FEDERATED INSURANCE SERIES

N-CSR 1 fisform.htm FEDERATED INSURANCE SERIES




                                  United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                   Form N-CSR
   Certified Shareholder Report of Registered Management Investment Companies




                                    811-8042

                      (Investment Company Act File Number)


                           Federated Insurance Series
         ---------------------------------------------------------------

               (Exact Name of Registrant as Specified in Charter)



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


                                 (412) 288-1900
                         (Registrant's Telephone Number)


                           John W. McGonigle, Esquire
                            Federated Investors Tower
                               1001 Liberty Avenue
                       Pittsburgh, Pennsylvania 15222-3779
                     (Name and Address of Agent for Service)
                (Notices should be sent to the Agent for Service)






                        Date of Fiscal Year End: 12/31/04


              Date of Reporting Period: Fiscal year ended 12/31/04




Item 1.     Reports to Stockholders

Federated
World-Class Investment Manager

Federated American Leaders Fund II

A Portfolio of Federated Insurance Series

ANNUAL SHAREHOLDER REPORT

December 31, 2004

Primary Shares
Service Shares

FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE

Not FDIC Insured * May Lose Value * No Bank Guarantee

Financial Highlights - Primary Shares

(For a Share Outstanding Throughout Each Period)

Year Ended December 31	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$19.10		$15.21		$19.25		$20.52		$20.82
Income From Investment Operations:
Net investment income	0.31		0.28		0.22	1	0.19		0.27
Net realized and unrealized gain (loss) on investments	1.53		3.86		(4.07	)	(1.07	)	0.19
TOTAL FROM INVESTMENT OPERATIONS	1.84		4.14		(3.85	)	(0.88	)	0.46
Less Distributions:
Distributions from net investment income	(0.27	)	(0.25	)	(0.19	)	(0.27	)	(0.19	)
Distributions from net realized gain on investments	--		--		--		(0.12	)	(0.57	)
TOTAL FROM DISTRIBUTIONS	(0.27	)	(0.25	)	(0.19	)	(0.39	)	(0.76	)
Net Asset Value, End of Period	$20.67		$19.10		$15.21		$19.25		$20.52
Total Return2	9.78	%	27.69	%	(20.21	)%	(4.21	)%	2.38	%

Ratios to Average Net Assets:
Expenses	0.90	%3	0.90	%3	0.88	%3	0.87	%3	0.87	%
Net investment income	1.44	%	1.53	%	1.28	%	0.94	%	1.38	%
Expense waiver/reimbursement4	0.01	%	0.00	%5	--		--		--
Supplemental Data:
Net assets, end of period (000 omitted)	$320,987		$348,559		$313,659		$455,968		$485,612
Portfolio turnover	43	%	36	%	24	%	27	%	38	%

1 Based on average shares outstanding.

2 Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.

3 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios are 0.89%, 0.89%, 0.87%, and 0.86%, for the years ended December 31, 2004, 2003, 2002, and 2001, respectively, after taking into account these expense reductions.

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

5 Represents less than 0.01%.

See Notes which are an integral part of the Financial Statements

Financial Highlights - Service Shares

(For a Share Outstanding Throughout Each Period)

	Year Ended December 31,				Period Ended
	2004		2003		12/31/2002	1
Net Asset Value, Beginning of Period	$19.05		$15.21		$18.28
Income From Investment Operations:
Net investment income	0.25		0.26		0.14	2
Net realized and unrealized gain (loss) on investments	1.53		3.83		(3.21	)
TOTAL FROM INVESTMENT OPERATIONS	1.78		4.09		(3.07	)
Less Distributions:
Distributions from net investment income	(0.25	)	(0.25	)	--
Net Asset Value, End of Period	$20.58		$19.05		$15.21
Total Return3	9.50	%	27.32	%	(16.79	)%

Ratios to Average Net Assets:
Expenses	1.15	%	1.15	%5	1.13	%4,5
Net investment income	1.22	%	1.20	%	1.35	%4
Expense waiver/reimbursement6	0.01	%	0.00	%7	--
Supplemental Data:
Net assets, end of period (000 omitted)	$6,823		$3,697		$352
Portfolio turnover	43	%	36	%	24	%8

1 Reflects operations for the period from April 30, 2002 (date of initial public investment) to December 31, 2002.

2 Based on average shares outstanding.

3 Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.

4 Computed on an annualized basis.

5 The expense ratios are calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios are 1.15%, 1.14%, and 1.12%, for the years ended December 31, 2004 and 2003 and the period ended December 31, 2002, respectively, after taking into account these expense reductions.

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

7 Represents less than 0.01%.

8 Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the year ended December 31, 2002.

See Notes which are an integral part of the Financial Statements

Shareholder Expense Example

As a shareholder of the Fund, you incur ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees and/or shareholder services fees; and other Fund expenses. This example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other variable investment options. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2004 to December 31, 2004.

ACTUAL EXPENSES

The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are provided to enable you to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.

	Beginning Account Value 7/1/2004	Ending Account Value 12/31/2004	Expenses Paid During Period1
Actual:
Primary Shares	$1,000	$1,067.70	$4.68
Service Shares	$1,000	$1,065.80	$5.97
Hypothetical (assuming a 5% return before expenses):
Primary Shares	$1,000	$1,020.61	$4.57
Service Shares	$1,000	$1,019.36	$5.84

1 Expenses are equal to the Fund's annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). The annualized expense ratios are as follows:

Primary Shares		0.90%
Service Shares		1.15%

Management Discussion of Fund Performance

For the 12 months ended December 31, 2004, the Federated American Leaders Fund II returned 9.78% and 9.50%, respectively, for the fund's Primary Shares and Service Shares, underperforming the 15.71% return for the benchmark Standard & Poor's 500/Barra Value Index.1 The portfolio was positioned to benefit from continued economic growth with overweights in Materials, Industrials, and Information Technology. The portfolio was also underweighted in interest sensitive groups such as Utilities (which, much to our surprise turned out to be very strong performers as long-term interest rates did not change very much during the reporting period) and Financials as the outlook for continued economic growth was expected to lead to higher interest rates.

Among the best performances in the fund for the reporting period, in terms of contribution to fund performance, were media giant News Corp., credit card issuer Capital One, oil service company Halliburton, ExxonMobil, and industrial conglomerate Tyco International. Disappointing performances were registered by drug company Pfizer, which suffered over concerns about its arthritis drug Celebrex, retailer Gap, Inc., Philips Electronics, and the government-sponsored mortgage enterprise Fannie Mae, which, like Freddie Mac turned out to have accounting issues. The fund was also hurt by not owning benchmark stock AT&T Wireless, which was up nearly 90% in 2004 and which was acquired by Cingular Wireless late in the year. The fund also failed to benefit fully from the dramatic increase in the price of oil. The fund, while invested in many of the major beneficiaries of higher oil prices, like ExxonMobil, ChevronTexaco, and BP, was, in total, underweighted in the sector relative to the benchmark.

1 The S&P 500/Barra Value Index is a market capitalization-weighted index of the stocks in the Standard & Poor's 500 Index having the lowest price-to-book ratios. The index consists of approximately half of the S&P 500 on a market-capitalization basis.

Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investors shares, when redeemed, may be worth more or less than their original cost. Performance of a variable investment option changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance, contact your insurance company. The performance information presented does not include the charges and expenses imposed by the insurance company under the variable insurance product contract. The inclusion of such charges would lower performance. Please refer to the variable insurance product prospectus for a complete listing of these expenses. Fund shares are available exclusively as a funding vehicle for life insurance companies writing variable life insurance policies and variable annuity contracts.

GROWTH OF $10,000 INVESTED IN FEDERATED AMERICAN LEADERS FUND II - PRIMARY SHARES

Average Annual Total Returns for the Period Ended 12/31/2004
1 Year		9.78%
5 Years		1.87%
10 Years		11.46%

The graph above illustrates the hypothetical investment of $10,0001 in the Federated American Leaders Fund II (Primary Shares) (the "Fund") from December 31, 1994 to December 31, 2004, compared to the Standard & Poor's 500/Barra Value Index (S&P 500/BV),2 and the Lipper Large-Cap Value Funds Index (LLCVFI).3

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

2 The S&P 500/BV is not adjusted to reflect sales charges, expenses, or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The index is unmanaged and unlike the Fund, is not affected by cashflows. It is not possible to invest directly in an index.

3 The LLCVFI represents the average of the total returns reported by all of the mutual funds designated by Lipper, 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.

GROWTH OF $10,000 INVESTED IN FEDERATED AMERICAN LEADERS FUND II - SERVICE SHARES

Average Annual Total Return for the Period Ended 12/31/2004
1 Year		9.50%
Start of Performance (4/30/2002)		5.71%

The graph above illustrates the hypothetical investment of $10,0001 in the Federated American Leaders Fund II (Service Shares) (the "Fund") from April 30, 2002 (start of performance) to December 31, 2004, compared to the Standard & Poor's 500/Barra Value Index (S&P 500/BV),2 and the Lipper Large-Cap Value Funds Index (LLCVFI).3

2 The S&P 500/BV 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 and unlike the Fund, is not affected by cashflows. It is not possible to invest directly in an index.

Portfolio of Investments Summary Table

At December 31, 2004, the Fund's sector composition1 was as follows:

Sector		Percentage of Total Net Assets
Financials		35.3%
Energy		11.3%
Consumer Discretionary		11.1%
Information Technology		9.1%
Industrials		8.8%
Utilities		5.0%
Healthcare		4.6%
Consumer Staples		4.4%
Telecommunication Services		4.2%
Materials		3.8%
Cash Equivalents2		2.2%
Other Assets and Liabilities--Net3		0.2%
TOTAL		100.0%

1 Except for Non-Equity Holdings and Cash Equivalents, sector classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Standard & Poor's Global Industry Classification Standard (SPGIC) except that the adviser assigns an index classification to securities not classified by the SPGIC and to securities for which the adviser does not have access to the classification made by the SPGIC.

2 Cash Equivalents includes investments in money market mutual funds and in overnight repurchase agreements.

3 See Statement of Assets and Liabilities.

Portfolio of Investments

December 31, 2004

Shares					Value
			COMMON STOCKS--97.6%
			Consumer Discretionary--11.1%
	83,200	1	Comcast Corp., Class A	$	2,732,288
	193,000		Gap (The), Inc.		4,076,160
	112,000	1	Goodyear Tire & Rubber Co.		1,641,920
	91,300		Home Depot, Inc.		3,902,162
	291,700	1	Interpublic Group Cos., Inc.		3,908,780
	56,800		Johnson Controls, Inc.		3,603,392
	85,300		Mattel, Inc.		1,662,497
	180,000		News Corp., Inc.		3,358,800
	140,700		Philips Electronics NV, ADR		3,728,550
	167,000	1	Time Warner, Inc.		3,246,480
	91,078		Viacom, Inc., Class B		3,314,329
	46,900		Walt Disney Co.		1,303,820
			TOTAL		36,479,178
			Consumer Staples--4.4%
	162,700		Altria Group, Inc.		9,940,970
	252,700	1	Rite Aid Corp.		924,882
	83,900	1	Safeway Inc.		1,656,186
	51,500		SUPERVALU, Inc.		1,777,780
			TOTAL		14,299,818
			Energy--11.3%
	115,400		Apache Corp.		5,835,778
	108,900		BP PLC, ADR		6,359,760
	171,600		ChevronTexaco Corp.		9,010,716
	32,100		ConocoPhillips		2,787,243
	151,400		Exxon Mobil Corp.		7,760,764
	33,500		Halliburton Co.		1,314,540
	102,100		Marathon Oil Corp.		3,839,981
			TOTAL		36,908,782
			Financials--35.3%
	121,500		Ace Ltd.		5,194,125
	161,100		Allstate Corp.		8,332,092
	80,600		American International Group, Inc.		5,293,002
	281,400		Bank of America Corp.		13,222,986
	32,800		Capital One Financial Corp.		2,762,088
	105,900		Citigroup, Inc.		5,102,262
	83,600		Fannie Mae		5,953,156
	72,300		Federal Home Loan Mortgage Corp.		5,328,510
	34,900		Fifth Third Bancorp		1,650,072
	29,400		Goldman Sachs Group, Inc.		3,058,776
	69,900		Hartford Financial Services Group, Inc.		4,844,769
	314,300		J.P. Morgan Chase & Co.		12,260,843
	192,500		MBNA Corp.		5,426,575
	83,300		MetLife, Inc.		3,374,483
Shares					Value
			COMMON STOCKS--continued
			Financials--continued
	129,100		Morgan Stanley	$	7,167,632
	88,300		Nationwide Financial Services, Inc., Class A		3,375,709
	71,600		New York Community Bancorp, Inc.		1,472,812
	13,500		PartnerRe Ltd.		836,190
	75,300		RenaissanceRe Holdings Ltd.		3,921,624
	135,800		U.S. Bancorp		4,253,256
	126,700		Wachovia Corp.		6,664,420
	99,800		Wells Fargo & Co.		6,202,570
			TOTAL		115,697,952
			Healthcare--4.6%
	28,300		AmerisourceBergen Corp.		1,660,644
	76,400		Baxter International, Inc.		2,638,856
	147,200		McKesson HBOC, Inc.		4,630,912
	59,700		Merck & Co., Inc.		1,918,758
	152,700		Pfizer, Inc.		4,106,103
			TOTAL		14,955,273
			Industrials--8.8%
	33,100		Block (H&R), Inc.		1,621,900
	105,264		Cendant Corp.		2,461,072
	47,900		Eaton Corp.		3,466,044
	90,600		Masco Corp.		3,309,618
	65,148		Northrop Grumman Corp.		3,541,445
	44,500		Textron, Inc.		3,284,100
	308,600		Tyco International Ltd.		11,029,364
			TOTAL		28,713,543
			Information Technology--9.1%
	65,100		Analog Devices, Inc.		2,403,492
	177,900	1	Applied Materials, Inc.		3,042,090
	205,300	1	BMC Software, Inc.		3,818,580
	88,700	1	Cadence Design Systems, Inc.		1,224,947
	37,000		International Business Machines Corp.		3,647,460
	47,800		Intersil Holding Corp.		800,172
	125,400		Microsoft Corp.		3,349,434
	190,600		Motorola, Inc.		3,278,320
	156,000	1	Storage Technology Corp.		4,931,160
	122,900	1	SunGard Data Systems, Inc.		3,481,757
			TOTAL		29,977,412
			Materials--3.8%
	72,500		Air Products & Chemicals, Inc.		4,202,825
	120,800		Alcoa, Inc.		3,795,536
	31,200		International Paper Co.		1,310,400
	48,000		PPG Industries, Inc.		3,271,680
			TOTAL		12,580,441
Shares or Principal Amount					Value
			COMMON STOCKS--continued
			Telecommunication Services--4.2%
	58,900		BellSouth Corp.	$	1,636,831
	119,600		SBC Communications, Inc.		3,082,092
	133,000		Sprint Corp. (FON Group)		3,305,050
	138,706		Verizon Communications		5,618,980
			TOTAL		13,642,953
			Utilities--5.0%
	123,400		American Electric Power Co., Inc.		4,237,556
	149,600		Edison International		4,791,688
	59,800		First Energy Corp.		2,362,698
	225,100		NiSource, Inc.		5,127,778
			TOTAL		16,519,720
			TOTAL COMMON STOCKS (IDENTIFIED COST $256,762,656)		319,775,072
			REPURCHASE AGREEMENT--2.2%
$	7,339,000		Interest in $2,000,000,000 joint repurchase agreement with UBS Securities LLC, 2.28%, dated 12/31/2004 to be repurchased at $7,340,394 on 1/3/2005, collateralized by U.S. Government Agency Obligations with various maturities to 9/25/2034, collateral market value $2,060,003,250 (AT AMORTIZED COST)		7,339,000
			TOTAL INVESTMENTS--99.8% (IDENTIFIED COST $264,101,656)2		327,114,072
			OTHER ASSETS AND LIABILITIES - NET--0.2%		695,162
			TOTAL NET ASSETS--100%	$	327,809,234

1 Non-income producing security.

2 The cost of investments for federal tax purposes amounts to $264,908,432.

Note: The categories of investments are shown as a percentage of total net assets at December 31, 2004.

