.V., ADR 4,223,700
162,700 Tenneco, Inc. 5,541,969
84,500 Waste Management, Inc. 3,939,813
TOTAL 46,856,631
COMMUNICATION SERVICES-4.2%

66,000 AT&T Corp. 4,966,500
128,200 GTE Corp. 8,333,000
76,800 SBC Communications, Inc. 4,118,400
TOTAL 17,417,900
CONSUMER CYCLICALS-11.0%

125,400 Brunswick Corp. 3,103,650
114,800 Cooper Tire & Rubber Co. 2,346,225
140,500 Dillards, Inc., Class A 3,986,688
77,600 General Motors Corp. 5,553,250
264,100 1 K Mart Corp. 4,044,031
161,600 Liz Claiborne, Inc. 5,100,500
244,200 News Corp. Ltd., ADR 6,028,688
<CAPTION>

SHARES VALUE
<C> <S> <C>

COMMON STOCKS-continued

CONSUMER CYCLICALS-CONTINUED

169,100 Sherwin-Williams Co. $ 4,967,313
383,400 1 Toys 'R' Us, Inc. 6,469,875
55,400 Wal-Mart Stores, Inc. 4,511,638
TOTAL 46,111,858
CONSUMER STAPLES-15.1%

141,200 American Stores Co. 5,215,575
101,300 Anheuser-Busch Cos., Inc. 6,647,813
184,100 Kimberly-Clark Corp. 10,033,450
148,000 1 King World Productions, Inc. 4,356,750
149,900 Philip Morris Cos., Inc. 8,019,650
218,300 RJR Nabisco Holdings Corp. 6,480,781
89,700 1 Tricon Global Restaurants, Inc. 4,496,213
280,400 UST, Inc. 9,778,950
68,000 1 Viacom, Inc., Class A 5,002,250
44,000 1 Viacom, Inc., Class B 3,256,000
TOTAL 63,287,432
ENERGY-9.3%

141,600 Ashland, Inc. 6,849,900
147,800 Diamond Offshore Drilling, Inc. 3,501,013
49,000 Exxon Corp. 3,583,125
44,500 Mobil Corp. 3,877,063
148,400 Occidental Petroleum Corp. 2,504,250
48,500 Royal Dutch Petroleum Co., ADR 2,321,938
145,300 Schlumberger Ltd. 6,701,963
108,900 Sunoco, Inc. 3,927,206
43,000 Texaco, Inc. 2,273,625
115,900 USX - Marathon Group 3,491,488
TOTAL 39,031,571
FINANCIALS-13.3%

435,000 ABB AB, ADR 4,785,000
99,700 Allstate Corp. 3,850,913
113,600 Bear Stearns Cos., Inc. 4,245,800
81,000 Boston Properties, Inc. 2,470,500
91,500 CIGNA Corp. 7,074,094
<CAPTION>

SHARES VALUE
<C> <S> <C>

COMMON STOCKS-continued

FINANCIALS-CONTINUED

205,200 CIT Group, Inc., Class A $ 6,527,925
256,721 Conseco, Inc. 7,846,036
50,200 Lincoln National Corp. 4,106,988
45,000 MBIA, Inc. 2,950,313
85,500 Marsh & McLennan Cos., Inc. 4,996,406
54,000 Republic New York Corp. 2,460,375
108,400 Washington Mutual, Inc. 4,139,525
TOTAL 55,453,875
HEALTH CARE-7.0%

86,000 Abbott Laboratories 4,214,000
33,000 Bristol-Myers Squibb Co. 4,415,813
27,200 Merck & Co., Inc. 4,017,100
286,500 1 Oxford Health Plans, Inc. 4,261,688
133,300 Pharmacia & Upjohn, Inc. 7,548,113
113,200 United Healthcare Corp. 4,874,675
TOTAL 29,331,389
TECHNOLOGY-11.1%

52,300 Eastman Kodak Co. 3,765,600
161,900 Electronic Data Systems Corp. 8,135,475
210,600 First Data Corp. 6,673,388
29,300 International Business Machines Corp. 5,413,175
66,600 Motorola, Inc. 4,066,763
159,600 1 Seagate Technology, Inc. 4,827,900
168,600 1 Storage Technology Corp. 5,995,838
90,000 1 Sun Microsystems, Inc. 7,706,250
TOTAL 46,584,389
TRANSPORTATION-2.6%

104,000 CNF Transportation, Inc. 3,906,500
68,500 Canadian National Railway Co. 3,553,438
123,200 Ryder Systems, Inc. 3,203,200
TOTAL 10,663,138
UTILITIES-7.6%

88,000 Coastal Corp. 3,074,500
95,400 Consolidated Natural Gas Co. 5,151,600
157,400 Entergy Corp. 4,899,062
<CAPTION>

SHARES OR

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

COMMON STOCKS-continued

UTILITIES-CONTINUED

124,600 Houston Industries, Inc. $ 4,002,775
145,700 P G & E Corp. 4,589,550
148,800 PECO Energy Co. 6,193,800
99,600 Public Service Enterprises Group, Inc. 3,984,000
TOTAL 31,895,287
TOTAL COMMON STOCKS (IDENTIFIED COST $345,805,186) 413,615,785
REPURCHASE AGREEMENT-1.0% 2

$ 4,070,000 Westdeutsche Landesbank Girozentrale, 4.90%, dated
12/31/1998, due 1/4/1999 (AT AMORTIZED COST) 4,070,000
TOTAL INVESTMENTS (IDENTIFIED COST $349,875,186) 3 $ 417,685,785

</TABLE>

1 Non-income producing security.

2 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 joint
accounts with other Federated funds.

3 The cost of investments for federal tax purposes amounts to $350,365,937. The
net unrealized appreciation of investments on a federal tax basis amounts to
$67,319,848, which is comprised of $85,274,877 appreciation and $17,955,029
depreciation at December 31, 1998.

Note: The categories of investments are shown as a percentage of net assets
($418,211,719) at December 31, 1998.

The following acronym is used throughout this portfolio:

ADR -American Depositary Receipt

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

December 31, 1998

<TABLE>

ASSETS:

Total investments in securities, at value (identified cost

$349,875,186 and tax cost $350,365,937) $ 417,685,785
Income receivable 802,309
Receivable for investments sold 281,516
TOTAL ASSETS 418,769,610
LIABILITIES:

Payable for investments purchased $ 369,204
Payable for shares redeemed 151,452
Payable to Bank 4,838
Payable for taxes withheld 3
Payable for portfolio accounting fees 7,115
Accrued expenses 25,279
TOTAL LIABILITIES 557,891
Net Assets for 19,292,682 shares outstanding $ 418,211,719
NET ASSETS CONSIST OF:
Paid in capital $ 307,819,427
Net unrealized appreciation of investments 67,810,599
Accumulated net realized gain on investments 38,684,480
Undistributed net investment income 3,897,213
TOTAL NET ASSETS $ 418,211,719
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER
SHARE:
$418,211,719 / 19,292,682 shares outstanding $21.68

</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended December 31, 1998

<TABLE>

<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $61,639) $ 6,855,026
Interest 265,122
TOTAL INCOME 7,120,148
EXPENSES:

Investment advisory fee $ 2,758,350
Administrative personnel and services fee 277,306
Custodian fees 18,673
Transfer and dividend disbursing agent fees and expenses 22,167
Trustees' fees 3,042
Auditing fees 12,503
Legal fees 3,717
Portfolio accounting fees 79,005
Share registration costs 23,987
Printing and postage 32,942
Insurance premiums 3,322
Miscellaneous 16,566
TOTAL EXPENSES 3,251,580
WAIVER:
Waiver of investment advisory fee (29,986)
Net expenses 3,221,594
Net investment income 3,898,554
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain on investments and foreign currency
transactions 38,726,749
Net change in unrealized appreciation of investments 14,436,779
Net realized and unrealized gain on investments and foreign
currency transactions 53,163,528
Change in net assets resulting from operations $ 57,062,082

</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

<TABLE>

YEAR ENDED DECEMBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS

OPERATIONS:

Net investment income $ 3,898,554 $ 2,628,059
Net realized gain on investments and foreign currency
transactions ($39,177,380 and $20,467,415, respectively, as
computed for federal tax purposes) 38,726,749 20,429,655
Net change in unrealized appreciation on investments 14,436,779 36,461,644
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 57,062,082 59,519,358
DISTRIBUTIONS TO SHAREHOLDERS:

Distributions from net investment income (1,591,758) (1,147,286)
Distributions from net realized gains on investments and
foreign currency transactions (20,469,565) (3,728,320)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS

TO SHAREHOLDERS (22,061,323) (4,875,606)
SHARE TRANSACTIONS:
Proceeds from sale of shares 115,497,228 148,786,787
Net asset value of shares issued to shareholders in payment

of distributions declared 22,060,601 4,876,320
Cost of shares redeemed (60,142,932) (44,727,260)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 77,414,897 108,935,847
Change in net assets 112,415,656 163,579,599
NET ASSETS:

Beginning of period 305,796,063 142,216,464
End of period (including undistributed net investment income
of $3,897,213 and $1,592,091, respectively) $ 418,211,719 $ 305,796,063

</TABLE>

See Notes which are an integral part of the Financial Statements

Financial Highlights

(For a share outstanding throughout each period)

<TABLE>

YEAR ENDED DECEMBER 31 1998 1997 1996 1995 1994 1
<S> <C> <C> <C> <C> <C>

NET ASSET VALUE, BEGINNING OF PERIOD $19.63 $15.26 $12.80 $9.74 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.20 0.19 0.19 0.20 0.19
Net realized and unrealized gain (loss) on investments 3.20 4.64 2.54 3.06 (0.26)
TOTAL FROM INVESTMENT OPERATIONS 3.40 4.83 2.73 3.26 (0.07)
LESS DISTRIBUTIONS

Distributions from net investment income (0.10) (0.10) (0.18) (0.19) (0.19)
Distributions in excess of net investment income 2 - - - (0.01) -
Distributions from net realized gain on investments and

foreign currency transactions (1.25) (0.36) (0.09) - -
TOTAL DISTRIBUTIONS (1.35) (0.46) (0.27) (0.20) (0.19)
NET ASSET VALUE, END OF PERIOD $21.68 $19.63 $15.26 $12.80 $9.74
TOTAL RETURN 3 17.62% 32.34% 21.58% 33.71% (0.70%)

RATIOS TO AVERAGE NET ASSETS

Expenses 0.88% 0.85% 0.85% 0.85% 0.54% 4
Net investment income 1.06% 1.18% 1.54% 2.03% 2.58% 4
Expense waiver/reimbursement 5 0.01% 0.09% 0.22% 1.36% 25.42% 4
SUPPLEMENTAL DATA

Net assets, end of period (000 omitted) $418,212 $305,796 $142,216 $48,514 $2,400
Portfolio turnover 58% 56% 90% 43% 32%

</TABLE>

1 Reflects operations for the period from February 10, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 9, 1993
(start of business) to January 31, 1994, the Fund had no investment activity.

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

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

4 Computed on an annualized basis.

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

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

December 31, 1998

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 objective of the Fund is to achieve long-term growth of
capital. The Fund's secondary objective is to provide income.

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

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 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"). 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 the differing treatments for foreign
currency. The following reclassifications have been made to the financial
statements.

INCREASE/(DECREASE)

ACCUMULATED NET UNDISTRIBUTED NET
REALIZED GAIN INVESTMENT INCOME
$1,674 $(1,674)

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.

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>

YEAR ENDED DECEMBER 31 1998 1997
<S> <C> <C>
Shares sold 5,676,003 8,511,603
Shares issued to shareholders in payment of distributions
declared 1,061,627 304,810
Shares redeemed (3,023,452) (2,560,144)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 3,714,178 6,256,269

</TABLE>

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, Inc. 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.

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 $47,855 were borne initially by the Adviser. The Fund
has reimbursed the Adviser for these expenses. These expenses have been deferred
and are being amortized over the five-year period following the Fund's effective
date. For the year ended December 31, 1998, the Fund was fully amortized.

GENERAL

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

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 1998, were as follows:

Purchases $269,760,262
Sales $210,199,941

YEAR 2000 (UNAUDITED)

Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.

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 (the "Fund")
(a portfolio of the Federated Insurance Series) as of December 31, 1998, the
related statement of operations for the year then ended, the statements of
changes in net assets for the years ended December 31, 1998 and 1997, 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 at
December 31, 1998, by correspondence with the custodian and brokers; where
replies were not received, 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 Federated American
Leaders Fund II as of December 31, 1998, 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
Boston, Massachusetts
February 12, 1999

Trustees

JOHN F. DONAHUE

THOMAS G. BIGLEY

JOHN T. CONROY, JR.

NICHOLAS P. CONSTANTAKIS

WILLIAM J. COPELAND

J. CHRISTOPHER DONAHUE

JAMES E. DOWD, ESQ.

LAWRENCE D. ELLIS, M.D.

EDWARD L. FLAHERTY, JR., ESQ.

PETER E. MADDEN

JOHN E. MURRAY, JR., J.D., S.J.D.

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 and Secretary

RICHARD B. FISHER

Vice President

RICHARD J. THOMAS

Treasurer

MATTHEW S. HARDIN

Assistant Secretary

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.

ANNUAL REPORT

[Graphic]

Federated American Leaders Fund II

Federated Insurance Series

ANNUAL REPORT
TO SHAREHOLDERS

December 31, 1998

[Graphic]

Federated American Leaders Fund II

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

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Cusip 313916405

G00843-01 (2/99)

[Graphic]

ANNUAL REPORT

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 83 common
and preferred stock holdings were spread across the electric, telecommunication,
natural gas and international utilities.

During the reporting period, Federated Utility Fund II produced a 13.95% total
return through $0.13 per share in income, $0.81 per share in capital gains, and
a 7% increase in net asset value. 1 On December 31, 1998, net assets reached
$162 million.

Thank you for choosing Federated Utility Fund II as a diversified,
professionally managed way to participate in the income and growth opportunities
of companies that deliver essential utility services. Regardless of how foreign
economic contagions may impact the U.S., utility stocks have a long tradition of
generating strong earnings and dividends.

We hope you are pleased with the fund's performance. As always, we welcome your
comments and suggestions.

Sincerely,

[Graphic]

J. Christopher Donahue

President

February 15, 1999

Investment Review

The stock market rebounded sharply in the fourth quarter, and the Standard &
Poor's 500 Index 1 ("S&P 500") closed with an unprecedented fourth straight year
of gains in excess of 20%. The market environment has become speculative once
again, with a mania over Internet stocks. In this environment, a conservative,
value-oriented fund like the Federated Utility Fund II naturally will trail. Yet
the fund returned 6.63% in the fourth quarter and 13.95%2 for the full year
ended December 31, 1998. Given the fund's exceptionally low risk (a beta of
0.5),3 this return-and last year's total return of 26.63% are excellent on a
risk-adjusted basis. The fund's 30-day SEC yield was 2.53% as of December 31,
1998.

Our current strategy is to emphasize companies that generate strong cash flow
above their capital spending and dividend requirements and stocks with high
dividend yields. Our favorite sectors are electric and gas utilities and Real
Estate Investment Trusts ("REITs").

Earnings prospects for electric companies have continued to improve, in contrast
to those of market leaders which had lower earnings in the third quarter.
Electric companies are expected to produce more rapid earnings growth than the
S&P 500 this year and next year for the first time in this decade. Cash flow is
at record levels, and many companies are repurchasing their own stock, which
adds to demand for electric shares. Many electric companies have new, dynamic
executives that have personal financial incentives to produce higher profits and
rising share prices. Further, industry deregulation is leading to consolidation
and takeovers. In the past month, two of our largest holdings, Pacificorp and
New England Electric, received takeover bids from British utilities at an
average premium of 25% to their current stock prices. Finally, electric stocks
are supported by excellent valuations: cash flow and price-to-earnings multiples
that are only 40% and 60% of the S&P 500, and by dividend yields of 4.3%
(compared to only 1.3% on the S&P 500). Our best performing electrics in the
fund this year were PECO Energy and Montana Power, which returned 76% and 83%,
respectively, as these companies responded aggressively to industry
deregulation. The Standard & Poor's ("S&P") Electric Index 4 returned 1.3% in
the fourth quarter and 15.5% for the full year.

1 The Standard & Poor's 500 Index is an unmanaged composite index of common
stocks in industry, 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.

2 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. As of December 31, 1998,
the fund's one-year and since inception (4/14/94) annualized total returns were
13.95% and 14.42%, respectively.

3 Beta analyzes the market risk of a fund by showing how responsive the fund is
to the market. The beta of the market is 1.00. Accordingly, the fund with a 1.0
beta is expected to perform 10% better than the market in up markets and 10%
worse in down markets. Usually higher betas represent riskier investments.

4 The S&P Electric Index and the S&P Natural Gas Index are unmanaged market
cap-weighted indicies of common stocks in natural gas and electric utility
companies.

Natural gas companies are appealing to us because the leading companies have
irreplaceable assets, and gas demand is rising while supply likely will be
constrained. Gas is the "fuel of choice" for new power generating plants because
it is clean, efficient, and domestic. Advances in gas turbines and accelerated
construction of new generating plants are positive for demand while the
gas-producing capacity of Canada and the Gulf of Mexico is slipping. Gas stocks
also benefit from "convergence," as electric and gas companies merge to form
broad providers of energy services in a deregulating market. Gas companies are
ripe for takeovers, and a number of local gas distributors have been acquired
this year at premiums of at least 20%. Enron, perhaps the dominant diversified
gas company in the world, was our top gas performer this year with a 40% total
return. The S&P Natural Gas Index 4 returned 4.4% in the fourth quarter and 9.6%
for the full year.

Telecommunications stocks, which benefit from surging demand for high- margin
services (such as voice mail and caller id) and growth in Internet usage, rose
to an astounding 28.2% in the fourth quarter and 52.4% for the full year.
Mergers and acquisitions have swept this sector as well. AT&T is buying a cable
company, TCI. Bell Atlantic and GTE plan to merge, and Worldcom completed its
merger of MCI. MCI Worldcom was our top performer, up 111% for the full year.
Despite the impressive growth prospects for the group, we are concerned about
the sharp run up in the stocks and their historically high valuations.

Foreign utility returns 5 were quite divergent, with European telecom stocks
particularly strong as deregulation began in Europe. Our largest foreign
holdings, Telecom Italia and Veba (a German electric utility), are quite
undervalued based on earnings and assets. The fund has 5% of its assets in
foreign utilities.

Among non-utilities, REITs (7% of the fund) seem exceptionally attractive. They
trailed the S&P 500 return by more than 40% in 1998 and are extremely
undervalued on earnings, dividend yield, and asset value. We favor apartment and
office/industrial REITs. Our top performer was Apartment Investment &
Management, which returned 7%.

Our strategy remains value-oriented and conservative. The higher the stock
market gets, the more conservative our strategy becomes. This may not be in
vogue amid Internet mania, but we believe that this strategy is prudent to help
preserve and enhance the value of our shareholders' capital.

5 Utility securities are interest rate sensitive and a rise in interest rates
can cause their value to fall. Foreign investing involves special risks
including currency risk, increased volatility of foreign securities, and
differences in auditing and other financial standards.

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

"Graphic representation "B" omitted. See Appendix."

[Graphic]

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1998
1 Year 13.95%

Start of Performance (2/10/94) 14.42%

The graph above illustrates the hypothetical investment of $10,000 2 in the
Federated Utility Fund II (the "Fund") from February 10, 1994 (start of
performance) to December 31, 1998, compared to the Standard and Poor's
Communication Services Index (SPCSX),3 the Standard and Poor's 500 Index (S&P
500)3 and the Standard and Poor's Utility Index (SPUX). 3

1 The SPCSX began its performance on 7/1/96. The index has been assigned a
beginning value of $12,545, the value of the Fund on 7/1/96.

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

3 The Fund has elected to change the benchmark index from the S&P 500 to the
SPCSX. The SPCSX is more representative of the securities in which the fund
invests. The SPCSX, the S&P 500 and the SPUX are not adjusted to reflect sales
charges, expenses, or other fees that the Securities and Exchange Commission
requires to be reflected in the Fund's performance. The indices are unmanaged.

Portfolio of Investments

December 31, 1998

<TABLE>

VALUE

COMMON STOCKS-89.8%

<C> <S> <C>
BASIC MATERIALS-2.2%

63,700 Barrick Gold Corp. $ 1,242,150
166,300 USEC, Inc. 2,307,413
TOTAL 3,549,563
COMMUNICATION SERVICES-16.3%

46,000 AT&T Corp. 3,461,500
16,000 Alltel Corp. 957,000
28,000 Ameritech Corp. 1,774,500
60,700 Bell Atlantic Corp. 3,217,100
29,000 BellSouth Corp. 1,446,375
69,700 Cincinnati Bell, Inc. 2,038,213
54,000 GTE Corp. 3,510,000
25,717 MCI Worldcom, Inc. 1,845,195
42,272 SBC Communications, Inc. 2,266,836
29,300 Sprint Corp. 2,464,863
186,000 Telecom Italia SPA 1,586,138
27,500 U.S. West, Inc. 1,777,188
TOTAL 26,344,908
FINANCIALS-6.8%

24,500 Apartment Investment & Management Co., Class A 911,094
30,000 Archstone Communities Trust 607,500
20,449 Avalonbay Communities, Inc. 700,378
12,900 Boston Properties, Inc. 393,450
38,300 Brandywine Realty Trust 684,613
36,700 Camden Property Trust 954,200
26,500 Duke Realty Investments, Inc. 616,125
24,900 Equity Office Properties Trust 597,600
17,900 Equity Residential Properties Trust 723,831
54,300 First Industrial Realty Trust, Inc. 1,455,919
<CAPTION>

SHARES VALUE
<C> <S> <C>

COMMON STOCKS-continued

FINANCIALS-CONTINUED

48,600 HRPT Properties Trust $ 683,438
29,700 Liberty Property Trust 731,363
18,900 Post Properties, Inc. 726,469
35,400 Prentiss Properties Trust 789,863
21,500 Prologis Trust 446,125
TOTAL 11,021,968
UTILITIES-64.5%

46,400 AGL Resources, Inc. 1,070,100
79,000 BEC Energy 3,253,813
63,400 CMS Energy Corp. 3,070,938
54,500 Central & South West Corp. 1,495,344
25,550 Columbia Energy Group 1,475,513
58,300 Consolidated Natural Gas Co. 3,148,200
84,200 DQE, Inc. 3,699,538
70,100 Dominion Resources, Inc. 3,277,175
13,500 Duke Energy Corp. 864,844
152,900 Edison International 4,262,088
109,000 El Paso Energy Corp. 3,794,563
9,390 Electricidade de Portugal SA, ADR 418,442
14,800 Endesa SA, ADR 399,600
60,616 Enron Corp. 3,458,901
65,300 Entergy Corp. 2,032,463
24,600 Equitable Resources, Inc. 716,475
36,400 FPL Group, Inc. 2,243,150
76,500 FirstEnergy Corp. 2,491,031
66,200 Florida Progress Corp. 2,966,588
83,500 Houston Industries, Inc. 2,682,438
71,400 Illinova Corp. 1,785,000
18,400 K N Energy, Inc. 669,300
<CAPTION>

SHARES VALUE
<C> <S> <C>

COMMON STOCKS-continued

UTILITIES-CONTINUED

123,900 Keyspan Energy Corp. $ 3,840,900
133,000 MCN Energy Group, Inc. 2,535,313
31,500 Montana Power Co. 1,781,719
88,000 NIPSCO Industries, Inc. 2,678,500
39,000 National Fuel Gas Co. 1,762,313
65,400 New England Electric System 3,147,375
132,300 Niagara Mohawk Power Corp. 2,133,338
91,500 OGE Energy Corp. 2,653,500
67,200 P G & E Corp. 2,116,800
150,600 Pacificorp 3,172,013
81,100 PECO Energy Co. 3,375,788
24,900 Pinnacle West Capital Corp. 1,055,138
91,900 Potomac Electric Power Co. 2,418,119
21,390 PowerGen PLC, ADR 1,144,365
70,900 Public Service Enterprises Group, Inc. 2,836,000
50,500 Puget Sound Energy, Inc. 1,407,688
65,600 Questar Corp. 1,271,000
31,700 Rochester Gas & Electric Corp. 990,625
67,400 SCANA Corp. 2,173,650
124,500 Sempra Energy 3,159,188
73,900 Sonat, Inc. 1,999,919
48,300 Southern Co. 1,403,719
58,100 TECO Energy, Inc. 1,637,694
56,000 UGI Corp. 1,330,000
26,300 Utilicorp United, Inc. 964,881
20,200 Veba AG, ADR 1,209,475
14,400 Washington Gas Light Co. 390,600
23,200 Williams Cos., Inc. (The) 723,541
TOTAL 104,588,665
TOTAL COMMON STOCKS (IDENTIFIED COST $123,309,592) 145,505,104
<CAPTION>

SHARES OR

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

PREFERRED STOCKS-3.6%
CONSUMER CYCLICALS-0.6%

35,500 2 Intermedia Communications, Inc., Conv. Pfd., $1.75 $ 505,875
29,000 Intermedia Communications, Inc., Cumulative Conv. Pfd.,
Series E, $1.75 529,250
TOTAL 1,035,125
UTILITIES-3.0%

65,700 K N Energy, Inc., Conv. Pfd., $3.55 2,467,856
43,200 Texas Utilities Co., Cumulative PRIDES, $4.63 2,435,400
TOTAL 4,903,256
TOTAL PREFERRED STOCKS (IDENTIFIED COST $6,203,400) 5,938,381
CORPORATE BOND-1.3%

FINANCIALS-1.3%

$ 1,955,000 2 Bell Atlantic Financial Services, Inc., Conv. Bond, 5.75%,
4/1/2003 (IDENTIFIED COST $2,004,056) 2,029,173
REPURCHASE AGREEMENT-4.8% 1

7,810,000 Westdeutsche Landesbank Girozentrale, 4.90%, dated

12/31/1998, due 1/4/1999 (AT AMORTIZED COST) 7,810,000
TOTAL INVESTMENTS (IDENTIFIED COST $139,327,048) 3 $ 161,282,658

</TABLE>

1 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 joint account
with other Federated funds.