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, 2004

Assets:
Total investments in securities, at value (identified cost $264,101,656)			$	327,114,072
Cash				55,820
Income receivable				543,745
Receivable for investments sold				3,902,923
Receivable for shares sold				36,201
TOTAL ASSETS				331,652,761
Liabilities:
Payable for investments purchased	$	3,687,000
Payable for shares redeemed		100,880
Payable for distribution services fee (Note 5)		1,418
Accrued expenses		54,229
TOTAL LIABILITIES				3,843,527
Net assets for 15,861,904 shares outstanding			$	327,809,234
Net Assets Consist of:
Paid-in capital			$	264,641,803
Net unrealized appreciation of investments				63,012,416
Accumulated net realized loss on investments				(4,489,607	)
Undistributed net investment income				4,644,622
TOTAL NET ASSETS			$	327,809,234
Net Asset Value, Offering Price and Redemption Proceeds Per Share
Primary Shares:
$320,986,665 ÷ 15,530,399 shares outstanding, no par value, unlimited shares authorized				$20.67
Service Shares:
$6,822,569 ÷ 331,505 shares outstanding, no par value, unlimited shares authorized				$20.58

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended December 31, 2004

Investment Income:
Dividends (net of foreign taxes withheld of $33,577)							$	7,568,115
Interest								205,651
TOTAL INCOME								7,773,766
Expenses:
Investment adviser fee (Note 5)				$	2,501,776
Administrative personnel and services fee (Note 5)					267,224
Custodian fees					21,368
Transfer and dividend disbursing agent fees and expenses (Note 5)					23,012
Directors'/Trustees' fees					2,536
Auditing fees					17,234
Legal fees					4,907
Portfolio accounting fees					88,964
Distribution services fee--Service Shares (Note 5)					13,606
Printing and postage					61,611
Insurance premiums					16,478
Miscellaneous					3,732
TOTAL EXPENSES					3,022,448
Waiver and Expense Reduction (Note 5):
Waiver of administrative personnel and services fee	$	(13,043	)
Fees paid indirectly for directed brokerage arrangements		(17,181	)
TOTAL WAIVER AND EXPENSE REDUCTION					(30,224	)
Net expenses								2,992,224
Net investment income								4,781,542
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments								25,447,269
Net change in unrealized appreciation of investments								(32,783	)
Net realized and unrealized gain on investments								25,414,486
Change in net assets resulting from operations							$	30,196,028

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

Year Ended December 31		2004			2003
Increase (Decrease) in Net Assets
Operations:
Net investment income	$	4,781,542		$	4,826,765
Net realized gain on investments		25,447,269			10,406,926
Net change in unrealized appreciation/depreciation of investments		(32,783	)		62,910,109
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS		30,196,028			78,143,800
Distributions to Shareholders:
Distributions from net investment income
Primary Shares		(4,765,508	)		(4,899,060	)
Service Shares		(61,072	)		(8,846	)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS		(4,826,580	)		(4,907,906	)
Share Transactions:
Proceeds from sale of shares		14,032,101			20,393,237
Net asset value of shares issued to shareholders in payment of distributions declared		4,826,578			4,907,902
Cost of shares redeemed		(68,674,918	)		(60,292,239	)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS		(49,816,239	)		(34,991,100	)
Change in net assets		(24,446,791	)		38,244,794
Net Assets:
Beginning of period		352,256,025			314,011,231
End of period (including undistributed net investment income of $4,644,622 and $4,825,206, respectively)	$	327,809,234		$	352,256,025

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

December 31, 2004

1. ORGANIZATION

Federated Insurance Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of 11 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 Fund offers two classes of shares: Primary Shares and Service Shares. The primary investment objective of the Fund is to achieve long-term growth of capital. The Fund's secondary objective is to provide income.

2. SIGNIFICANT ACCOUNTING POLICIES

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

Investment Valuation

Listed corporate bonds and fixed-income 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 or official closing price reported on a national securities exchange. If unavailable, the security is generally valued at the mean between the last closing bid and asked prices. Investments in other open-end regulated investment companies are valued at net asset value. 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. Securities for which no quotations are readily available are valued at fair value as determined in accordance with procedures established by and under general supervision of the Board of Trustees (the "Trustees").

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 the collateral at least equals the repurchase price to be paid under the repurchase agreement.

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

Investment Income, Gains and Losses, Expenses and Distributions

Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses, and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class bears certain expenses unique to that class such as distribution services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.

Premium and Discount Amortization

All premiums and discounts on fixed-income securities are amortized/ accreted for financial statement purposes.

Federal Taxes

It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary.

Withholding taxes on foreign interest, dividends, and capital gains have been provided for in accordance with the applicable country's tax rules and rates.

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. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.

Use of Estimates

The preparation of financial statements in conformity with GAAP 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 a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.

3. SHARES OF BENEFICIAL INTEREST

The following tables summarize share activity:

Year Ended December 31	2004					2003
Primary Shares:	Shares			Amount		Shares			Amount
Shares sold	569,486		$	11,045,197		1,072,274		$	17,459,232
Shares issued to shareholders in payment of distributions declared	254,296			4,765,507		330,571			4,899,058
Shares redeemed	(3,545,107	)		(68,269,091	)	(3,771,323	)		(60,199,356	)
NET CHANGE RESULTING FROM PRIMARY SHARE TRANSACTIONS	(2,721,325	)	$	(52,458,387	)	(2,368,478	)	$	(37,841,066	)

Year Ended December 31	2004					2003
Service Shares:	Shares			Amount		Shares			Amount
Shares sold	155,581		$	2,986,904		176,236		$	2,934,005
Shares issued to shareholders in payment of distributions declared	3,266			61,071		597			8,844
Shares redeemed	(21,415	)		(405,827	)	(5,917	)		(92,883	)
NET CHANGE RESULTING FROM SERVICE SHARE TRANSACTIONS	137,432		$	2,642,148		170,916		$	2,849,966
NET CHANGE RESULTING FROM SHARE TRANSACTIONS	(2,583,893	)	$	(49,816,239	)	(2,197,562	)	$	(34,991,100	)

4. FEDERAL TAX INFORMATION

For the year ended December 31, 2004, permanent differences identified and reclassified among the components of net assets were as follows:

Increase (Decrease)
Undistributed Net Investment Income		Accumulated Net Realized Loss
$(135,546)		$135,546

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

The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended December 31, 2004 and 2003 was as follows:

		2004		2003
Ordinary income		$4,826,580		$4,907,906

As of December 31, 2004, the components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income	$	4,644,622
Net unrealized appreciation	$	62,205,640
Capital loss carryforward	$	3,682,832

The difference between book-basis and tax-basis net unrealized appreciation is attributable to differing treatments for the tax deferral of losses from wash sales.

At December 31, 2004, the cost of investments for federal tax purposes was $264,908,432. The net unrealized appreciation of investments for federal tax purposes was $62,205,640. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $63,842,914 and net unrealized depreciation from investments for those securities having an excess of cost over value of $1,637,274.

At December 31, 2004, the Fund had a capital loss carryforward of $3,682,832 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire in 2010.

5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Federated Equity Management Company of Pennsylvania, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser 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 Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of all Federated funds as specified below:

Maximum Administrative Fee		Average Aggregate Daily Net Assets of the Federated Funds
0.150%		on the first $5 billion
0.125%		on the next $5 billion
0.100%		on the next $10 billion
0.075%		on assets in excess of $20 billion

The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion.

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 daily net assets of the Fund's Service Shares to finance activities intended to result in the sale of these Shares. The Plan provides that the Fund may incur distribution expenses of up to 0.25% of average daily net assets, annually, to compensate FSC. FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion.

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 the average daily net assets of the Fund's Primary Shares and Service Shares for the period. The fee paid to FSSC is used to finance certain services for shareholders and to maintain shareholder accounts. 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. For the year ended December 31, 2004, the Fund's Primary Shares and Service Shares did not incur a shareholder services fee.

Transfer and Dividend Disbursing Agent Fees and Expenses

Prior to July 1, 2004, Federated Services Company, through its subsidiary FSSC, served as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC was based on the size, type, and number of accounts and transactions made by shareholders. The fee paid to FSSC during the reporting period was $16,640, after voluntary waiver, if applicable.

Expense Reduction

The Fund directs portfolio trades to a broker that in turn pays a portion of the Fund's operating expenses. For the year ended December 31, 2004, the Fund's expenses were reduced by $17,181 under these arrangements.

General

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

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations (and in-kind contributions), for the year ended December 31, 2004, were as follows:

Purchases		$	141,999,548
Sales		$	195,906,616

7. CONCENTRATION OF CREDIT RISK

The Fund may invest a portion of its assets in securities of companies that are deemed by the Fund's management to be classified in similar business sectors. The economic developments within a particular sector may have an adverse effect on the ability of issuers to meet their obligations. Additionally, economic developments may have an effect on the liquidity and volatility of the portfolios securities.

8. LEGAL PROCEEDINGS

Beginning in October 2003, Federated Investors, Inc. and various subsidiaries thereof (including the advisers and distributor for various investment companies, collectively, "Federated"), along with various investment companies sponsored by Federated ("Funds") were named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland seeking damages of unspecified amounts. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. Federated and various Funds have also been named as defendants in several additional lawsuits, the majority of which are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees, and seeking damages of unspecified amounts. The Board of the Funds has retained the law firm of Dickstein Shapiro Morin & Oshinsky LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these recent lawsuits and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Fund redemptions, reduced sales of Fund shares, or other adverse consequences for the Funds.

Report of Independent Registered Public Accounting Firm

TO THE BOARD OF TRUSTEES OF FEDERATED INSURANCE SERIES AND THE 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 Federated Insurance Series) (the "Trust") as of December 31, 2004, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to provide reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2004, the results of its operations, the changes in its net assets, and its financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Boston, Massachusetts
February 15, 2005

Board of Trustees and Trust Officers

The Board is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA. As of December 31, 2004, the Trust comprised 11 portfolios, and the Federated Fund Complex consisted of 44 investment companies (comprising 133 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about the Trust's Trustees and is available, without charge and upon request, by calling 1-800-341-7400.

INTERESTED TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
John F. Donahue* Birth Date: July 28, 1924 CHAIRMAN AND TRUSTEE Began serving: September 1993		Principal Occupations: Chairman and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Chairman and Director, Federated Investment Counseling.

J. Christopher Donahue* Birth Date: April 11, 1949 TRUSTEE Began serving: September 1993		Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp., and Passport Research, Ltd.

Lawrence D. Ellis, M.D.* Birth Date: October 11, 1932 3471 Fifth Avenue Suite 1111 Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center. Other Directorships Held: Member, National Board of Trustees, Leukemia Society of America. Previous Positions: Trustee, University of Pittsburgh; Director, University of Pittsburgh Medical Center.

* Family relationships and reasons for "interested" status: John F. Donahue is the father of J. Christopher Donahue; both are "interested" due to the positions they hold with Federated Investors, Inc. and its subsidiaries. Lawrence D. Ellis, M.D. is "interested" because his son-in-law is employed by the Fund's principal underwriter, Federated Securities Corp.

INDEPENDENT TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
Thomas G. Bigley Birth Date: February 3, 1934 15 Old Timber Trail Pittsburgh, PA TRUSTEE Began serving: November 1994		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director, University of Pittsburgh. Previous Position: Senior Partner, Ernst & Young LLP.

John T. Conroy, Jr. Birth Date: June 23, 1937 Investment Properties Corporation 3838 North Tamiami Trail Suite 402 Naples, FL TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation.

Nicholas P. Constantakis Birth Date: September 3, 1939 175 Woodshire Drive Pittsburgh, PA TRUSTEE Began serving: February 1998		Principal Occupations: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Member of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC.

John F. Cunningham Birth Date: March 5, 1943 353 El Brillo Way Palm Beach, FL TRUSTEE Began serving: January 1999		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc.

Peter E. Madden Birth Date: March 16, 1942 One Royal Palm Way 100 Royal Palm Way Palm Beach, FL TRUSTEE Began serving: September 1993		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.

Charles F. Mansfield, Jr. Birth Date: April 10, 1945 80 South Road Westhampton Beach, NY TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; Management Consultant; Executive Vice President, DVC Group, Inc. (marketing communications and technology) (prior to 9/1/00). Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University.

John E. Murray, Jr., J.D., S.J.D. Birth Date: December 20, 1932 Chancellor, Duquesne University Pittsburgh, PA TRUSTEE Began serving: February 1995		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chancellor and Law Professor, Duquesne University; Partner, Murray, Hogue and Lannis. Other Directorships Held: Director, Michael Baker Corp. (engineering, construction, operations and technical services). Previous Positions: President, Duquesne University; Dean and Professor of Law, University of Pittsburgh School of Law; Dean and Professor of Law, Villanova University School of Law.

Marjorie P. Smuts Birth Date: June 21, 1935 4905 Bayard Street Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Public Relations/Marketing Consultant/Conference Coordinator. Previous Positions: National Spokesperson, Aluminum Company of America; television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord.

John S. Walsh Birth Date: November 28, 1957 2604 William Drive Valparaiso, IN TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc.

OFFICERS


Name Birth Date Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years and Previous Position(s)
John B. Fisher Birth Date: May 16, 1956 PRESIDENT Began serving: November 2004		Principal Occupations: Vice President of some of the Funds in the Federated Fund Complex; and President and Director of the Institutional Sales Division of Federated Securities Corp., which is a wholly owned subsidiary of Federated. Mr. Fisher is responsible for the distribution of Federated's products and services to investment advisors, insurance companies, retirement plans, and corporations. In addition, Mr. Fisher serves as President and Director of Federated Investment Counseling, a wholly owned subsidiary of Federated involved in the management of separate accounts and sub-advised mandates. He is also President, Technology, Federated Services Corp. responsible for the technological infrastructure of the various Federated companies. He is also Director, Edgewood Securities Corp., as well as Director, Federated Investors Trust Company. Previous Positions: Senior Vice President of Federated Investment Counseling.

John W. McGonigle Birth Date: October 26, 1938 EXECUTIVE VICE PRESIDENT AND SECRETARY Began serving: September 1993		Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc.

Richard J. Thomas Birth Date: June 17, 1954 TREASURER Began serving: September 1997		Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services.

Richard B. Fisher Birth Date: May 17, 1923 VICE PRESIDENT Began serving: November 1998		Principal Occupations: Vice Chairman or President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. Previous Positions: President and Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice President, Federated Investors, Inc.; and Director and Chief Executive Officer, Federated Securities Corp.

Stephen F. Auth Birth Date: September 3, 1956 CHIEF INVESTMENT OFFICER Began serving: November 2002		Principal Occupations: Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Equity Management Company of Pennsylvania, and Passport Research II, Ltd. Previous Positions: Executive Vice President, Federated Investment Management Company and Passport Research, Ltd.; Senior Vice President, Global Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd.; Senior Managing Director and Portfolio Manager, Prudential Investments.

Robert J. Ostrowski Birth Date: April 26, 1963 CHIEF INVESTMENT OFFICER Began serving: May 2004		Principal Occupations: Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of taxable, fixed-income products in 2004 and also serves as a Senior Portfolio Manager. He has been a Senior Vice President of the Fund's Adviser since 1997. Mr. Ostrowski is a Chartered Financial Analyst. He received his M.S. in Industrial Administration from Carnegie Mellon University.

VOTING PROXIES ON FUND PORTFOLIO SECURITIES

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Federated's Internet site. Go to http://www.federatedinvestors.com, select "Products," open the "Variable Annuities" section, then select the link to "sec.gov" to access the link to Form N-PX. This information is also available from the EDGAR database on the SEC's Internet site at http://www.sec.gov.

QUARTERLY PORTFOLIO SCHEDULE

The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of the Federated Investors website at www.federatedinvestors.com by clicking on "Variable Annuities" and then selecting the link to "sec.gov" to access the link to Form N-Q.

Variable investment options 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 investment options involves investment risk, including the possible loss of principal.

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

Federated
World-Class Investment Manager

Federated American Leaders Fund II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Cusip 313916405
Cusip 313916793

G00843-01 (2/05)

Federated is a registered mark of Federated Investors, Inc. 2005 (c)Federated Investors, Inc.

Federated
World-Class Investment Manager

Federated Capital Appreciation Fund II

A Portfolio of Federated Insurance Series

ANNUAL SHAREHOLDER REPORT

December 31, 2004

Primary Shares
Service Shares

Not FDIC Insured * May Lose Value * No Bank Guarantee

Financial Highlights - Primary Shares

(For a Share Outstanding Throughout Each Period)

	Year Ended December 31,								Period Ended
	2004		2003		2002		2001		12/31/2000	1
Net Asset Value, Beginning of Period	$5.46		$4.43		$5.75		$7.67		$10.00
Income From Investment Operations:
Net investment income (loss)	0.06		0.04		0.03		(0.00	)2	(0.01	)
Net realized and unrealized gain (loss) on investments and futures contracts	0.34		1.01		(1.35	)	(1.92	)	(2.32	)
TOTAL FROM INVESTMENT OPERATIONS	0.40		1.05		(1.32	)	(1.92	)	(2.33	)
Less Distributions:
Distributions from net investment income	(0.03	)	(0.02	)	--		--		--
Net Asset Value, End of Period	$5.83		$5.46		$4.43		$5.75		$ 7.67
Total Return3	7.39	%	23.92	%	(22.96	)%	(25.03	)%	(23.30	)%

Ratios to Average Net Assets:
Expenses	1.03	%4	0.99	%	0.91	%4	0.91	%4	0.90	%5
Net investment income (loss)	1.13	%	0.93	%	0.74	%	(0.06	)%	(0.18	)%5
Expense waiver/reimbursement6	1.22	%	2.04	%	3.46	%	2.75	%	4.31	%5
Supplemental Data:
Net assets, end of period (000 omitted)	$18,397		$15,461		$9,532		$7,060		$7,217
Portfolio turnover	30	%	60	%	149	%	353	%	109	%

1 Reflects operations for the period from June 19, 2000 (date of initial public investment) to December 31, 2000.

2 Represents less than $0.01.

4 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios for the years ended December 31, 2004, 2002, and 2001 are 1.02%, 0.90%, and 0.90%, respectively, after taking into account these expense reductions.

5 Computed on an annualized basis.

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

See Notes which are an integral part of the Financial Statements

Financial Highlights - Service Shares

(For a Share Outstanding Throughout Each Period)

	Year Ended December 31,				Period Ended
	2004		2003		12/31/2002	1
Net Asset Value, Beginning of Period	$5.46		$4.43		$5.30
Income From Investment Operations:
Net investment income	0.05		0.03		0.01
Net realized and unrealized gain (loss) on investments and futures contracts	0.34		1.02		(0.88	)
TOTAL FROM INVESTMENT OPERATIONS	0.39		1.05		(0.87	)
Less Distributions:
Distributions from net investment income	(0.03	)	(0.02	)	--
Net Asset Value, End of Period	$5.82		$5.46		$4.43
Total Return2	7.11	%	23.88	%	(16.42	)%

Ratios to Average Net Assets:
Expenses	1.28	%4	1.24	%	1.16	%3,4
Net investment income	0.91	%	0.66	%	0.72	%3
Expense waiver/reimbursement5	1.22	%	2.04	%	5.17	%3
Supplemental Data:
Net assets, end of period (000 omitted)	$8,873		$5,827		$717
Portfolio turnover	30	%	60	%	149	%6

1 Reflects operations for the period from April 30, 2002 (date of initial public investment) to December 31, 2002.

3 Computed on an annualized basis.

4 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratio for the year ended December 31, 2004 and the period ended December 31, 2002 are 1.27% and 1.15%, respectively, after taking into account these expense reductions.

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

6 Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the year ended December 31, 2002.

See Notes which are an integral part of the Financial Statements

Shareholder Expense Example

As a shareholder of the Fund, you incur ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees and/or shareholder services fees; and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other variable investment options. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2004 to December 31, 2004.

ACTUAL EXPENSES

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

	Beginning Account Value 7/1/2004	Ending Account Value 12/31/2004	Expenses Paid During Period1
Actual:
Primary Shares	$1,000	$1,056.20	$5.32
Service Shares	$1,000	$1,054.30	$6.61
Hypothetical (assuming a 5% return before expenses):
Primary Shares	$1,000	$1,019.96	$5.23
Service Shares	$1,000	$1,018.70	$6.50

Primary Shares		1.03%
Service Shares		1.28%

Managements Discussion of Fund Performance

This report covers the fund's performance from January 1, 2004 through December 31, 2004. During this period, the fund produced total returns of 7.39% and 7.11%, for Primary Shares and Service Shares, respectively, based on net asset value.

During the reporting period, the fund underperformed its benchmark, the Standard & Poor's 500 Index ("S&P 500"), which returned 10.88%.1 The fund also underperformed its peer group as measured by the Lipper Large Cap Core Index (LLCCI), which produced an average total return of 8.28% for the same period.2

The 12-month period ended December 31, 2004 generated positive returns for most domestic and global equity market benchmarks, continuing the trend that began in the first quarter of 2003. In general, small and mid cap investment strategies outperformed large cap strategies during the period and, as a result, negatively influenced the fund's relative performance, as it had a larger market cap bias as compared to the S&P 500. Value-based strategies generally outperformed growth-based strategies as well. This positively influenced the fund's performance as it had a slight value bias during the year. As of December 31, 2004, the fund held 52% of assets in value stocks with the remaining 48% of assets in growth stocks.

Sector allocation was a positive contributor to performance while stock selection was a negative contributor. From a sector positioning standpoint, the fund's returns were aided by being overweight Energy and Industrials while also being overweight Information Technology during periods when the sector was outperforming. The fund's returns were limited by being underweight Utilities and Financials while also being overweight Materials during periods when the sector was underperforming. The fund's returns were limited by its cash position in a rising market.

Top contributors during the year were: Exxon Mobil Corp., General Electric Co., Transocean Sedco Forex, Inc., Biogen Idec, Inc. and Altria Group, Inc. Laggards during the year were: Pfizer, Inc., Intel Corp., Hewlett-Packard Co., Cisco Systems, Inc. and Tenet Healthcare.

1 S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index is unmanaged, and unlike the fund, is not affected by cashflows.

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

GROWTH OF $10,000 INVESTED IN THE FEDERATED CAPITAL APPRECIATION FUND II - PRIMARY SHARES

Average Annual Total Return for the Period Ended 12/31/2004
1 Year		7.39%
Start of Performance (6/19/2000)		(11.00)%

The graph above illustrates the hypothetical investment of $10,0001 in the Federated Capital Appreciation Fund II (Primary Shares) (the "Fund") from June 19, 2000 (start of performance) to December 31, 2004 compared to the Standard & Poor's 500 Index (S&P 500),2 and the Lipper Large-Cap Core Index (LLCCI).3

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

2 The S&P 500 is not adjusted to reflect sales charges, expenses, or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The index is unmanaged and unlike the Fund is not affected by cashflows. It is not possible to invest directly in an index.

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

GROWTH OF $10,000 INVESTED IN THE FEDERATED CAPITAL APPRECIATION FUND II - SERVICE SHARES

Average Annual Total Return for the Period Ended 12/31/2004
1 Year		7.11%
Start of Performance (4/30/2002)		(3.95)%

The graph above illustrates the hypothetical investment of $10,0001 in the Federated Capital Appreciation Fund II (Service Shares) (the "Fund") from April 30, 2002 (start of performance) to December 31, 2004 compared to the Standard & Poor's 500 Index (S&P 500),2 and the Lipper Large-Cap Core Index (LLCCI).3

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

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 and unlike the Fund is not affected by cashflows. It is not possible to invest directly in an index

Portfolio of Investments Summary Table

At December 31, 2004 Fund's sector composition1 was as follows:

Sector		Percentage of Total Net Assets
Financials		18.6%
Information Technology		17.3%
Consumer Discretionary		12.3%
Industrials		11.9%
Consumer Staples		11.8%
Healthcare		10.0%
Energy		8.1%
Telecommunication Services		4.4%
Materials		3.0%
Utilities		0.8%
Cash Equivalents2		1.8%
TOTAL		100.0%

1 Except for Cash Equivalents, sector classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Standard & Poor's Global Industry Classification Standard (SPGIC) except that the adviser assigns index classification to securities not classified by the SPGIC and to securities for which the adviser does not have access to the classification made by the SPGIC.

2 Cash Equivalents includes any investment in money market mutual funds and overnight repurchase agreements.

Portfolio of Investments

December 31, 2004

Shares					Value
			COMMON STOCKS--98.2%
			Consumer Discretionary--12.3%
	7,100		Clear Channel Communications, Inc.	$	237,779
	8,700	1	Comcast Corp., Class A		285,708
	6,400		Gap (The), Inc.		135,168
	10,100		Home Depot, Inc.		431,674
	4,000		Johnson Controls, Inc.		253,760
	10,300		McDonald's Corp.		330,218
	2,900		Nike, Inc., Class B		263,001
	2,500		Omnicom Group, Inc.		210,800
	6,600		Target Corp.		342,738
	11,500		Viacom, Inc., Class B		418,485
	16,400		Walt Disney Co.		455,920
			TOTAL		3,365,251
			Consumer Staples--11.8%
	9,900		Altria Group, Inc.		604,890
	8,200		Coca-Cola Co.		341,366
	9,100		Gillette Co.		407,498
	16,600	1	Kroger Co.		291,164
	6,600		PepsiCo, Inc.		344,520
	4,900		Procter & Gamble Co.		269,892
	8,500		Sara Lee Corp.		205,190
	14,000		Wal-Mart Stores, Inc.		739,480
			TOTAL		3,204,000
			Energy--8.1%
	5,400		ChevronTexaco Corp.		283,554
	2,700		ConocoPhillips		234,441
	20,900		Exxon Mobil Corp.		1,071,334
	8,400		Halliburton Co.		329,616
	6,900	1	Transocean Sedco Forex, Inc.		292,491
			TOTAL		2,211,436
			Financials--18.6%
	6,300		Allstate Corp.		325,836
	3,800		American International Group, Inc.		249,546
	8,700		Bank of America Corp.		408,813
	8,800		Bank of New York Co., Inc.		294,096
	14,000		Citigroup, Inc.		674,520
	3,900		Federal National Mortgage Association		277,719
	4,100		Goldman Sachs Group, Inc.		426,564
	13,900		J.P. Morgan Chase & Co.		542,239
Shares					Value
			COMMON STOCKS--continued
			Financials--continued
	3,100		Lehman Brothers Holdings, Inc.	$	271,188
	7,300		MBNA Corp.		205,787
	7,300		Merrill Lynch & Co., Inc.		436,321
	7,800		Morgan Stanley		433,056
	5,100		Wachovia Corp.		268,260
	4,200		Wells Fargo & Co.		261,030
			TOTAL		5,074,975
			Healthcare--10.0%
	4,700		Abbott Laboratories		219,255
	7,900		Baxter International, Inc.		272,866
	3,860	1	Biogen Idec, Inc.		257,114
	4,600		Johnson & Johnson		291,732
	4,500		McKesson HBOC, Inc.		141,570
	8,500		Medtronic, Inc.		422,195
	8,400		Merck & Co., Inc.		269,976
	15,720		Pfizer, Inc.		422,711
	10,300		Wyeth		438,677
			TOTAL		2,736,096
			Industrials--11.9%
	5,000		3M Co.		410,350
	2,200		Caterpillar, Inc.		214,522
	6,100		Cendant Corp.		142,618
	2,200		Deere & Co.		163,680
	33,300		General Electric Co.		1,215,450
	3,300		Ingersoll-Rand Co., Class A		264,990
	6,400		Raytheon Co.		248,512
	10,100		Tyco International Ltd.		360,974
	7,900		Waste Management, Inc.		236,526
			TOTAL		3,257,622
			Information Technology--17.3%
	7,500		Analog Devices, Inc.		276,900
	44,000	1	Applied Materials, Inc.		752,400
	27,600	1	Cisco Systems, Inc.		532,680
	7,600	1	Dell, Inc.		320,264
	28,200	1	EMC Corp. Mass		419,334
	4,000		International Business Machines Corp.		394,320
	23,100		Intel Corp.		540,309
	7,400	1	KLA-Tencor Corp.		344,692
	4,800	1	Lam Research Corp.		138,768
	25,200		Microsoft Corp.		673,092
	24,500	1	Oracle Corp.		336,140
			TOTAL		4,728,899
Shares or Principal Amount					Value
			COMMON STOCKS--continued
			Materials--3.0%
	8,400		Alcoa, Inc.	$	263,928
	5,800		Du Pont (E.I.) de Nemours & Co.		284,490
	6,400		International Paper Co.		268,800
			TOTAL		817,218
			Telecommunication Services--4.4%
	11,800		BellSouth Corp.		327,922
	15,200		SBC Communications, Inc.		391,704
	11,600		Verizon Communications		469,916
			TOTAL		1,189,542
			Utilities--0.8%
	9,100		NiSource, Inc.		207,298
			TOTAL COMMON STOCKS (IDENTIFIED COST $23,556,521)		26,792,337
			Repurchase Agreement--1.8%
$	484,000		Interest in $2,000,000,000 joint repurchase agreement with UBS Securities LLC, 2.28%, dated 12/31/2004 to be repurchased at $484,092 on 1/3/2005, collateralized by U.S Government Agency Obligations with various maturities to 08/15/2034, collateral market value of $2,060,003,250 (AT AMORTIZED COST)		484,000
			TOTAL INVESTMENTS--100.0% (IDENTIFIED COST $24,040,521)2		27,276,337
			OTHER ASSETS AND LIABILITIES - NET--(0.0)%		(5,757	)
			TOTAL NET ASSETS--100%	$	27,270,580

1 Non-income producing security.

2 The cost of investments for federal tax purposes is $24,200,894.

See Notes which are an integral part of the Financial Statements

Note: The categories of investments are shown as a percentage of total net assets at December 31, 2004.

Statement of Assets and Liabilities

December 31, 2004

Assets:
Total investments in securities, at value (identified cost $24,040,521)			$	27,276,337
Cash				472
Income receivable				40,371
Receivable for shares sold				3,415
TOTAL ASSETS				27,320,595
Liabilities:
Payable for investments purchased	$	15,729
Payable for shares redeemed		2,217
Payable for auditing fees		14,500
Payable for transfer and dividend disbursing agent fees and expenses		9,899
Payable for portfolio accounting fees		4,732
Payable for distribution services fee (Note 5)		1,850
Accrued expenses		1,088
TOTAL LIABILITIES				50,015
Net assets for 4,681,899 shares outstanding			$	27,270,580
Net Assets Consist of:
Paid-in capital			$	28,209,965
Net unrealized appreciation of investments				3,235,816
Accumulated net realized loss on investments				(4,431,823	)
Undistributed net investment income				256,622
TOTAL NET ASSETS			$	27,270,580
Net Asset Value, Offering Price and Redemption Proceeds Per Share
Primary Shares:
$18,397,247 ÷ 3,156,716 shares outstanding, no par value, unlimited shares authorized				$5.83
Service Shares:
$8,873,333 ÷ 1,525,183 shares outstanding, no par value, unlimited shares authorized				$5.82

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended December 31, 2004

Investment Income:
Dividends							$	510,292
Interest								13,571
TOTAL INCOME								523,863
Expenses:
Investment adviser fee (Note 5)				$	205,966
Administrative personnel and services fee (Note 5)					190,000
Custodian fees					7,487
Transfer and dividend disbursing agent fees and expenses (Note 5)					32,467
Directors'/Trustees' fees					893
Auditing fees					17,227
Legal fees					9,040
Portfolio accounting fees					55,143
Distribution services fee--Service Shares (Note 5)					19,021
Printing and postage					14,117
Insurance premiums					13,288
TOTAL EXPENSES					564,649
Waivers, Reimbursement and Expense Reductions (Note 5):
Waiver of investment adviser fee	$	(205,966	)
Waiver of administrative personnel and services fee		(34,758	)
Reimbursement of other operating expenses		(55,909	)
Fees paid indirectly for directed brokerage arrangements		(925	)
TOTAL WAIVERS, REIMBURSEMENT AND EXPENSE REDUCTIONS					(297,558	)
Net expenses								267,091
Net investment income								256,772
Realized and Unrealized Gain on Investments:
Net realized gain on investments								406,916
Net change in unrealized appreciation of investments								1,126,908
Net realized and unrealized gain on investments								1,533,824
Change in net assets resulting from operations							$	1,790,596

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

Year Ended December 31		2004			2003
Increase (Decrease) in Net Assets
Operations:
Net investment income	$	256,772		$	124,852
Net realized gain on investments and futures contracts		406,916			304,730
Net change in unrealized appreciation of investments		1,126,908			2,919,950
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS		1,790,596			3,349,532
Distributions to Shareholders:
Distributions from net investment income
Primary Shares		(91,667	)		(52,661	)
Service Shares		(33,305	)		(5,473	)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS		(124,972	)		(58,134	)
Share Transactions:
Proceeds from sale of shares		6,637,036			9,623,971
Net asset value of shares issued to shareholders in payment of distributions declared		124,972			58,134
Cost of shares redeemed		(2,445,535	)		(1,933,918	)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS		4,316,473			7,748,187
Change in net assets		5,982,097			11,039,585
Net Assets:
Beginning of period		21,288,483			10,248,898
End of period (including undistributed net investment income of $256,622 and $124,822, respectively)	$	27,270,580		$	21,288,483

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

December 31, 2004

1. ORGANIZATION

Federated Insurance Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of 11 portfolios. The financial statements included herein are only those of Federated Capital Appreciation 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 offers two classes of shares: Primary Shares and Service Shares. The investment objective of the Fund is capital appreciation.

2. SIGNIFICANT ACCOUNTING POLICIES

Investment Valuation

Listed equity securities are valued at the last sale price or official closing price reported on a national securities exchange. If unavailable, the security is generally valued at the mean between the last closing bid and asked prices. 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. Securities for which no quotations are readily available are valued at fair value as determined in accordance with procedures established by and under general supervision of the Board of Trustees (the "Trustees").

Repurchase Agreements

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

Investment Income, Gains and Losses, Expenses and Distributions

Premium and Discount Amortization

All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.

Federal Taxes

When-Issued and Delayed Delivery Transactions

Futures Contracts

The Fund purchases stock index futures contracts to manage cashflows, enhance yield and to potentially reduce transaction costs. Upon entering into a stock index futures contract with a broker, the Fund is required to deposit in a segregated account a specified amount of cash or U.S. government securities. Futures contracts are valued daily and unrealized gains or losses are recorded in a "variation margin" account. Daily, the Fund receives from or pays to the broker a specified amount of cash based upon changes in the variation margin account. When a contract is closed, the Fund recognizes a realized gain or loss. Futures contracts have market risks, including the risk that the change in the value of the contract may not correlate with the changes in the value of the underlying securities. For the year ended December 31, 2004, the Fund had no realized gains or losses on futures contracts.

At December 31, 2004, the Fund had no open futures contracts.

Use of Estimates

The preparation of financial statements in conformity with GAAP 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 a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.

3. SHARES OF BENEFICIAL INTEREST

The following tables summarize share activity:

Year Ended December 31	2004					2003
Primary Shares:	Shares			Amount		Shares			Amount
Shares sold	564,147		$	3,108,550		1,005,155		$	4,854,591
Shares issued to shareholders in payment of distributions declared	17,070			91,667		11,941			52,662
Shares redeemed	(257,188	)		(1,407,689	)	(334,740	)		(1,563,214	)
NET CHANGE RESULTING FROM PRIMARY SHARE TRANSACTIONS	324,029		$	1,792,528		682,356		$	3,344,039

Year Ended December 31	2004					2003
Service Shares:	Shares			Amount		Shares			Amount
Shares sold	642,736		$	3,528,486		982,909		$	4,769,380
Shares issued to shareholders in payment of distributions declared	6,202			33,305		1,241			5,472
Shares redeemed	(190,558	)		(1,037,846	)	(79,226	)		(370,704	)
NET CHANGE RESULTING FROM SERVICE SHARE TRANSACTIONS	458,380		$	2,523,945		904,924		$	4,404,148
NET CHANGE RESULTING FROM SHARE TRANSACTIONS	782,409		$	4,316,473		1,587,280		$	7,748,187

4. FEDERAL TAX INFORMATION

The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended December 31, 2004 and 2003, was as follows:

		2004		2003
Ordinary income		$124,972		$58,134

As of December 31, 2004, the components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income	$	256,622
Net unrealized appreciation	$	3,075,443
Capital loss carryforward	$	4,271,449

The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the tax deferral of losses from wash sales.