2 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. At December 31, 1998, these securities amounted to
$2,535,048 which represents 1.6% of net assets.

3 The cost of investments for federal tax purposes amounts to $139,560,571. The
net unrealized appreciation of investments on a federal tax basis amounts to
$21,722,087, which is comprised of $25,279,481 appreciation and $3,557,394
depreciation at December 31, 1998.

Note: The categories of investments are shown as a percentage of net assets
($162,037,822) at December 31, 1998.

The following acronyms are used throughout this portfolio:

ADR -American Depositary Receipt

PRIDES -Preferred Redeemable Increased Dividend Equity Securities

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

December 31, 1998

<TABLE>

ASSETS:

Total investments in securities, at value (identified cost
$139,327,048

and tax cost $139,560,571) $ 161,282,658
Cash 18,454
Income receivable 514,742
Receivable for investments sold 1,266,190
Receivable for shares sold 268,532
TOTAL ASSETS 163,350,576
LIABILITIES:

Payable for investments purchased $ 1,172,188
Payable for shares redeemed 106,383
Payable for taxes withheld 496
Accrued expenses 33,687
TOTAL LIABILITIES 1,312,754
Net Assets for 10,613,148 shares outstanding $ 162,037,822
NET ASSETS CONSIST OF:
Paid in capital $ 128,277,019
Net unrealized appreciation of investments and translation
of assets and liabilities in foreign currency 21,955,815
Accumulated net realized gain on investments and foreign
currency translations 7,764,629
Undistributed net investment income 4,040,359
TOTAL NET ASSETS $ 162,037,822
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER
SHARE:
$162,037,822 / 10,613,148 shares outstanding $15.27

</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended December 31, 1998

<TABLE>

<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $6,085) $ 4,693,441
Interest 501,171
TOTAL INCOME 5,194,612
EXPENSES:

Investment advisory fee $ 944,508
Administrative personnel and services fee 125,002
Custodian fees 13,490
Transfer and dividend disbursing agent fees and expenses 27,445
Directors'/Trustees' fees 2,462
Auditing fees 12,597
Legal fees 2,896
Portfolio accounting fees 44,115
Share registration costs 17,708
Printing and postage 40,346
Insurance premiums 2,693
Miscellaneous 18,794
TOTAL EXPENSES 1,252,056
WAIVER:
Waiver of investment advisory fee (82,754)
Net expenses 1,169,302
Net investment income 4,025,310
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain on investments and foreign currency
transactions 7,834,265
Net change in unrealized appreciation of investments and
translation of assets and liabilities in foreign currency 5,882,380
Net realized and unrealized gain on investments and foreign
currency transactions 13,716,645
Change in net assets resulting from operations $ 17,741,955

</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

<TABLE>

YEAR ENDED DECEMBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:

OPERATIONS:

Net investment income $ 4,025,310 $ 2,632,049
Net realized gain on investments and foreign currency
transactions ($7,999,119 and $6,250,253, respectively, as
computed for federal tax purposes) 7,834,265 6,203,822
Net change in unrealized appreciation of investments and

translation of assets and liabilities in foreign currency 5,882,380 11,041,239
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 17,741,955 19,877,110
DISTRIBUTIONS TO SHAREHOLDERS:

Distributions from net investment income (1,023,584) (1,688,915)
Distributions from net realized gains on investments and
foreign currency transactions (6,251,285) (1,464,468)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS

TO SHAREHOLDERS (7,274,869) (3,153,383)
SHARE TRANSACTIONS:
Proceeds from sale of shares 71,820,125 37,584,111
Net asset value of shares issued to shareholders in payment

of distributions declared 7,274,865 3,153,380
Cost of shares redeemed (31,986,413) (16,556,595)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 47,108,577 24,180,896
Change in net assets 57,575,663 40,904,623
NET ASSETS:

Beginning of period 104,462,159 63,557,536
End of period (including undistributed net investment income
of $4,040,359 and $1,023,047, respectively) $ 162,037,822 $ 104,462,159

</TABLE>

See Notes which are an integral part of the Financial Statements

Financial Highlights

(For a share outstanding throughout each period)

<TABLE>

YEAR ENDED DECEMBER 31 1998 1997 1996 1995 1994 1
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.29 $11.81 $11.03 $ 9.29 $ 9.48
INCOME FROM
INVESTMENT OPERATIONS:

Net investment income 0.37 0.40 0.42 0.45 0.34
Net realized and unrealized gain (loss) on investments and
foreign currency 1.55 2.62 0.82 1.74 (0.19)
TOTAL FROM INVESTMENT OPERATIONS 1.92 3.02 1.24 2.19 0.15
LESS DISTRIBUTIONS:

Distributions from net investment income (0.13) (0.28) (0.41) (0.45) (0.34)
Distributions from net realized gain on investments and
foreign currency transactions (0.81) (0.26) (0.05) - -
TOTAL DISTRIBUTIONS (0.94) (0.54) (0.46) (0.45) (0.34)
NET ASSET VALUE, END OF PERIOD $15.27 $14.29 $11.81 $11.03 $ 9.29
TOTAL RETURN 2 13.95% 26.63% 11.56% 24.18% 1.12%

RATIOS TO AVERAGE NET ASSETS:

Expenses 0.93% 0.85% 0.85% 0.85% 0.60% 3
Net investment income 3.20% 3.41% 3.92% 4.62% 4.77% 3
Expense waiver/reimbursement 4 0.07% 0.27% 0.51% 2.24% 54.83% 3
SUPPLEMENTAL DATA
Net assets, end of period

(000 omitted) $162,038 $104,462 $63,558 $29,679 $974
Portfolio turnover 84% 95% 63% 62% 73%

</TABLE>

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

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

3 Computed on an annualized basis.

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

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

December 31, 1998

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 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.

SIGNIFICANT ACCOUNTING POLICIES

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 60
days or less at the time of purchase may be valued at amortized cost, which
approximates fair market value. Investments in other open-end regulated
investment companies are valued at net asset value.

REPURCHASE AGREEMENTS

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.

INCREASE/(DECREASE)

ACCUMULATED NET UNDISTRIBUTED NET
PAID-IN CAPITAL REALIZED GAIN INVESTMENT INCOME
$995 $(16,581) $15,586

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

FEDERAL TAXES

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.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

FOREIGN EXCHANGE CONTRACTS

The Fund may enter into foreign currency commitments for the delayed delivery of
securities or foreign currency exchange transactions. The Fund may enter into
foreign currency contract transactions to protect assets against adverse changes
in foreign currency exchange rates or exchange control regulations. 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
counterparts 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, 1998, the Fund had no
outstanding foreign currency commitments.

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, 1998 is
as follows:

<TABLE>

SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Bell Atlantic Financial Services, Inc., Conv. Bond 2/13/1998 - 8/27/1998 $2,004,056
Intermedia Communications, Inc., Conv. Pfd. 12/04/1998 - 12/18/1998 580,363

</TABLE>

USE OF ESTIMATES

OTHER

Investment transactions are accounted for on the trade date.

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>

YEAR ENDED DECEMBER 31 1998 1997
<S> <C> <C>
Shares sold 5,060,316 2,992,224
Shares issued to shareholders in payment of distributions
declared 513,037 267,672
Shares redeemed (2,272,128) (1,330,203)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 3,301,225 1,929,693

</TABLE>

INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE

ADMINISTRATIVE FEE

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES

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 $49,266 were borne initially by the Adviser. The Fund
has reimbursed the Adviser for these expenses. These expenses have been deferred
and are being amortized over the five-year period following the Fund's effective
date. For the year ended December 31, 1998, the Fund was fully amortized.

GENERAL

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

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities for the year
ended December 31, 1998, were as follows:

Purchases $ 142,871,044
Sales $ 98,686,368

RISKS OF FOREIGN INVESTING

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, 1998, the diversification of non-U.S. countries was as
follows:

PERCENTAGE OF

COUNTRY NET ASSETS
Canada 0.8%
Germany 0.7%
Italy 1.0%
Portugal 0.3%
Spain 0.2%
United Kingdom 0.7%

YEAR 2000 (UNAUDITED)

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 (the "Fund") (a
portfolio of the Federated Insurance Series) as of December 31, 1998, and the
related statement of operations for the year then ended, the statements of
changes in net assets for the years ended December 31, 1998 and 1997 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 Utility
Fund II as of December 31, 1998, 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
Boston, Massachusetts
February 12, 1999

Trustees

JOHN F. DONAHUE

THOMAS G. BIGLEY

JOHN T. CONROY, JR.

NICHOLAS P. CONSTANTAKIS

WILLIAM J. COPELAND

J. CHRISTOPHER DONAHUE

JAMES E. DOWD, ESQ.

LAWRENCE D. ELLIS, M.D.

EDWARD L. FLAHERTY, JR., ESQ.

PETER E. MADDEN

JOHN E. MURRAY, JR., J.D., S.J.D.

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 and Secretary

RICHARD B. FISHER

Vice President

RICHARD J. THOMAS

Treasurer

MATTHEW S. HARDIN

Assistant Secretary

risk, including the possible loss of principal.

ANNUAL REPORT

[Graphic]

Federated Utility Fund II

Federated Insurance Series

ANNUAL REPORT
TO SHAREHOLDERS

December 31, 1998

[Graphic]
Federated Utility Fund II

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

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor
Cusip 313916108

G00845-01 (2/99)

[Graphic]

ANNUAL REPORT

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.

To help your money pursue an attractive level of income, Federated Fund for U.S.
Government Securities II invests primarily in short- to intermediate- term U.S.
government mortgage-backed securities and U.S. Agency and Treasury notes and
bonds.

In a positive environment for bonds, the fund produced a net total return of
7.66%. 1 Contributing to the total return was a dividend stream that totaled
$0.18 per share, a modest capital gain totaling $0.01 per share and a 6%
increase in net asset value. On December 31, 1998, net assets reached $111
million.

Thank you for choosing Federated Fund for U.S. Government Securities II as a
diversified, professionally managed way to pursue income opportunities through
government bonds. We will continue to keep you up-to-date on your progress. As
always, we welcome your comments and suggestions.

Sincerely,

[Graphic]

J. Christopher Donahue
President
February 15, 1999

Investment Review

Federated Fund for U.S. Government Securities II, a portfolio of Federated
Insurance Series, provides shareholders with a professionally managed portfolio
of U.S. government securities. The fund is managed for specific maturity levels
according to management's assumptions of market risk and volatility. Current
investment strategy emphasizes a diversified range of U.S. government and agency
mortgage securities with coupons averaging 6.71% and a weighted average
effective duration of 3.53 years.

The U.S. Treasury market put in awesome performance in 1998, as the sector
outperformed other major fixed income asset classes. The key factors driving the
performance of U.S. Treasurys in 1998 were reductions in Treasury supply due to
the first budget surplus in close to 30 years, declining commodity prices,
emerging market contagion, and heightened liquidity premiums. While the U.S.
economy continued to post strong growth in 1998, the overall performance and
shape of the U.S. Treasury yield curve were driven by events taking place in
other markets. In the first ten days of 1998, the yield curve spread between 2-
and 30-year U.S. Treasurys steepened from 28 to 56 basis points as the yield on
the 2-year Treasury declined by 45 basis points. Factors that drove the decline
were the focus by the bond market on the Asian crisis, talk of deflation, and a
declining stock market. Lower interest rates proved to be temporary as investors
quickly realized that the interest rate rally was ahead of the facts. As a
result, the short end of the yield curve retraced the majority of the earlier
interest rate declines and the yield curve flattened. The turning point for
investors was the spreading of the emerging market crisis to Russia and Latin
America. As this crisis unfolded, investors favored the most liquid U.S.
Treasury securities available and avoided all other fixed income asset classes.
This risk aversion drove U.S. Treasury rates to levels not seen in a generation
and spreads on non-U.S. Treasury assets to their widest point in 10 years. At
the peak of this turmoil, the yield on the 30-year U.S. Treasury reached a low
of 4.71%. During this period, the Federal Reserve Board eased 75 basis points
over a three-month time period to provide stability to the capital markets. As
the markets stabilized, there was a partial reversal of the flight to quality
activity, and the U.S. Treasury market gave back some of the gains.

The interest rate strategy of the fund during the reporting period was to remain
duration neutral to a blend of the Lehman Brothers Government and Mortgage
Indices. 1 The allocation to mortgage securities continues to emphasize the
Government National Mortgage Association ("GNMA") sector. The overweight in the
GNMA sector is in new origination higher coupon securities. The reason for this
overweight is due to the underlying characteristics of the GNMA borrower. The
GNMA borrower tends to be slow to take advantage of refinancing due to income
constraints and the inability to finance the up-front costs. During 1998,
prepayments for current and premium GNMA securities have averaged 15-25% slower
than comparable conventional securities. The conventional allocation favors the
current coupon sector due to their greater liquidity and the potential for
attractive dollar roll opportunities. The U.S. government allocation continues
to overweight agency debentures relative to U.S. Treasurys.

During the annual reporting period, the fund produced a net total rate of return
of 7.66% 2 compared to a 7.91% return on a blend of the Lehman Brothers
Government and Mortgage Indices.

1 The Lehman Brothers Government Index includes the Treasury and Agency Indices.
The Treasury component includes public obligations of the U.S. Treasury that
have remaining maturities of more than one year. The Agency component includes
both callable and noncallable agency securities. This includes publicly issued
debt of U.S. government agencies, quasi-federal corporations, and corporate or
foreign debt guaranteed by the U.S. government. The Mortgage Index covers the
mortgage-backed pass-through securities of GNMA (Government National Mortgage
Association), FNMA (Federal National Mortgage Association), and FHLMC (Federal
Home Loan Mortgage Corporation). These three indices are unmanaged and
investments cannot be made in these indices.

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

"Graphic representation "C" omitted. See Appendix."

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED
DECEMBER 31, 1998
1 Year 7.66%
Start of Performance (3/28/94) 6.66%

The graph above illustrates the hypothetical investment of $10,000 1 in the
Federated Fund for U.S. Government Securities II (the "Fund") from March 28,
1994 (start of performance) to December 31, 1998, compared to the Lehman
Brothers 5 Year Treasury Bellwether Index (LB5TB),2 Lehman Brothers
Government/Mortgage-Backed Index (LBGM),2 and the Lipper U.S.

Mortgage Funds Average (LUSMFA).3

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

2 The LB5TB and the LBGM are not adjusted to reflect sales charges, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
These indices are unmanaged.

3 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.

Portfolio of Investments

December 31, 1998

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

INTERMEDIATE-TERM U.S. GOVERNMENT OBLIGATIONS-15.0%

$ 1,000,000 Federal Farm Credit Bank, 7.35%, 3/24/2005 $ 1,111,010
900,000 Federal Farm Credit Bank, 9.00%, 3/7/2000 942,075
6,500,000 Federal Home Loan Bank System, 5.50%, 7/14/2000 - 1/21/2003 6,573,591
1,000,000 Federal Home Loan Bank System, 5.53%, 1/15/2003 1,014,970
2,500,000 Federal Home Loan Bank System, 5.905%, 3/27/2008 2,595,100
750,000 Federal Home Loan Bank System, 6.185%, 5/6/2008 794,055
1,500,000 Federal Home Loan Bank System, 6.285%, 6/26/2000 1,527,845
1,000,000 Federal Home Loan Bank System, 6.83%, 7/17/2001 1,045,870
1,000,000 Federal Home Loan Bank System, 7.66%, 7/20/2004 1,116,250
TOTAL INTERMEDIATE-TERM U.S. GOVERNMENT OBLIGATIONS

(IDENTIFIED COST $16,328,689) 16,720,766
LONG-TERM U.S. GOVERNMENT OBLIGATIONS-66.2%

FEDERAL HOME LOAN MORTGAGE CORPORATION-18.6%

4,750,000 1 6.00%, (15 Year) 1/1/13 4,766,293
3,497,644 6.00%, 8/1/28 - 11/1/28 3,456,092
5,443,435 6.50%, 5/1/24 - 10/1/28 5,483,032
951,750 7.00%, (15 Year) 8/1/13 972,869
1,925,742 7.00%, 8/1/28 1,964,854
2,748,174 7.50%, 11/1/27 - 12/1/27 2,825,711
851,556 8.00%, 10/1/27 - 1/1/28 881,096
361,781 9.00%, 2/1/25 - 5/1/25 382,360
TOTAL 20,732,307
FEDERAL NATIONAL MORTGAGE ASSOCIATION-22.9%

2,860,000 1 6.00%, (15 Year) 2/1/14 2,866,263
4,923,207 6.50%, (15 Year) 4/1/13 - 12/1/13 4,990,901
7,804,998 6.50%, 10/1/27 - 12/1/28 7,860,228
5,281,636 1 7.00%, 2/1/24 - 1/1/29 5,389,399
2,169,164 7.50%, 11/1/22 - 8/1/28 2,228,723
1,803,174 8.00%, 10/1/27 - 12/1/27 1,867,403
300,368 10.00%, 2/1/25 327,308
TOTAL 25,530,225
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-24.7%

281,837 6.00%, 9/15/28 279,371
5,138,614 6.50%, 12/15/23 - 10/20/28 5,189,407
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

LONG-TERM U.S. GOVERNMENT OBLIGATIONS-continued

GOVERNMENT NATIONAL MORTGAGE ASSOCATION-CONTINUED

$ 13,779,836 7.00%, 10/15/23 - 11/15/28 $ 14,094,748
4,564,099 7.50%, 2/15/28 - 9/15/28 4,708,142
1,843,630 8.00%, 9/15/17 - 2/15/28 1,921,781
443,461 8.50%, 10/15/22 472,423
717,888 9.50%, 11/15/16 778,011
TOTAL 27,443,883
TOTAL LONG-TERM U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $73,344,375) 73,706,415
SHORT-TERM U.S. GOVERNMENT OBLIGATIONS-9.0% 2
2,750,000 Federal Home Loan Bank System Discount Notes, 5.08%,

1/20/1999 2,743,923
7,360,000 Federal Home Loan Mortgage Corp. Discount Notes, 5.02% -
5.06%, 1/14/1999 - 2/18/1999 7,334,416
TOTAL SHORT-TERM U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $10,075,262) 10,078,339
U.S. TREASURY OBLIGATIONS-17.1%

1,100,000 United States Treasury Bonds, 6.00%, 2/15/2026 1,200,166
2,250,000 United States Treasury Bonds, 6.125%, 11/15/2027 2,519,775
1,600,000 United States Treasury Bonds, 8.00%, 11/15/2021 2,141,056
900,000 United States Treasury Bonds, 9.25%, 2/15/2016 1,291,491
690,000 United States Treasury Bonds, 11.25%, 2/15/2015 1,140,722
880,000 United States Treasury Notes, 5.375%, 2/15/2001 894,538
1,700,000 United States Treasury Notes, 5.50%, 3/31/2000 1,717,527
1,600,000 United States Treasury Notes, 5.625%, 5/15/2008 1,705,984
1,700,000 United States Treasury Notes, 5.75%, 11/15/2000 1,735,207
3,450,000 United States Treasury Notes, 6.25%, 2/28/2002 - 6/30/2002 3,622,465
1,000,000 United States Treasury Notes, 6.625%, 3/31/2002 1,058,439
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST $17,982,363) 19,027,370
REPURCHASE AGREEMENT-3.5% 3

3,875,000 Westdeutsche Landesbank Girozentrale, 4.90%, dated

12/31/1998, due 1/4/1999 (AT AMORTIZED COST) 3,875,000
TOTAL INVESTMENTS (IDENTIFIED COST $121,605,689) 4 $123,407,890

</TABLE>

1 These securities are subject to dollar-roll transactions.

2 Securities held as collateral for future dollar-roll transactions.

3 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 joint
accounts with other Federated funds.

4 The cost of investments for federal tax purposes amounts to $121,605,689. The
net unrealized appreciation of investments on a federal tax basis amounts to
$1,802,201, which is comprised of $1,882,353 appreciation and $80,152
depreciation at December 31, 1998.

Note: The categories of investments are shown as a percentage of net assets
($111,350,454) at December 31, 1998.

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

December 31, 1998

<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $121,605,689) $ 123,407,890
Cash 3,305
Income receivable 941,805
Receivable for shares sold 357,592
TOTAL ASSETS 124,710,592
LIABILITIES:

Payable for dollar roll transactions $ 13,267,743
Payable for shares redeemed 74,552
Accrued expenses 17,843
TOTAL LIABILITIES 13,360,138
Net Assets for 9,990,998 shares outstanding $ 111,350,454
NET ASSETS CONSIST OF:
Paid in capital $ 103,956,481
Net unrealized appreciation of investments 1,802,201
Accumulated net realized gain on investments 919,156
Undistributed net investment income 4,672,616
TOTAL NET ASSETS $ 111,350,454
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
$111,350,454 / 9,990,998 shares outstanding $11.15

</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended December 31, 1998

<S> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar roll expense of $385,702) $ 5,413,513
EXPENSES:

Investment advisory fee $ 516,404
Administrative personnel and services fee 125,000
Custodian fees 5,032
Transfer and dividend disbursing agent fees and expenses 11,486
Directors'/Trustees' fees 2,155
Auditing fees 12,691
Legal fees 3,050
Portfolio accounting fees 42,345
Share registration costs 21,586
Printing and postage 34,710
Insurance premiums 2,843
Taxes 254
Miscellaneous 23,994
TOTAL EXPENSES 801,550
WAIVER:

Waiver of investment advisory fee (68,594)
Net expenses 732,956
Net investment income 4,680,557
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

Net realized gain on investments 919,660
Net change in unrealized appreciation of investments 535,278
Net realized and unrealized gain on investments 1,454,938
Change in net assets resulting from operations $ 6,135,495

</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

YEAR ENDED DECEMBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS

OPERATIONS:

Net investment income $ 4,680,557 $ 2,779,758
Net realized gain on investments ($919,638 and $181,810,
respectively, as computed for federal tax purposes) 919,660 181,810
Net change in unrealized appreciation 535,278 1,068,779
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 6,135,495 4,030,347
DISTRIBUTIONS TO SHAREHOLDERS:

Distributions from net investment income (1,184,475) (1,612,272)
Distributions from net realized gains (52,421) -
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS

TO SHAREHOLDERS (1,236,896) (1,612,272)
SHARE TRANSACTIONS:
Proceeds from sale of shares 92,242,565 44,186,152
Net asset value of shares issued to shareholders in payment

of distributions declared 1,236,865 1,612,207
Cost of shares redeemed (50,126,525) (20,082,031)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 43,352,905 25,716,328
Change in net assets 48,251,504 28,134,403
NET ASSETS:

Beginning of period 63,098,950 34,964,547
End of period (including undistributed net investment income
of $4,672,616 and $1,236,536, respectively) $ 111,350,454 $ 63,098,950

</TABLE>

See Notes which are an integral part of the Financial Statements

Financial Highlights

(For a share outstanding throughout each period)

YEAR ENDED DECEMBER 31 1998 1997 1996 1995 1994 1
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.54 $10.09 $10.29 $ 9.99 $ 9.99
INCOME FROM INVESTMENT OPERATIONS:

Net investment income 0.44 0.58 0.59 0.54 0.27
Net realized and unrealized gain (loss) on investments 0.36 0.26 (0.18) 0.30 -
TOTAL FROM INVESTMENT OPERATIONS 0.80 0.84 0.41 0.84 0.27
LESS DISTRIBUTIONS:

Distributions from net investment income (0.18) (0.39) (0.57) (0.54) (0.27)
Distributions from net realized gain on investment (0.01) - (0.04) - -
TOTAL DISTRIBUTIONS (0.19) (0.39) (0.61) (0.54) (0.27)
NET ASSET VALUE, END OF PERIOD $11.15 $10.54 $10.09 $10.29 $ 9.99
TOTAL RETURN 2 7.66% 8.58% 4.20% 8.77% 2.62%

RATIOS TO AVERAGE NET ASSETS:

Expenses 0.85% 0.80% 0.80% 0.80% 0.48% 3
Net investment income 5.44% 5.98% 6.00% 6.00% 3.99% 3
Expense waiver/reimbursement 4 0.08% 0.45% 1.01% 4.81% 32.83% 3
SUPPLEMENTAL DATA:

Net assets, end of period (000 omitted) $111,350 $63,099 $34,965 $12,264 $1,244
Portfolio turnover 99% 73% 97% 65% 0%

</TABLE>

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

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

3 Computed on an annualized basis.

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

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

December 31, 1998

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.

SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS

U.S. goverment 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 60 days or less at
the time of purchase may be valued at amortized cost, which approximates fair
market value.

REPURCHASE AGREEMENTS

INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS

FEDERAL TAXES

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

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 involve "to be announced"
securities and are treated as 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.

USE OF ESTIMATES

OTHER

Investment transactions are accounted for on the trade date.

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 1998 1997
<S> <C> <C>
Shares sold 8,487,195 4,326,667
Shares issued to shareholders in payment of distributions declared 117,350 160,196
Shares redeemed (4,597,436) (1,969,286)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 4,007,109 2,517,577

</TABLE>

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/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.

ADMINISTRATIVE FEE

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES

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 and/or start-up administration service expenses of $51,572 were
borne initially by the Adviser. The Fund has reimbursed the Adviser for these
expenses. These expenses have been deferred and are being amortized over the
five-year period following the Fund's effective date. For the period ending
December 31, 1998, the Fund was fully amortized.

GENERAL

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

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1998, were as follows:

Purchases $137,156,454
Sales $ 84,295,340

YEAR 2000 (UNAUDITED)

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 Federated Fund for U.S. Government Securities II
(the "Fund") (a portfolio of the Federated Insurance Series), as of December 31,
1998, the related statement of operations for the year then ended, the statement
of changes in net assets for the years ended December 31, 1998 and 1997, 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 at
December 31, 1998, by correspondence with the custodian. 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 Federated Fund for
U.S. Government Securities II as of December 31, 1998, 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
Boston, Massachusetts
February 12, 1999

Trustees

JOHN F. DONAHUE

THOMAS G. BIGLEY

JOHN T. CONROY, JR.

NICHOLAS P. CONSTANTAKIS

WILLIAM J. COPELAND

J. CHRISTOPHER DONAHUE

JAMES E. DOWD, ESQ.

LAWRENCE D. ELLIS, M.D.

EDWARD L. FLAHERTY, JR., ESQ.

PETER E. MADDEN

JOHN E. MURRAY, JR., J.D., S.J.D.

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 and Secretary

RICHARD B. FISHER

Vice President

RICHARD J. THOMAS

Treasurer

MATTHEW S. HARDIN

Assistant Secretary

risk, including the possible loss of principal.

ANNUAL REPORT

[Graphic]

Federated Fund for U.S. Government Securities II

Federated Insurance Series

ANNUAL REPORT
TO SHAREHOLDERS

December 31, 1998

[Graphic]

Federated Fund for U.S. Government Securities II
Federated Investors Funds
5800 Corporate Drive

Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Cusip 313916207

G00846-01 (2/99)

[Graphic]

ANNUAL REPORT

President's Message

Dear Shareholder:

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

In 1998, the performance of high-yield bonds weakened over concerns regarding
the U.S. economy's ability to continue to grow while many of our trading
partners, such as Japan, most of Asia and parts of Latin America, experienced
economic problems.

In this environment, Federated High Income Bond Fund II produced a 12-month
total return of 2.70% 1 through income totaling $0.26 per share and capital
gains totaling $0.07 per share. The fund's net asset value decreased by a modest
$0.03. The 30-day current net yield on December 31, 1998 was 8.38%.2 At the end
of the reporting period, fund assets totaled $212 million.

While the high-yield bond outlook for 1999 is more positive, the fund's expert
security selection and broad diversification will be key factors in making the
most of opportunities in a challenging environment.

Thank you for choosing Federated High Income Bond Fund II as a diversified,
professionally managed way to participate in the income opportunities of
high-yield corporate bonds. As always, we welcome your comments and suggestions.

Sincerely,

[Graphic]

J. Christopher Donahue
President
February 15, 1999

2 The 30-day current net yield is calculated by dividing the investment income
per share for the prior 30 days by the maximum offering price per share on the
specified date. The figure is compounded and annualized.

Investment Review

The 12 months ended December 31, 1998 was marked by volatility and generally
disappointing returns from a high-yield bond perspective. There were several
reasons for the volatility and disappointing returns. First, problems in the
international arena and, more importantly, its impact on the domestic economy
was an area of concern for high yield investors. At the start of the year, Asia
was the main concern but this spread to Russia and Latin America as the year
progressed. Also, the stock market swoon in mid-summer and hedge fund problems
in the latter part of the year highlighted the somewhat fragile state of the
world financial system. Also, falling commodity prices, while good for
consumers, is a negative for high-yield companies in the energy, forest
products, metals and mining sectors. Finally, the economic consensus in the
latter part of 1998 pointed to a slowing of the domestic economy in 1999. These
factors caused the yield spread between high-yield bonds and treasury
securities, an indicator of the market's perceived default risk, to increase by
approximately 280 basis points during the year. These factors caused high-yield
bonds to underperform high-quality bonds. For example, the Lehman Brothers High
Yield Bond Index 1 returned 1.87% during the reporting period, which
substantially underperformed the Lehman Brothers Aggregate Bond Index,1 a
measure of high-quality bond performance, which returned 8.70% for the same
period.

The Federated High Income Bond Fund II returned 2.70% 2 for the year
outperforming both the Lehman Brothers High Yield Bond Index mentioned above as
well as the Lipper High Current Yield Fund Average,3 which returned (0.44%)
during the reporting period. Several factors positively impacted the fund's
returns during the reporting period. First, the fund was underweight CCC-rated
securities, the lowest quality sector of the market, which was most impacted by
the spread widening that occurred. The fund had no direct exposure to emerging
markets which negatively impacted several of the funds in the Lipper average.
The fund was also underweight energy and commodity related issuers which
underperformed during the reporting period. Overweights in the
telecommunications, broadcasting and cable TV sectors aided performance as these
sectors outperformed the overall market. Corporate actions such as calls,
tenders or acquisition activity involving Viacom, Echostar, Charter
Communications, Sygnet, Simmons, Vanguard Cellular and Allied Waste positively
impacted performance.

1 Lehman Brothers High Yield Bond Index is an index which includes fixed rate,
public nonconvertible, non-investment grade issues that are rated Ba1 or lower
by Moody's Investors Service, Inc. Lehman Brothers Aggregate Bond Index is a
total return index measuring both the capital price changes and income provided
by the underlying universe of securities, weighted by market value outstanding.
These indices are unmanaged, and investments cannot be made in an index.

3 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the respective categories indicated. These figures do not reflect sales charges.

As we look out into 1999, many contradicting factors are present. On the
negative side, concerns continue regarding the domestic economy's ability to
continue to grow while many of our trading partners, such as Japan, most of Asia
and parts of Latin America, experience economic problems. Falling commodity
prices continue to present problems for specific high-yield issuers. The
uncertainty of Y2K and ".com mania" in the equity markets are also causes for
concern. On the plus side, the consensus economic forecast sees the domestic
economy continuing its remarkable growth for another year although at a somewhat
slower pace. Inflation remains almost non-existent and interest rates are low.
The Federal Reserve Board would appear ready to counteract any signs of
recession with further cuts in interest rates. Most importantly, the yield
spread between high-yield bonds and treasury securities remains very wide
especially in light of the amazing resilience of the domestic economy. Overall,
wide spreads and positive economic growth should make 1999 a good year for
high-yield securities although security selection will be key as slowing growth
and little pricing power, especially in the commodity area, will make for a
challenging environment for many high-yield issuers. We maintain our bias toward
high-quality operating companies within the high-yield market, to companies in
secularly growing industries such as telecommunications and companies in sectors
with stable business profiles like food products, cable TV and broadcasting.

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

"Graphic representation "D" omitted. See Appendix."

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1998 1 Year 2.70%
Start of Performance (3/1/94) 9.49%

The graph above illustrates the hypothetical investment of $10,000 1 in the
Federated High Income Bond Fund II (the "Fund") from March 1, 1994 (start of
performance) to December 31, 1998, compared to the Lehman Brothers Single B
Rated Index (LBSBRI),2 and the Lipper High Current Yield Fund

Average (LHCYFA). 3

1 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.

2 The LBSBRI is a proprietary index of Single B rated securities and 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.

3 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.

Portfolio of Investments
December 31, 1998

<TABLE>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-90.3%

AUTO/TRUCK-0.2%

$ 425,000 1 HDA Parts System, Inc., Sr. Sub. Note, 12.00%, 8/1/2005 $ 384,625
AUTOMOBILE-2.3%

675,000 Accuride Corp., Sr. Sub. Note, 9.25%, 2/1/2008 664,875
225,000 Aftermarket Technology Co., Sr. Sub. Note, 12.00%, 8/1/2004 237,375
350,000 Aftermarket Technology Co., Sr. Sub. Note, Series D, 12.00%,
8/1/2004 369,250
1,700,000 Collins & Aikman Products Co., Sr. Sub. Note, 11.50%,
4/15/2006 1,768,000
850,000 Lear Corp., Sub. Note, 9.50%, 7/15/2006 943,500
100,000 Lear Seating Corp., Sub. Note, 8.25%, 2/1/2002 100,625
750,000 Oxford Automotive, Inc., Sr. Sub. Note, 10.125%, 6/15/2007 776,250
TOTAL 4,859,875
BANKING-0.9%

2,000,000 GS Escrow Corp., Sr. Note, 7.125%, 8/1/2005 1,982,620
BEVERAGE & TOBACCO-0.3%
600,000 Dimon, Inc., Sr. Note, 8.875%, 6/1/2006 597,000
BROADCAST RADIO & TV-8.4%
900,000 ACME Television, LLC, Sr. Disc. Note, 0/10.875%, 9/30/2004 722,250
1,100,000 Big City Radio, Inc., Company Guarantee, 0/11.25%, 3/15/2005 731,500
630,000 CBS Radio, Inc., Sub. Deb., 11.375%, 1/15/2009 752,850
450,000 Capstar Broadcasting Partners, Inc., Sr. Sub. Note, 9.25%,
7/1/2007 470,250
600,000 Chancellor Media Corp., Company Guarantee, 10.50%, 1/15/2007 669,000
2,175,000 Chancellor Media Corp., Sr. Sub. Note, 8.125%, 12/15/2007 2,169,562
800,000 Chancellor Media Corp., Sr. Sub. Note, 8.75%, 6/15/2007 824,000
250,000 Chancellor Media Corp., Sr. Sub. Note, 9.375%, 10/1/2004 260,625
1,650,000 1 Chancellor Media Corp., Sr. Unsecd. Note, 8.00%, 11/1/2008 1,691,250
650,000 Cumulus Media, Inc., Sr. Sub. Note, 10.375%, 7/1/2008 692,250
2,475,000 Fox/Liberty Networks, LLC, Sr. Disc. Note, 0/9.75%,

8/15/2007 1,720,125
475,000 Fox/Liberty Networks, LLC, Sr. Note, 8.875%, 8/15/2007 484,500
250,000 Lamar Advertising Co., Sr. Sub. Note, 8.625%, 9/15/2007 263,750
550,000 Lamar Advertising Co., Sr. Sub. Note, 9.625%, 12/1/2006 598,125
1,575,000 Outdoor Systems, Inc., Sr. Sub. Note, 8.875%, 6/15/2007 1,693,125
250,000 Outdoor Systems, Inc., Sr. Sub. Note, 9.375%, 10/15/2006 271,250
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-continued

BROADCAST RADIO & TV-CONTINUED

$ 345,000 SFX Broadcasting, Inc., Sr. Sub. Note, 10.75%, 5/15/2006 $ 381,225
575,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 10.00%,
9/30/2005 606,625
750,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 8.75%,
12/15/2007 763,125
1,425,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 9.00%,
7/15/2007 1,457,063
475,000 Young Broadcasting, Inc., Sr. Sub. Note, 10.125%, 2/15/2005 501,125
150,000 Young Broadcasting, Inc., Sr. Sub. Note, 9.00%, 1/15/2006 152,625
TOTAL 17,876,200
BUILDING & DEVELOPMENT-0.9%

325,000 American Architectural Products Corp., Sr. Note, 11.75%,

12/1/2007 281,125
700,000 American Builders & Contractors Supply Co., Inc., Sr. Sub.
Note, 10.625%, 5/15/2007 654,500
500,000 Building Materials Corp. of America, Sr. Note, 8.00%,
10/15/2007 504,375
450,000 Building Materials Corp. of America, Sr. Note, 8.625%,
12/15/2006 460,125
TOTAL 1,900,125

BUSINESS EQUIPMENT & SERVICES-2.1%
175,000 1 American Business Information, Sr. Sub. Note, 9.50%,

6/15/2008 140,875
1,100,000 Dialog Corp. PLC, Sr. Sub. Note, 11.00%, 11/15/2007 1,100,000
300,000 Electronic Retailing Systems International, Inc., Sr. Disc.
Note, 0/13.25%, 2/1/2004 109,500
1,075,000 Fisher Scientific International, Inc., Sr. Sub. Note, 9.00%,
2/1/2008 1,075,000
325,000 1 Fisher Scientific International, Inc., Sr. Sub. Note, 9.00%,
2/1/2008 325,000
1,200,000 U.S. Office Products Co., Sr. Sub. Note, 9.75%, 6/15/2008 786,000
400,000 United Stationers Supply Co., Sr. Sub. Note, 12.75%,
5/1/2005 448,000
550,000 United Stationers Supply Co., Sr. Sub. Note, 8.375%,
4/15/2008 551,375
TOTAL 4,535,750

CABLE TELEVISION-11.0%

4,703 5 Australis Media Ltd., Sr. Disc. Note, 5/15/2003 70
275,000 5 Australis Media Ltd., Unit, 0/15.75%, 5/15/2003 4,125
500,000 CSC Holdings, Inc., Sr. Note, 7.875%, 12/15/2007 527,400
150,000 CSC Holdings, Inc., Sr. Sub. Deb., 9.875%, 2/15/2013 167,625
875,000 CSC Holdings, Inc., Sr. Sub. Note, 9.25%, 11/1/2005 936,250
650,000 CSC Holdings, Inc., Sr. Sub. Note, 9.875%, 5/15/2006 718,250
550,000 Charter Communications Holdings, Inc., Sr. Disc. Note,
0/14.00%, 3/15/2007 492,250
425,000 Charter Communications Southeast, L.P., Sr. Note, 11.25%,
3/15/2006 477,062
1,250,000 Comcast Corp., Sr. Sub. Deb., 9.375%, 5/15/2005 1,334,375
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-continued

CABLE TELEVISION-CONTINUED

$ 600,000 Comcast UK Cable, Deb., 0/11.20%, 11/15/2007 $ 513,000
1,175,000 Diamond Cable Communications PLC, Sr. Disc. Note, 0/10.75%,
2/15/2007 851,875
525,000 Diamond Cable Communications PLC, Sr. Note, 9.125%, 2/1/2008 515,813
550,000 1 Diva Systems Corp., Sr. Note, 0/12.625%, 3/1/2008 207,625
2,000,000 EchoStar Satellite Broadcasting Corp., Sr. Disc. Note,

0/13.125%, 3/15/2004 2,005,000
2,325,000 International Cabletel, Inc., Sr. Defd. Cpn. Note, 0/11.50%,
2/1/2006 1,941,375
475,000 International Cabletel, Inc., Sr. Disc. Note, 0/12.75%,
4/15/2005 429,875
850,000 Lenfest Communications Inc., Sr. Note, 8.375%, 11/1/2005 924,375
725,000 Lenfest Communications Inc., Sr. Sub. Note, 8.25%, 2/15/2008 759,437
1,800,000 NTL, Inc., Sr. Defd. Cpn. Note, 0/12.375%, 10/1/2008 1,134,000
1,500,000 1 NTL, Inc., Sr. Defd. Cpn. Note, 0/9.75%, 4/1/2008 931,875
300,000 1 NTL, Inc., Sr. Note, 11.50%, 10/1/2008 328,500
775,000 Pegasus Communications Corp., Sr. Note, 9.625%, 10/15/2005 778,875
525,000 1 Pegasus Communications Corp., Sr. Note, 9.75%, 12/1/2006 528,937
300,000 Pegasus Media, Note, 12.50%, 7/1/2005 331,500
400,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note,
10.00%, 12/1/2007 450,000
900,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note,
10.00%, 3/15/2005 1,012,500
400,000 Rogers Cablesystems Ltd., Sr. Sub. Gtd. Note, 11.00%,
12/1/2015 470,000
3,125,000 TeleWest PLC, Sr. Disc. Deb., 0/11.00%, 10/1/2007 2,625,000
400,000 TeleWest PLC, Sr. Note, 11.25%, 11/1/2008 449,000
1,175,000 UIH Australia/Pacific, Sr. Disc. Note, 0/14.00%, 5/15/2006 599,250
1,475,000 United International Holdings, Inc., Sr. Secd. Disc. Note,
0/10.75%, 2/15/2008 803,875
TOTAL 23,249,094

CHEMICALS & PLASTICS-3.2%

500,000 Buckeye Cellulose Corp., Sr. Sub. Note, 8.50%, 12/15/2005 522,500
900,000 Buckeye Cellulose Corp., Sr. Sub. Note, 9.25%, 9/15/2008 947,250
200,000 Foamex L.P., Sr. Sub. Note, 13.50%, 8/15/2005 212,000
850,000 1 Huntsman Corp., Sr. Sub. Note, 9.50%, 7/1/2007 850,000
700,000 ISP Holding, Inc., Sr. Note, 9.00%, 10/15/2003 743,750
475,000 ISP Holding, Inc., Sr. Note, 9.75%, 2/15/2002 507,063
650,000 Polymer Group, Inc., Sr. Sub. Note, 8.75%, 3/1/2008 641,875
2,075,000 Polymer Group, Inc., Sr. Sub. Note, 9.00%, 7/1/2007 2,064,625
875,000 Sterling Chemicals Holdings, Inc., Sr. Disc. Note, 0/13.50%,
8/15/2008 336,875
TOTAL 6,825,938

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-continued
CLOTHING & TEXTILES-1.5%

$ 350,000 Collins & Aikman Floorcoverings, Inc., Sr. Sub. Note,
10.00%, 1/15/2007 $ 367,500
625,000 Dyersburg Corp., Sr. Sub. Note, 9.75%, 9/1/2007 562,500
450,000 GFSI, Inc., Sr. Sub. Note, 9.625%, 3/1/2007 429,750
575,000 Glenoit Corp., Sr. Sub. Note, 11.00%, 4/15/2007 537,625
950,000 Pillowtex Corp., Sr. Sub. Note, 10.00%, 11/15/2006 1,021,250
150,000 Pillowtex Corp., Sr. Sub. Note, 9.00%, 12/15/2007 155,250
TOTAL 3,073,875
CONGLOMERATE-0.5%

1,150,000 Eagle Picher Industries, Inc., Sr. Sub. Note, 9.375%,

3/1/2008 1,092,500
CONSUMER PRODUCTS-4.7%

1,350,000 1 Albecca, Inc., Sr. Sub. Note, 10.75%, 8/15/2008 1,360,125
500,000 American Safety Razor Co., Sr. Note, 9.875%, 8/1/2005 502,500
475,000 Amscan Holdings, Inc., Sr. Sub. Note, 9.875%, 12/15/2007 445,312
900,000 Chattem, Inc., Sr. Sub. Note, 8.875%, 4/1/2008 927,000
200,000 Diamond Brands Operating Corp., Sr. Sub. Note, 10.125%,
4/15/2008 185,000
250,000 Diamond Brands, Inc., Sr. Disc. Deb., 0/12.875%, 4/15/2009 96,250
450,000 ICON Fitness Corp., Sr. Disc. Note, 0/14.00%, 11/15/2006 6,750
750,000 NBTY, Inc., Sr. Sub. Note, 8.625%, 9/15/2007 735,000
1,025,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%,

12/15/2003 1,076,250
500,000 Playtex Products, Inc., Sr. Note, 8.875%, 7/15/2004 525,000
625,000 Revlon Consumer Products Corp., Sr. Note, 8.125%, 2/1/2006 596,875
2,425,000 Revlon Consumer Products Corp., Sr. Sub. Note, 8.625%,

2/1/2008 2,243,125
325,000 Sealy Mattress Co., Company Guarantee, 0/10.875%, 12/15/2007 196,625
200,000 Sealy Mattress Co., Sr. Sub. Note, 9.875%, 12/15/2007 194,000
550,000 1 The Boyds Collection, Ltd., Sr. Sub. Note, 9.00%, 5/15/2008 591,250
300,000 1 True Temper Sports, Inc., Sr. Sub. Note, 10.875%, 12/1/2008 301,500
TOTAL 9,982,562
CONTAINER & GLASS PRODUCTS-1.1%

500,000 1 Ball Corp., Sr. Sub. Note, 8.25%, 8/1/2008 525,625
400,000 Owens-Illinois, Inc., Sr. Note, 8.10%, 5/15/2007 426,136
250,000 Plastic Containers, Inc., Sr. Secd. Note, 10.00%, 12/15/2006 263,750
1,000,000 Tekni-Plex, Inc., Sr. Sub. Note, 9.25%, 3/1/2008 1,050,000
TOTAL 2,265,511
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-continued
ECOLOGICAL SERVICES & EQUIPMENT-1.2%

$ 2,000,000 1 Allied Waste North America, Inc., Sr. Note, 7.625%, 1/1/2006 $ 2,030,000
500,000 1 Allied Waste North America, Inc., Sr. Note, 7.875%, 1/1/2009 507,500
TOTAL 2,537,500
ELECTRONICS-0.9%

350,000 PX Escrow Corp., Sr. Sub. Note, 0/9.625%, 2/1/2006 194,250
1,200,000 Telecommunications Techniques Co., LLC, Sr. Sub. Note,
9.75%, 5/15/2008 1,170,000
600,000 Viasystems, Inc., Sr. Sub. Note, 9.75%, 6/1/2007 561,000
TOTAL 1,925,250
FINANCIAL INTERMEDIARIES-0.2%

575,000 ContiFinancial Corp., Sr. Note, 8.125%, 4/1/2008 411,125
FOOD & DRUG RETAILERS-1.3%
375,000 Carr-Gottstein Foods Co., Sr. Sub. Note, 12.00%, 11/15/2005 435,000
350,000 Community Distributors, Inc., Sr. Note, 10.25%, 10/15/2004 323,750
700,000 DiGiorgio Corp., Sr. Note, 10.00%, 6/15/2007 654,500
750,000 Jitney-Jungle Stores of America, Inc., Sr. Sub. Note,
10.375%, 9/15/2007 765,000
550,000 Stater Brothers Holdings, Inc., Sr. Sub. Note, 9.00%,
7/1/2004 539,000
TOTAL 2,717,250

FOOD PRODUCTS-1.9%

1,050,000 1 Agrilink Foods, Inc., Sr. Sub. Note, 11.875%, 11/1/2008 1,071,000
625,000 Aurora Foods, Inc., Sr. Sub. Note, 9.875%, 2/15/2007 684,375
500,000 Aurora Foods, Inc., Sr. Sub. Note, 9.875%, 2/15/2007 547,500
550,000 Eagle Family Foods, Inc., Sr. Sub. Note, 8.75%, 1/15/2008 521,125
1,200,000 International Home Foods, Inc., Sr. Sub. Note, 10.375%,

11/1/2006 1,305,000
TOTAL 4,129,000

FOOD SERVICES-1.3%

225,000 AmeriServe Food Distribution, Inc., Sr. Note, 8.875%,

10/15/2006 209,250
1,650,000 AmeriServe Food Distribution, Inc., Sr. Sub. Note, 10.125%,
7/15/2007 1,443,750
525,000 1 Carrols Corp., Sr. Sub. Note, 9.50%, 12/1/2008 531,562
625,000 1 Domino's, Inc., Sr. Sub. Note, 10.375%, 1/15/2009 625,000
TOTAL 2,809,562
FOREST PRODUCTS-0.6%

50,000 Container Corp. of America, Sr. Note, 11.25%, 5/1/2004 52,250
450,000 Four M Corp., Sr. Note, 12.00%, 6/1/2006 339,750
100,000 Stone Container Corp., Sr. Note, 11.50%, 10/1/2004 104,500
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-continued

FOREST PRODUCTS-CONTINUED

$ 800,000 Stone Container Corp., Sr. Note, 12.58%, 8/1/2016 $ 816,000
TOTAL 1,312,500
HEALTHCARE-3.4%

425,000 Alliance Imaging, Inc., Sr. Sub. Note, 9.625%, 12/15/2005 422,875
750,000 CONMED Corp., Sr. Sub. Note, 9.00%, 3/15/2008 755,625
975,000 Dade International, Inc., Sr. Sub. Note, 11.125%, 5/1/2006 1,084,687
525,000 Everest Healthcare Services Corp., Sr. Sub. Note, 9.75%,
5/1/2008 525,000
275,000 Hudson Respiratory Care, Inc., Sr. Sub. Note, 9.125%,
4/15/2008 224,125
200,000 1 Tenet Healthcare Corp., Sr. Note, 7.625%, 6/1/2008 203,276
2,350,000 Tenet Healthcare Corp., Sr. Note, 8.00%, 1/15/2005 2,412,486
1,550,000 Tenet Healthcare Corp., Sr. Sub. Note, 8.625%, 1/15/2007 1,619,750
TOTAL 7,247,824
HOME PRODUCTS & FURNISHINGS-0.3%

975,000 Falcon Building Products, Inc., Sr. Sub. Disc. Note,

0/10.50%, 6/15/2007 580,125
150,000 Falcon Building Products, Inc., Sr. Sub. Note, 9.50%,
6/15/2007 134,250
TOTAL 714,375

HOTELS, MOTELS, INNS & CASINOS-1.6%

350,000 Courtyard by Marriott II LP, Sr. Note, 10.75%, 2/1/2008 362,250
2,250,000 HMH Properties, Inc., Sr. Note, Series B, 7.875%, 8/1/2008 2,193,750
750,000 HMH Properties, Inc., Sr. Note, Series C, 8.45%, 12/1/2008 753,750
TOTAL 3,309,750
INDUSTRIAL PRODUCTS & EQUIPMENT-3.7%

700,000 Amphenol Corp., Sr. Sub. Note, 9.875%, 5/15/2007 728,000
400,000 Cabot Safety Acquisition Corp., Sr. Sub. Note, 12.50%,
7/15/2005 438,000
750,000 Continental Global Group, Inc., Sr. Note, 11.00%, 4/1/2007 648,750
400,000 Euramax International PLC, Sr. Sub. Note, 11.25%, 10/1/2006 400,000
250,000 Fairfield Manufacturing Co., Inc., Sr. Sub. Note, 11.375%,
7/1/2001 257,500
275,000 Grove Worldwide, LLC, Sr. Sub. Note, 9.25%, 5/1/2008 251,625
600,000 ISG Resources, Inc., Sr. Sub. Note, 10.00%, 4/15/2008 597,000
225,000 International Utility Structures, Inc., Sr. Sub. Note,
10.75%, 2/1/2008 210,375
375,000 Johnstown America Industries, Inc., Sr. Sub. Note, 11.75%,
8/15/2005 397,500
225,000 Johnstown America Industries, Inc., Sr. Sub. Note, 11.75%,
8/15/2005 238,500
525,000 MMI Products, Inc., Sr. Sub. Note, 11.25%, 4/15/2007 569,625
850,000 Neenah Corp., Sr. Sub. Note, 11.125%, 5/1/2007 877,625
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-continued

INDUSTRIAL PRODUCTS & EQUIPMENT-CONTINUED

$ 500,000 Unifrax Investment Corp., Sr. Note, 10.50%, 11/1/2003 $ 507,500
1,275,000 WESCO Distribution, Inc., Sr. Sub. Note, 9.125%, 6/1/2008 1,281,375
850,000 WESCO International, Inc., Sr. Disc. Note, 0/11.125%,

6/1/2008 524,875
TOTAL 7,928,250

LEISURE & ENTERTAINMENT-3.3%

1,164,000 AMF Group, Inc., Sr. Sub. Disc. Note, 0/12.25%, 3/15/2006 672,210
500,000 Loews Cineplex Entertainment, Inc., Sr. Sub. Note, 8.875%,
8/1/2008 518,750
1,225,000 Premier Parks, Inc., Sr. Disc. Note, 0/10.00%, 4/1/2008 836,062
850,000 Premier Parks, Inc., Sr. Note, 12.00%, 8/15/2003 924,375
250,000 Premier Parks, Inc., Sr. Note, 9.25%, 4/1/2006 260,000
175,000 Premier Parks, Inc., Sr. Note, 9.75%, 1/15/2007 190,750
1,100,000 Regal Cinemas, Inc., 9.50%, 6/1/2008 1,138,500
875,000 Regal Cinemas, Inc., Sr. Sub. Note, 9.50%, 6/1/2008 905,625
1,325,000 Six Flags Theme Parks, Sr. Sub. Disc. Note, 0/12.25%,

6/15/2005 1,477,375
TOTAL 6,923,647

MACHINERY & EQUIPMENT-2.0%

348,000 Alvey Systems, Inc., Sr. Sub. Note, 11.375%, 1/31/2003 349,740
900,000 Clark Material Handling Corp., Sr. Note, 10.75%, 11/15/2006 920,250
300,000 Columbus McKinnon Corp., Sr. Sub. Note, 8.50%, 4/1/2008 282,000
500,000 National Equipment Services, Inc., Sr. Sub. Note, 10.00%,
11/30/2004 497,500
875,000 1 National Equipment Services, Inc., Sr. Sub. Note, Series C,
10.00%, 11/30/2004 870,625
1,250,000 1 United Rentals, Inc., Sr. Sub. Note, 9.25%, 1/15/2009 1,259,375
TOTAL 4,179,490
METALS & MINING-0.8%

700,000 1 AEI Holding Co., Inc., Sr. Note, 10.50%, 12/15/2005 689,500
1,000,000 1 AEI Resources, Inc., Sr. Sub. Note, 11.50%, 12/15/2006 995,000
TOTAL 1,684,500
OIL & GAS-3.1%

525,000 Chiles Offshore, LLC, Sr. Note, 10.00%, 5/1/2008 422,625
1,000,000 Continental Resources, Inc., Sr. Sub. Note, 10.25%, 8/1/2008 835,000
300,000 DI Industries, Inc., Sr. Note, 8.875%, 7/1/2007 226,500
1,125,000 Dailey Petroleum Services Corp., Company Guarantee, 9.50%,
2/15/2008 528,750
950,000 Forcenergy Gas Exploration, Inc., Sr. Sub. Note, 8.50%,
2/15/2007 707,750
600,000 Forcenergy Gas Exploration, Inc., Sr. Sub. Note, 9.50%,
11/1/2006 465,000
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-continued

OIL & GAS-CONTINUED

$ 600,000 KCS Energy, Inc., Sr. Sub. Note, 8.875%, 1/15/2008 $ 345,000
200,000 Nuevo Energy Co., Sr. Sub. Note, 8.875%, 6/1/2008 195,000
675,000 Ocean Energy, Inc., Sr. Sub. Note, 10.375%, 10/15/2005 698,625
350,000 Pacalta Resources Ltd., Sr. Note, 10.75%, 6/15/2004 281,750
825,000 Pride Petroleum Services, Inc., Sr. Note, 9.375%, 5/1/2007 771,375
400,000 The Houston Exploration Co., Sr. Sub. Note, 8.625%, 1/1/2008 394,000
1,200,000 Universal Compression Holdings, Inc., Sr. Disc. Note,

0/9.875%, 2/15/2008 690,000
TOTAL 6,561,375

PRINTING & PUBLISHING-1.6%

750,000 Affiliated Newspaper Investments, Inc., Sr. Disc. Note,

0/13.25%, 7/1/2006 774,375
150,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%,
7/1/2004 164,250
725,000 Garden State Newspapers, Inc., Sr. Sub. Note, 8.75%,
10/1/2009 728,625
450,000 Hollinger International Publishing, Inc., Sr. Sub. Note,
9.25%, 2/1/2006 474,750
775,000 Hollinger International Publishing, Inc., Sr. Sub. Note,
9.25%, 3/15/2007 821,500
550,000 Ziff-Davis, Inc., Sr. Sub. Note, 8.50%, 5/1/2008 533,500
TOTAL 3,497,000
REAL ESTATE-0.2%

335,000 Trizec Finance Ltd., Sr. Note, 10.875%, 10/15/2005 367,663
RETAILERS-0.3%

525,000 Leslie's Poolmart, Inc., Sr. Note, 10.375%, 7/15/2004 543,375
SERVICES-0.5%

625,000 Coinmach Corp., Sr. Note, 11.75%, 11/15/2005 692,188
425,000 SITEL Corp., Sr. Sub. Note, 9.25%, 3/15/2006 384,625
TOTAL 1,076,813
STEEL-0.5%

200,000 Metals USA, Inc., Sr. Sub. Note, 8.625%, 2/15/2008 189,000
450,000 Ryerson Tull, Inc., Note, 8.50%, 7/15/2001 474,430
325,000 Ryerson Tull, Inc., Note, 9.125%, 7/15/2006 365,716
TOTAL 1,029,146
SURFACE TRANSPORTATION-2.5%

650,000 Allied Holdings, Inc., Sr. Note, 8.625%, 10/1/2007 663,000
700,000 6 AmeriTruck Distribution Corp., Sr. Sub. Note, 12.25%,
11/15/2005 45,500
1,000,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 1,060,000
500,000 Statia Terminals International N.V., 1st Mtg. Note, 11.75%,
11/15/2003 502,500
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-continued

SURFACE TRANSPORTATION-CONTINUED

$ 1,500,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 $ 1,556,250
750,000 Stena AB, Sr. Note, 8.75%, 6/15/2007 718,125
300,000 Stena Line AB, Sr. Note, 10.625%, 6/1/2008 271,500
725,000 1 The Holt Group, Inc., Sr. Note, 9.75%, 1/15/2006 511,125
TOTAL 5,328,000
TELECOMMUNICATIONS & CELLULAR-21.3%

1,000,000 1 American Cellular Corp., Sr. Note, 10.50%, 5/15/2008 995,000
500,000 1 Arch Communications, Inc., Sr. Note, 12.75%, 7/1/2007 502,500
1,850,000 Call-Net Enterprises, Inc., Sr. Disc. Note, 0/8.94%,

8/15/2008 1,096,125
1,500,000 Call-Net Enterprises, Inc., Sr. Disc. Note, 0/9.27%,
8/15/2007 967,500
650,000 1 Centennial Cellular Corp., Sr. Sub. Note, 10.75%, 12/15/2008 656,500
550,000 Comcast Cellular Holdings, Inc., Sr. Note, 9.50%, 5/1/2007 589,875
700,000 E.Spire Communications, Inc., Sr. Disc. Note, 0/12.75%,
4/1/2006 437,500
375,000 E.Spire Communications, Inc., Sr. Disc. Note, 0/13.00%,
11/1/2005 253,125
250,000 E.Spire Communications, Inc., Sr. Note, 13.75%, 7/15/2007 246,250
250,000 Esprit Telecom Group PLC, Sr. Note, 11.50%, 12/15/2007 260,000
600,000 1 Hermes Europe Railtel B.V., Sr. Note, 10.375%, 1/15/2009 612,000
1,125,000 Hermes Europe Railtel B.V., Sr. Note, 11.50%, 8/15/2007 1,198,125
275,000 ICG Holdings, Inc., Sr. Disc. Note, 0/12.50%, 5/1/2006 204,017
1,450,000 ICG Services, Inc., Sr. Disc. Note, 0/9.875%, 5/1/2008 752,884
1,225,000 IXC Communications, Inc., Sr. Sub. Note, 9.00%, 4/15/2008 1,232,656
1,625,000 Intermedia Communications, Inc., Sr. Disc. Note, 0/11.25%,
7/15/2007 1,129,375
1,400,000 Intermedia Communications, Inc., Sr. Disc. Note, 0/12.50%,
5/15/2006 1,102,500
450,000 Intermedia Communications, Inc., Sr. Note, 8.60%, 6/1/2008 429,750
450,000 Intermedia Communications, Inc., Sr. Note, 8.875%, 11/1/2007 436,500
3,250,000 1 Level 3 Communications, Inc., Sr. Disc. Note, 0/10.50%,
12/1/2008 1,909,375
3,575,000 Level 3 Communications, Inc., Sr. Note, 9.125%, 5/1/2008 3,566,063
1,375,000 McLeod, Inc., Sr. Disc. Note, 0/10.50%, 3/1/2007 1,045,000
375,000 McLeod, Inc., Sr. Note, 8.375%, 3/15/2008 378,750
400,000 McLeod, Inc., Sr. Note, 9.25%, 7/15/2007 411,000
375,000 1 McLeod, Inc., Sr. Note, 9.50%, 11/1/2008 401,250
850,000 MetroNet Communications Corp., Sr. Disc. Note, 0/10.75%,
11/1/2007 556,750
800,000 MetroNet Communications Corp., Sr. Note, 12.00%, 8/15/2007 874,000
1,625,000 MetroNet Escrow Corp., Sr. Disc. Note, 0/9.95%, 6/15/2008 1,003,437
<CAPTION>
PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CORPORATE BONDS-continued

TELECOMMUNICATIONS & CELLULAR-CONTINUED

$ 850,000 1 MetroNet Escrow Corp., Sr. Note, 10.625%, 11/1/2008 $ 905,250
425,000 1 Metromedia Fiber Network, Inc., Sr. Note, 10.00%, 11/15/2008 438,813
1,550,000 Millicom International Cellular S.A., Sr. Disc. Note,

0/13.50%, 6/1/2006 1,096,625
3,500,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/10.65%,
9/15/2007 2,275,000
2,050,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.95%,
2/15/2008 1,240,250
950,000 NEXTLINK Communications, Inc., Sr. Disc. Note, 0/9.45%,
4/15/2008 551,000
1,000,000 NEXTLINK Communications, Inc., Sr. Note, 9.00%, 3/15/2008 932,500
600,000 Nextel International, Inc., Sr. Disc. Note, 0/12.125%,

4/15/2008 281,328
1,125,000 Orange PLC, Sr. Note, 8.00%, 8/1/2008 1,130,625
1,500,000 Paging Network, Inc., Sr. Sub. Note, 10.00%, 10/15/2008 1,455,000
800,000 Pathnet, Inc., Unit, 12.25%, 4/15/2008 608,000
900,000 PsiNet, Inc., Sr. Note, 10.00%, 2/15/2005 895,500
575,000 1 PsiNet, Inc., Sr. Note, 11.50%, 11/1/2008 598,000
2,125,000 Qwest Communications International, Inc., Sr. Disc. Note,

0/9.47%, 10/15/2007 1,668,125
390,000 Qwest Communications International, Inc., Sr. Note, 10.875%,
4/1/2007 450,450
500,000 1 Qwest Communications International, Inc., Sr. Note, 7.50%,
11/1/2008 525,000
1,750,000 Rogers Cantel Mobile, Inc., Sr. Sub. Note, 8.80%, 10/1/2007 1,774,063
650,000 Telesystem International Wireless, Inc., Sr. Disc. Note,

0/10.50%, 11/1/2007 240,500
1,525,000 Telesystem International Wireless, Inc., Sr. Disc. Note,
0/13.25%, 6/30/2007 655,750
800,000 Teligent, Inc., Sr. Disc. Note, 0/11.50%, 3/1/2008 396,000
875,000 Teligent, Inc., Sr. Note, 11.50%, 12/1/2007 809,375
1,575,000 Triton PCS, Inc., Sr. Disc. Note, 0/11.00%, 5/1/2008 744,188
500,000 US Xchange, L.L.C., Sr. Note, 15.00%, 7/1/2008 526,250
350,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 318,500
475,000 1 Verio, Inc., Sr. Note, 11.25%, 12/1/2008 482,125
300,000 Viatel, Inc., Unit, 0/12.50%, 4/15/2008 171,000
825,000 Viatel, Inc., Unit, 11.25%, 4/15/2008 829,125
TOTAL 45,246,149
UTILITIES-0.7%

525,000 El Paso Electric Co., 1st Mtg. Note, 9.40%, 5/1/2011 596,174
1,250,000 Niagara Mohawk Power Corp., Sr. Disc. Note, Series H,
0/8.50%, 7/1/2010 972,038
TOTAL 1,568,212
TOTAL CORPORATE BONDS (IDENTIFIED COST $198,837,007) 191,673,431
<CAPTION>

SHARES VALUE
<C> <S> <C>

PREFERRED STOCKS-3.8%

BANKING-0.1%

10,000 California Federal Preferred Capital Corp., REIT Perpetual
Pfd. Stock,
Series A, $2.28 $ 253,125
BROADCAST RADIO & TV-1.3%

600 Benedek Communications Corp., Sr. Exchangeable PIK 483,000
6,280 Capstar Broadcasting Partners, Inc., Sr. Pfd., $12.00 755,146
481 Cumulus Media, Inc., Cumulative Sr. Red. Pfd. Stk., Series

A, $3.44 519,465
2,260 SFX Broadcasting, Inc., Cumulative Exchangeable Pfd. Stock,
Series E 272,330
7,300 Sinclair Broadcast Group, Inc., Cumulative Pfd., $11.63 773,800
TOTAL 2,803,741
CABLE TELEVISION-0.5%

173 Echostar Communications Corp., Sr. Red. Pfd. Stk., $12.13 201,685
787 Pegasus Communications Corp., Cumulative PIK Pfd., Series A,
12.75% 759,455
TOTAL 961,140

FOOD SERVICES-0.1%

3,797 Nebco Evans Holding Co., Exchangeable Pfd. Stock 191,743
HEALTHCARE-0.0%

1,855 River Holding Corp., Sr. Exchangeable PIK 82,084
INDUSTRIAL PRODUCTS & EQUIPMENT-0.1%
150 Fairfield Manufacturing Co., Inc., Cumulative Exchangeable

Pfd. Stock 144,750
7 1 International Utility Structures, Inc., Unit 574
100 1 International Utility Structures, Inc., Unit, $13.00 90,500
TOTAL 235,824
PRINTING & PUBLISHING-1.1%

7,000 Primedia, Inc., Cumulative Pfd., Series D, $10.00 724,500
2,000 Primedia, Inc., Exchangeable Pfd. Stock, Series H, 8.625% 193,000
14,400 Primedia, Inc., Pfd., $9.20 1,418,400
TOTAL 2,335,900
TELECOMMUNICATIONS & CELLULAR-0.4%

553 NEXTEL Communications, Inc., Cumulative PIK Pfd., Series D,
13.00% 573,738
134 NEXTEL Communications, Inc., Exchangeable Pfd. Stock,

Series E 115,932
572 Viatel, Inc., Conv. PIK Pfd., Series A, 10.00% 63,206
TOTAL 752,876
<CAPTION>
SHARES VALUE
<C> <S> <C>
PREFERRED STOCKS-continued

UTILITIES-0.2%

3,392 El Paso Electric Co., Cumulative PIK Pfd., Series A, 11.40% $ 364,683
TOTAL PREFERRED STOCKS (IDENTIFIED COST $8,073,103) 7,981,116
COMMON STOCKS-0.0%
BUSINESS EQUIPMENT & SERVICES-0.0%
300 1 2Electronic Retailing Systems International, Inc.,

Warrants 1,500
CABLE TELEVISION-0.0%

200 5 Australis Holdings Property Ltd., Warrants 0
1,650 2 Diva Systems Corp., Warrants 26,400
338 2 Pegasus Communications Corp. 8,471
550 2 Pegasus Communications Corp., Warrants 11,275
1,175 2 UIH Australia/Pacific, Warrants 3,525
450 2 Wireless One, Inc., Warrants 0
Total 49,671
CHEMICALS & PLASTICS-0.0%

425 2 Sterling Chemicals Holdings, Inc., Warrants 6,375
ENGINEERING/R&D SERVICES-0.0%
960 ICF Kaiser International, Inc. 10
PRINTING & PUBLISHING-0.0%
50 2 Affiliated Newspaper Investments, Inc. 7,500
STEEL-0.0%

100 1,2Bar Technologies, Inc., Warrants 5,500
TELECOMMUNICATIONS & CELLULAR-0.0%
375 2 Cellular Communications International, Inc., Warrants 23,250
800 1,2MetroNet Communications Corp., Warrants 33,728
800 2 Pathnet, Inc., Warrants 8,000
TOTAL 64,978
TOTAL COMMON STOCKS (IDENTIFIED COST $50,161) 135,534
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

U.S. TREASURY-1.0%

$ 2,000,000 United States Treasury Note, 5.50%, 2/15/2008 (identified

cost $1,995,625) $ 2,118,580
REPURCHASE AGREEMENT-3.6% 3
7,675,000 Westdeutsche Landesbank Girozentrale, 4.90%, dated

12/31/1998, due 1/4/1999 (AT AMORTIZED COST) 7,675,000
TOTAL INVESTMENTS (IDENTIFIED COST $216,630,896) 4 $ 209,583,661

</TABLE>

1 Denotes a restricted security which is subject to restrictions on resale under
Federal Securities laws. At December 31, 1998, these securities amounted to
$25,618,765 which represents 12.1% of net assets.

2 Non-income producing security.

4 The cost of investments for federal tax purposes amounts to $216,630,896. The
net unrealized depreciation of investments on a federal tax basis amounts to
$7,047,235 which is comprised of $4,112,495 appreciation and $11,159,730
depreciation at December 31, 1998.

5 Australis Holdings Pty Limited, a wholly owned subsidiary of Australis Media
Limited, filed for reorganization relief under Chapter 11 of the Bankruptcy Code
on April 8, 1998. Australis was a leading provider of subscription television
services in Australia which has been negatively impacted by its failed merger
with a rival pay TV operator. The company has effectively ceased operations
although litigation is pending.

6 AmeriTruck Distribution Corporation and subsidiaries filed for reorganization
under Chapter 11 of the Federal Bankruptcy Code on November 11, 1998. AmeriTruck
operates in specialized segments of the trucking industry in the United States.
It purchased a large refrigerated trucking operation from ConAgra with bond
proceeds in hopes of establishing a major national presence in that niche but
was unable to generate enough volume to bring capacity utilization in that
segment to a level adequate to service related debt. The company continues to
operate in Chapter 11 while liquidating most of the refrigerated operation while
retaining selected profitable portions of that business.

Note: The categories of investments are shown as a percentage of net assets
($212,290,236) at December 31, 1998.

The following acronyms are used throughout this portfolio:

GTD -Guaranty
PIK -Payment in Kind

REIT -Real Estate Investment Trust

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities
December 31, 1998

<TABLE>

<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and
tax cost $216,630,896) $ 209,583,661
Cash 6,990
Income receivable 3,618,054
Receivable for investments sold 635,920
Receivable for shares sold 1,770,038
Prepaid expenses 2,570
TOTAL ASSETS 215,617,233
LIABILITIES:

Payable for investments purchased $ 3,208,115
Payable for shares redeemed 111,239
Income distribution payable 1,400
Payable for taxes withheld 1,953
Accrued expenses 4,290
TOTAL LIABILITIES 3,326,997
Net Assets for 19,443,099 shares outstanding $ 212,290,236
NET ASSETS CONSIST OF:
Paid in capital $ 201,115,367
Net unrealized depreciation of investments (7,047,235)
Accumulated net realized gain on investments 1,350,668
Undistributed net investment income 16,871,436
TOTAL NET ASSETS $ 212,290,236
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PROCEEDS PER SHARE:
$212,290,236 / 19,443,099 shares outstanding $10.92

</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Operations
Year Ended December 31, 1998

<TABLE>

<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 872,457
Interest (Net of foreign taxes withheld of $1,953) 17,391,988
TOTAL INCOME 18,264,445
EXPENSES:

Investment advisory fee $ 1,119,042
Administrative personnel and services fee 140,924
Custodian fees 13,906
Transfer and dividend disbursing agent fees and expenses 13,692
Directors'/Trustees' fees 2,980
Auditing fees 12,445
Legal fees 2,865
Portfolio accounting fees 54,497
Share registration costs 17,859
Printing and postage 60,488
Insurance premiums 2,883
Miscellaneous 19,341
TOTAL EXPENSES 1,460,922
Net investment income 16,803,523
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 1,535,155
Net change in unrealized (depreciation)
of investments (13,361,235)
Net realized and unrealized loss on investments (11,826,080)
Change in net assets resulting from operations $ 4,977,443
</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

YEAR ENDED DECEMBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS

OPERATIONS:

Net investment income $ 16,803,523 $ 9,247,185
Net realized gain on investments ($1,457,218 and
$1,099,230 net gain, respectively, as computed for
federal tax purposes) 1,535,155 993,291
Net change in unrealized appreciation/(depreciation) of
investments (13,361,235) 3,934,285
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 4,977,443 14,174,761
DISTRIBUTIONS TO SHAREHOLDERS:

Distributions from net investment income (4,060,123) (5,313,534)
Distributions from net realized gains (1,101,291) (286,146)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS

TO SHAREHOLDERS (5,161,414) (5,599,680)
SHARE TRANSACTIONS:
Proceeds from sale of shares 140,016,075 110,484,533
Net asset value of shares issued to shareholders in payment

of distributions declared 5,161,412 5,598,277
Cost of shares redeemed (88,866,908) (34,537,573)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 56,310,579 81,545,237
Change in net assets 56,126,608 90,120,318
NET ASSETS:

Beginning of period 156,163,628 66,043,310
End of period (including undistributed net investment income
of $16,871,436 and $4,043,446, respectively) $ 212,290,236 $ 156,163,628
</TABLE>

See Notes which are an integral part of the Financial Statements

Financial Highlights

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

RATIOS TO AVERAGE NET ASSETS:

Expenses 0.78% 0.80% 0.80% 0.80% 0.41% 4
Net investment income 9.01% 8.70% 9.23% 9.27% 9.11% 4
Expense waiver 5 -% 0.09% 0.59% 3.40% 10.01% 4
SUPPLEMENTAL DATA:

Net assets, end of period (000 omitted) $212,290 $156,164 $66,043 $20,165 $1,457
Portfolio turnover 27% 52% 51% 48% 18%
</TABLE>

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

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

4 Computed on an annualized basis.

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

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

December 31, 1998

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 High Income Bond Fund II
(the "Fund"). 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 is to seek high current income.

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 60 days or less at the time of purchase may be valued at amortized
cost, which approximates fair market value.

REPURCHASE AGREEMENTS

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

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

INCREASE (DECREASE)
ACCUMULATED UNDISTRIBUTED NET
NET REALIZED INVESTMENT

PAID-IN CAPITAL GAIN/LOSS INCOME
(10,301) (74,289) 84,590

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

FEDERAL TAXES

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

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 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 Trust's
pricing committee.