At December 31, 2004, the cost of investments for federal tax purposes was $24,200,894. The net unrealized appreciation of investments for federal tax purposes was $3,075,443. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $3,354,808 and net unrealized depreciation from investments for those securities having an excess of cost over value of $279,365.

At December 31, 2004, the Fund had a capital loss carryforward of $4,271,449 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire as follows:

Expiration Year		Expiration Amount
2009		$ 3,518,519
2010		$ 752,930

5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Federated Equity Management Company of Pennsylvania, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser fee equal to 0.85% 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

Maximum Administrative Fee		Average Aggregate Daily Net Assets of the Federated Funds
0.150%		on the first $5 billion
0.125%		on the next $5 billion
0.100%		on the next $10 billion
0.075%		on assets in excess of $20 billion

Distribution Services Fee

Share Class Name		Percentage of Average Daily Net Assets of Class
Primary Shares		0.25%
Service Shares		0.25%

FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended December 31, 2004, the Fund's Primary Shares did not incur a distribution services fee.

Shareholder Services Fee

Transfer and Dividend Disbursing Agent Fees and Expenses

Prior to July 1, 2004, Federated Services Company through its subsidiary FSSC, served as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC was based on the size, type, and number of accounts and transactions made by shareholders. The fee paid to FSSC during the reporting period was $16,329, after voluntary waiver, if applicable.

Expense Reduction

General

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

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations (and in-kind contributions), for the year ended December 31, 2004, were as follows:

Purchases		$	11,271,651
Sales		$	7,143,186

7. LEGAL PROCEEDINGS

Report of Independent Registered Public Accounting Firm

TO THE BOARD OF TRUSTEES OF FEDERATED INSURANCE SERIES AND SHAREHOLDERS OF FEDERATED CAPITAL APPRECIATION FUND II:

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated Capital Appreciation Fund II, (the "Fund") (a portfolio of Federated Insurance Series) (the "Trust"), as of December 31, 2004, and the related statement of operations for the year then ended, the statement of changes in net assets for the years ended December 31, 2004 and December 31, 2003, and the financial highlights for each of the five years in the period then ended. 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to provide reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund, as of December 31, 2004, the results of its operations, the changes in its net assets and its financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Boston, Massachusetts
February 15, 2005

Board of Trustees and Trust Officers

INTERESTED TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
John F. Donahue* Birth Date: July 28, 1924 CHAIRMAN AND TRUSTEE Began serving: September 1993		Principal Occupations: Chairman and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Chairman and Director, Federated Investment Counseling.

J. Christopher Donahue* Birth Date: April 11, 1949 TRUSTEE Began serving: September 1993		Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd.

Lawrence D. Ellis, M.D.* Birth Date: October 11, 1932 3471 Fifth Avenue Suite 1111 Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center. Other Directorships Held: Member, National Board of Trustees, Leukemia Society of America. Previous Positions: Trustee, University of Pittsburgh; Director, University of Pittsburgh Medical Center.

INDEPENDENT TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
Thomas G. Bigley Birth Date: February 3, 1934 15 Old Timber Trail Pittsburgh, PA TRUSTEE Began serving: November 1994		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director, University of Pittsburgh. Previous Position: Senior Partner, Ernst & Young LLP.

John T. Conroy, Jr. Birth Date: June 23, 1937 Investment Properties Corporation 3838 North Tamiami Trail Suite 402 Naples, FL TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation.

Nicholas P. Constantakis Birth Date: September 3, 1939 175 Woodshire Drive Pittsburgh, PA TRUSTEE Began serving: February 1998		Principal Occupations: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Member of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC.

John F. Cunningham Birth Date: March 5, 1943 353 El Brillo Way Palm Beach, FL TRUSTEE Began serving: January 1999		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc.

Peter E. Madden Birth Date: March 16, 1942 One Royal Palm Way 100 Royal Palm Way Palm Beach, FL TRUSTEE Began serving: September 1993		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.

Charles F. Mansfield, Jr. Birth Date: April 10, 1945 80 South Road Westhampton Beach, NY TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; Management Consultant; Executive Vice President, DVC Group, Inc. (marketing communications and technology) (prior to 9/1/00). Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University.

John E. Murray, Jr., J.D., S.J.D. Birth Date: December 20, 1932 Chancellor, Duquesne University Pittsburgh, PA TRUSTEE Began serving: February 1995		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chancellor and Law Professor, Duquesne University; Partner, Murray, Hogue and Lannis. Other Directorships Held: Director, Michael Baker Corp. (engineering, construction, operations and technical services). Previous Positions: President, Duquesne University; Dean and Professor of Law, University of Pittsburgh School of Law; Dean and Professor of Law, Villanova University School of Law.

Marjorie P. Smuts Birth Date: June 21, 1935 4905 Bayard Street Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Public Relations/Marketing Consultant/Conference Coordinator. Previous Positions: National Spokesperson, Aluminum Company of America; television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord.

John S. Walsh Birth Date: November 28, 1957 2604 William Drive Valparaiso, IN TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc.

OFFICERS


Name Birth Date Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years and Previous Position(s)
John B. Fisher Birth Date: May 16, 1956 PRESIDENT Began serving: November 2004		Principal Occupations: Vice President of some of the Funds in the Federated Fund Complex; and President and Director of the Institutional Sales Division of Federated Securities Corp., which is a wholly owned subsidiary of Federated. Mr. Fisher is responsible for the distribution of Federated's products and services to investment advisers, insurance companies, retirement plans, and corporations. In addition, Mr. Fisher serves as President and Director of Federated Investment Counseling, a wholly owned subsidiary of Federated involved in the management of separate accounts and sub-advised mandates. He is also President, Technology, Federated Services Corp., responsible for the technological infrastructure of the various Federated companies. He is also Director, Edgewood Securities Corp., as well as Director, Federated Investors Trust Company. Previous Positions: Senior Vice President of Federated Investment Counseling.

John W. McGonigle Birth Date: October 26, 1938 EXECUTIVE VICE PRESIDENT AND SECRETARY Began serving: September 1993		Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc.

Richard J. Thomas Birth Date: June 17, 1954 TREASURER Began serving: September 1997		Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services.

Richard B. Fisher Birth Date: May 17, 1923 VICE PRESIDENT Began serving: November 1998		Principal Occupations: Vice Chairman or President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. Previous Positions: President and Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice President, Federated Investors, Inc.; and Director and Chief Executive Officer, Federated Securities Corp.

Stephen F. Auth Birth Date: September 3, 1956 CHIEF INVESTMENT OFFICER Began serving: November 2002		Principal Occupations: Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Equity Management Company of Pennsylvania, and Passport Research II, Ltd. Previous Positions: Executive Vice President, Federated Investment Management Company and Passport Research, Ltd.; Senior Vice President, Global Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd.; Senior Managing Director and Portfolio Manager, Prudential Investments.

Robert J. Ostrowski Birth Date: April 26, 1963 CHIEF INVESTMENT OFFICER Began serving: May 2004		Principal Occupations: Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of taxable, fixed-income products in 2004 and also serves as a Senior Portfolio Manager. He has been a Senior Vice President of the Fund's Adviser since 1997. Mr. Ostrowski is a Chartered Financial Analyst. He received his M.S. in Industrial Administration from Carnegie Mellon University.

VOTING PROXIES ON FUND PORTFOLIO SECURITIES

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Federated's website. Go to http://www.federatedinvestors.com; select "Products," select the "Variable Annuities" section, then select the link to "sec.gov" to access the link to Form N-PX. This information is also available from the EDGAR database on the SEC's website at http://www.sec.gov.

QUARTERLY PORTFOLIO SCHEDULE

The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of the Federated Investors website at www.federatedinvestors.com by clicking on "Variable Annuities" and selecting link to "sec.gov" to access the link to Form N-Q.

Federated
World-Class Investment Manager

Federated Capital Appreciation Fund II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Cusip 313916835
Cusip 313916819

G00433-19 (2/05)

Federated is a registered mark of Federated Investors, Inc. 2005 (c)Federated Investors, Inc.

Federated
World-Class Investment Manager

Federated Capital Income Fund II

A Portfolio of Federated Insurance Series

ANNUAL SHAREHOLDER REPORT

December 31, 2004

FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENT SUMMARY TABLES
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE

Not FDIC Insured * May Lose Value * No Bank Guarantee

Financial Highlights

(For a Share Outstanding Throughout Each Period)

Year Ended December 31	2004		2003	1	2002		2001		2000
Net Asset Value, Beginning of Period	$8.44		$7.52		$10.37		$12.44		$14.35
Income From Investment Operations:
Net investment income	0.36	2	0.32	2	0.47		0.47	3	0.39
Net realized and unrealized gain (loss) on investments, options and foreign currency transactions	0.44		1.11		(2.85	)	(2.14	)3	(1.59	)
TOTAL FROM INVESTMENT OPERATIONS	0.80		1.43		(2.38	)	(1.67	)	(1.20	)
Less Distributions:
Distributions from net investment income	(0.37	)	(0.51	)	(0.47	)	(0.40	)	(0.43	)
Distributions from net realized gain on investments, options and foreign currency transactions	--		--		--		--		(0.28	)
TOTAL DISTRIBUTIONS	(0.37	)	(0.51	)	(0.47	)	(0.40	)	(0.71	)
Net Asset Value, End of Period	$8.87		$8.44		$ 7.52		$10.37		$12.44
Total Return4	9.92	%	20.67	%	(23.95	)%	(13.72	)%	(8.95	)%

Ratios to Average Net Assets:
Expenses	1.00	%	1.02	%5	1.02	%5	0.92	%5	0.91	%
Net investment income	4.37	%	4.18	%	4.90	%	3.86	%3	2.95	%
Expense waiver/reimbursement6	0.17	%	0.08	%	--	%	--	%	--	%
Supplemental Data:
Net assets, end of period (000 omitted)	$78,201		$82,602		$85,419		$138,270		$175,215
Portfolio turnover	59	%	145	%	118	%	97	%	107	%

1 During the year ended December 31, 2003, the investment strategy of the fund transitioned from an equity only, utility sector fund to a diversified income fund with both stocks and bonds. The equity portion of the fund is invested in a diversified portfolio that focuses on value stocks that provide above-average dividend income with market participation. The fixed income portion of the fund is invested in a high-yielding debt portfolio.

2 Based on average shares outstanding.

3 Effective January 1, 2001, the Fund adopted the provisions of the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premium on long-term debt securities. For the year ended December 31, 2001, this change had no effect on the net investment income per share or net realized and unrealized gain (loss) on investments per share, or on the ratio of net investment income to average net assets. Per share, ratios and supplemental data for periods prior to January 1, 2001, have not been restated to reflect this change in presentation.

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

5 This expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios are 0.98%, 1.01%, and 0.91% for the years ended December 31, 2003, 2002, and 2001 respectively, after taking into account these expense reductions.

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

See Notes which are an integral part of the Financial Statements

Shareholder Expense Example

As a shareholder of the Fund, you incur ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees and/or shareholder services fees; and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other variable investment options. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2004 to December 31, 2004.

ACTUAL EXPENSES

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

	Beginning Account Value 7/1/2004	Ending Account Value 12/31/2004	Expenses Paid During Period1
Actual	$1,000	$1,096.40	$5.53
Hypothetical (assuming a 5% return before expenses)	$1,000	$1,019.86	$5.33

1 Expenses are equal to the Fund's annualized expense ratio of 1.05%, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).

Management's Discussion of Fund Performance

FUND PERFORMANCE

This report covers Federated Capital Income Fund II's fiscal year reporting period from January 1, 2004 through December 31, 2004. During the reporting period, the fund produced a total return of 9.92%.

STOCKS

Market Conditions and Impact Upon Fund's Performance:

The past 12 months generated positive returns for most domestic and global equity market benchmarks, continuing the trend established during the first quarter of 2003. Small and mid-cap investment strategies continued their dominance of large-cap strategies during the reporting period and as a result, the portfolio's bias toward large-cap companies negatively influenced relative performance. The fund employs a value-based investment strategy which positively influenced performance during the reporting period as value-based strategies generally outperformed growth-based strategies across most market capitalizations. The equity portfolio manager's focus on the realization of the fund's income and total return objectives by primarily purchasing stocks with dividend yields greater than the general equity markets and current relative dividend yields greater than their historical averages.

Sector Selection Impact Upon Fund's performance:

Positive sector selection influences upon performance included overweight positions in Utilities (contribution +0.37%) and Consumer Discretionary (contribution +0.44%), and an underweight position in Information Technology (contribution +0.62%).

Negative sector selection influences upon performance included an overweight position in Health Care (contribution -0.39%) and an underweight position in Energy (contribution -0.62%).

Security Selection Impact Upon Fund's Performance:

Positive influences on performance included favorable security selection in the Information Technology and Consumer Discretionary sectors. Negative influences on performance included unfavorable security selection in the Financial and Consumer Staple sectors.

The top five contributing names to the portfolio during the reporting period were: General Electric Co. +0.72%, Allstate Co. +60%, BAE Systems PLC +0.55%, Limited Brands, Inc. +0.54%, and Lloyds TSB Group, PLC +0.49%. The bottom five contributing names to the portfolio were: Marsh & Mclennan Cos. -0.73%, Merck & Co. Inc. -0.51%, Amvescap PLC -0.25%, Pfizer Inc. -0.25%, and Electronic Data Systems -0.24%.

BONDS

The bond portion of the fund's portfolio is widely diversified with investments across a variety of countries, economies, maturities and quality ratings. Generally, the portfolio invests in three major bond categories: domestic investment grade, domestic high yield1 and international emerging markets.2 As a result, the key driver of performance over the reporting period was sector allocation among these three categories.

During the reporting period, fund management held the opinion that most world economies would move in an improved direction, which is typically expected to result in a trend toward higher interest rates. Therefore, during the reporting period, the fund's investment strategy focused on allocating bond assets to reduce overall interest rate exposure and volatility while increasing exposure to sectors which typically benefit from improved business conditions. The fund's returns were largely influenced by an allocation of the largest percentages of bond assets to the high yield bond sector, which experienced strong relative performance during the reporting period. Another positive contribution to overall fund performance was the smallest allocation of bond assets to the domestic high quality sector, which generated the lowest total return over the reporting period. As points of reference, the Lehman Brothers U.S. Aggregate Bond Index3 (a proxy for the domestic investment grade market) generated a 4.44% total return while the Lehman Brothers U.S. Corporate High Yield Bond Index4 generated a total return of 11.97%. During the reporting period, the Fund invested on average over 40% of its bond assets in the high yield bond sector, which represented the largest allocation of the three major bond sectors.

1 High-yield, lower-rated securities generally entail greater market, credit and liquidity risks than investment grade securities.

2 Prices of emerging markets securities can be significantly more volatile than the prices of securities in developed countries.

3 The Lehman Brothers U.S. Aggregate Bond Index is an unmanaged index composed of securities from the Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index and the Asset-Backed Securities Index. Total return comprises price appreciation/depreciation and income as a percentage of the original investment. Indices are rebalanced monthly by market capitalization. Investments cannot be made in an index.

4 The Lehman Brother U.S. Corporate High-Yield Bond Index is an unmanaged index generally representative of corporate bonds rated below investment-grade. Investments cannot be made in an index.

Performance data quoted represents past performance which is no guarantee 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 of a variable investment option changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance, contact your insurance company. The performance information presented does not include the charges and expenses imposed by the insurance company under the variable insurance product contract. The inclusion of such charges would lower performance. Please refer to the variable insurance product prospectus for a complete listing of these expenses. Fund shares are available exclusively as a funding vehicle for life insurance companies writing variable life insurance policies and variable annuity contracts.

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

Annual Total Returns for the Period Ended 12/31/2004
1 Year		9.92%
5 Years		(4.55)%
I0 Years		4.88%

The graph above illustrates the hypothetical investment of $10,0001 in the Federated Capital Income Fund II (the "Fund") from December 31, 1994 to December 31, 2004 compared to the Standard & Poor's 500 Index (S&P 500),2,3 Russell 1000 Value Index (RU1000V)2,3 both broad-based market indexes, a blend of indexes comprised of 50% Russell 1000 Value Index/16.7% Lehman Brothers Emerging Market Bond Index (LBEMB)3/16.7% Lehman Brothers High Yield Composite Bond Index (LBHYB)3/16.6% Lehman Brothers Mortgage Backed Securities Index (LBMB),3 ("the blend index")2,4 and the Lipper Income Funds Average (LIFA).4

Performance data quoted represents past performance which is no guarantee of future results. Variable investment option performance changes over time and current performance may be lower or higher than what is stated. Investment return and principal value will fluctuate, so that investors' shares, when redeemed, may be worth more or less than their original cost. Variable investment options 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, RU1000V, Blend Index, and the LIFA have been adjusted to reflect reinvestment of dividends on securities in the indexes.

2 The S&P 500, RU1000V and Blend Index are not adjusted to reflect sales charges, expenses, or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The indexes are unmanaged, and, unlike the fund are not affected by cashflows. It is not possible to invest directly in an index.

3 The S&P 500 is an unmanaged capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 socks representing all major industries. The RU1000V is an unmanaged index that measures the performance of the 1,000 largest of the 3,000 largest U.S. domiciled companies (based on total market capitalization) with lower price-to book ratios and lower forecasted growth values. The LEMB is an unmanaged index that tracks total returns for external--currency denominated debt instruments of the emerging markets. The LBHYB is an unmanaged index that includes all fixed-income securities having a maximum quality rating of Ba1, a minimum amount of outstanding of $100 million and at least one year to maturity. The LBMB is an unmanaged index comprised of all fixed securities mortgage pools by GNMA, FNMA AND FHLMC. Lipper figures represents the average of the total returns reported by all the mutual funds designated by Lipper, Inc. as falling into the respective categories indicated.

4 The Blend Index is the Fund's blended benchmark.

Portfolio of Investments Summary Tables

At December 31, 2004, the Fund's portfolio composition1 was as follows:

Sector		Percentage of Total Investments2
Fixed Income Securities		53.7%
Equity Securities		45.1%
Cash Equivalents3		1.2%
TOTAL		100.0%

At December 31, 2004, the Fund's credit-quality ratings composition4 for its fixed-income security investments was as follows:

S&P Long-Term Ratings as Percentage of Total Fixed Income Investments2		Moody's Long-Term Ratings as Percentage of Total Fixed Income Investments2
AAA	9.6%	Aaa	9.6%
AA	0.0%	Aa	0.0%
A	2.6%	A	1.9%
BBB	9.2%	Baa	19.4%
BB	39.7%	Ba	20.2%
B	28.2%	B	38.3%
CCC	5.3%	Caa	9.3%
Not rated by S&P	5.4%	Not rated by Moody's	1.3%
TOTAL	100.0%	TOTAL	100.0%

At December 31, 2004, the Fund's sector composition5 for its equity securities investments was as follows:

Sector Composition		Percentage of Total Equity Investments2
Financials		31.4%
Consumer Discretionary		12.0%
Utilities		9.8%
Telecommunication Services		9.4%
Industrials		7.8%
Consumer Staples		7.5%
Healthcare		7.5%
Information Technology		6.4%
Materials		5.3%
Energy		2.9%
TOTAL		100.0%

1 See the Fund's Prospectus for a description of the principal types of securities in which the Fund invests.

2 Percentages are based on total investments, which may differ from the Fund's total net assets used in computing the percentages in the Portfolio of Investments which follows.

3 Cash Equivalents include any investments in money market mutual funds and overnight repurchase agreements.

4 These tables depict the long-term, credit-quality ratings assigned to the Fund's portfolio holdings by Standard & Poor's (S&P) and Moody's Investor Service (Moody's), each of which is a nationally recognized statistical rating organization (NRSRO). These credit-quality ratings are shown without regard to gradations within a given rating category. For example, securities rated "A-" have been included in the "A" rated category. Holdings that are rated only by different NRSROs than the ones identified have been included in the "Not rated by..." category. Rated securities that have been prerefunded, but not rated again by the NRSRO, also have been included in the "Not rated by..." category.

The tables also reflect both the Fund's direct holdings and the Fund's pro-rata share of holdings in other investment companies managed by the Fund's adviser (or its affiliates), although the shares of these other investment companies held by the Fund might not be rated.

Rated securities include a security with an obligor and/or credit enhancer that has received a rating from an NRSRO with respect to a class of debt obligations that is comparable in priority and security with the security held by the Fund. Credit-quality ratings are an assessment of the risk that a security will default in payment and do not address other risks presented by the security. Please see the descriptions of credit-quality ratings in the Fund's Statement of Additional Information.

These tables depict the long-term, credit-quality ratings as assigned only by the NRSRO identified in each table. .

5 Sector composition is based upon, and individual portfolio securities are assigned to, the classifications of the Standard & Poor's Global Industry Classification Standard (SPGIC). Individual securities that are not included in the SPGIC are assigned to an index classification by the Fund's adviser.

Portfolio of Investments

December 31, 2004

Shares					Value
			COMMON STOCKS--39.6%
			Consumer Discretionary--5.0%
	8,100		Delphi Auto Systems Corp.	$	73,062
	2,000		Dow Jones & Co.		86,120
	6,800		Electrolux AB, ADR, Class B		313,820
	4,700		La-Z Boy Chair Co.		72,239
	15,669		Limited, Inc.		360,700
	14,000		Mattel, Inc.		272,860
	14,800		May Department Stores Co.		435,120
	10,900		Maytag Corp.		229,990
	6,200		McDonald's Corp.		198,772
	17,200		Newell Rubbermaid, Inc.		416,068
	2,353		Officemax, Inc.		73,837
	53,500		Pearson PLC, ADR		650,560
	17,400		Tupperware Corp.		360,528
	3,800		Valeo SA, ADR		79,543
	3,700		Whirlpool Corp.		256,077
			TOTAL		3,879,296
			Consumer Staples--3.4%
	2,900		Albertsons, Inc.		69,252
	10,700		Altria Group, Inc.		653,770
	6,800		Coca-Cola Co.		283,084
	1,300		Kimberly-Clark Corp.		85,553
	24,100		Loews Corp. - Carolina Group		697,695
	1,700		PepsiCo, Inc.		88,740
	16,800		Sara Lee Corp.		405,552
	8,700		Unilever PLC, ADR		343,824
			TOTAL		2,627,470
			Energy--1.3%
	3,200		ChevronTexaco Corp.		168,032
	11,600		Exxon Mobil Corp.		594,616
	7,800		Tidewater, Inc.		277,758
			TOTAL		1,040,406
			Financials--12.4%
	1,900		Ace, Ltd.		81,225
	23,100		Allstate Corp.		1,194,732
	1,900		BB&T Corp.		79,895
	11,814		Bank of America Corp.		555,140
	7,500		Bank of New York Co., Inc.		250,650
	4,300		Capital Federal Financial		154,800
	1,100		Chubb Corp.		84,590
	18,400		Citigroup, Inc.		886,512
	6,200		Comerica, Inc.		378,324
	1,700		Federal National Mortgage Association		121,057
Shares					Value
			COMMON STOCKS--continued
			Financials--continued
	8,300		Friedman, Billings, Ramsey Group, Inc., Class A	$	160,937
	15,200		J.P. Morgan Chase & Co.		592,952
	20,000		Lloyds TSB Group PLC, ADR		735,800
	17,700		MBNA Corp.		498,963
	9,100		Mellon Financial Corp.		283,101
	6,400		Montpelier Re Holdings Ltd.		246,080
	5,900		Morgan Stanley		327,568
	7,300		Nationwide Financial Services, Inc., Class A		279,079
	28,700		New York Community Bancorp, Inc.		590,359
	18,900		Regions Financial Corp.		672,651
	35,900		Trizec Properties, Inc.		679,228
	20,800		U.S. Bancorp		651,456
	1,100		UBS AG		92,224
			TOTAL		9,597,323
			Healthcare--2.8%
	13,000		GlaxoSmithKline PLC, ADR		616,070
	30	1	Hospira, Inc.		1,005
	13,300		Merck & Co., Inc.		427,462
	4,700		Pfizer, Inc.		126,383
	24,500		Wyeth		1,043,455
			TOTAL		2,214,375
			Industrials--3.5%
	33,000		BAE Systems PLC, ADR		584,149
	38,800		General Electric Co.		1,416,200
	2,100		Honeywell International, Inc.		74,361
	3,400		Quebecor World, Inc.		73,236
	6,500		TPG NV - ADR		177,125
	1,300		Union Pacific Corp.		87,425
	10,700		Waste Management, Inc.		320,358
			TOTAL		2,732,854
			Information Technology--1.0%
	510	1	Freescale Semiconductor, Inc., Class B		9,364
	16,500		Hewlett-Packard Co.		346,005
	4,624		Motorola, Inc.		79,533
	12,700		Nokia Oyj, ADR, Class A		199,009
	20,900		Premier Farnell PLC, ADR		135,014
			TOTAL		768,925
			Materials--2.5%
	2,900		Air Products & Chemicals, Inc.		168,113
	2,400		Ciba Specialty Chemical AG, ADR		91,752
	5,300		Du Pont (E.I.) de Nemours & Co.		259,965
	14,800		Hanson PLC, ADR		635,364
	5,300		Southern Peru Copper Corp.		250,213
	23,700		UPM - Kymmene OY, ADR		528,984
			TOTAL		1,934,391
Shares or Principal Amount					Value
			COMMON STOCKS--continued
			Telecommunication Services--3.8%
	20,300		AT&T Corp.	$	386,918
	7,100		BCE, Inc.		171,323
	8,600		BellSouth Corp.		238,994
	30,100		Matav RT, ADR		734,741
	23,300		SBC Communications, Inc.		600,441
	29,900		TDC A/S, ADR		636,272
	13,000		Telstra Corp. Ltd., ADR		248,820
			TOTAL		3,017,509
			Utilities--3.9%
	2,700		Black Hills Corp.		82,836
	3,800		DPL, Inc.		95,418
	3,400		Duke Energy Corp.		86,122
	11,100		Edison International		355,533
	18,900		Energias de Portugal SA, ADR		571,347
	1,500		Equitable Resources, Inc.		90,990
	8,000		Northeast Utilities Co.		150,800
	3,200		ONEOK, Inc.		90,944
	14,500		Pinnacle West Capital Corp.		643,945
	6,300		RWE AG, RDC		347,668
	32,800		Scottish & Southern Energy PLC, ADR		549,436
			TOTAL		3,065,039
			TOTAL COMMON STOCKS (IDENTIFIED COST $26,627,049)		30,877,588
			CORPORATE BONDS--10.5%
			Basic Industry - Paper--0.4%
$	250,000		Louisiana-Pacific Corp., 8.875%, 8/15/2010		299,089
			Brewing--0.6%
	400,000		Bavaria, Series 144A, 8.875%, 11/01/2010		434,000
			Broadcast Radio & TV--0.6%
	400,000		Grupo Televisa S.A., Sr. Note, 8.5%, 3/11/2032		465,000
			Capital Goods - Diversified Manufacturing--0.4%
	300,000	2	Hutchison Whampoa Ltd., 6.5%, 2/13/2013		323,295
			Capital Goods - Environmental--0.4%
	300,000		USA Waste Services Inc., Sr. Note, 7.125%, 10/01/2007		325,938
			Communications - Media & Cable--0.3%
	250,000		Continental Cablevision, Sr. Deb., 8.875%, 9/15/2005		259,475
			Communications - Media Noncable--0.7%
	185,000		British Sky Broadcasting Group PLC, 8.2%, 7/15/2009		214,049
	250,000		Univision Communications, Inc., 7.85%, 7/15/2011		295,349
			TOTAL		509,398
			Communications - Telecom Wireless--0.4%
	300,000		AT&T Wireless Services, Sr. Note, 7.35%, 3/01/2006		313,986
			Communications - Telecom Wirelines--1.2%
	300,000		CenturyTel, Inc., 8.375%, 10/15/2010		353,271
	250,000		Citizens Communications, 9%, 8/15/2031		286,875
	300,000		Telecom de Puerto Rico, Note, 6.65%, 5/15/2006		311,388
			TOTAL		951,534
Principal Amount					Value
			CORPORATE BONDS--continued
			Consumer Cyclical - Automotive--0.4%
$	300,000		General Motors Acceptance, 6.875%, 9/15/2011	$	307,847
			Consumer Cyclical - Entertainment--0.4%
	300,000		Time Warner, Inc., Deb., 8.11%, 8/15/2006		321,735
			Consumer Non-Cyclical Tobacco--0.0%
	45,000		Philip Morris, Note, 6.375%, 2/1/2006		46,191
			Container & Glass Products--0.4%
	300,000		Vitro SA, Note, Series 144A, 11.75%, 11/01/2013		291,750
			Financial Institution - Banking--0.4%
	300,000		Corp Andina De Fomento, Bond, 7.375%, 1/18/2011		340,932
			Financial Institution - Brokerage--0.4%
	300,000		Waddell & Reed Financial, Inc., 7.5%, 1/18/2006		311,922
			Financial Institution - Insurance - P&C--0.4%
	300,000	2	MBIA Global Funding LLC, 2.875%, 11/30/2006		297,018
			Financial Institution - REITs--0.5%
	110,000		EOP Operating LP, 8.375%, 3/15/2006		116,485
	300,000		Rouse Co., 5.375%, 11/26/2013		288,304
			TOTAL		404,789
			Foreign-Local-Government--0.1%
	100,000		Hydro Quebec, Sr. Deb., 6.3%, 5/11/2011		111,711
			Oil & Gas--1.1%
	200,000		Gaz Capital SA, Note, Series 144A, 8.625%, 4/28/2034		235,000
	220,000		Gazprom, Note, Series 144A, 9.625%, 3/01/2013		260,700
	350,000	2	Petrozuata Finance Inc., Company Guarantee, Series 144A, 8.22%, 4/01/2017		351,313
			TOTAL		847,013
			Sovereign--0.8%
	500,000		Aries Vermogensverwaltng, Note, Series 144A, 9.6%, 10/25/2014		617,500
			Steel--0.3%
	275,000	2	CSN Islands VIII Corp., Company Guarantee, Series 144A, 9.75%, 12/16/2013		295,625
			Telecommunications & Cellular--0.3%
	200,000		Philippine Long Distance, Sr. Unsub., 11.375%, 5/15/2012		230,500
			TOTAL CORPORATE BONDS (IDENTIFIED COST $7,723,365)		8,306,248
			GOVERNMENTS/AGENCIES--14.6%
			Sovereign--14.6%
	1,300,000		Brazil, Government of, 14.5%, 10/15/2009		1,739,920
	950,000		Brazil, Government of, Note, 12%, 4/15/2010		1,180,850
	400,000		Colombia, Government of, 10.75%, 1/15/2013		478,600
	500,000		Colombia, Republic of, Bond, 8.125%, 5/21/2024		486,250
	21,500,000		Mexico Fixed Rate Bonds, Bond, Series MI10, 8%, 12/19/2013		1,717,956
	270,000		Peru, Government of, Note, 9.875%, 2/06/2015		330,750
	300,000		Philippines, Government, 9.875%, 1/15/2019		310,500
	450,000		Philippines, Government, Note, 8.25%, 1/15/2014		443,250
	630,000		Russia, Government of, Series REGS, 8.25%, 3/31/2010		698,355
	1,600,000		Russia, Government of, Unsub., Series REGS, 5%, 3/31/2030		1,646,400
	500,000		Turkey, Government of, 11%, 1/14/2013		637,500
	750,000		Turkey, Government of, 9.5%, 1/15/2014		885,750
	300,000		Venezuela, Government of, 10.75%, 9/19/2013		361,500
Principal Amount or Shares					Value
			GOVERNMENTS/AGENCIES--continued
			Sovereign--continued
$	200,000		Venezuela, Government of, 9.375%, 1/13/2034	$	212,200
	250,000		Venezuela, Government of, Bond, 9.25%, 9/15/2027		265,000
			TOTAL GOVERNMENTS/AGENCIES (IDENTFIED COST $10,855,195)		11,394,781
			MORTGAGE-BACKED SECURITIES--2.5%
			Federal Home Loan Mortgage Corporation--1.8%
	894,156		Federal Home Loan Mortgage Corp. Pool A13833, 5.500%, 30 Year, 9/1/2033		910,268
	462,636		Federal Home Loan Mortgage Corp. Pool A14164, 5.000%, 30 Year, 10/1/2033		460,855
			TOTAL		1,371,123
			Federal National Mortgage Association--0.7%
	548,418		Federal National Mortgage Association Pool 713833, 5.500%, 15 Year, 10/1/2018		567,498
			TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $1,917,896)		1,938,621
			PREFERRED STOCKS--5.6%
			Consumer Discretionary--0.4%
	12,200		General Motors Corp., Conv. Pfd., Series C, $1.5625, Annual Dividend		325,252
			Financials--1.3%
	9,400		Chubb Corp., PRIDES, $1.75, Annual Dividend		282,000
	2		Federal National Mortgage Association, 5.375%, 12/30/2034		212,000
	1,400		Washington Mutual, Inc., Conv. Pfd., $2.6875, Annual Dividend		78,050
	17,700		XL Capital Ltd., PEPS, $1.049, Annual Dividend		450,465
			TOTAL		1,022,515
			Healthcare--1.1%
	6,500		Baxter International, Inc, PEPS, $3.50, Annual Dividend		366,990
	16,000	2	Morgan Stanley & Co., In, PERCS		467,120
			TOTAL		834,110
			Technology--1.9
	34,100	2	Morgan Stanley & Co., In, PERCS		458,475
	20,600	2	Morgan Stanley & Co., In, PERCS		479,671
	24,500	2	Morgan Stanley & Co., In, PERCS, Series CHKP		519,033
			TOTAL		1,457,179
			Telecommunication Services--0.4%
	5,900		Alltel Corp., DECS, $3.875, Annual Dividend		312,051
			Utilities--0.5%
	1,900		American Electric Power, DECS, $4.625, Annual Dividend		90,535
	8,400		ONEOK, Inc., PEPS, $2.125, Annual Dividend		299,880
			TOTAL		390,415
			TOTAL PREFERRED STOCKS (IDENTIFIED COST $3,976,122)		4,341,522
			U.S. TREASURY--1.7%
			Treasury Securities--1.7%
	1,290,000		United States Treasury Bond, 10.750%, 8/15/2005 (IDENTIFIED COST $1,550,620)		1,354,603
			MUTUAL FUND--24.3%
	2,316,812	3	Federated High Income Bond Fund II, Primary Shares (IDENTIFIED COST $16,993,252)		18,997,854
Principal Amount					Value
			REPURCHASE AGREEMENT--0.3%
$	212,000		Interest in $2,000,000,000 joint repurchase agreement with UBS Securities LLC, 2.280%, dated 12/31/2004 to be repurchased at $212,040 on 1/3/2005, collateralized by U.S. Government Agency Obligations with various maturities to 9/25/2034, collateral market value $2,060,003,250 (AT AMORTIZED COST)	$	212,000
			TOTAL INVESTMENTS--99.1% (IDENTIFIED COST $69,855,499)4		77,423,217
			OTHER ASSETS AND LLIABILITIES - NET--0.9%		778,035
			TOTAL NET ASSETS--100%	$	78,201,252

1 Non-income producing security.

2 Denotes a restricted security, including securities purchased under Rule 144A of the Securities Act of 1933. These securities, all of which have been deemed liquid by criteria approved by the Fund's Board of Trustees, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. At December 31, 2004, these securities amounted to $3,191,550 presents 4.1% of total net assets.