Additional information on each restricted security held at December 31, 1998 is
as follows:

SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
AEI Holdings Co., Sr. Note 11/06/1998 - 12/14/1998 $ 693,125
AEI Resources, Inc., Sr. Sub. Note 12/07/1998 1,000,000
Agrilink Foods, Inc., Sr. Sub. Note 11/13/1998 1,050,000
Albecca Inc., Sr. Sub. Note 08/06/1998 - 11/05/1998 1,350,000
Allied Waste North America, Inc., Sr. Note 12/14/1998 2,000,000
Allied Waste North America, Inc., Sr. Note 12/30/1998 506,875
American Business Information Sr. Sub. Note 06/12/1998 175,000
American Cellular Corp., Sr. Note 05/06/1998 - 06/05/1998 995,575
Arch Communications, Inc., Sr. Note 06/24/1998 490,245
Ball Corp., Sr. Sub. Note 08/05/1998 500,000
Bar Technologies, Inc., Warrants 08/28/1996 5,588
The Boyds Collection, Ltd., Sr. Sub. Note 04/16/1998 - 05/20/1998 549,500
Carrols Corp., Sr. Sub. Note 11/18/1998 525,000
Centennial Cellular Corp., Sr. Sub. Note 12/09/1998 653,906
Chancellor Media Corp., Sr. Unsecd. Note 11/11/1998 1,635,992
Diva Systems Corp., Sr. Note 12/15/1998 320,508
Domino's, Inc., Sr. Sub. Note 12/10/1998 625,000
Electronic Retailing Systems International, Inc., Warrants 06/17/1997 10,407
Fisher Scientific International, Inc., Sr. Sub. Note 11/10/1998 313,625
<CAPTION>

SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
HDA Parts Systems, Inc., Sr. Sub. Note 07/28/1998 $ 425,000
Hermes Europe Railtel B.V., Sr. Note 12/21/1998 600,000
The Holt Group, Inc., Sr. Note 01/14/1998 - 03/13/1998 737,688
Huntsman Corp., Sr. Sub. Note 11/24/1998 839,375
International Utility Structures, Inc., Unit 08/01/1998 -
International Utility Structures, Inc., Unit 01/27/1998 100,000
Level 3 Communications, Inc., Sr. Disc. Note 11/24/1998 1,965,716
McLeod, Inc., Sr. Note 10/22/1998 375,000
Metromedia Fiber Network, Inc., Sr. Note 11/20/1998 425,000
MetroNet Communications Corp., Warrants 12/31/1997 -
MetroNet Escrow Corp., Sr. Note 11/04/1998 850,000
NTL, Inc., Sr. Defd. Cpn. Note 03/06/1998 - 06/12/0998 1,016,717
NTL, Inc., Sr. Note 10/26/1998 300,000
National Equipment Services, Inc., Sr. Sub. Note, Series C 12/08/1998 856,013
Pegasus Communications Corp. Sr. Note 11/24/1998 525,000
PsiNet, Inc., Sr, Note 10/27/1998 575,000
Qwest Communications International, Inc., Sr. Note 10/28/1998 525,000
Tenet Healthcare Corp., Sr. Note 07/07/1998 202,750
True Temper Sports, Inc., Sr. Sub. Note 11/18/1998 300,000
United Rental, Inc., Sr. Sub Note 12/08/1998 1,250,000
Verio, Inc., Sr. Note 11/20/1998 475,000

</TABLE>

USE OF ESTIMATES

OTHER

Investment transactions are accounted for on the trade date.

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 1998 1997
<S> <C> <C>
Shares sold 12,858,666 10,549,129
Shares issued to shareholders in payment
of distributions declared 469,646 543,973
Shares redeemed (8,146,880) (3,281,443)
Net change resulting from share transactions 5,181,432 7,811,659
</TABLE>

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 voluntary choose to waive any portion
of its fee. The Adviser can modify of terminate this voluntary waiver at any
time at its sole discretion.

ADMINISTRATIVE FEE

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.

PORTFOLIO ACCOUNTING FEES

FServ maintains the Trust's accounting records for which it receives a fee. The
fee in based on the level of the Trust's average daily net assets for the
period, plus out of pocket expenses.

ORGANIZATIONAL EXPENSES

Organizational expenses and/or start-up administrative service expenses of
$47,820 were borne initially by Advisors. The Fund has reimbursed the Adviser
for these expenses. These expenses have been deferred and are being amortized
over the five-year period following the Fund's effective date. For the period
ended December 31, 1998, the Fund amortized $13,370 of organizational expenses.

GENERAL

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

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1998, were as follows:

Purchases $120,252,233
Sales $ 48,350,631

YEAR 2000 (UNAUDITED)

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 (the "Fund")
(a portfolio of the Federated Insurance Series) as of December 31, 1998, and the
related statement of operations for the year then ended, the statement of
changes in net assets for the years ended December 31, 1998 and 1997, 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, 1998, by correspondence with the custodian and brokers. 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 Federated High
Income Bond Fund II as of December 31, 1998, 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

Boston, Massachusetts
February 12, 1999

Trustees

JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.

NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
J. CHRISTOPHER DONAHUE
JAMES E. DOWD, ESQ.
LAWRENCE D. ELLIS, M.D.
EDWARD L. FLAHERTY, JR., ESQ.

PETER E. MADDEN
JOHN E. MURRAY, JR., J.D., S.J.D.

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 and Secretary

RICHARD B. FISHER

Vice President

RICHARD J. THOMAS

Treasurer

MATTHEW S. HARDIN

Assistant Secretary

risk, including the possible loss of principal.

ANNUAL REPORT

[Graphic]

Federated High Income Bond Fund II

Federated Insurance Series

ANNUAL REPORT
TO SHAREHOLDERS

December 31, 1998

[Graphic]

Federated High Income Bond Fund II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Cusip 313916306
G00844-01 (2/99)

[Graphic]
[Graphic]

ANNUAL REPORT

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.

Over the reporting period, the fund kept shareholders' cash working-and
accessible-every day while maintaining a stable share price of $1.00. 1

To provide a competitive daily yield, the fund invests in a diversified
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, 1998, net assets reached $103 million.

Thank you for choosing Federated Prime Money Fund II as a convenient,
professionally managed way to keep your ready cash working. 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, 1999

1 An investment in money market funds is neither insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
money market funds seek to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the fund.

INVESTMENT REVIEW

Federated Prime Money Fund II invests in money market instruments maturing in
397 days 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.

Economic growth during the second half of 1998 resumed its above-average pace,
after a brief slowdown in the second quarter. Specifically, third quarter gross
domestic product ("GDP") registered 3.9% while fourth quarter GDP topped the
year at 5.6%. Despite the high growth, though, inflation remained subdued by all
measures. The consumer price index rose just 1.6% for the 12 months ended
December 31, 1998. For the same time period, the producer price index actually
declined 0.2%, due mostly to a decline in food and energy prices, while the
employment cost index grew 3.8% on an annualized basis through the end of the
third quarter.

Thirty-day commercial paper started the reporting period at 5.77% on January 1,
1998, hovered in the 5.50% range area until September 23, 1998, when
expectations began to surface about the Federal Reserve Board ("the Fed")
lowering rates, and then dropped as low as 4.90% on November 20, 1998, before
rising to end the reporting period at 4.98%.

The money market yield curve looked lower but similarly shaped from December 31,
1997 to December 31, 1998. One-month commercial paper rates declined 79 basis
points while six-month rates declined 76 basis points reflecting the concern in
the market about the lack of liquidity in the U.S. credit markets. The Fed
responded to this by lowering the Federal funds target rate three times during
the reporting period-25 basis points on September 29, 1998, 25 basis points on
October 15, 1998, and 25 basis points on November 17, 1998- to end the reporting
period with a 4.75% target rate. The Fed also lowered the discount rate twice by
25 basis points to 4.75% on October 15, 1998, and by 25 basis points on November
17, 1998, to 4.50%.

The target average maturity range for the fund was lengthened from 35- 45 days
to 40-50 days on July 6, 1998. It was subsequently increased to 45- 55 days on
October 1, 1998, reflecting the Fed's concern about liquidity in the credit
markets and the current easing scenario. In structuring the fund, there is
continued emphasis placed on positioning 30-35% of the fund's assets in variable
rate demand notes and accomplishing a modest barbell structure.

During the reporting period ended December 31, 1998, the net assets of the fund
increased from $59.7 to $103.1 million while the seven-day net yield decreased
from 5.10% to 4.52%. 1 The effective average maturity of the fund on December
31, 1998, was 52 days.

1 Performance quoted represents past performance and is not indicative of future
results. Yield will vary. Yields quoted for money market funds most closely
reflect the fund's current earnings.

Portfolio of Investments
December 31, 1998

<TABLE>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

SHORT-TERM NOTES-6.3%

BANKING-1.9%

$ 1,000,000 SALTS III Cayman Island Corp., Series 1998-11, (Guaranteed
by Bankers Trust International, PLC), 5.589%, 3/12/1999 $ 1,000,000
1,000,000 SALTS III Cayman Island Corp., Series 1998-13, (Guaranteed
by Bankers Trust International, PLC), 5.571%, 3/18/1999 1,000,000
TOTAL 2,000,000
FINANCE - AUTOMOTIVE-0.5%

122,629 Chase Manhattan Auto Owner Trust 1998-C, Class A-1, 5.588%,
7/9/1999 122,622
369,441 Premier Auto Trust 1998-5, Class A-1, 5.140%, 7/8/1999 369,357
TOTAL 491,979
FINANCE - EQUIPMENT-2.5%

585,890 Copelco Capital Funding Trust 1998-A, Class A-1, 5.680%,

8/15/1999 585,890
2,000,000 Green Tree Lease Finance LLC 1998-1, Class A-1, 5.201%,
1/20/2000 2,000,000
TOTAL 2,585,890

INSURANCE-0.8%

604,744 Americredit Automobile Receivables Trust 1998-C, Class A-1,
(Insured by FSA), 5.380%, 9/12/1999 604,744
200,609 WFS Financial Owner Trust 1998-B, Class A-1, (Insured by

FSA), 5.658%, 7/20/1999 200,609
TOTAL 805,353

RECREATION-0.6%

72,978 Greentree Recreational, Equipment & Consumer Trust 1998-B,

Class A-1, 5.669%, 7/15/1999 72,978
534,383 Greentree Recreational, Equipment & Consumer Trust 1998-C,
Class A-1, 5.554%, 8/15/1999 534,383
TOTAL 607,361
TOTAL SHORT-TERM NOTES 6,490,583
CERTIFICATES OF DEPOSIT-5.4%

BANKING-5.4%

1,000,000 KeyBank, N.A., 5.080%, 4/9/1999 1,000,000
2,600,000 Societe Generale, Paris, 5.645% - 5.835%, 2/26/1999 -
4/27/1999 2,599,806
2,000,000 Svenska Handelsbanken, Stockholm, 5.800%, 4/6/1999 1,999,776
Total Certificates Of Deposit 5,599,582
<CAPTION>
PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

COMMERCIAL PAPER-57.7%

AEROSPACE/AUTO-4.7%

$ 4,900,000 Johnson Controls, Inc., 5.392% - 5.494%, 1/13/1999 -
1/20/1999 $ 4,889,366
BANKING-9.2%

500,000 Abbey National N.A. Corp., (Guaranteed by Abbey National

Bank PLC, London), 5.003%, 5/4/1999 491,663
1,000,000 Cregem North America, Inc., (Guaranteed by Credit Communal
de Belgique, Brussles), 5.635%, 2/3/1999 994,977
5,507,000 Fountain Square Commercial Funding Corp., (Fifth Third Bank,
Cincinnati Support Agreement), 5.243% - 5.422%, 3/1/1999 -

3/15/1999 5,450,476
2,600,000 Westpac Capital Corp., (Guaranteed by Westpac Banking Corp.
Ltd., Sydney),

5.297% - 5.450%, 1/11/1999 - 3/22/1999 2,586,155
TOTAL 9,523,271
BROKERAGE-3.9%

4,000,000 Salomon Smith Barney Holdings, Inc., 5.145% - 5.299%,
1/6/1999 - 3/8/1999 3,977,036
CHEMICALS-1.1%

1,141,000 IMC Global, Inc., 5.782% - 6.028%, 1/14/1999 - 1/20/1999 1,137,904
FINANCE - AUTOMOTIVE-3.9%
4,000,000 Ford Motor Credit Corp., 5.139%, 2/5/1999 3,980,361
FINANCE - COMMERCIAL-14.1%
1,000,000 Asset Securitization Cooperative Corp., 5.156%, 4/16/1999 985,242
4,000,000 Falcon Asset Securitization Corp., 5.331%, 2/11/1999 3,975,992
1,000,000 General Electric Capital Corp., 5.455%, 2/12/1999 993,782
3,641,000 Greenwich Funding Corp., 4.889% - 5.215%, 3/5/1999 -
4/6/1999 3,602,509
5,000,000 Sheffield Receivables Corp., 5.217% - 5.359%, 2/22/1999 -
3/15/1999 4,956,147
TOTAL 14,513,672

FINANCE - EQUIPMENT-0.8%

785,000 Comdisco, Inc., 5.687% - 6.087%, 1/15/1999 - 1/28/1999 783,133
FINANCE - RETAIL-11.0%
2,000,000 American Express Credit Corp., 5.023%, 4/12/1999 1,972,506
4,500,000 Associates First Capital Corp., 4.949% - 5.094%, 4/19/1999 -
5/27/1999 4,417,797
5,000,000 Island Finance, Puerto Rico, (Norwest Financial Inc. Support
Agreement)

5.200%, 2/16/1999 4,967,097
TOTAL 11,357,400

INDUSTRIAL PRODUCTS-0.8%

851,000 Praxair, Inc., 5.731% - 5.834%, 1/27/1999 - 2/23/1999 846,004
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COMMERCIAL PAPER-continued

INSURANCE-2.3%

$ 946,000 CNA Financial Corp., 5.533% - 5.899%, 1/15/1999 - 1/28/1999 $ 942,861
1,000,000 CXC, Inc., 5.161%, 5/17/1999 980,998
500,000 Marsh & McLennan Cos., Inc., 5.637%, 3/29/1999 493,408
TOTAL 2,417,267
MACHINERY, EQUIPMENT, AUTO-3.8%

2,000,000 Allied-Signal, Inc., 5.625%, 1/22/1999 1,993,525
2,000,000 Eaton Corp., 5.597%, 5/11/1999 1,960,856
TOTAL 3,954,381
OIL & OIL FINANCE-1.1%

1,179,000 Occidental Petroleum Corp., 5.752% - 6.135%, 1/15/1999 -
2/19/1999 1,174,284

TELECOMMUNICATIONS-1.0%

991,000 MCI Worldcom, Inc., 5.731% - 5.732%, 1/11/1999 - 1/19/1999 988,640
TOTAL COMMERCIAL PAPER 59,542,719
LOAN PARTICIPATION-2.5%
ELECTRICAL EQUIPMENT-0.6%
600,000 Mt. Vernon Phenol Plant Partnership, (Guaranteed by General
Electric Co.), 5.370%, 5/17/1999 600,000
INSURANCE-1.9%

2,000,000 Marsh & McLennan Cos., Inc., 5.254%, 5/24/1999 2,000,000
TOTAL LOAN PARTICIPATION 2,600,000
NOTES-VARIABLE-13.7% 2

BANKING-9.3%

160,000 Alabama State IDA, (Wellborn Cabinet, Inc.), Tax Revenue

Bonds, (Amsouth Bank N.A., Birmingham LOC), 5.480%, 1/7/1999 160,000
1,000,000 Bankers Trust Co., New York, 4.880%, 1/1/1999 999,712
800,000 1 Bankers Trust Corp., 4.960%, 1/1/1999 800,000
6,000 Capital One Funding Corp., Series 1995-A, (Bank One,
Indiana, N.A. LOC), 5.570%, 1/7/1999 6,000
170,000 Denver Urban Renewal Authority, (Series 1992-B), (Paribas,
Paris LOC), 5.700%, 1/7/1999 170,000
345,000 Edgefield County, SC, Series 1997 (Bondex Inc. Project),
(Marine Midland Bank N.A., Buffalo, NY LOC), 5.076%,

1/7/1999 345,000
185,000 Franklin County, OH, Edison Welding, Series 1995,
(Huntington National Bank, Columbus, OH LOC), 5.570%,

1/7/1999 185,000
400,000 La-Man Corp., (SouthTrust Bank of Alabama, Birmingham LOC),
5.680%, 1/1/1999 400,000
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

NOTES-VARIABLE-continued

$ 1,532,970 1 Liquid Asset Backed Securities Trust, Series 1997-1,
(Westdeutsche Landesbank Girozentrale Swap Agreement),
5.536%, 1/19/1999 $ 1,532,970
625,000 Lynn Haven, FL, Taxable Revenue Bond (Series 1998-B), (Bank
One, Ohio, N.A. LOC), 5.770%, 1/7/1999 625,000
560,000 Madison, WI Community Development Authority, Series 1997-B
Hamilton Point Apts., (Bank One, Wisconsin, N.A. LOC),

5.670%, 1/7/1999 560,000

198,000 Maryland State IDFA, Human Genome, Series1994, (First

National Bank of Maryland, Baltimore LOC), 5.430%, 1/4/1999 198,000
275,000 Mississippi Business Finance Corp., Metalloy Project,
(Comerica Bank, Detroit, MI LOC), 5.460%, 1/7/1999 275,000
438,956 1 Rabobank Optional Redemption Trust, Series 1997-101, 5.343%,
1/20/1998 438,956
355,000 Roby Company Ltd. Partnership, (Huntington National Bank,
Columbus, OH LOC), 5.570%, 1/7/1999 355,000
1,000,000 Societe Generale, Paris, 4.883%, 1/1/1999 999,599
100,000 Southeast Regional Holdings, LLC, Series 1995-A, (Columbus

Bank and Trust Co., GA LOC), 5.280%, 1/7/1999 100,000
1,200,000 Trap Rock Industries, Inc., Series 1997, (First Union
National Bank, Charlotte, NC LOC), 6.050%, 1/6/1999 1,200,000
186,000 Vista Funding Corp., Series 1994-A, (Fifth Third Bank of
Northwestern OH LOC), 5.570%, 1/7/1999 186,000
TOTAL 9,536,237

INSURANCE-4.4%

2,000,000 General American Life Insurance Co., 5.780%, 1/21/1999 2,000,000
1,000,000 Jackson National Life Insurance Co., 5.289%, 1/2/1999 1,000,000
544,657 1 Liquid Asset Backed Securities Trust, Series 1997-3 Senior
Notes, (Guaranteed by AMBAC), 5.254%, 3/28/1999 544,657
1,000,000 Travelers Insurance Company, 5.353%, 1/1/1999 1,000,000
TOTAL 4,544,657
TOTAL NOTES-VARIABLE 14,080,894

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

REPURCHASE AGREEMENTS-12.9% 3

$ 1,702,000 Nationsbanc Montgomery Securities, Inc., 5.100%, dated

12/31/1998, due 1/4/1999 $ 1,702,000
5,000,000 Paribas Corp., 5.100%, dated 12/31/1998, due 1/4/1999 5,000,000
2,559,000 Prudential Securities, Inc., 5.100%, dated 12/31/1998, due
1/4/1999 2,559,000
2,000,000 Societe Generale Securities Corp., 4.850%, dated 12/31/1998,
due 1/4/1999 2,000,000
2,000,000 Toronto Dominion Securities (USA) Inc., 4.970%, dated
12/31/1998, due 1/4/1999 2,000,000
TOTAL REPURCHASE AGREEMENTS 13,261,000
TOTAL INVESTMENTS (AT AMORTIZED COST) 4 $ 101,574,778
</TABLE>

1 Denotes a restricted security which is subject to restrictions on resale under
Federal Securities laws. At December 31, 1998, these securities amounted to
$3,316,583 which represents 3.2% of net assets.

2 Floating rate note with current rate and next reset date shown.

3 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.

4 Also represents cost for federal tax purposes.

Note: The categories of investments are shown as a percentage of net assets
($103,096,582) at December 31, 1998.

The following acronyms are used throughout this portfolio:

AMBAC -American Municipal Bond Assurance Corporation FSA -Financial Security
Assurance IDA -Industrial Development Authority IDFA -Industrial Development
Finance Authority LLC -Limited Liability Corporation LOC -Letter of Credit PLC
- -Public Limited Company

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities
December 31, 1998

<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 13,261,000
Investments in securities 88,313,778
Total investments at amortized cost and value $ 101,574,778
Income receivable 359,636
Receivable for shares sold 1,886,997
TOTAL ASSETS 103,821,411
LIABILITIES:

Payable for shares redeemed 678,019
Payable to Bank 23,872
Accrued expenses 22,938
TOTAL LIABILITIES 724,829
Net Assets for 103,096,582 shares outstanding $ 103,096,582
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$103,096,582 / 103,096,582 shares outstanding $1.00
</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Operations
Year Ended December 31, 1998

<S> <C> <C>
INVESTMENT INCOME:
Interest $ 4,681,873
EXPENSES:

Investment advisory fee $ 417,405
Administrative personnel and services fee 125,000
Custodian fees 12,587
Transfer and dividend disbursing agent fees and expenses 16,899
Trustees' fees 2,162
Auditing fees 12,691
Legal fees 6,933
Portfolio accounting fees 33,542
Share registration costs 6,306
Printing and postage 25,699
Insurance premiums 6,866
Miscellaneous 9,406
TOTAL EXPENSES 675,496
WAIVER:
Waiver of investment advisory fee (4,302)
Net expenses 671,194
Net investment income $ 4,010,679
</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets
<TABLE>

YEAR ENDED DECEMBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS

OPERATIONS:

Net investment income $ 4,010,679 $ 2,970,896
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (4,010,679) (2,970,896)
SHARE TRANSACTIONS:

Proceeds from sale of shares 316,636,277 247,591,033
Net asset value of shares issued to shareholders in payment
of distributions declared 4,013,066 2,968,806
Cost of shares redeemed (277,212,104) (236,555,828)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 43,437,239 14,004,011
Change in net assets 43,437,239 14,004,011
NET ASSETS:

Beginning of period 59,659,343 45,655,332
End of period $ 103,096,582 $ 59,659,343
</TABLE>

See Notes which are an integral part of the Financial Statements

Financial Highlights

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

RATIOS TO AVERAGE NET ASSETS:

Expenses 0.80% 0.80% 0.80% 0.80% 0.80% 3
Net investment income 4.80% 4.84% 4.68% 5.12% 4.26% 3
Expense waiver 4 0.01% 0.20% 0.57% 2.69% 71.84% 3
SUPPLEMENTAL DATA:

Net assets, end of period (000 omitted) $103,097 $59,659 $45,655 $17,838 $552
</TABLE>

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

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

3 Computed on an annualized basis.

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

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements
December 31, 1998

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.

SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS

The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.

REPURCHASE AGREEMENTS

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

FEDERAL TAXES

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

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
Trustees. The Fund will not incur any registration costs upon such resales.
Restricted securities are valued at amortized cost in accordance with Rule 2a-7
under the Act.

Additional information on each restricted security held at December 31, 1998 is
as follows:

ACQUISITION ACQUISITION

SECURITY DATE COST
<S> <C> <C>
Bankers Trust Corp. 7/30/1998 $ 800,000

Liquid Asset Backed Securities Trust,

Series 1997-1 2/19/1997 1,532,970
Liquid Asset Backed Securities Trust,
Series 1997-3 6/27/1997 544,657

Rabobank Optional Redemption Trust,

Series 1997-101 4/17/1997 438,956
</TABLE>

USE OF ESTIMATES

OTHER

Investment transactions are accounted for on the trade date.

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, 1998, capital paid-in aggregated $103,096,582.

Transactions in shares were as follows:

<TABLE>

YEAR ENDED DECEMBER 31 1998 1997
<S> <C> <C>
Shares sold 316,636,277 247,591,033
Shares issued to shareholders in payment of

distributions declared 4,013,066 2,968,806
Shares redeemed (277,212,104) (236,555,828)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 43,437,239 14,004,011
</TABLE>

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. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.

ADMINISTRATIVE FEE

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.

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 $22,431 were borne initially by the Adviser. The Fund
has reimbursed the Adviser for these expenses. These expenses have been deferred
and are being amortized over the five-year period following the Fund's effective
date. For the year ended December 31, 1998, the Fund was fully amortized.

GENERAL

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

YEAR 2000 (UNAUDITED)

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 Federated Prime Money Fund II (the "Fund") (a
portfolio of the Federated Insurance Series) as of December 31, 1998, and the
related statement of operations for the year then ended, the statements of
changes in net assets for the year then ended December 31, 1998 and 1997, and
the financial highlights for the periods presented. These financial statements
and financial highlights are the responsibility of the Trust'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 at
December 31, 1998, by correspondence with the custodian. 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 of Federated Prime
Money Fund II as of December 31, 1998, 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

Boston, Massachusetts
February 12, 1999

Trustees

JOHN F. DONAHUE

THOMAS G. BIGLEY

JOHN T. CONROY, JR.

NICHOLAS P. CONSTANTAKIS

WILLIAM J. COPELAND

J. CHRISTOPHER DONAHUE

JAMES E. DOWD, ESQ.

LAWRENCE D. ELLIS, M.D.