3 Affiliated Company.

4 The cost of investments for federal tax purposes amounts to $70,741,781.

Note: The categories of investments are shown as a percentage of total net assets at December 31, 2004.

The following acronyms are used throughout this portfolio:

ADR	--American Depositary Receipt
DECS	--Dividend Enhanced Convertible Stock
PERCS	--Preferred Equity Redemption Cumulative Stock
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, 2004

Assets:
Total investments in securities, at value including $18,997,854 of investments in affiliated issuers (Note 5) (identified cost $69,855,499)			$	77,423,217
Cash				35,907
Income receivable				623,757
Receivable for investments sold				167,778
Receivable for shares sold				4,266
TOTAL ASSETS				78,254,925
Liabilities:
Payable for shares redeemed	$	18,692
Payable for auditing fees		14,000
Payable for printing and postage fees and expenses		7,461
Payable for transfer and dividend disbursing agent fees and expenses		7,192
Payable for portfolio accounting fees		4,058
Payable for custodian fees		2,270
TOTAL LIABILITIES				53,673
Net assets for 8,817,898 shares outstanding			$	78,201,252
Net Assets Consist of:
Paid-in capital			$	132,990,644
Net unrealized appreciation of investments and translation of assets and liabilities in foreign currency				7,569,414
Accumulated net realized loss on investments, options and foreign currency transactions				(66,195,882	)
Undistributed net investment income				3,837,076
TOTAL NET ASSETS			$	78,201,252
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
$78,201,252 ÷ 8,817,898 shares outstanding, no par value, unlimited shares authorized				$8.87

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended December 31, 2004

Investment Income:
Dividends (net of foreign taxes withheld of $24,856, including $1,309,570 received from affiliated issuers (Note 5))							$	2,594,806
Interest (net of foreign taxes withheld of $876)								1,623,603
TOTAL INCOME								4,218,409
Expenses:
Investment adviser fee (Note 5)				$	589,050
Administrative personnel and services fee (Note 5)					150,000
Custodian fees					14,137
Transfer and dividend disbursing agent fees and expenses (Note 5)					17,000
Directors'/Trustees' fees					1,168
Auditing fees					16,726
Legal fees					8,915
Portfolio accounting fees					45,737
Printing and postage					60,315
Insurance premiums					13,929
Miscellaneous					2,158
TOTAL EXPENSES					919,135
Waiver and Reimbursement (Note 5):
Reimbursement of investment adviser fee	$	(109,052	)
Waiver of administrative personnel and services fee		(24,216	)
TOTAL WAIVER AND REIMBURSEMENT					(133,268	)
Net expenses								785,867
Net investment income								3,432,542
Realized and Unrealized Gain (Loss) on Investments, Options, and Foreign Currency Transactions:
Net realized gain on investments, options, and foreign currency transactions								5,198,806
Net change in unrealized depreciation of investments, options and translation of assets and liabilities in foreign currency								(1,354,104	)
Net realized and unrealized gain on investments, options, and foreign currency transactions								3,844,702
Change in net assets resulting from operations							$	7,277,244

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

Year Ended December 31		2004			2003
Increase (Decrease) in Net Assets
Operations:
Net investment income	$	3,432,542		$	3,291,792
Net realized gain on investments, options and foreign currency transactions		5,198,806			1,064,903
Net change in unrealized appreciation/depreciation of investments, options and translation of assets and liabilities in foreign currency		(1,354,104	)		10,085,299
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS		7,277,244			14,441,994
Distributions to Shareholders:
Distributions from net investment income		(3,549,514	)		(5,128,885	)
Share Transactions:
Proceeds from sale of shares		8,823,924			12,686,779
Net asset value of shares issued to shareholders in payment of distributions declared		3,549,512			5,128,883
Cost of shares redeemed		(20,501,556	)		(29,946,013	)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS		(8,128,120	)		(12,130,351	)
Change in net assets		(4,400,390	)		(2,817,242	)
Net Assets:
Beginning of period		82,601,642			85,418,884
End of period (including undistributed net investment income of $3,837,076 and $3,548,559, respectively)	$	78,201,252		$	82,601,642

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

December 31, 2004

1. ORGANIZATION

Federated Insurance Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of 11 portfolios. The financial statements included herein are only those of Federated Capital 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 investment objective of the Fund is to achieve high current income and moderate capital appreciation.

Effective May 1, 2003 the Fund changed its name from Federated Utility Fund II to Federated Capital Income Fund II.

2. SIGNIFICANT ACCOUNTING POLICIES

Investment Valuation

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. Domestic and foreign equity securities are valued at the last sale price or official closing price reported in the market in which they are primarily traded (either a national securities exchange or the over-the-counter market), if available. If unavailable, the security is generally valued at the mean between the last closing bid and asked prices. 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 (NYSE). Therefore, foreign securities are valued at the latest closing price on the exchange on which they are traded immediately prior to the closing of the NYSE. Foreign securities quoted in foreign currencies are translated in U.S. dollars at the foreign exchange rate in effect at 4:00 p.m., Eastern Time, on the day the value of the foreign security is determined. 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. Securities for which no quotations are readily available or whose values have been affected by a significant event occurring between the close of their primary markets and the closing of the NYSE are valued at fair value as determined in accordance with procedures established by and under general supervision of the Board of Trustees (the "Trustees").

Repurchase Agreements

Investment Income, Expenses and Distributions

Premium and Discount Amortization/ Paydown Gains and Losses

All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes. Gains and losses realized on principal payment of mortgage backed securities (paydown gains and losses) are classified as part of investment income.

Federal Taxes

Withholding taxes on foreign interest, dividends and capital gains have been provided for in accordance with the applicable country's tax rules and rates.

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 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 in accordance with procedures established by and under general supervision of the Trustees.

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 counterparties to meet the terms of their commitments and from unanticipated movements in security prices or foreign exchange rates. The foreign currency transactions are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized until the settlement date. At December 31, 2004, the Fund had no outstanding foreign currency commitments.

Options Contracts

The Fund may write option contracts. A written option obligates the Fund to deliver a call, or to receive a put, the contract amount upon exercise by the holder of the option. The value of the option contract is recorded as a liability and unrealized gain or loss is measured by the difference between the current value and the premium received. For the year ended December 31, 2004, the Fund had no realized gains or losses on written options.

At December 31, 2004, the Fund had no outstanding written options contracts.

Foreign Currency Translation

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, and 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

The preparation of financial statements in conformity with GAAP 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 a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.

3. SHARES OF BENEFICIAL INTEREST

The following table summarizes share activity:

Year Ended December 31	2004		2003
Shares sold	1,056,360		1,690,727
Shares issued to shareholders in payment of distributions declared	436,058		754,247
Shares redeemed	(2,460,620	)	(4,011,967	)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS	(968,202	)	(1,566,993	)

4. FEDERAL TAX INFORMATION

The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due in part to differing treatments for foreign currency transactions and discount accretion/premium amortization on debt securities.

For the year ended December 31, 2004, permanent differences identified and reclassified among the components of net assets were as follows:

Increase (Decrease)
Undistributed Net Investment Income		Accumulated Net Realized Losses
$405,489		$(405,489)

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

The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended December 31, 2004 and 2003 was as follows:

		2004		2003
Ordinary income		$3,549,514		$5,128,885

As of December 31, 2004, the components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income	$	3,837,077
Net unrealized appreciation	$	6,683,132
Capital loss carryforward	$	65,199,347

The difference between book-basis and tax-basis net unrealized appreciation is attributable to differing treatments for the tax deferral of losses on wash sales.

At December 31, 2004, the cost of investments for federal tax purposes was $70,741,781. The net unrealized appreciation of investments for federal tax purposes excluding any unrealized appreciation resulting from changes in foreign currency exchange rates was $6,681,436. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $7,656,444 and net unrealized depreciation from investments for those securities having an excess of cost over value of $975,008.

At December 31, 2004, the Fund had a capital loss carryforward of $65,199,347 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire as follows:

Expiration Year		Expiration Amount
2008		$15,005,370
2009		$16,049,079
2010		$34,144,898

5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Certain of the Fund's assets are managed by Federated Global Investment Management Company and Federated Investment Management Company (the "Sub-Advisers"). Under the terms of a sub-adviser agreement between the Adviser and the Sub-Advisers, the Sub-Advisers receive an allocable portion of the Fund's adviser fee. The fees are paid by the Adviser out of its resources and is not an incremental Fund expense.

Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund may invest in Federated High Income Fund II, which is managed by the Fund's Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse certain investment adviser fees as a result of these transactions. Income distributions earned from investments in this fund are recorded as income in the accompanying financial statements and totaled $1,309,570 for the period.

Administrative Fee

Maximum Administrative Fee		Average Aggregate Daily Net Assets of the Federated Funds
0.150%		on the first $5 billion
0.125%		on the next $5 billion
0.100%		on the next $10 billion
0.075%		on assets in excess of $20 billion

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 the average daily net assets of the Fund's Shares for the period. The fee paid to FSSC is used to finance certain services for shareholders and to maintain shareholder accounts. 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. For the year ending December 31, 2004, the Fund did not incur a shareholder services fee.

Transfer and Dividend Disbursing Agent Fees and Expenses

Prior to July 1, 2004, Federated Services Company, through its subsidiary FSSC, served as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC was based on the size, type and number of accounts and transactions made by shareholders. The fee paid to FSSC during the reporting period was $8,577 after voluntary waiver, if applicable.

General

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

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations (and in-kind contributions), for the year ended December 31, 2004, were as follows:

Purchases		$	44,466,621
Sales		$	51,079,450

7. RISKS OF FOREIGN INVESTING

The Fund invests in securities of non-U.S. issuers. 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, 2004, the diversification of non-U.S. countries was as follows:

Country		Percentage of Net Assets
United Kingdom		5.7%
Russia		4.4%
Brazil		4.1%
Mexico		3.2%
Turkey		2.0%
Venezuela		2.0%
Colombia		1.8%
Philippines		1.3%
Finland		0.9%
Hungary		0.9%
Denmark		0.8%
Portugal		0.7%
Canada		0.5%
Bermuda		0.4%
China		0.4%
Germany		0.4%
Peru		0.4%
Puerto Rico		0.4%
Sweden		0.4%
Australia		0.3%
Netherlands		0.2%
Switzerland		0.2%
France		0.1%

8. LEGAL PROCEEDINGS

Beginning in October 2003, Federated Investors, Inc. and various subsidiaries thereof (including the advisers and distributor for various investment companies, collectively, "Federated"), along with various investment companies sponsored by Federated ("Funds") were named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland seeking damages of unspecified amounts. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. Federated and various Funds have also been named as defendants in several additional lawsuits, the majority of which are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and rule 12b-1 fees, and seeking damages of unspecified amounts. The Board of the Funds has retained the law firm of Dickstein Shapiro Morin & Oshinsky LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these recent lawsuits and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Fund redemptions, reduced sales of Fund shares, or other adverse consequences for the Funds.

Report of Independent Registered Public Accounting Firm

TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FEDERATED CAPITAL INCOME FUND II

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated Capital Income Fund II (the "Fund") (a portfolio of Federated Insurance Series) (the "Trust"), as of December 31, 2004, and the related statement of operations for the year then ended, the statement of changes in net assets for the years ended December 31, 2004 and December 31, 2003, and the financial highlights for each of the five years in the period then ended. 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to provide reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with custodian. We believe that our audits provide a reasonable basis for our opinion.

Deloitte & Touche LLP

Boston, Massachusetts
February 15, 2005

Board of Trustees and Trust Officers

The Board is responsible for managing theTrust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA. As of December 31, 2004, the Trust comprised 11 portfolios, and the Federated Fund Complex consisted of 44 investment companies (comprising 133 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about the Trust's Trustees and is available, without charge and upon request, by calling 1-800-341-7400.

INTERESTED TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
John F. Donahue* Birth Date: July 28, 1924 CHAIRMAN AND TRUSTEE Began serving: September 1993		Principal Occupations: Chairman and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Chairman and Director, Federated Investment Counseling.

J. Christopher Donahue* Birth Date: April 11, 1949 TRUSTEE Began serving: September 1993		Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd.

Lawrence D. Ellis, M.D.* Birth Date: October 11, 1932 3471 Fifth Avenue Suite 1111 Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center. Other Directorships Held: Member, National Board of Trustees, Leukemia Society of America. Previous Positions: Trustee, University of Pittsburgh; Director, University of Pittsburgh Medical Center.

INDEPENDENT TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
Thomas G. Bigley Birth Date: February 3, 1934 15 Old Timber Trail Pittsburgh, PA TRUSTEE Began serving: November 1994		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director, University of Pittsburgh. Previous Position: Senior Partner, Ernst & Young LLP.

John T. Conroy, Jr. Birth Date: June 23, 1937 Investment Properties Corporation 3838 North Tamiami Trail Suite 402 Naples, FL TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation.

Nicholas P. Constantakis Birth Date: September 3, 1939 175 Woodshire Drive Pittsburgh, PA TRUSTEE Began serving: February 1998		Principal Occupations: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Member of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC.

John F. Cunningham Birth Date: March 5, 1943 353 El Brillo Way Palm Beach, FL TRUSTEE Began serving: January 1999		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc.

Peter E. Madden Birth Date: March 16, 1942 One Royal Palm Way 100 Royal Palm Way Palm Beach, FL TRUSTEE Began serving: September 1993		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.

Charles F. Mansfield, Jr. Birth Date: April 10, 1945 80 South Road Westhampton Beach, NY TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; Management Consultant; Executive Vice President, DVC Group, Inc. (marketing communications and technology) (prior to 9/1/00). Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University.

John E. Murray, Jr., J.D., S.J.D. Birth Date: December 20, 1932 Chancellor, Duquesne University Pittsburgh, PA TRUSTEE Began serving: February 1995		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chancellor and Law Professor, Duquesne University; Partner, Murray, Hogue and Lannis. Other Directorships Held: Director, Michael Baker Corp. (engineering, construction, operations and technical services). Previous Positions: President, Duquesne University; Dean and Professor of Law, University of Pittsburgh School of Law; Dean and Professor of Law, Villanova University School of Law.

Marjorie P. Smuts Birth Date: June 21, 1935 4905 Bayard Street Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Public Relations/Marketing Consultant/ Conference Coordinator. Previous Positions: National Spokesperson, Aluminum Company of America; television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord.


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
John S. Walsh Birth Date: November 28, 1957 2604 William Drive Valparaiso, IN TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc.

OFFICERS


Name Birth Date Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years and Previous Position(s)
John B. Fisher Birth Date: May 16, 1956 PRESIDENT Began serving: November 2004		Principal Occupations: Vice President of some of the Funds in the Federated Fund Complex; and President and Director of the Institutional Sales Division of Federated Securities Corp., which is a wholly owned subsidiary of Federated. Mr. Fisher is responsible for the distribution of Federated's products and services to investment advisers, insurance companies, retirement plans, and corporations. In addition, Mr. Fisher serves as President and Director of Federated Investment Counseling, a wholly owned subsidiary of Federated involved in the management of separate accounts and sub-advised mandates. He is also President, Technology, Federated Services Corp. responsible for the technological infrastructure of the various Federated companies. He is also Director, Edgewood Securities Corp., as well as Director, Federated Investors Trust Company. Previous Positions: Senior Vice President of Federated Investment Counseling.

John W. McGonigle Birth Date: October 26, 1938 EXECUTIVE VICE PRESIDENT AND SECRETARY Began serving: September 1993		Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc.

Richard J. Thomas Birth Date: June 17, 1954 TREASURER Began serving: September 1997		Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services.

Richard B. Fisher Birth Date: May 17, 1923 VICE PRESIDENT Began serving: November 1998		Principal Occupations: Vice Chairman or President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. Previous Positions: President and Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice President, Federated Investors, Inc.; and Director and Chief Executive Officer, Federated Securities Corp.

Stephen F. Auth Birth Date: September 3, 1956 CHIEF INVESTMENT OFFICER Began serving: November 2002		Principal Occupations: Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Equity Management Company of Pennsylvania and Passport Research II, Ltd. Previous Positions: Executive Vice President, Federated Investment Management Company, and Passport Research, Ltd.; Senior Vice President, Global Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd.; Senior Managing Director and Portfolio Manager, Prudential Investments.

Robert J. Ostrowski Birth Date: April 26, 1963 CHIEF INVESTMENT OFFICER Began serving: May 2004		Principal Occupations: Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of taxable fixed-income products in 2004 and also serves as a Senior Portfolio Manager. He has been a Senior Vice President of the Fund's Adviser since 1997. Mr. Ostrowski is a Chartered Financial Analyst. He received his M.S. in Industrial Administration from Carnegie Mellon University.