EDWARD L. FLAHERTY, JR., ESQ.

PETER E. MADDEN

JOHN E. MURRAY, JR., J.D., S.J.D.

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 and Secretary

RICHARD B. FISHER

Vice President

RICHARD J. THOMAS

Treasurer

MATTHEW S. HARDIN

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. Although money market funds seek to
maintain a stable net asset value of $1.00 per share, there is no assurance that
they will be able to do so.

ANNUAL REPORT

[Graphic]

Federated Prime Money Fund II

Federated Insurance Series

ANNUAL REPORT TO SHAREHOLDERS

December 31, 1998

[Graphic]
Federated Prime Money Fund II

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

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Cusip 313916504
G00842-01 (2/99)

[Graphic]

ANNUAL REPORT

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.

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
smooth out periodic ups and downs in U.S. stock performance because
international markets respond to different influences than U.S. markets. 1

While it was a volatile year for international markets, Europe was a bright
spot. The fund's focus in that region and strong security selection produced a
highly positive total return of 25.57% as net asset value increased from $12.27
to $15.39. 2 At the end of the reporting period, total assets reached $52
million.

Thank you for choosing Federated International Equity Fund II as a diversified,
professionally managed way to participate in the long-term growth opportunities
of international stocks. We look forward to keeping you informed about your
investment's progress.

Sincerely,

[Graphic]

J. Christopher Donahue

President

February 15, 1999

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

Investment Review

WHAT IS YOUR REVIEW OF THE INTERNATIONAL EQUITY MARKETS DURING THE FUND'S FISCAL
YEAR PERIOD?

The international equity markets were highly volatile during the fiscal year
ended December 31, 1998, and western Europe emerged as the clear winner for the
international investor. The year began in a chaotic fashion, with Asia
(excluding Japan), Latin America and Eastern Europe gyrating from month-to-month
on concerns of currency devaluation and general political uncertainty. Swings of
30-50% per month were not uncommon as investors first panicked, then dove back
into the emerging markets, only to panic again. Falling commodity prices,
especially oil, also weighed heavily on commodity-dependent nations such as
Venezuela and Norway. In Russia, the government defaulted on its domestic debt
and sent the financial world into a tailspin; major international banks
disclosed huge loan losses as well as trading losses with highly leveraged hedge
funds.

In western Europe the outlook remained bright, although gross domestic product
("GDP") and corporate earnings were revised downwards during the course of the
year mainly due to the slowdown among Europe's large trading partners. Aside
from the UK, which experienced a manufacturing recession, the economies of
Europe were strong across the board, and the southern economies of Italy, Spain,
and Portugal benefited from interest rate convergence which spurred along their
equity markets in the run-up to the EURO.

HOW DID FEDERATED INTERNATIONAL EQUITY FUND II PERFORM DURING THE PERIOD
COMPARED TO ITS BENCHMARK, AND WHAT STRATEGIES INFLUENCED THE FUND'S

RETURN?

For the fiscal year ended December 31, 1998, Federated International Equity Fund
II produced a total return of 25.57% based on net asset value. 1 This positive
return was higher than the 20.00% return of the fund's benchmark, the Morgan
Stanley Capital International Europe, Australia and Far East Index ("EAFE") for
the same period.2 Additionally, the fund's return was 12.84% higher than the
average total return of the 501 international equity funds tracked by Lipper
Analytical Services, 12.73%.3

The fund's positive performance was due primarily to two strategic decisions.
Firstly, the fund was significantly underweight in Asia relative to the
benchmark (at year end, Federated International Equity Fund II had 7.11% in Asia
Pacific, versus 26.55% for the EAFE Index). Though stocks are incredibly cheap
in the region, we cannot identify a catalyst to unlock this value, and thus we
believe they will remain cheap. Secondly, early in the year we established large
positions in alternative telecom carriers which were, at the time, undervalued
and largely unappreciated by the market. As the market caught on to the larger
trend in data traffic, rather than voice, that these companies benefit from,
increased investor interest drove these stock prices higher.

1 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.

2 The Morgan Stanley Capital International Europe, Australia and Far East Index
(EAFE) is a market capitalization weighted foreign securities index, which is
widely used to measure the performance of European, Australian, New Zealand, and
Far Eastern stock markets. The index covers approximately 1,020 companies drawn
from 18 countires in the above regions. The index values its securities daily in
both U.S. dollars and local currency and calculates total returns monthly. This
index is unmanaged and investments cannot be made in an index.

3 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services as falling into the
respective categories indicated. Lipper returns do not take sales charges into
account.

WHAT ACCOUNTED FOR THE FUND'S ABILITY TO OUTPERFORM THE BENCHMARK INDEX?

Fundamentally, we focus on bottom-up stock selection, and that is what accounted
for our recent outperformance. Our top five holdings in the fund, amounting to
roughly 12.0% of the total fund at year end, were alternative telecom providers.
As mentioned before, these companies are truly the enablers of the next
generation of communication via data, rather than traditional voice traffic. By
controlling the "pipes," that is, giving companies access to high bandwidth
fiber-optics and digital cable, companies such as COLT, Energis, and Cable &
Wireless Communications are ushering in a new era in communication. Picking the
best companies in dynamic industries such as this leads to outperformance.

WHAT ARE SOME OF YOUR NOTABLE RECENT PURCHASES FOR THE FUND?

Recent purchases to the Federated International Equity Fund II include:

HELSINGIN PUHELIN OYJ (1.55%) provides local, long distance, and mobile
telephone services, as well as data transmission in Finland. The Company also
leases networks and sells terminals (handsets) providing services to both
private individuals and businesses.

ICON PLC (1.66%) is a worldwide provider of clinical research and development
services for major pharmaceutical and biotechnology firms. ICON specializes in
management, executing and analysis of clinical trials.

QLT PHOTOTHERAPEUTICS (0.99%) develops and commercializes pharmaceutical
products and applications of photodynamic therapy. Photodynamic therapy uses
light-activated drugs for the treatment of cancer, diseases of the eye and other
conditions.

SEAT PAGINE GIALLE SPA (1.24%) publishes white and yellow pages telephone
directories in each district in Italy and specializes in business directories in
printed form, CD-Rom disks and in databases. In addition, Seat does advertising
and market research consulting services.

LOOKING AHEAD TO 1999, WHAT IS YOUR OUTLOOK FOR INTERNATIONAL EQUITIES?

For the coming year, we are bullish on European equities and are comfortable
with our relative overweight position in Europe and the UK. With the successful
establishment of the European Monitary Union and the trading of the EURO, in
addition to the continually falling interest rate environment, the near-term
outlook for Euroland is positive. Economic growth among the EURO11 in 1999 is
forecast to be roughly 2.4% while inflation is expected to be a benign 1.2%.
Economists are forecasting that certain markets, such as the Netherlands and
Spain, will experience GDP growth in the neighborhood of 3.0-3.5%, versus world
GDP growth which is forecast below 1.9%.

Japan is showing little signs of a turnaround and forecasts for growth may need
to be revised downward. Latin America is still very fragile, with Brazil's
devaluation causing investors tremendous concern; and the eastern European
markets remain volatile, demonstrating their intricate links to the fate of the
emerging markets at large.

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

"Graphic representation "E" omitted. See Appendix."

[Graphic]

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1998
1 Year 25.57%

Start of Performance (5/8/95) 12.75%

The graph above illustrates the hypothetical investment of $10,000 1 in the
Federated International Equity Fund II (the "Fund") from May 8, 1995 (start of
performance) to December 31, 1998, compared to the Morgan Stanley Capital
International Europe Australia Far-East Index (EAFE).2

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 their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.

1 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.

2 The EAFE is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. The index is unmanaged.

Portfolio of Investments

DECEMBER 31, 1998

<TABLE>

VALUE IN

SHARES U.S. DOLLARS
<C> <S> <C>

COMMON STOCKS-97.3%

AUSTRALIA-3.3%
BANKING-1.5%

74,961 Australia & New Zealand Banking Group Ltd., Melbourne $ 490,584
22,000 Commonwealth Installment Receipt Trustee Ltd. 312,266
TOTAL 802,850
BEVERAGE & TOBACCO-0.5%

92,000 Fosters Brewing Group Ltd. 249,182
HEALTH & PERSONAL CARE-1.3%
154,497 1 Biota Holdings Ltd. 657,978
TOTAL AUSTRALIA 1,710,010
BELGIUM-0.9%
TELECOMMUNICATIONS-0.9%

9,000 1 Mobistar SA 451,692
TOTAL BELGIUM 451,692
CANADA-6.5%
ELECTRICAL & ELECTRONICS-0.5%

5,000 Northern Telecom Ltd. 250,572
HEALTH & PERSONAL CARE-4.8%
35,000 1 BioChem Pharma, Inc. 1,001,875
22,300 1 QLT PhotoTherapeutics 516,467
47,100 1 TLC The Laser Center Inc. 978,361
2,000 1 TLC The Laser Center Inc., ADR 41,000
TOTAL 2,537,703
TELECOMMUNICATIONS-1.2%

20,350 1 Alliance Atlantis Communications, Corp., Class B 345,491
20,900 1 Telesystem International Wireless, Inc. 263,216
TOTAL 608,707
TOTAL CANADA 3,396,982

DENMARK-1.4%
BANKING-0.5%

3,000 Unidanmark AS, Class A 271,043
<CAPTION>
VALUE IN

SHARES U.S. DOLLARS
<C> <S> <C>

COMMON STOCKS-continued

DENMARK-continued

TELECOMMUNICATIONS-0.9%

3,600 Tele Danmark AS $ 485,898
TOTAL DENMARK 756,941
FINLAND-3.4%
ELECTRICAL & ELECTRONICS-1.2%

5,000 Nokia Oyj 607,962
ENERGY SOURCES-0.2%
20,700 1 Fortum Corp. 125,848
LEISURE & TOURISM-0.3%
20,000 1 Rapala Normark Corp. 172,583
TELECOMMUNICATIONS-1.7%

13,650 Helsingin Puhelin Oyj 811,130
4,730 1 Sonera Group Oyj 83,487
TOTAL 894,617
TOTAL FINLAND 1,801,010

FRANCE-9.2%
BANKING-1.7%

3,500 Banque Nationale de Paris 288,088
2,520 Dexia France 388,074
1,200 Societe Generale, Paris 194,241
TOTAL 870,403
BROADCASTING & PUBLISHING-2.0%

1,450 Canal Plus 395,502
3,700 Societe Television Francaise 1 658,469
TOTAL 1,053,971
HEALTH & PERSONAL CARE-0.8%

1,000 Essilor International SA 393,490
INDUSTRIAL COMPONENTS-0.5%
3,500 Valeo SA 275,693
INSURANCE-3.7%

6,500 Axa 941,692
15,000 1 CNP Assurances 455,554
8,060 Scor 532,672
TOTAL 1,929,918
<CAPTION>

VALUE IN

SHARES U.S. DOLLARS
<C> <S> <C>

COMMON STOCKS-continued

FRANCE-continued

MERCHANDISING-0.5%

2,500 Etablissements Economiques du Casino Guichard-Perrachon SA $ 260,240
TOTAL FRANCE 4,783,715
GERMANY -4.5%
AUTOMOBILE-0.5%
3,000 Volkswagen AG 239,410
BANKING-0.2%

1,700 HypoVereinsbank, Munich 133,115
ELECTRONIC COMPONENTS, INSTRUMENTS-0.5%
800 SER Systeme AG 262,090
HEALTH & PERSONAL CARE-0.6%
4,500 Beiersdorf AG 310,512
MULTI-INDUSTRY-2.2%
4,400 Mannesmann AG 504,260
1,400 Preussag AG 632,545
TOTAL 1,136,805
TELECOMMUNICATIONS-0.5%

860 MobilCom AG 273,749
TOTAL GERMANY 2,355,681
GREECE-0.1%
TELECOMMUNICATIONS-0.1%

2,730 1 Panafon Hellenic Telecom SA 73,156
TOTAL GREECE 73,156
IRELAND-5.8%
BANKING-1.1%

31,000 Allied Irish Banks PLC 554,625
FINANCIAL SERVICES-1.0%
34,500 Irish Permanent PLC 518,218
HEALTH & PERSONAL CARE-2.8%
8,700 1 Elan Corp. PLC, ADR 605,194
25,900 1 ICON PLC, ADR 867,650
TOTAL 1,472,844
INSURANCE-0.5%

30,000 Irish Life PLC 283,104
<CAPTION>

VALUE IN

SHARES U.S. DOLLARS
<C> <S> <C>

COMMON STOCKS-continued

IRELAND-continued

TELECOMMUNICATIONS-0.4%

5,200 1 Esat Telecom Group PLC, ADR $ 200,200
TOTAL IRELAND 3,028,991
ITALY-10.4%
BANKING-4.3%

223,000 Banca Nazionale del Lavoro 666,930
27,170 Istituto Bancario San Paolo di Torino 479,823
17,200 Rolo Banca 1473 464,991
104,000 Unicredito Italiano SPA 616,094
TOTAL 2,227,838
BROADCASTING & PUBLISHING-1.8%

30,000 Arnoldo Mondadori Editore SPA 396,444
65,000 Mediaset SPA 526,777
TOTAL 923,221
BUSINESS & PUBLIC SERVICES-1.2%

690,000 1 Seat Pagine Gialle SPA 651,002
INSURANCE-1.3%

16,000 Assicurazioni Generali 667,695
REAL ESTATE-0.7%
720,000 1 Unione Immobiliare SPA 375,360
TELECOMMUNICATIONS-0.9%

57,000 Telecom Italia SPA 486,075
UTILITIES - ELECTRICAL & GAS-0.2%
48,000 1 AEM SPA 115,105
TOTAL ITALY 5,446,296
JAPAN-3.8%

APPLIANCES & HOUSEHOLD DURABLES-0.4%

12,000 Pioneer Electronic Corp. 201,150
CHEMICALS-0.8%

10,000 Sony Chemicals Corp. 442,282
ELECTRICAL & ELECTRONICS-0.5%
4,000 Fujitsu Support and Service Inc. 288,368
FINANCIAL SERVICES-0.2%
10,000 Nomura Securities Co. Ltd. 87,130
<CAPTION>
VALUE IN

SHARES U.S. DOLLARS
<C> <S> <C>

COMMON STOCKS-continued

JAPAN-continued

INSURANCE-0.3%

25,000 Sumitomo Marine & Fire Insurance Co., Ltd. $ 158,337
RECREATION, OTHER CONSUMER GOODS-1.1%
2,600 Nintendo Co., Ltd. 251,835
7,400 Sony Music Entertainment, Inc. 340,380
TOTAL 592,215
TELECOMMUNICATIONS-0.5%

65 DDI Corp. 241,486

TOTAL JAPAN 2,010,968

LUXEMBOURG-0.2%
BROADCASTING & PUBLISHING-0.2%

549 1 Societe Europeenne des Satellites 88,059
TOTAL LUXEMBOURG 88,059
NETHERLANDS-10.6%
BEVERAGE & TOBACCO-0.6%

5,000 Heineken NV 300,740
BROADCASTING & PUBLISHING-1.0%
2,500 Wolters Kluwer NV 534,678
BUSINESS & PUBLIC SERVICES-0.5%
3,500 Cap Gemini NV 244,052
ELECTRICAL & ELECTRONICS-0.9%
104,000 1 TAS Groep NV 492,681
FOOD & HOUSEHOLD PRODUCTS-3.4%
14,800 1 Benckiser NV 968,968
17,000 Koninklijke Numico NV 809,869
TOTAL 1,778,837
HEALTH & PERSONAL CARE-0.9%

7,500 1 QIAGEN NV 480,619
MERCHANDISING-1.0%

14,000 Koninklijke Ahold NV 517,166
TELECOMMUNICATIONS-2.3%

17,600 1 Equant NV, ADR 1,193,500
TOTAL NETHERLANDS 5,542,273
<CAPTION>

VALUE IN

SHARES U.S. DOLLARS
<C> <S> <C>

COMMON STOCKS-continued
NORWAY-0.6%
BUSINESS & PUBLIC SERVICES-0.5%

27,000 Merkantildata ASA $ 266,500
ELECTRICAL & ELECTRONICS-0.1%
25,580 1 Sensonor ASA 67,329
TOTAL NORWAY 333,829
PORTUGAL-1.6%
BANKING-0.4%

6,300 Banco Commercial Portugues SA, Class R 193,775
1,800 Banco Pinto & Sotto Mayor, SA 34,143
TOTAL 227,918
INSURANCE-0.6%

9,600 Companhia de Seguros Tranquilidade 306,527
TELECOMMUNICATIONS-0.6%

1,500 Telecel - Comunicacaoes Pessoais, SA 306,759
TOTAL PORTUGAL 841,204
SPAIN-1.6%
BANKING-1.1%

10,000 Argentaria SA 258,584
5,020 Banco Pastor SA 314,368
TOTAL 572,952
MULTI-INDUSTRY-0.5%

18,000 Corporacion Financiera Reunida SA 261,540
TOTAL SPAIN 834,492
SWEDEN-4.8%
BANKING-0.4%

20,000 Skandiviska Enskilda Banken, Class A 210,467
DATA PROCESSING & REPRODUCTION-1.1%
37,700 1 Modern Times Group MTG AB, Class B 559,134
ELECTRICAL & ELECTRONICS-0.4%
7,500 Enator AB 207,697
INDUSTRIAL COMPONENTS-0.9%
12,700 Autoliv, Inc., ADR 454,867
MACHINERY & ENGINEERING-0.4%
12,300 Scania AB, Class B 227,083
<CAPTION>
VALUE IN

SHARES U.S. DOLLARS
<C> <S> <C>

COMMON STOCKS-continued

SWEDEN-continued

TELECOMMUNICATIONS-1.6%

4,000 Europolitan Holdings AB $ 391,394
123,000 1 Societe Europeenne de Communication SA, Class B, ADR 454,165
TOTAL 845,559
TOTAL SWEDEN 2,504,807

SWITZERLAND-5.2%
FOOD & HOUSEHOLD PRODUCTS-1.1%

1,436 1 Barry Callebaut AG 326,150
10 Lindt & Spruengli AG 262,066
TOTAL 588,216
HEALTH & PERSONAL CARE-1.6%

420 Novartis 825,508
INSURANCE-2.1%

740 Schweizerische Lebensversicherungs - und Rentenanstalt 549,465
715 Zurich Allied AG 529,340
TOTAL 1,078,805
RECREATION, OTHER CONSUMER GOODS-0.4%

1,500 The Swatch Group AG 224,667
TOTAL SWITZERLAND 2,717,196
UNITED KINGDOM-21.2%

BANKING-0.9%

15,000 National Westminster Bank, PLC, London 290,331
11,000 Royal Bank of Scotland Group PLC, Edinburgh 179,831
TOTAL 470,162
BROADCASTING & PUBLISHING-1.5%

40,000 Carlton Communications PLC 368,167
50,000 United News & Media PLC 434,458
TOTAL 802,625
BUSINESS & PUBLIC SERVICES-3.7%

22,000 1 ECsoft Group PLC, ADR 775,500
25,000 Hays PLC 220,136
80,000 Securicor PLC 671,208
30,000 SEMA Group PLC 295,564
TOTAL 1,962,408
<CAPTION>

VALUE IN

SHARES U.S. DOLLARS
<C> <S> <C>

COMMON STOCKS-continued
UNITED KINGDOM-continued
HEALTH & PERSONAL CARE-3.6%

18,200 Bespak PLC $ 281,058
28,000 Glaxo Wellcome PLC 963,881
45,066 Smithkline Beecham PLC 624,582
TOTAL 1,869,521
INSURANCE-0.9%

18,000 Prudential Corp. PLC 274,581
25,000 Royal & Sun Alliance Insurance Group PLC 203,522
TOTAL 478,103
LEISURE & TOURISM-1.0%

30,000 Granada Group PLC 525,835
MERCHANDISING-0.9%

70,000 Somerfield PLC 467,520
TELECOMMUNICATIONS-7.5%

111,500 1 Cable & Wireless Communications PLC 1,017,004
85,600 1 COLT Telecom Group PLC 1,294,168
72,500 1 Energis PLC 1,614,055
TOTAL 3,925,227
TRANSPORTATION - ROAD & RAIL-0.5%
57,000 Avis Europe PLC 237,697
UTILITIES - ELECTRICAL & GAS-0.7%
43,350 National Grid Co. PLC 345,705
TOTAL UNITED KINGDOM 11,084,803
UNITED STATES-2.2%

TELECOMMUNICATIONS-2.2%

25,100 1 Global Crossing Ltd. 1,132,638
TOTAL UNITED STATES 1,132,638
TOTAL COMMON STOCKS (IDENTIFIED COST $39,975,019) 50,894,743
<CAPTION>

SHARES OR

PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>

CORPORATE BONDS-0.0%
UNITED KINGDOM-0.0%

UTILITIES - ELECTRICAL & GAS-0.0%

11,000 National Grid Group PLC, Bond, 4.25%, 2/17/2008 $ 23,210
TOTAL CORPORATE BONDS (IDENTIFIED COST $17,851) 23,210
PREFERRED STOCKS-0.7%
PORTUGAL-0.7%
MULTI-INDUSTRY-0.7%
30,550 Lusomundo Sociedade Gestora de Participacoes Sociais SA,
Pfd. 354,452
TOTAL PREFERRED STOCKS (IDENTIFIED COST $416,465) 354,452
REPURCHASE AGREEMENT-0.3% 2

$ 130,000 Westdeutsche Landesbank Girozentrale, 4.90%, dated

12/31/1998, due 1/4/1999 (AT AMORTIZED COST) 130,000
TOTAL INVESTMENTS (IDENTIFIED COST $40,539,335) 3 $ 51,402,405

</TABLE>

1 Non-income producing security.

3 The cost of investments for federal tax purposes amounts to $40,681,390. The
net unrealized appreciation of investments on a federal tax basis amounts to
$10,721,015 which is comprised of $11,207,998 appreciation and $486,983
depreciation at December 31, 1998.

Note: The categories of investments are shown as a percentage of net assets
($52,308,358) at December 31, 1998.

The following acronym is used throughout this portfolio:

ADR -American Depositary Receipt

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

DECEMBER 31, 1998

<TABLE>

ASSETS:

Total investments in securities, at value (identified cost

$40,539,335 and tax cost $40,681,390) $ 51,402,405
Cash 5,051
Income receivable 47,846
Receivable for investments sold 963,646
Receivable for shares sold 2,374
Deferred organizational costs 5,599
TOTAL ASSETS 52,426,921
LIABILITIES:

Payable for investments purchased $ 75,988
Payable for shares redeemed 22,187
Payable for taxes withheld 1,583
Payable for portfolio accounting fees 4,771
Payable for share registration costs 3,680
Payable for insurance premiums 2,050
Accrued expenses 8,304
TOTAL LIABILITIES 118,563
Net Assets for 3,397,889 shares outstanding $ 52,308,358
NET ASSETS CONSIST OF:
Paid in capital $ 40,043,714
Net unrealized appreciation of investments and translation
of assets and liabilities in foreign currency 10,870,609
Accumulated net realized gain on investments and foreign
currency transactions 1,496,824
Accumulated net operating loss (102,789)
Total Net Assets $ 52,308,358
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER
SHARE:
$52,308,358 / 3,397,889 shares outstanding $15.39

</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Operations

YEAR ENDED DECEMBER 31, 1998

<TABLE>

<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $82,446) $ 545,401
Interest 138,598
TOTAL INCOME 683,999
EXPENSES:

Investment advisory fee $ 474,194
Administrative personnel and services fee 125,000
Custodian fees 101,213
Transfer and dividend disbursing agent fees and expenses 5,143
Trustees' fees 2,152
Auditing fees 12,691
Legal fees 2,809
Portfolio accounting fees 56,021
Share registration costs 2,162
Printing and postage 28,337
Insurance premiums 2,508
Miscellaneous 6,544
TOTAL EXPENSES 818,774
WAIVER:
Waiver of investment advisory fee (223,688)
Net expenses 595,086
Net investment income 88,913
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments and foreign currency
transactions 1,278,750
Net change in unrealized appreciation of investments and
translation of assets and liabilities in foreign currency 7,701,983
Net realized and unrealized gain on investments and foreign
currency transactions 8,980,733
Change in net assets resulting from operations $ 9,069,646

</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

<TABLE>

YEAR ENDED DECEMBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:

OPERATIONS:

Net investment income $ 88,913 $ 211,702
Net realized gain (loss) on investments and foreign currency
transactions ($1,540,107 and $225,019, respectively, as
computed for federal tax purposes) 1,278,750 (37,491)
Net change in unrealized appreciation of investments and

translation of assets and liabilities in foreign currency 7,701,983 2,044,058
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 9,069,646 2,218,269
DISTRIBUTIONS TO SHAREHOLDERS:

Distributions from net investment income - (25,486)
Distributions from net realized gains on investments and
foreign currency transactions (52,079) -
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS

TO SHAREHOLDERS (52,079) (25,486)
SHARE TRANSACTIONS:
Proceeds from sale of shares 12,872,900 18,823,244
Net asset value of shares issued to shareholders in payment

of distributions declared 52,079 25,486
Cost of shares redeemed (6,209,145) (2,218,272)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 6,715,834 16,630,458
Change in net assets 15,733,401 18,823,241
NET ASSETS:

Beginning of period 36,574,957 17,751,716
End of period $ 52,308,358 $ 36,574,957

</TABLE>

See Notes which are an integral part of the Financial Statements

Financial Highlights

(For a share outstanding throughout each period)

<TABLE>

YEAR ENDED DECEMBER 31 1998 1997 1996 1995 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.27 $11.16 $10.35 $10.00
INCOME FROM INVESTMENT OOPERATIONS:

Net investment income 0.03 2 0.07 0.11 2 0.07
Net realized and unrealized gain on investments and foreign
currency transactions 3.11 1.05 0.75 0.28
TOTAL FROM INVESTMENT OPERATIONS 3.14 1.12 0.86 0.35
LESS DISTRIBUTIONS:

Distributions from net investment income - (0.01) (0.05) -
Distributions from net realized gain on investments and
foreign currency transactions (0.02) - - -
TOTAL DISTRIBUTIONS (0.02) (0.01) (0.05) -
NET ASSET VALUE, END OF PERIOD $15.39 $12.27 $11.16 $10.35
TOTAL RETURN 3 25.57% 10.08% 8.32% 3.50%
RATIOS TO AVERAGE NET ASSETS:

Expenses 1.25% 1.23% 1.25% 1.22% 4
Net investment income 0.19% 0.76% 0.89% 1.63% 4
Expense waiver/reimbursement 5 0.47% 0.98% 3.05 11.42% 4
SUPPLEMENTAL DATA:

Net assets, end of period (000 omitted) $52,308 $36,575 $17,752 $4,760
Portfolio turnover 247% 179% 103% 34%

</TABLE>

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

2 Per share information is based on average shares outstanding.

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

4 Computed on an annualized basis.

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

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

DECEMBER 31, 1998

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.