VOTING PROXIES ON FUND PORTFOLIO SECURITIES

QUARTERLY PORTFOLIO SCHEDULE

Federated
World-Class Investment Manager

Federated Capital Income Fund II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Cusip 313916108

G00845-01 (2/05)

Federated is a registered mark of Federated Investors, Inc. 2005 (c)Federated Investors, Inc.

Federated
World-Class Investment Manager

Federated Equity Income Fund II

A Portfolio of Federated Insurance Series

ANNUAL SHAREHOLDER REPORT

December 31, 2004

Not FDIC Insured * May Lose Value * No Bank Guarantee

Financial Highlights

(For a Share Outstanding Throughout Each Period)

Year Ended December 31		2004			2003	1		2002			2001			2000
Net Asset Value, Beginning of Period		$12.13			$ 9.73			$12.49			$14.32			$16.28
Income From Investment Operations:
Net investment income		0.28			0.24			0.20			0.23			0.22
Net realized and unrealized gain (loss) on investments, options and foreign currency transactions		1.25			2.36			(2.74	)		(1.81	)		(2.01	)
TOTAL FROM INVESTMENT OPERATIONS		1.53			2.60			(2.54	)		(1.58	)		(1.79	)
Less Distributions:
Distributions from net investment income		(0.24	)		(0.20	)		(0.22	)		(0.25	)		(0.17	)
Net Asset Value, End of Period		$13.42			$12.13			$ 9.73			$12.49			$14.32
Total Return2		12.84	%		27.27	%		(20.74	)%		(10.98	)%		(11.19	)%

Ratios to Average Net Assets:
Expenses		1.12	%3		1.15	%3		1.07	%3		0.97	%		0.95	%
Net investment income		2.08	%		2.18	%		1.63	%		1.77	%		1.67	%
Expense waiver/reimbursement4		0.03	%		0.01	%		0.01	%		0.02	%		0.04	%
Supplemental Data:
Net assets, end of period (000 omitted)	$72,907			$73,904			$61,430			$91,988			$104,934
Portfolio turnover		55	%		145	%		81	%		101	%		74	%

1 During the year ended December 31, 2003, the investment strategy of the fund transitioned from a blended value/growth style to one focused on value.

3 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios are 1.11%, 1.14%, and 1.06%, for the years ended December 31, 2004, 2003, and 2002, respectively, after taking into account these expense reductions.

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

See Notes which are an integral part of the Financial Statements

Shareholder Expense Example

As a shareholder of the Fund, you incur ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees and/or shareholder services fees; and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other variable investment options. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2004 to December 31, 2004.

ACTUAL EXPENSES

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

	Beginning Account Value 7/1/2004	Ending Account Value 12/31/2004	Expenses Paid During Period1
Actual	$1,000	$1,097.30	$5.90
Hypothetical (assuming a 5% return before expenses)	$1,000	$1,019.51	$5.69

1 Expenses are equal to the Fund's annualized expense ratio of 1.12%, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).

Management's Discussion of Fund Performance

FUND PERFORMANCE

This report covers Federated Equity Income Fund II's fiscal year performance period from January 1, 2004, through December 31, 2004. During this reporting period, the fund produced a total return of 12.84%. The fund trailed its blended benchmark which consists of 90% Russell 1000 Value Index and 10% Merrill Lynch 91 day Treasury Bill (90% RUSIV/10% ML91DTB),1 and the Russell 1000 Value Index2 during the same reporting period with returns of 14.93% and 16.50%, respectively. The fund outperformed the broad market, Standard & Poor's 500 Index,3 which returned 10.88% during the reporting period. The portfolio managers focus on the realization of the fund's income and total return objectives by primarily purchasing stocks with dividend yields greater than the general equity markets and current relative dividend yields greater than their historical averages.

Market Conditions and Impact Upon Fund's Performance

The past 12 months generated positive returns for most domestic and global equity market benchmarks, continuing the trend established during the first quarter of 2003. Small- and mid-cap investment strategies continued their dominance of large-cap strategies during the reporting period and as a result, the portfolio's bias toward large-cap companies negatively influenced relative performance. The fund employs a value-based investment strategy which positively influenced performance during the reporting period, as value-based strategies generally outperformed growth-based strategies across most market capitalizations.

Sector Selection Impact Upon Fund's Performance

Positive sector selection influences upon performance relative to the benchmark included overweight positions in Utilities (contribution +0.25%) and Telecommunication Service (contribution +0.19%), and an underweight position in Information Technology (contribution +0.30%).

Negative sector selection influences upon relative performance included an overweight position in Healthcare (contribution -0.34%) and an underweight position in Energy (contribution -0.36%).

Security Selection Impact Upon Fund's Performance

Positive influences on relative performance included favorable security selection in the Utilities and Consumer Discretionary sectors. Negative influences on relative performance included unfavorable security selection in the Information Technology, Financials, and Consumer Staples sectors.

The top five contributing names to the portfolio during the reporting period were: Exxon Mobil Corp. 0.99%, General Electric Co. 0.64%, BAE Systems, PLC.0. 57%, Limited Brands, Inc. 0.57%, and McDonald's Corp. 0.51%. The bottom five contributing names to the portfolio were: Merck & Co. Inc. -0.41%, Pfizer Inc. -0.33%, Coca Cola Co. -0.27%, General Motors Corp. -0.24%, and Amvescap PLC -0.17%.

1 The 90% RUS1V/10% ML91DTB is a blended index which is comprised of the RUS1V and the ML91DTB. The RUS1V measures the performance of the 1,000 largest of the 3,000 largest U.S.-domiciled companies (based on total market capitalization) with lower price-to-book ratios and lower forecasted growth values. The ML91DTB is an index tracking short-term government securities. Indexes are unmanaged, and investments can not be made directly in an index.

2 Russell 1000® Value Index measures the performance of the 1,000 largest of the 3,000 largest U.S.-domiciled companies (based on total market capitalization) with lower price-to-book ratios and lower forecasted growth values.

3 The S&P500 Index is an unmanaged capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Indexes are unmanaged, and investment can not be made directly in an index.

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

Average Annual Total Return for the Period Ended 12/31/2004
1 Year	12.84	%
5 Years	(2.09	)%
Start of Performance (1/30/1997)	4.96	%

The graph above illustrates the hypothetical investment of $10,0001 in the Federated Equity Income Fund II (the "Fund") from January 30, 1997 (start of performance) to December 31, 2004 compared to the Russell 1000® Value Index (RUS1V),2 and the fund's blended benchmark, consisting of 90% Russell 1000 Value Index/10% Merrill Lynch 91 Day Treasury Index (90% RUS1V/10% ML91DTB).2

1 The Fund's performance assumes the reinvestment of all dividends and distributions. The RUSIV and the 90% RUSIV/10% ML91DTB have been adjusted to reflect reinvestment of dividends on securities in the indexes.

2 The RUSIV and the 90% RUSIV/10% ML91DTB 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 indexes are unmanaged and unlike the Fund, are not affected by cashflows. It is not possible to invest directly in an index.

Portfolio of Investments Summary Table

At December 31, 2004, the Fund's sector composition1 was as follows:

Sector		Percentage of Total Net Assets
Financials		33.2%
Consumer Discretionary		11.9%
Telecommunication Services		8.2%
Industrials		8.0%
Utilities		7.7%
Consumer Staples		7.6%
Healthcare		6.6%
Materials		6.0%
Energy		4.5%
Information Technology		1.4%
Cash Equivalents2		3.8%
Other Assets and Liabilities--Net3		1.1%
TOTAL		100.0%

1 Except Cash Equivalents, sector classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the adviser assigns an index classification to securities not classified by the GICS and to securities for which the adviser does not have access to the classification made by the GICS.

2 Cash Equivalents includes any investments in money market mutual funds and overnight repurchase agreements.

3 See Statement of Assets and Liabilities.

Portfolio of Investments

December 31, 2004

Shares			Value
		COMMON STOCKS--91.9%
		Consumer Discretionary--10.9%
	15,500	Belo (A.H.) Corp., Series A	$	406,720
	19,800	Delphi Auto Systems Corp.		178,596
	3,700	E.W. Scripps Co., Class A		178,636
	2,700	Knight-Ridder, Inc.		180,738
	35,738	Limited, Inc.		822,689
	30,100	Mattel, Inc.		586,649
	13,000	May Department Stores Co.		382,200
	13,600	Maytag Corp.		286,960
	65,900	McDonald's Corp.		2,112,754
	32,300	Newell Rubbermaid, Inc.		781,337
	17,100	Nissan Motor Co. Ltd., ADR		375,174
	89,700	Pearson PLC, ADR		1,090,752
	7,800	Pier 1 Imports, Inc.		153,660
	11,400	Tupperware Corp.		236,208
	2,700	Whirlpool Corp.		186,867
		TOTAL		7,959,940
		Consumer Staples--7.6%
	7,600	Albertsons, Inc.		181,488
	3,100	Altria Group, Inc.		189,410
	3,200	Anheuser-Busch Cos., Inc.		162,336
	10,800	Archer-Daniels-Midland Co.		240,948
	7,300	Boots Group PLC, ADR		183,740
	25,100	Coca-Cola Co.		1,044,913
	8,300	Colgate-Palmolive Co.		424,628
	18,700	Kimberly-Clark Corp.		1,230,647
	4,200	Lancaster Colony Corp.		180,054
	14,100	Loews Corp.- Carolina Group		408,195
	13,800	PepsiCo, Inc.		720,360
	7,400	Sara Lee Corp.		178,636
	5,300	Unilever N.V., ADR		353,563
		TOTAL		5,498,918
		Energy--4.5%
	6,200	BP PLC, ADR		362,080
	29,300	Exxon Mobil Corp.		1,501,918
	2,700	Kinder Morgan, Inc.		197,451
	5,600	Tidewater, Inc.		199,416
	9,300	Total SA, Class B, ADR		1,021,512
		TOTAL		3,282,377
Shares			Value
		COMMON STOCKS--continued
		Financials--31.2%
	8,793	Ace Ltd.	$	375,901
	23,300	Allstate Corp.		1,205,076
	85,800	Amvescap PLC, ADR		1,077,648
	26,894	Bank of America Corp.		1,263,749
	24,900	Bank of New York Co., Inc.		832,158
	5,145	Cincinnati Financial Corp.		227,718
	70,600	Citigroup, Inc.		3,401,508
	18,300	Equity Office Properties Trust		532,896
	21,000	Federal Home Loan Mortgage Corp.		1,547,700
	8,700	Federal National Mortgage Association		619,527
	35,800	J.P. Morgan Chase & Co.		1,396,558
	6,300	Lloyds TSB Group PLC, ADR		231,777
	36,000	MBNA Corp.		1,014,840
	12,100	Mellon Financial Corp.		376,431
	13,800	Morgan Stanley		766,176
	20,500	Nationwide Financial Services, Inc., Class A		783,715
	9,400	New York Community Bancorp, Inc.		193,358
	8,200	Northern Trust Corp.		398,356
	27,100	Sun Life Financial Services of Canada		908,934
	17,812	The St. Paul Travelers Cos., Inc.		660,291
	22,900	Trizec Properties, Inc.		433,268
	17,800	U.S. Bancorp		557,496
	15,500	UBS AG		1,299,520
	22,800	Wells Fargo & Co.		1,417,020
	16,700	Willis Group Holdings Ltd.		687,539
	7,200	XL Capital Ltd.		559,080
		TOTAL		22,768,240
		Healthcare--6.6%
	8,100	Abbott Laboratories		377,865
	22,400	Baxter International, Inc.		773,696
	7,500	Bristol-Myers Squibb Co.		192,150
	6,200	GlaxoSmithKline PLC, ADR		293,818
	3,000	Johnson & Johnson		190,260
	25,900	Merck & Co., Inc.		832,426
	51,500	Pfizer, Inc.		1,384,835
	17,500	Wyeth		745,325
		TOTAL		4,790,375
		Industrials--8.0%
	59,500	General Electric Co.		2,171,750
	15,300	Lockheed Martin Corp.		849,915
	24,900	Quebecor World, Inc.		536,346
	28,300	TPG NV, ADR		771,175
	6,100	Union Pacific Corp.		410,225
	7,000	United Technologies Corp.		723,450
	12,400	Waste Management, Inc.		371,256
		TOTAL		5,834,117
Shares			Value
		COMMON STOCKS--continued
		Information Technology--1.4%
	40,400	Hewlett-Packard Co.	$	847,188
	10,900	Nokia Oyj, Class A, ADR		170,803
		TOTAL		1,017,991
		Materials--6.0%
	3,500	Air Products & Chemicals, Inc.		202,895
	17,400	Akzo Nobel NV, ADR		739,326
	9,500	Bowater, Inc.		417,715
	36,100	Du Pont (E.I.) de Nemours & Co.		1,770,705
	4,900	Hanson PLC, ADR		210,357
	13,600	POSCO, ADR		605,608
	30,200	Stora Enso Oyj, ADR		459,342
		TOTAL		4,405,948
		Telecommunication Services--8.2%
	8,400	AT&T Corp.		160,104
	17,100	BCE, Inc.		412,623
	25,900	BellSouth Corp.		719,761
	55,700	SBC Communications, Inc.		1,435,389
	9,500	Sprint Corp.		236,075
	19,000	TDC A/S, ADR		404,320
	14,500	Telefonos de Mexico, Class L, ADR		555,640
	31,500	Telstra Corp. Ltd., ADR		602,910
	30,600	Verizon Communications		1,239,606
	7,900	Vodafone Group PLC, ADR		216,302
		TOTAL		5,982,730
		Utilities--7.5%
	10,500	Entergy Corp.		709,695
	6,300	Equitable Resources, Inc.		382,158
	17,300	Exelon Corp.		762,411
	53,400	Korea Electric Power Corp., ADR		707,016
	7,900	National Grid Group PLC, ADR		379,121
	19,500	Northeast Utilities Co.		367,575
	6,500	ONEOK, Inc.		184,730
	9,400	Pinnacle West Capital Corp.		417,454
	16,400	Progress Energy, Inc.		741,936
	7,000	RWE AG, ADR		386,298
	15,400	Suez SA, ADR		411,950
		TOTAL		5,450,344
		TOTAL COMMON STOCKS (IDENTIFIED COST $56,854,359)		66,990,980
		PREFERRED STOCKS--3.2%
		Consumer Discretionary--1.0%
	26,400	General Motors Corp., Conv. Pfd., Series C, $1.56, Annual Dividend		703,824
		Financials--2.0%
	12,700	Chubb Corp., PRIDES, $1.75, Annual Dividend		381,000
	10	Federal National Mortgage Association, Conv. Pfd., $5.38, Annual Dividend		1,060,000
		TOTAL		1,441,000
Shares or Principal Amount			Value
		PREFERRED STOCKS--continued
		Utilities--0.2%
	4,000	American Electric Power Co., Inc., DECS, $4.63, Annual Dividend	$	190,600
		TOTAL PREFERRED STOCKS (IDENTIFIED COST $2,217,638)		2,335,424
		Repurchase Agreement--3.8%
$	2,760,000	Interest in $2,000,000,000 joint repurchase agreement with UBS Securities LLC, 2.28%, dated 12/31/2004 to be repurchased at $2,760,524 on 1/3/2005, collateralized by U.S. Government Agency Obligations with various maturities to 9/25/2034, collateral market value $2,060,003,250 (AT AMORTIZED COST)		2,760,000
		TOTAL INVESTMENTS--98.9% (IDENTIFIED COST $61,831,997)1		72,086,404
		OTHER ASSETS AND LIABILITIES - NET--1.1%		820,781
		TOTAL NET ASSETS--100%	$	72,907,185

1 The cost of investments for federal tax purposes amounts to $61,959,494.

Note: The categories of investments are shown as a percentage of total net assets at December 31, 2004.