SIGNIFICANT ACCOUNTING POLICIES

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 60 days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value. With respect to valuation
of foreign securities, trading in foreign cities may be completed at times which
vary from the closing of the New York Stock Exchange. Therefore, foreign
securities are valued at the latest closing price on the exchange on which they
are traded prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. Dollars at the
foreign exchange rate in effect at noon, eastern time, on the day the value of
the foreign security is determined.

REPURCHASE AGREEMENTS

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

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. The following reclassifications have been made to the financial
statements.

INCREASE/(DECREASE)

ACCUMULATED UNDISTRIBUTED NET
NET REALIZED INVESTMENT

PAID-IN CAPITAL GAIN INCOME
$(26,260) $217,962 $(191,702)

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

FEDERAL TAXES

However, federal taxes may be imposed on the Fund upon the disposition of
certain investment 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.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

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
counterparts 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, 1998, the Fund had no
outstanding foreign currency commitments.

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.

USE OF ESTIMATES

OTHER

Investment transactions are accounted for on the trade date.

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>

YEAR ENDED DECEMBER 31 1998 1997
<S> <C> <C>
Shares sold 852,526 1,577,537
Shares issued to shareholders in payment of distributions
declared 3,497 2,349
Shares redeemed (438,984) (189,323)
Net change resulting from share transactions 417,039 1,390,563

</TABLE>

INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE

Federated Global Investment Management 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. The Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.

ADMINISTRATIVE FEE

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES

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 $15,465 were borne initially by the Adviser. The Fund
has reimbursed the Adviser for these expenses. These expenses have been deferred
and are being amortized over the five-year period following the Fund's effective
date. For the year ended December 31, 1998, the Fund was fully amortized.

GENERAL

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

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 1998, were as follows:

Purchases $117,194,008
Sales $110,375,651

RISKS OF FOREIGN INVESTING

YEAR 2000 (UNAUDITED)

SUBSEQUENT EVENT

On January 7, 1999, the Adviser, Federated Global Research Corp., changed its
name to Federated Global Investment Management Corp.

Independent Auditors' Report

TO THE BOARD OF TRUSTEES OF FEDERATED INSURANCE SERIES AND 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 (the
"Fund") (a portfolio of the Federated Insurance Series) as of December 31, 1998,
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years ended December 31, 1998 and 1997
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, 1998, 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

Boston, Massachusetts

February 12, 1999

Trustees

JOHN F. DONAHUE

THOMAS G. BIGLEY

JOHN T. CONROY, JR.

NICHOLAS P. CONSTANTAKIS

WILLIAM J. COPELAND

J. CHRISTOPHER DONAHUE

JAMES E. DOWD, ESQ.

LAWRENCE D. ELLIS, M.D.

EDWARD L. FLAHERTY, JR., ESQ.

PETER E. MADDEN

JOHN E. MURRAY, JR., J.D., S.J.D.

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 and Secretary

RICHARD B. FISHER

Vice President

RICHARD J. THOMAS

Treasurer

MATTHEW S. HARDIN

Assistant Secretary

risk, including the possible loss of principal.

ANNUAL REPORT

[Graphic]

Federated International Equity Fund II
Federated Insurance Series

ANNUAL REPORT
TO SHAREHOLDERS

December 31, 1998

[Graphic]

Federated International Equity Fund II
Federated Investors Funds
5800 Corporate Drive

Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor
Cusip 313916603

G01077-01 (2/99)

[Graphic]
[Graphic]

ANNUAL REPORT

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.

Federated Growth Strategies Fund II is managed to help shareholders pursue
long-term growth through a highly diversified portfolio of mid- and large-
capitalization stocks selected for their strong price and earnings momentum. At
the end of the reporting period, the fund's 120 stock holdings were diversified
across 10 key business and industrial sectors. Many of the holdings-including
Allstate, America Online, Dell Computer, Home Depot, Merck, Microsoft, Sunoco,
Quaker Oats, and Yahoo-are household names.

In a positive and highly volatile year for stocks, this diversified portfolio
produced a total return of 17.44%. 1 Capital appreciation accounted for 16.50%
and dividend income accounted for the balance. The fund also paid dividends
totaling $0.02 per share, and capital gains totaling $1.00 per share. During the
reporting period, fund assets continued to increase, reaching $62.7 million on
December 31, 1998.

Thank you for choosing Federated Growth Strategies Fund II as a diversified,
professionally managed way to participate in the long-term growth potential of
American companies. We hope 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, 1999

Investment Review

The fourth quarter of 1998 started out with an accelerated continuation of the
poor performance of the third quarter. As a credit crisis loomed- sparked by the
troubles of the third quarter and the collapse of Long Term Capital
Management-the first six trading days saw the S&P 500 Index 1 go down almost 6%
and the S&P 600 Small Cap Index1 trade off nearly 15%. Then, the Federal Reserve
Board (the "Fed") lowered rates for the second time in a month. This proved to
be a pivot point as the market took the lower rates, added liquidity and rallied
hard into the end of the fourth quarter.

THE TALE OF THE TAPE FOR THE QUARTER WAS:

* the S&P 500 Index gained 21.3%, the S&P 400 MidCap Index 1 returned 28.2%
(driven by a 178% gain by AOL, its largest component), and the S&P 600 Small Cap
Index picked up 17.6%;

* the NASDAQ Composite (an index of stocks traded over-the-counter and dominated
by large cap technology stocks) gained 29.8%; 2

* the S&P Barra Growth Index (a composite of large cap growth stocks, with more
health care and consumer non-durables and less tech than the NASDAQ) was up
24.5%, while the S&P Barra MidCap Growth Index picked up 42% (again, aided by
AOL, which was more than 13% of that index at quarter end); 3 and

* 30-year Treasury bonds traded off slightly, bumping the yield up from 4.98% to
5.10%.

The Federated Growth Strategies Fund II participated in the rally, ending the
fourth quarter up 27.8% and up 53% from the nadir of October 8, 1998. For the
fiscal year ended December 31, 1998, the fund returned 17.44%. The average fund
within the Morningstar 5 Mid-Cap Growth category was up 25.1% in the quarter and
up 17.1% for 1998. The Federated Growth Strategies Fund II beat the average
Lipper6 growth fund (up 22.6%) for the quarter but trailed the average fund (up
22.9%) for the year as that universe of funds has a heavy weighting of funds
with larger market capitalizations, which benefited from the huge large cap
outperformance of the first three quarters.

1 S&P 500 Index, S&P 600 Small Cap Index, and S&P 400 MidCap Index are composite
indices of common stock in industry, transportation, and financial and public
utility companies. These indices are unmanaged, and investments cannot be made
in an index.

2 NASDAQ Composite Index measures all NASDAQ domestic and non-U.S.-based common
stock listed on the NASDAQ Stock Market.

3 S&P Barra Growth Index is a capitalization-weighted index of all the stocks in
the S&P 500 that have price-to-book ratios. S&P Barra MidCap Growth Index is a
market capitalization-weighted index of the stocks in the S&P MidCap 400 Index
having the highest book-to-price ratios. These indices are unmanaged, and
investments cannot be made in an index.

4 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.

5 Morningstar is a privately owned company that tracks the performance
statistics of more than 8,000 U.S. registered mutual funds.

6 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the respective categories indicated. Lipper returns do not take sales charges
into account.

CURRENT STRATEGY:

The Federated Growth Strategies Fund II uses as its investable universe mid to
large cap stocks. The fund has had, however, a mid cap bias for most of the last
three years. That is because our disciplines tell us that the mid cap area is
where we can find much faster growing companies at better prices. From the
fourth quarter of 1997 through the beginning of the fourth quarter of 1998,
thanks to economic and market shocks, the equity market placed a much higher
value on consistency of earnings and the trading liquidity of the stocks. Both
of those attributes are more readily found in larger capitalized stocks.
Beginning with the second recent Fed ease in October 1998, the market has
shifted to where it has become less concerned with liquidity and more with
growth. If the Fed maintains an easing bias and the world economies and markets
can continue to stabilize, relative performance should stay strong for mid cap
growth stocks.

COMMENTS regarding selected holdings or purchases:

E*TRADE: EGRP is one of the most successful providers of online investing
services. It is a pure play in the rapid growth of financial commerce over the
web.

BROADCOM: BRCM develops integrated silicon solutions (chips) that enable
broadband digital data transmission to the home and within the business
enterprise. The chips go into devices such as cable set-top boxes, cable modems,
and high-speed networking components.

SEPRACOR: SEPR develops and commercializes improved versions of widely
prescribed drugs. The company uses medicinal and chiral chemistry to
minimize adverse reactions and improve positive ones.

VISX: VISX develops proprietary technologies and systems for laser vision
correction. The company's Excimer Laser System removes submicron layers of
tissues from the surface of the cornea to reshape the eye and improve vision.

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

"Graphic representation "F" omitted. See Appendix."

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED

DECEMBER 31, 1998

1 Year 17.44%
Start of Performance (11/9/95) 22.85%

The graph above illustrates the hypothetical investment of $10,000 1 in the
Federated Growth Strategies Fund II (the "Fund") from November 9, 1995 (start of
performance) to December 31, 1998, compared to the Standard and Poor's 500 Index
(S&P 500),2 and the Lipper Growth Fund Index (LGFI).3

1 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 index and average.

2 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.

3 The LGFI 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.

Portfolio of Investments
December 31, 1998

SHARES VALUE
<S> <C> <C>

COMMON STOCKS-97.6%
BASIC MATERIALS-2.3%

13,100 Monsanto Co. $ 622,250
5,100 Southdown, Inc. 301,856
20,400 1 United Stationers, Inc. 530,400
Total 1,454,506
CAPITAL GOODS-6.9%

26,700 1 Allied Waste Industries, Inc. 630,787
24,700 1 BE Aerospace, Inc. 518,700
11,400 1 Gulfstream Aerospace Corp. 607,050
6,500 Pitney Bowes, Inc. 429,406
7,700 Premark International, Inc. 266,613
21,200 Reynolds & Reynolds Co., Class A 486,275
8,900 1 SLI, Inc. 246,975
9,700 Symbol Technologies, Inc. 620,194
6,700 Tyco International Ltd. 505,431
Total 4,311,431
COMMUNICATION SERVICES-6.2%

5,700 Century Telephone Enterprises, Inc. 384,750
16,200 1 IXC Communications, Inc. 544,725
14,802 1 MCI Worldcom, Inc. 1,062,043
11,900 1 MetroNet Communications Corp., Class B 398,650
9,700 1 Pacific Gateway Exchange, Inc. 466,206
8,200 1 Qwest Communications International, Inc. 410,000
15,700 1 WinStar Communications, Inc. 612,300
Total 3,878,674
CONSUMER CYCLICALS-14.5%

11,100 1 ACNielsen Corp. 313,575
13,800 1 Abercrombie & Fitch Co., Class A 976,350
11,900 Centex Corp. 536,244
13,800 1 Century Business Services, Inc. 198,375
11,000 1 Champion Enterprises, Inc. 301,125
9,300 1 DoubleClick, Inc. 423,731
12,600 1 Furniture Brands International, Inc. 343,350
<CAPTION>

SHARES VALUE
<S> <C> <C>

COMMON STOCKS-continued

CONSUMER CYCLICALS-CONTINUED

8,500 1 Gemstar International Group Ltd. $ 486,625
28,000 1 Gentex Corp. 560,000
12,500 Home Depot, Inc. 764,844

14,250 1 Liberty Media Group, Class A, Series A (LBTYA) 656,391
5,100 1 Rambus, Inc. 490,875
11,000 1 Restoration Hardware, Inc. 295,625
21,800 Shaw Industries, Inc. 528,650
12,200 1 Snyder Communications, Inc. 411,750
12,000 1 Staples, Inc. 524,250
27,000 TJX Cos., Inc. 783,000
8,300 1 Tommy Hilfiger Corp. 498,000
Total 9,092,760
CONSUMER STAPLES-8.0%

12,800 1 Brinker International, Inc. 369,600
16,700 1 Capstar Broadcasting Corp., Class A 382,013
7,000 1 Chancellor Media Corp., Class A 335,125
5,900 Clorox Co. 689,194
10,400 1 Computer Horizons Corp. 276,900
15,300 Earthgrains Co. 473,344
9,000 1 Keebler Foods Co. 338,625
20,500 1 PSS World Medical, Inc. 471,500
6,500 Quaker Oats Co. 386,750
7,100 1 Robert Half International, Inc. 317,281
16,400 1 Safeway, Inc. 999,375
Total 5,039,707
ENERGY MINERALS-3.0%

11,700 Diamond Offshore Drilling, Inc. 277,144
6,700 Elf Aquitaine SA, ADR 379,388
18,300 1 Friede Goldman International, Inc. 208,163
11,200 Halliburton Co. 331,800
10,400 Sunoco, Inc. 375,050
11,500 Transocean Offshore, Inc. 308,344
Total 1,879,889
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-continued

FINANCE-10.9%

10,800 Allstate Corp. $ 417,150
13,000 Conseco, Inc. 397,312
10,000 Dime Bancorp, Inc. 264,375
20,800 1 E*Trade Group, Inc. 973,050
8,300 Federal Home Loan Mortgage Corp. 534,831
9,200 Fremont General Corp. 227,700
11,200 1 Golden State Bancorp, Inc. 186,200
13,200 1 Knight/Trimark Group, Inc. 315,975
38,530 MBNA Corp. 960,842
24,800 North Fork Bancorp, Inc. 593,650
11,500 Old Kent Financial Corp. 534,750
14,750 Old Republic International Corp. 331,875
11,850 Providian Financial Corp. 888,750
10,050 Raymond James Financial, Inc. 212,306
Total 6,838,766
HEALTH CARE-13.3%

9,600 1 Agouron Pharmaceuticals, Inc. 564,000
5,100 1 Biogen, Inc. 423,300
14,000 1 Centocor, Inc. 631,750
3,800 Guidant Corp. 418,950
7,400 Lilly (Eli) & Co. 657,675
4,900 1 Medicis Pharmaceutical Corp., Class A 292,163
4,700 Merck & Co., Inc. 694,131
9,600 Mylan Laboratories, Inc. 302,400
5,300 Pfizer, Inc. 664,819
11,700 1 Quintiles Transnational Corp. 624,487
10,300 1 Safeskin Corp. 248,488
10,700 Schering Plough Corp. 591,175
11,100 1 Total Renal Care Holdings, Inc. 328,144
6,900 1 VISX, Inc. 603,319
8,400 Warner-Lambert Co. 631,575
10,400 1 Watson Pharmaceuticals, Inc. 653,900
Total 8,330,276
<CAPTION>

SHARES VALUE
<S> <C> <C>

COMMON STOCKS-continued

TECHNOLOGY-31.6%

9,100 1 America Online, Inc. $ 1,456,000
15,200 1 Apple Computer, Inc. 622,250
6,600 1 Ascend Communications 433,950
3,800 1 At Home Corp., Class A 282,150
7,900 1 BMC Software, Inc. 352,044
4,000 1 Broadcom Corp. 483,000
9,100 1 Cisco Systems, Inc. 844,594
7,200 1 Citrix Systems Inc. 698,850
10,200 1 Compuware Corp. 796,875
8,200 1 Dell Computer Corp. 600,137
13,200 ECI Telecommunications, Ltd. 470,250
13,000 1 EMC Corp. Mass 1,105,000
12,600 1 Echostar Communications Corp., Class A 609,525
8,000 1 Etec Systems, Inc. 320,000
12,800 HBO & Co. 367,200
7,200 1 IDX Systems Corp. 316,800
3,500 1 Inktomi Corp. 452,812
10,200 1 International Network Services 678,300
10,500 1 Keane, Inc. 419,344
7,400 1 Lexmark Intl. Group, Class A 743,700
6,700 Lucent Technologies, Inc. 737,000
23,000 1 Mastech Corp. 658,375
5,500 1 Microsoft Corp. 762,781
5,700 1 Network Associates, Inc. 377,625
4,500 Nokia Oyj, Class A, ADR 541,969
62,000 1 Pairgain Technologies, Inc. 476,625
3,700 1 Qlogic Corp. 484,237
6,600 1 RF Micro Devices, Inc. 306,075
8,500 1 Semtech Corp. 304,938
3,400 1 Sepracor, Inc. 299,625
7,700 1 Sun Microsystems, Inc. 659,312
9,000 1 Tellabs, Inc. 617,062
17,200 1 Unisys Corp. 592,325
8,500 1 Vitesse Semiconductor Corp. 387,812
2,500 1 Yahoo, Inc. 592,344
Total 19,850,886
<CAPTION>

SHARES OR

PRINCIPAL

AMOUNT VALUE
<S> <C> <C>

COMMON STOCKS-continued

TRANSPORTATION-0.9%

25,800 Southwest Airlines Co. $ 578,887
Total Common Stocks (identified cost $43,572,905) 61,255,782
U.S. TREASURY OBLIGATIONS-0.7%

$ 400,000 United States Treasury Bond, 5.50%, 8/15/2028 418,788
Total U. S. Treasury Obligations (identified cost $432,063) 418,788
Total Investments (identified cost $44,004,968)(2) $ 61,674,570
</TABLE>

1 Non-income producing security.

2 The cost of investments for federal tax purposes amounts to $44,203,746. The
net unrealized appreciation of investments on a federal tax basis amounts to
$17,470,824 which is comprised of $19,051,178 appreciation and $1,580,354
depreciation at December 31, 1998.

Note: The categories of investments are shown as a percentage of net assets
($62,746,677) at December 31, 1998.

The following acronyms are used throughout this portfolio:

ADR -American Depository Receipt
SA -Support Agreement

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities
December 31, 1998

<TABLE>

<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost
$44,004,968 and tax cost $44,203,746) $ 61,674,570
Income receivable 30,730
Receivable for investments sold 1,884,535
Total assets 63,589,835
LIABILITIES:

Payable for investments purchased $ 498,410
Payable for shares redeemed 51,800
Payable to Bank 277,640
Payable for taxes withheld 336
Accrued expenses 14,972
Total liabilities 843,158
Net Assets for 3,503,599 shares outstanding $ 62,746,677
NET ASSETS CONSIST OF:
Paid in capital $ 48,773,558
Net unrealized appreciation of investments 17,669,602
Accumulated net realized loss on investments (3,696,483)
Total Net Assets $ 62,746,677
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PROCEEDS PER SHARE:
$62,746,677 / 3,503,599 shares outstanding $17.91
</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Operations
Year Ended December 31, 1998

<TABLE>

<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $1,491) $ 232,570
Interest 101,078
Total income 333,648
EXPENSES:

Investment advisory fee $ 404,516
Administrative personnel and services fee 125,000
Custodian fees 4,932
Transfer and dividend disbursing agent fees and expenses 17,650
Directors'/Trustees' fees 1,518
Auditing fees 10,102
Legal fees 2,799
Portfolio accounting fees 43,583
Share registration costs 2,880
Printing and postage 16,898
Insurance premiums 2,415
Miscellaneous 1,037
Total expenses 633,330
WAIVER:
Waiver of investment advisory fee (167,071)
Net expenses 466,259
Net operating loss (132,611)
Realized and Unrealized Gain (Loss) on Investments:
NET REALIZED LOSS ON INVESTMENTS (3,589,862)
Net change in unrealized appreciation of investments 12,326,113
Net realized and unrealized gain on investments 8,736,251
Change in net assets resulting from operations $ 8,603,640
</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

YEAR ENDED DECEMBER 31 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS

OPERATIONS:

Net investment income (operating loss) $ (132,611) $ 47,448
Net realized gain (loss) on investments $(3,497,705) and
$2,977,511, respectively, as computed for federal tax
purposes) (3,589,862) 2,940,396
Net change in unrealized appreciation of investments 12,326,113 3,823,952
Change in net assets resulting from operations 8,603,640 6,811,796
Net Equalization Credits (Debits)- - 141,139 DISTRIBUTIONS TO SHAREHOLDERS:

Distributions from net investment income (47,544) (37,404)
Distributions from net realized gains (3,039,172) (109,551)
Change in net assets resulting from distributions

to shareholders (3,086,716) (146,955)
SHARE TRANSACTIONS (EXCLUSIVE OF AMOUNTS ALLOCATED TO NET
INVESTMENT INCOME):

Proceeds from sale of shares 11,516,169 24,630,467
Net asset value of shares issued to shareholders in payment
of distributions declared 3,086,711 146,049
Cost of shares redeemed (4,653,483) (1,286,989)
Change in net assets resulting from share transactions 9,949,397 23,489,527
Change in net assets 15,466,321 30,295,507
NET ASSETS:

Beginning of period 47,280,356 16,984,849
End of period (including undistributed net investment income
of $47,398, for the period ended December 31, 1997) $ 62,746,677 $ 47,280,356

</TABLE>

See Notes which are an integral part of the Financial Statements

Financial Highlights

(For a share outstanding throughout each period)

YEAR ENDED DECEMBER 31 1998 1997 1996 1995 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $16.14 $12.80 $10.30 $10.00
INCOME FROM INVESTMENT OPERATIONS:

Net investment income (loss) (0.04)2 0.02 2 0.05 0.03
Net realized and unrealized gain on investments 2.83 3.41 2.45 0.27
Total from investment operations 2.79 3.43 2.50 0.30
LESS DISTRIBUTIONS:

Distributions from net investment income (0.02) (0.02) (0.004) -
Distributions from net realized gain on investments (1.00) (0.07) - -
Total distributions (1.02) (0.09) (0.004) -
NET ASSET VALUE, END OF PERIOD $17.91 $16.14 $12.80 $10.30
TOTAL RETURN 3 17.44% 27.03% 24.32% 3.00%

RATIOS TO AVERAGE NET ASSETS:

Expenses 0.86% 0.85% 0.85% 0.85% 4
Net investment income (0.25% ) 0.14% 0.55% 1.91% 4
Expense waiver/reimbursement 5 0.31% 0.67% 3.87% 76.95% 4
SUPPLEMENTAL DATA:

Net assets, end of period (000 omitted) $62,747 $47,280 $16,985 $368
Portfolio turnover 104% 148% 96% 4%

</TABLE>

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

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

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

4 Computed on an annualized basis.

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

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

December 31, 1998

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 Growth Strategies 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 capital appreciation.

SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

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 the differing treatments for net
operating losses. The following reclassifications have been made to the
financial statements.

INCREASE (DECREASE)
ACCUMULATED UNDISTRIBUTED
NET REALIZED NET INVESTMENT

PAID-IN CAPITAL GAIN/LOSS INCOME
$(133,045) $288 $132,757

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.

At December 31, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $3,497,705, 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
2006 $3,497,705

EQUALIZATION

Effective January 1, 1999, the Fund discontinued its use of equalization.
Equalization is an accounting practice whereby a portion of the proceeds of
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
transactions) 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.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

USE OF ESTIMATES

OTHER

Investment transactions are accounted for on the trade date.

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 1998 1997
<S> <C> <C>
Shares sold 697,066 1,679,568
Shares issued to shareholders in payment
of distributions declared 178,629 11,313
Shares redeemed (300,599) (89,183)
Net change resulting from share transactions 575,096 1,601,698
</TABLE>

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.

ADMINISTRATIVE FEE

SHAREHOLDER SERVICES FEE

Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund shares for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder accounts.
For the period ended December 31, 1998, the Fund shares did not incur a
shareholder services fee. FSSC may voluntarily choose to waive any portion of
its fee. FSSC can modify or terminate this voluntary waiver at any time at its
sole discretion.

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES

FServ, through its subsidiary, 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.

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.

GENERAL

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

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1998, were as follows:

Purchases $61,211,236
Sales $54,471,677

YEAR 2000 (UNAUDITED)

Independent Auditors' Report

TO THE BOARD OF TRUSTEES of the Federated Insurance Series and 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 (the
"Fund") (a portfolio of the Federated Insurance Series) as of December 31, 1998,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years ended December 31, 1998 and
1997, 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, 1998, by correspondence with the custodian and brokers; where
replies were not received, 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 Federated Growth
Strategies Fund II as of December 31, 1998, 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

Boston, Massachusetts
February 12, 1999

Trustees

JOHN F. DONAHUE

THOMAS G. BIGLEY

JOHN T. CONROY, JR.

NICHOLAS P. CONSTANTAKIS

WILLIAM J. COPELAND

J. CHRISTOPHER DONAHUE

JAMES E. DOWD, ESQ.

LAWRENCE D. ELLIS, M.D.

EDWARD L. FLAHERTY, JR., ESQ.

PETER E. MADDEN

JOHN E. MURRAY, JR., J.D., S.J.D.

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 and Secretary

RICHARD B. FISHER

Vice President

RICHARD J. THOMAS

Treasurer

MATTHEW S. HARDIN

Assistant Secretary

risk, including the possible loss of principal.

ANNUAL REPORT

[GRAPHIC]

Federated Growth Strategies Fund II

Federated Insurance Series

ANNUAL REPORT
TO SHAREHOLDERS

December 31, 1998

[Graphic]

Federated Growth Strategies Fund II

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

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Cusip 313916702
G00433-07 (2/99)

[Graphic]

ANNUAL REPORT

President's Message

Dear Shareholder:

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

Federated Equity Income Fund II is managed to help your money earn income and
grow in value by investing primarily in a diversified portfolio of
dividend-paying stocks. At the end of the reporting period, the fund's 91 common
and convertible preferred stock holdings were diversified across 12 key business
and industrial sectors. Many of the holdings-including BankAmerica,
Bristol-Myers Squibb, DuPont, Exxon, Ford, General Electric, Intel, J.C. Penney,
PepsiCo, Sprint, and Xerox-are household names.

Over the 12-month reporting period, the fund produced a total return of 15.57% 1
primarily through a 15% increase in net asset value. The fund paid a total of
$0.07 per share in distributions to shareholders. By the end of the reporting
period, fund assets reached $57.5 million.

Thank you for choosing Federated Equity Income Fund II as a diversified,
professionally managed way to participate in the income and growth potential of
American companies. We hope 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, 1999

INVESTMENT REVIEW

CURRENT STRATEGY

MARKET OBSERVATIONS:

The S&P 500 Index ("S&P 500") 1 has just completed its fourth consecutive year
of 20%+ gains. After falling nearly 20% from its July 17, 1998 market peak, the
S&P 500 began a dramatic recovery in early October 1998, to finish the year with
a total return of 28.15%. While this is an extremely impressive showing, it was
accompanied by volatility which had been absent for a number of years.
Additionally, the advance was concentrated in a handful of companies.
Specifically, 20 stocks accounted for 59% of the market's rise, while 100 stocks
accounted for 85% of its gain. Unfortunately, the median gain for a stock in the
S&P 500 was only 2% with over 70% of the stocks lagging the index return. On an
equal weighted basis, the S&P 500 returned 12.93%. Federated Equity Income Fund
II had a good year, returning 15.57%2 compared to the 11.20% return of the
average equity income fund, as reported by Lipper Analytical Services, Inc.3

The economic outlook for 1999 appears weak, particularly on a global basis. Only
limited signs point to a bottoming of Asian economies, while Latin American
economies continue to decelerate. The U.S. economic picture is mixed. Industrial
production is weakening even as consumer spending and confidence remains strong,
aided by declines in energy prices and interest rates. In fact, inflation is
close to zero and deflation has become a real fear. Hardly an industry has had
any pricing power in this environment. The U.S. Federal Reserve along with
central banks around the world have attempted to prevent recessions by reducing
interest rates numerous times since the beginning of October 1998. These efforts
have served to increase liquidity and have fueled the dramatic recovery in the
stock markets including our own. However, as we progress through 1999, the
earnings growth of both U.S. and foreign companies will likely continue to
decelerate. Additionally, investors will become increasingly aware of potential
problems relating to Y2K compliance. This promises to bring more volatility to
the market.

In the current environment, we believe companies will be challenged to provide
consistent earnings and revenue growth. Companies successful in this regard
should see their stock prices rewarded. The fund's focus on identifying
high-quality, market-leading companies with such attributes has been a core
strategy and has helped the fund's performance. Furthermore, the fund holds
higher-yielding convertible securities and common stocks which have exhibited
defensive qualities in market downturns. Currently, 30% of the fund's holdings
are in common stocks which have raised their dividend in each of the last 10
years. As always, we thank you for your continued support.

1 Standard & Poor's 500 Index is a 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. This index is unmanaged, and investments cannot be
made in an index.

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

"Graphic representation "G" omitted. See Appendix."

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1998
1 Year 15.57%

Start of Performance (1/30/97) 18.15%

The graph above illustrates the hypothetical investment of $10,000 1 in the
Federated Equity Income Fund II (the "Fund") from January 30, 1997 (start of
performance) to December 31, 1998, compared to the Standard and Poor's 500 Index
(S&P 500)2 and the Lipper Equity Income Fund Index(LEIFI)2.

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 THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.

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

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

Portfolio of Investments

December 31, 1998
<TABLE>

SHARES VALUE
<C> <S> <C>

COMMON STOCKS-78.3%
BASIC MATERIALS-2.7%

22,700 Barrick Gold Corp. $ 442,650
8,200 Du Pont (E.I.) de Nemours & Co. 435,112
49,800 USEC, Inc. 690,975
TOTAL 1,568,737
CAPITAL GOODS-6.5%

15,000 Browning-Ferris Industries, Inc. 426,562
27,800 Crown Cork & Seal Co., Inc. 856,588
9,000 General Dynamics Corp. 527,625
8,200 General Electric Co. 836,913
5,100 Lockheed Martin Corp. 432,225
8,300 Textron, Inc. 630,281
TOTAL 3,710,194
COMMUNICATION SERVICES-5.3%

11,000 Ameritech Corp. 697,125
14,900 GTE Corp. 968,500
10,946 1 MCI Worldcom, Inc. 785,398
6,100 Sprint Corp. 513,162
3,050 1 Sprint PCS Group 70,531
TOTAL 3,034,716
CONSUMER CYCLICALS-5.7%

16,600 Block (H&R), Inc. 747,000
23,800 Cooper Tire & Rubber Co. 486,412
9,300 Ford Motor Co. 545,794
39,244 Hollinger International Publishing, Inc. 546,963
8,000 Intimate Brands, Inc. 239,000
1,500 Magna International, Inc., Class A 93,000
13,200 Penney (J.C.) Co., Inc. 618,750
TOTAL 3,276,919
CONSUMER STAPLES-9.3%

41,500 Food Lion, Inc., Class A 440,937
31,100 Food Lion, Inc., Class B 312,944
<CAPTION>

SHARES VALUE
<C> <S> <C>

COMMON STOCKS-continued

CONSUMER STAPLES-CONTINUED

15,100 General Mills, Inc. $ 1,174,025
11,500 Heinz (H.J.) Co. 651,188
12,100 Kimberly-Clark Corp. 659,450
15,000 PepsiCo, Inc. 614,063
13,300 Philip Morris Cos., Inc. 711,550
14,200 RJR Nabisco Holdings Corp. 421,563
4,500 UST, Inc. 156,938
10,200 Wendy's International, Inc. 222,488
TOTAL 5,365,146
ENERGY-6.2%

6,400 British Petroleum Co. PLC, ADR 608,000
13,900 Burlington Resources, Inc. 497,794
10,800 Exxon Corp. 789,750
17,600 Halliburton Co. 521,400
8,900 Mobil Corp. 775,412
14,200 Ultramar Diamond Shamrock Corp. 344,350
TOTAL 3,536,706
FINANCIALS-13.1%

5,274 Associates First Capital Corp., Class A 223,486
18,600 Bank One Corp. 949,762
11,781 BankAmerica Corp. 708,333
9,200 Chase Manhattan Corp. 626,175
5,100 Chubb Corp. 330,863
13,000 Citigroup, Inc. 643,500
6,000 Colonial Properties Trust 159,750
6,600 Duke Realty Investments, Inc. 153,450
6,500 Equity Residential Properties Trust 262,844
14,600 First Union Corp. 887,863
5,600 Liberty Property Trust 137,900
3,900 Lincoln National Corp. 319,069
8,100 Marsh & McLennan Cos., Inc. 473,344
9,800 Mellon Bank Corp. 673,750
8,300 Morgan Stanley, Dean Witter & Co. 589,300
7,000 New Plan Excel Realty Trust 155,313
6,400 Post Properties, Inc. 246,000
TOTAL 7,540,702
<CAPTION>
SHARES VALUE
<C> <S> <C>

COMMON STOCKS-continued
HEALTH CARE-10.6%

23,500 Abbott Laboratories $ 1,151,500
16,800 American Home Products Corp. 946,050
18,100 Baxter International, Inc. 1,164,056
9,500 Bristol-Myers Squibb Co. 1,271,219
7,700 Johnson & Johnson 645,837
6,300 Merck & Co., Inc. 930,431
TOTAL 6,109,093
TECHNOLOGY-12.1%

2,800 1 Cisco Systems, Inc. 259,875
22,900 Electronic Data Systems Corp. 1,150,725
8,300 Hewlett-Packard Co. 566,994
2,600 Intel Corp. 308,262
5,500 International Business Machines Corp. 1,016,125
10,700 Motorola, Inc. 653,369
19,700 1 Storage Technology Corp. 700,581
6,000 1 Sun Microsystems, Inc. 513,750
8,000 1 Tellabs, Inc. 548,500
34,800 1 Western Digital Corp. 524,175
6,200 Xerox Corp. 731,600
TOTAL 6,973,956
TRANSPORTATION-1.2%

18,000 CNF Transportation, Inc. 676,125
UTILITIES-5.6%

11,900 CMS Energy Corp. 576,406
6,400 El Paso Energy Corp. 222,800
15,363 Enron Corp. 876,651
22,600 Pacificorp 476,012
16,300 Sonat, Inc. 441,119
8,200 TECO Energy, Inc. 231,138
13,000 Williams Cos., Inc. (The) 405,438
TOTAL 3,229,564
TOTAL COMMON STOCKS (identified cost $39,566,660) 45,021,858
<CAPTION>

SHARES OR

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

CONVERTIBLE PREFERRED STOCKS-12.1%
BASIC MATERIALS-0.4%

9,500 Merrill Lynch & Co., Inc., STRYPES, Series IML $ 225,625
CAPITAL GOODS-1.3%
30,300 Ingersoll-Rand Co., DECS, Series 6.75% 719,625
CONSUMER STAPLES-3.5%
5,700 McKesson Corp., Conv. Pfd., $2.50 620,764
11,800 Ralston Purina Co., SAILS, $1.08 616,550
10,300 2 Suiza Foods Corp., Conv. Pfd., $2.75 449,543
6,300 Wendy's International, Inc., Cumulative Conv. Pfd., Series
A, $2.50 327,600
TOTAL 2,014,457
FINANCIALS-2.5%
25,300 Conseco, Inc., Cumulative PRIDES, Series F, $3.50 975,631
800 Jefferson-Pilot Corp., Conv. Pfd., $5.26 83,600
17,100 Lincoln National Corp., Cumulative PRIDES, $1.94 402,919
TOTAL 1,462,150
TECHNOLOGY-1.9%

11,400 Microsoft Corp., Cumulative Conv. Pfd., Series A, $2.20 1,114,350
UTILITIES-2.5%

17,150 Texas Utilities Co., Cumulative PRIDES, $4.63 966,831
3,300 Williams Cos., Inc. (The), Conv. Pfd., $3.50 482,483
TOTAL 1,449,314
TOTAL CONVERTIBLE PREFERRED STOCKS (identified cost $7,054,167) 6,985,521

CONVERTIBLE CORPORATE BONDS-6.8%
CONSUMER CYCLICALS-2.7%

$450,000 Home Depot, Inc., Conv. Sub. Note, 3.25%, 10/1/2001 1,206,297
283,000 Magna International, Inc., Conv. Bond, 5.00%, 10/15/2002 327,482
TOTAL 1,533,779
TECHNOLOGY-4.1%

100,000 America Online, Inc., Conv. Bond, 4.00%, 11/15/2002 578,785
550,000 Apple Computer, Inc., Conv. Bond, 6.00%, 6/1/2001 799,133
215,000 EMC Corp. Mass, Conv. Bond, 3.25%, 3/15/2002 813,108
600,000 2 Western Digital Corp., Conv. Sub. Deb., Zero Coupon,
2/18/2018 184,392
TOTAL 2,375,418
TOTAL CONVERTIBLE CORPORATE BONDS (identified cost $2,572,219) 3,909,197
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

REPURCHASE AGREEMENT-2.7% 3

$ 1,560,000 Westdeutsche Landesbank Girozentrale, 4.90%, dated
12/31/1998, due 1/4/1999

(AT AMORTIZED COST) $ 1,560,000
TOTAL INVESTMENTS (identified cost $50,753,046) 4 $ 57,476,576
</TABLE>

1 Non-income producing security.

2 Denotes securities exempt from registration under the Securities Act of 1933,
as amended, and may only be sold to dealers and other exempt investors. These
securities have been determined to be liquid according to guidelines established
by the Board of Directors.

4 The cost of investments for federal tax purposes amounts to $50,802,058. The
net unrealized appreciation of investments on a federal tax basis amounts to
$6,674,518 which is comprised of $8,973,849 appreciation and $2,299,331
depreciation at December 31, 1998.

Note: The categories of investments are shown as a percentage of net assets
($57,499,006) at December 31, 1998.

The following acronyms are used throughout this portfolio:

ADR -American Depository Receipt
DECS -Dividend Enhanced Convertible Stock
PLC -Public Limited Company

PRIDES -Preferred Redeemable Increased Dividend Equity Securities
SAILS -Stock Appreciation Income Linked Security
STRYPES -Structured Yield Product Exchangeable for Stock

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

December 31, 1998
<TABLE>

ASSETS:

Total investments in securities, at value (identified cost
$50,753,046

and tax cost $50,802,058) $ 57,476,576
Income receivable 110,067
Receivable for investments sold 197,412
Total assets 57,784,055
LIABILITIES:

Payable for investments purchased $ 173,648
Payable for shares redeemed 84,728
Payable to Bank 1,167
Payable for taxes withheld 769
Accrued expenses 24,737
Total liabilities 285,049
Net Assets for 4,063,243 shares outstanding $ 57,499,006
NET ASSETS CONSIST OF:
Paid in capital $ 49,125,711
Net unrealized appreciation of investments 6,723,534
Accumulated net realized gain on investments 710,974
Undistributed net investment income 938,787
Total Net Assets $ 57,499,006
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
$57,499,006 / 4,063,243 shares outstanding $14.15
</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended December 31, 1998
<TABLE>

<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $1,929) $ 1,169,170
Interest 196,538
Total income 1,365,708
EXPENSES:

Investment advisory fee $ 344,437
Administrative personnel and services fee 125,000
Custodian fees 6,832
Transfer and dividend disbursing agent fees and expenses 23,281
Directors'/Trustees' fees 2,151
Auditing fees 10,344
Legal fees 3,360
Portfolio accounting fees 46,937
Share registration costs 6,422
Printing and postage 43,985
Insurance premiums 2,345
Miscellaneous 7,164
Total expenses 622,258
WAIVER:
Waiver of investment advisory fee (195,710)
Net expenses 426,548
Net investment income 939,160
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 785,704
Net change in unrealized appreciation of investments 5,149,795
Net realized and unrealized gain on investments 5,935,499
Change in net assets resulting from operations $ 6,874,659
</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,

1998 1997 *
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS

OPERATIONS:

Net investment income $ 939,160 $ 310,425
Net realized gain (loss) on investments and foreign currency
transactions ($759,986 and $9,604, respectively, as computed
for federal tax purposes) 785,704 (65,125)
Net change in unrealized appreciation 5,149,795 1,573,739
Change in net assets resulting from operations 6,874,659 1,819,039
DISTRIBUTIONS TO SHAREHOLDERS:

Distributions from net investment income (211,620) (99,217)
Distributions from net realized gains (9,563) -
Change in net assets resulting from distributions

to shareholders (221,183) (99,217)
SHARE TRANSACTIONS:
Proceeds from sale of shares 21,185,637 32,443,264
Net asset value of shares issued to shareholders in payment

distributions declared 221,183 94,855
Cost of shares redeemed (3,436,527) (1,382,704)
Change in net assets resulting from share transactions 17,970,293 31,155,415
Change in net assets 24,623,769 32,875,237
NET ASSETS:

Beginning of period 32,875,237 -
End of period (including undistributed net investment income
of $938,787 and $211,208, respectively) $ 57,499,006 $ 32,875,237
</TABLE>

* For the period from January 30, 1997 (date of initial public investment) to
December 31, 1997.

See Notes which are an integral part of the Financial Statements

Financial Highlights

(For a share outstanding throughout each period)
<TABLE>
<CAPTION>

YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,

1998 1997 1
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.31 $10.47
INCOME FROM INVESTMENT OPERATIONS:

Net investment income 0.22 0.23
Net realized and unrealized gain on investments 1.69 1.76
Total from investment operations 1.91 1.99
LESS DISTRIBUTIONS:

Distributions from net investment income (0.07) (0.15)
NET ASSET VALUE, END OF PERIOD: $14.15 $12.31
TOTAL RETURN 2 15.57% 19.19%

RATIOS TO AVERAGE NET ASSETS:

Expenses 0.93% 0.85% 3
Net investment income 2.04% 2.41% 3
Expense waiver/reimbursement 4 0.43% 1.44% 3
SUPPLEMENTAL DATA:

Net assets, end of period (000 omitted) $57,499 $32,875
Portfolio turnover 59% 68%
</TABLE>

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

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

3 Computed on an annualized basis.

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

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements
December 31, 1998

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 Equity Income 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 Fund's investment objective is to provide above average income and
capital appreciation.

SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS

U.S. government securities, listed 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 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 60 days or less at
the time of purchase may be valued at amortized cost, which approximates fair
market value.

REPURCHASE AGREEMENTS

INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS

FEDERAL TAXES

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

USE OF ESTIMATES

OTHER

Investment transactions are accounted for on the trade date.

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 PERIOD ENDED
DECEMBER 31, DECEMBER 31,

1998 1997 *
<S> <C> <C>
Shares sold 1,639,612 2,789,634

Shares issued to shareholders in payment of distributions

declared 16,731 8,213
Shares redeemed (264,192) (126,755)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 1,392,151 2,671,092
</TABLE>

* For the period from January 30, 1997 (date of initial public investment) to
December 31, 1997.

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 or reimburse the Fund for certain operating expenses. The
Adviser can modify or terminate this voluntary waiver at any time at its sole
discretion.

ADMINISTRATIVE FEE

DISTRIBUTION SERVICES FEE

The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b- 1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's shares.
The Plan provides that the Fund may incur distribution expenses up to 0.25% of
the average daily net assets of the Fund shares, annually, to compensate FSC.
For the period ended December 31, 1998, the Fund did not incur a distribution
services fee.

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES

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.

GENERAL

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

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1998, were as follows:

Purchases $ 44,367,839
Sales $ 25,535,077

YEAR 2000 (UNAUDITED)

Independent Auditors' Report

TO THE BOARD OF TRUSTEES OF THE FEDERATED INSURANCE SERIES AND SHAREHOLDERS OF
FEDERATED EQUITY INCOME FUND II:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Federated Equity Income Fund II (the "Fund") (a
portfolio of the Federated Insurance Series) as of December 31, 1998, the
related statement of operations for the year then ended and statement of changes
in net assets for the year ended December 31, 1998 and the period from January
30, 1997 through December 31, 1997, 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 Equity
Income Fund II as of December 31, 1998, 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

Boston, Massachusetts
February 12, 1999

Trustees

JOHN F. DONAHUE

THOMAS G. BIGLEY

JOHN T. CONROY, JR.

NICHOLAS P. CONSTANTAKIS

WILLIAM J. COPELAND

J. CHRISTOPHER DONAHUE

JAMES E. DOWD, ESQ.

LAWRENCE D. ELLIS, M.D.

EDWARD L. FLAHERTY, JR., ESQ.

PETER E. MADDEN

JOHN E. MURRAY, JR., J.D., S.J.D.

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 and Secretary

RICHARD B. FISHER

Vice President

RICHARD J. THOMAS

Treasurer

MATTHEW S. HARDIN

Assistant Secretary

risk, including the possible loss of principal.

ANNUAL REPORT

[Graphic]

Federated Equity Income Fund II

Federated Insurance Series

ANNUAL REPORT TO SHAREHOLDERS

December 31, 1998

[Graphic]

Federated Equity Income Fund II

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

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Cusip 313916801

G00433-09 (2/99)

[Graphic]

A. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant. Federated American Leaders Fund II (the "Fund") is represented by a
solid line. The Standard & Poor's 500 Index ("S&P 500") is represented by a
dotted line, and the Lipper Growth and Income Funds Average ("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 12/31/98. 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 $25,127, $29,154,
and $19,637, respectively.

B. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant. Federated Utility Fund II (the "Fund") is represented by a solid line.
The Standard & Poor's 500 Index ("S&P 500") is represented by a dotted line, the
Standard & Poor's Utility Index ("SPUX") is represented by a broken line, and
the Standard & Poor's Communication Services Index is represented by a dashed
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, SPUX and
SPCSX. The "x" axis reflects computation periods from 2/10/94 to 12/31/98. 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, the SPUX, and the SPCSX. The ending values were $19,320, $29,154, $19,949
and $27,726, respectively.

C. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left quadrant
of the graphic presentation. The Federated Fund for U.S. Government Securities
II is represented by a solid line. The Lehman Brothers 5 Year Treasury
Bellwether Index is represented by a dotted line, the Lipper U.S. Mortgage Funds
Average is represented by a broken line, and the Lehman Brothers
Government/Mortgage-Backed Index is represented by a broken dotted line. The
line graph is a visual representation of a comparison of change in value of a
$10,000 hypothetical investment in Federated Fund for U.S. Government Securities
II and the Lehman Brothers 5 Year Treasury Bellwether Index, the Lipper U.S.
Mortgage Funds Average, and the Lehman Brothers Government/Mortgage-Backed
Index. The "x" axis reflects computation periods from March 28, 1994 (start of
performance) to December 31, 1998. The "y" axis reflects the cost of the
investment. The right margin reflects the ending value of the hypothetical
investment in Federated Fund for U.S. Government Securities II, as compared to
the Lehman Brothers 5 year Treasury Bellwether Index, the Lipper U.S. Mortgage
Funds Average, and the Lehman Brothers Government/Mortgage-Backed Index; the
ending values were $13,596; $14,036; $13,714; and $14,542, respectively.

D. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left quadrant
of the graphic presentation. The Federated High Income Bond Fund II is
represented by a solid line. The Lehman Brothers Single B Rated Index is
represented by a dotted line and the Lipper High Current Yield Fund Average 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 Federated
High Income Bond Fund II and the Lehman Brothers Single B Rated Index and the
Lipper High Current Yield Fund Average. The "x" axis reflects computation
periods from March 1, 1994 (start of performance) to December 31, 1998. The "y"
axis reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in Federated High Income Bond Fund II, as
compared to the Lehman Brothers Single B Rated Index and the Lipper High Current
Yield Fund Average; the ending values were $15,506; $14,835; and $14,036,
respectively.

<PAGE>

E. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant. Federated International Equity Fund II (the "Fund") is represented by
a solid line. The Morgan Stanley Capital International Europe Australia Far-East
Index ("EAFE") is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Fund and the EAFE. The "x" axis reflects computation periods
from 5/8/95 to 12/31/98. 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 EAFE. The ending values were $15,497 and $13,628,
respectively.

F. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left quadrant
of the graphic presentation. The Federated Growth Strategies Fund II is
represented by a solid line. The Standard & Poor's 500 Index is represented by a
dotted line and 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 $10,000 hypothetical investment in Federated Growth Strategies Fund II and the
Standard & Poor's 500 Index and the Lipper Growth Fund Index. The "x" axis
reflects computation periods from November 9, 1995 (start of performance) to
December 31, 1998. The "y" axis reflects the cost of the investment. The right
margin reflects the ending value of the hypothetical investment in Federated
Growth Strategies Fund II, as compared to the Standard & Poor's 500 Index and
the Lipper Growth Fund Index; the ending values were $19,103; $22,028; and
$19,462, respectively.

G. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left quadrant
of the graphic presentation. The Federated Equity Income Fund II is represented
by a solid line. The Standard & Poor's 500 Index is represented by a dotted line
and the Lipper Equity Income Fund Index 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 Federated Equity Income Fund II and the
Standard & Poor's 500 Index and the Lipper Equity Income Fund Index. The "x"
axis reflects computation periods from January 30, 1997 (start of performance)
to December 31, 1998. The "y" axis reflects the cost of the investment. The
right margin reflects the ending value of the hypothetical investment in
Federated Equity Income Fund II, as compared to the Standard & Poor's 500 Index
and the Lipper Equity Income Fund Index; the ending values were $13,775;
$16,184; and $14,214, respectively.