The following acronyms are used throughout this portfolio:

ADR	--American Depositary Receipt
DECS	--Dividend Enhanced Convertible Stock
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, 2004

Assets:
Total investments in securities, at value (identified cost $61,831,997)			$	72,086,404
Cash				4,675
Income receivable				221,801
Receivable for investments sold				852,871
TOTAL ASSETS				73,165,751
Liabilities:
Payable for investments purchased	$	211,500
Payable for shares redeemed		11,692
Payable for auditing fees		13,972
Payable for printing and postage fees		10,654
Accrued expenses		10,748
TOTAL LIABILITIES				258,566
Net assets for 5,431,321 shares outstanding			$	72,907,185
Net Assets Consist of:
Paid-in capital			$	80,372,459
Net unrealized appreciation of investments and translation of assets and liabilities in foreign currency				10,254,451
Accumulated net realized loss on investments, options and foreign currency transactions				(19,209,291	)
Undistributed net investment income				1,489,566
TOTAL NET ASSETS			$	72,907,185
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
$72,907,185 ÷ 5,431,321 shares outstanding, no par value, unlimited shares authorized				$13.42

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended December 31, 2004

Investment Income:
Dividends (net of foreign taxes withheld of $70,471)							$	2,241,769
Interest								44,820
TOTAL INCOME								2,286,589
Expenses:
Investment adviser fee (Note 5)				$	537,748
Administrative personnel and services fee (Note 5)					150,000
Custodian fees					11,240
Transfer and dividend disbursing agent fees and expenses (Note 5)					14,220
Directors'/Trustees' fees					1,140
Auditing fees					16,737
Legal fees					4,159
Portfolio accounting fees					44,309
Printing and postage					30,303
Insurance premiums					13,811
Miscellaneous					595
TOTAL EXPENSES					824,262
Waiver and Expense Reduction (Note 5):
Waiver of administrative personnel and services fee	$	(24,285	)
Fees paid indirectly for directed broker arrangements		(4,488	)
TOTAL WAIVER AND EXPENSE REDUCTION					(28,773	)
Net expenses								795,489
Net investment income								1,491,100
Realized and Unrealized Gain (Loss) on Investments, Options and Foreign Currency Transactions:
Net realized gain on investments and foreign currency transactions								5,841,403
Net realized loss on options transactions								(2,221	)
Net change in unrealized appreciation of investments and translation of assets and liabilities in foreign currency								1,300,140
Net realized and unrealized gain on investments, options and foreign currency transactions								7,139,322
Change in net assets resulting from operations							$	8,630,422

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

Year Ended December 31		2004			2003
Increase (Decrease) in Net Assets
Operations:
Net investment income	$	1,491,100		$	1,408,498
Net realized gain on investments, options and foreign currency transactions		5,839,182			2,187,196
Net change in unrealized appreciation/depreciation of investments and translation of assets and liabilites in foreign currency		1,300,140			12,346,967
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS		8,630,422			15,942,661
Distributions to Shareholders:
Distributions from net investment income		(1,409,591	)		(1,238,909	)
Share Transactions:
Proceeds from sale of shares		3,026,705			8,089,410
Net asset value of shares issued to shareholders in payment of distributions declared		1,409,590			1,238,908
Cost of shares redeemed		(12,653,839	)		(11,558,099	)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS		(8,217,544	)		(2,229,781	)
Change in net assets		(996,713	)		12,473,971
Net Assets:
Beginning of period		73,903,898			61,429,927
End of period (including undistributed net investment income of $1,489,566 and $1,409,298, respectively)	$	72,907,185		$	73,903,898

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

December 31, 2004

1. ORGANIZATION

Federated Insurance Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Trust consists of 11 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 investment objective of the Fund is to provide above-average income and capital appreciation.

2. SIGNIFICANT ACCOUNTING POLICIES

Investment Valuation

Domestic and foreign equity securities are valued at the last sale price or official closing price reported in the market in which they are primarily traded (either a national securities exchange or the over-the-counter market), if available. If unavailable, the security is generally valued at the mean between the last closing bid and asked prices. 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 (NYSE). Therefore, foreign securities are valued at the latest closing price on the exchange on which they are traded immediately prior to the closing of the NYSE. Foreign securities quoted in foreign currencies are translated in U.S. dollars at the foreign exchange rate in effect at 4:00 p.m., Eastern Time, on the day the value of the foreign security is determined. Fixed-income, listed corporate bonds, 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. 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. Securities for which no quotations are readily available or whose values have been affected by a significant event occurring between the close of their primary markets and the closing of the NYSE are valued at fair value as determined in accordance with procedures established by and under general supervision of the Board of Trustees (the "Trustees").

Repurchase Agreements

Investment Income, Expenses and Distributions

Premium and Discount Amortization

All premiums and discounts on fixed-income securities are amortized/ accreted for financial statement purposes.

Federal Taxes

Withholding taxes on foreign interest, dividends, and capital gains have been provided for in accordance with the applicable country's tax rules and rates.

When-Issued and Delayed Delivery Transactions

Options Contracts

The Fund may write option contracts. A written option obligates the Fund to deliver a call, or to receive a put, at the contracted amount upon exercise by the holder of the option. The value of the option contract is recorded as a liability and unrealized gain or loss is measured by the difference between the current value and the premium received. For the year ended December 31, 2004, the Fund had a realized loss of $2,221 on written options.

The following is a summary of the Fund's written option activity:

Contracts	Number of Contracts		Aggregate Face Value
Outstanding at prior period-end	0		$ 0
Contracts opened	(135	)	$(24,191	)
Contracts expired	23		$ 0
Contracts closed	112		$ 26,412

Foreign Exchange Contracts

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 rates 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. 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 a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.

3. SHARES OF BENEFICIAL INTEREST

The following table summarizes share activity:

Year Ended December 31	2004		2003
Shares sold	244,636		784,055
Shares issued to shareholders in payment of distributions declared	118,553		128,251
Shares redeemed	(1,026,566	)	(1,133,735	)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS	(663,377	)	(221,429	)

4. FEDERAL TAX INFORMATION

For the year ended December 31, 2004, permanent differences identified and reclassified among the components of net assets were as follows:

Increase (Decrease)
Undistributed Net Investment Income		Accumulated Net Realized Loss
$(1,241)		$1,241

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

The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended December 31, 2004 and 2003, was as follows:

		2004		2003
Ordinary income		$1,409,591		$1,238,909

As of December 31, 2004, the components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income	$	1,489,567
Unrealized appreciation	$	10,126,954
Capital loss carryforward	$	19,081,793

The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the tax deferral of losses on wash sales.

At December 31, 2004, the cost of investments for federal tax purposes was $61,959,494. The net unrealized appreciation of investments for federal tax purposes excluding any unrealized appreciation resulting from changes in foreign currency exchange rates was $10,126,910. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $11,136,458 and net unrealized depreciation from investments for those securities having an excess of cost over value of $1,009,548.

At December 31, 2004, the Fund had a capital loss carryforward of $19,081,793 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire as follows:

Expiration Year		Expiration Amount
2008		$ 1,764,560
2009		$10,532,229
2010		$ 6,785,004

5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Administrative Fee

Maximum Administrative Fee		Average Aggregate Daily Net Assets of the Federated Funds
0.150%		on the first $5 billion
0.125%		on the next $5 billion
0.100%		on the next $10 billion
0.075%		on assets in excess of $20 billion

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 daily net assets of the Fund's Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses of up to 0.25% of average daily net assets, annually, to compensate FSC. FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended December 31, 2004, the Fund did not incur a distribution services 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 the average daily net assets of the Fund's Shares for the period. The fee paid to FSSC is used to finance certain services for shareholders and to maintain shareholder accounts. 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. For the year ended December 31, 2004, the Fund did not incur a shareholder services fee.

Transfer and Dividend Disbursing Agent Fees and Expenses

Expense Reduction

General

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

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations (and in-kind contributions), for the year ended December 31, 2004, were as follows:

Purchases		$	37,495,618
Sales		$	46,337,052

7. LEGAL PROCEEDINGS

Report of Independent Registered Public Accounting Firm

TO THE BOARD OF TRUSTEES OF FEDERATED INSURANCE SERIES AND THE 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 Federated Insurance Series) (the "Trust") as of December 31, 2004, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to provide reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

Deloitte & Touche LLP

Boston, Massachusetts
February 15, 2005

Board of Trustees and Trust Officers

The Board is responsible for managing theTrust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA. As of December 31, 2004, the Trust comprised 11 portfolios, and the Federated Fund Complex consisted of 44 investment companies (comprising 133 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about the Trust's Trustees and is available, without charge and upon request, by calling 1-800-341-7400.

INTERESTED TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
John F. Donahue* Birth Date: July 28, 1924 CHAIRMAN AND TRUSTEE Began serving: September 1993		Principal Occupations: Chairman and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Chairman and Director, Federated Investment Counseling.

J. Christopher Donahue* Birth Date: April 11, 1949 TRUSTEE Began serving: September 1993		Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd.

Lawrence D. Ellis, M.D.* Birth Date: October 11, 1932 3471 Fifth Avenue Suite 1111 Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center. Other Directorships Held: Member, National Board of Trustees, Leukemia Society of America. Previous Positions: Trustee, University of Pittsburgh; Director, University of Pittsburgh Medical Center.

INDEPENDENT TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
Thomas G. Bigley Birth Date: February 3, 1934 15 Old Timber Trail Pittsburgh, PA TRUSTEE Began serving: November 1994		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director, University of Pittsburgh. Previous Position: Senior Partner, Ernst & Young LLP.

John T. Conroy, Jr. Birth Date: June 23, 1937 Investment Properties Corporation 3838 North Tamiami Trail Suite 402 Naples, FL TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation.

Nicholas P. Constantakis Birth Date: September 3, 1939 175 Woodshire Drive Pittsburgh, PA TRUSTEE Began serving: February 1998		Principal Occupations: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Member of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC.

John F. Cunningham Birth Date: March 5, 1943 353 El Brillo Way Palm Beach, FL TRUSTEE Began serving: January 1999		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc.

Peter E. Madden Birth Date: March 16, 1942 One Royal Palm Way 100 Royal Palm Way Palm Beach, FL TRUSTEE Began serving: September 1993		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.

Charles F. Mansfield, Jr. Birth Date: April 10, 1945 80 South Road Westhampton Beach, NY TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; Management Consultant; Executive Vice President, DVC Group, Inc. (marketing communications and technology) (prior to 9/1/00). Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University.

John E. Murray, Jr., J.D., S.J.D. Birth Date: December 20, 1932 Chancellor, Duquesne University Pittsburgh, PA TRUSTEE Began serving: February 1995		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chancellor and Law Professor, Duquesne University; Partner, Murray, Hogue and Lannis. Other Directorships Held: Director, Michael Baker Corp. (engineering, construction, operations and technical services). Previous Positions: President, Duquesne University; Dean and Professor of Law, University of Pittsburgh School of Law; Dean and Professor of Law, Villanova University School of Law.

Marjorie P. Smuts Birth Date: June 21, 1935 4905 Bayard Street Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Public Relations/Marketing Consultant/ Conference Coordinator. Previous Positions: National Spokesperson, Aluminum Company of America; television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord.

John S. Walsh Birth Date: November 28, 1957 2604 William Drive Valparaiso, IN TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc.

OFFICERS


Name Birth Date Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years and Previous Position(s)
John B. Fisher Birth Date: May 16, 1956 PRESIDENT Began serving: November 2004		Principal Occupations: Vice President of some of the Funds in the Federated Fund Complex; and President and Director of the Institutional Sales Division of Federated Securities Corp., which is a wholly owned subsidiary of Federated. Mr. Fisher is responsible for the distribution of Federated's products and services to investment advisers, insurance companies, retirement plans, and corporations. In addition, Mr. Fisher serves as President and Director of Federated Investment Counseling, a wholly owned subsidiary of Federated involved in the management of separate accounts and sub-advised mandates. He is also President, Technology, Federated Services Corp. responsible for the technological infrastructure of the various Federated companies. He is also Director, Edgewood Securities Corp., as well as Director, Federated Investors Trust Company. Previous Positions: Senior Vice President of Federated Investment Counseling.

John W. McGonigle Birth Date: October 26, 1938 EXECUTIVE VICE PRESIDENT AND SECRETARY Began serving: September 1993		Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc.

Richard J. Thomas Birth Date: June 17, 1954 TREASURER Began serving: September 1997		Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services.

Richard B. Fisher Birth Date: May 17, 1923 VICE PRESIDENT Began serving: November 1998		Principal Occupations: Vice Chairman or President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. Previous Positions: President and Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice President, Federated Investors, Inc.; and Director and Chief Executive Officer, Federated Securities Corp.

Stephen F. Auth Birth Date: September 3, 1956 CHIEF INVESTMENT OFFICER Began serving: November 2002		Principal Occupations: Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Equity Management Company of Pennsylvania, and Passport Research II, Ltd. Previous Positions: Executive Vice President, Federated Investment Management Company and Passport Research, Ltd.; Senior Vice President, Global Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd.; Senior Managing Director and Portfolio Manager, Prudential Investments.

Robert J. Ostrowski Birth Date: April 26, 1963 CHIEF INVESTMENT OFFICER Began serving: May 2004		Principal Occupations: Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of taxable, fixed-income products in 2004 and also serves as a Senior Portfolio Manager. He has been a Senior Vice President of the Fund's Adviser since 1997. Mr. Ostrowski is a Chartered Financial Analyst. He received his M.S. in Industrial Administration from Carnegie Mellon University.

VOTING PROXIES ON FUND PORTFOLIO SECURITIES

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Federated's Internet site. Go to http://www.federatedinvestors.com, select "Products," open the "Variable Annuities" Section, then select the link to "sec-gov" to access to the link for Form N-PX. This information is also available from the EDGAR database on the SEC's Internet site at http://www.sec.gov.

QUARTERLY PORTFOLIO SCHEDULE

Variable investment options 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. Investments in variable investment options involves investment risk, including the possible loss of principal.

Federated
World-Class Investment Manager

Federated Equity Income Fund II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Cusip 313916801

G00433-09 (2/05)

Federated is a registered mark of Federated Investors, Inc. 2005 (c)Federated Investors, Inc.

Federated
World-Class Investment Manager

Federated Fund for U.S. Government Securities II

A Portfolio of Federated Insurance Series

ANNUAL SHAREHOLDER REPORT

December 31, 2004

Not FDIC Insured * May Lose Value * No Bank Guarantee

Financial Highlights

(For a Share Outstanding Throughout Each Period)

Year Ended December 31	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$11.77		$11.98		$11.43		$11.11		$10.56
Income From Investment Operations:
Net investment income	0.45	1	0.43	1	0.53	1	0.60	1	0.60
Net realized and unrealized gain (loss) on investments	(0.03	)	(0.15	)	0.46		0.16		0.51
TOTAL FROM INVESTMENT OPERATIONS	0.42		0.28		0.99		0.76		1.11
Less Distributions:
Distributions from net investment income	(0.53	)	(0.43	)	(0.44	)	(0.44	)	(0.56	)
Distributions from net realized gain on investments	(0.06	)	(0.06	)	--		--		--
TOTAL DISTRIBUTIONS	(0.59	)	(0.49	)	(0.44	)	(0.44	)	(0.56	)
Net Asset Value, End of Period	$11.60		$11.77		$11.98		$11.43		$11.11
Total Return2	3.61	%	2.37	%	9.05	%	7.03	%	10.97	%

Ratios to Average Net Assets:
Expenses	0.72	%	0.72	%	0.72	%	0.74	%	0.84	%
Net investment income	3.91	%	3.68	%	4.58	%	5.39	%	5.99	%
Expense waiver/reimbursement4	0.01	%	0.00	%3	--		--		--
Supplemental Data:
Net assets, end of period (000 omitted)	$377,368		$405,418		$489,235		$300,404		$159,579
Portfolio turnover	60	%	70	%	82	%	76	%	74	%

1 Based on average shares outstanding.

3 Represents less than 0.01%.

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

See Notes which are an integral part of the Financial Statements

Shareholder Expense Example

As a shareholder of the Fund, you incur ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees and/or shareholder services fees; and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other variable investment options. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2004 to December 31, 2004.

ACTUAL EXPENSES

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

	Beginning Account Value 7/1/2004	Ending Account Value 12/31/2004	Expenses Paid During Period1
Actual	$1,000	$1,033.90	$3.68
Hypothetical (assuming a 5% return before expenses)	$1,000	$1,021.52	$3.66

1 Expenses are equal to the Fund's annualized expense ratio of 0.72%, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).

Management's Discussion of Fund Performance

FUND PERFORMANCE

This report covers the fund's performance from January 1, 2004 through December 31, 2004. The fund's total return for the 12-month reporting period was 3.61%. The custom benchmark, which consists of a two-thirds/one-third blend of the Lehman Brothers Mortgage-Backed Securities Index1 and Lehman Brothers Government Index,1 respectively, returned 4.29%.

Security selection and duration stance were the most significant factors affecting fund performance relative to the unmanaged index. The fund's total return reflects actual cashflows, transaction costs, and expenses, factors which do not impact the passive index.

SECURITY SELECTION

Security selection within the mortgage sector focused on agency versus non-agency MBS and prepayment risk analysis. On a relative value basis, non-agency MBS offered profitable opportunities as non-agency valuations richened relative to similar mortgage securities issued by Fannie Mae and Freddie Mac. Exposure to non-agencies proved advantageous. Additionally, management focused on prepayment analysis.

Prepayments negatively impact premium coupon mortgage security performance because prepaid principal reduces expected yield and proceeds are reinvested at lower market rates in many cases. Analysis of the factors which impact prepayments, including geographic considerations, loan balance, loan-to-value ratio, and credit score, improved fund prepayment performance compared to the general market. Security selection positively impacted fund performance.

DURATION

Throughout the reporting period, a below-benchmark duration stance was maintained in anticipation of higher interest rates. This portfolio structure was achieved through an underweight to longer duration Treasurys, agencies, and mortgage-backed securities. While short and intermediate Treasury yields did increase, longer-maturity Treasury yields were little changed during the year and longer-duration mortgages performed quite well. The duration stance did not positively contribute to the fund's total return.

1 Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index composed of all fixed securities mortgage pools by GNMA, FNMA, and the FHLMC, including GNMA Graduated Payment Mortgages. The Lehman Brothers Government Index includes the Treasury and Agency Indexes. 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 non-callable agency securities. This includes publicly issued debt of U.S. government agencies, quasi-federal corporation and corporate or foreign debt guaranteed by the U.S. government. Indexes are unmanaged and investments cannot be made in an index.

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

Average Annual Total Returns for the Period Ended 12/31/2004
1 Year		3.61%
5 Years		6.56%
10 Years		6.11%

The graph above illustrates the hypothetical investment of $10,0001 in the Federated Fund for U.S. Government Securities II (the "Fund") from December 31, 1994 to December 31, 2004, compared to Lehman Brothers Government/Mortgage-Backed Index (LBGM).2

Performance data quoted represents past performance which is no guarantee of future results. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 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. Variable investment option performance changes over time and current performance may be lower or higher than what is stated. Variable investment options are not obligations of or guaranteed by any bank and are not federally insured. It is not possible to invest directly in an index.

1 The Fund's performance assumes the reinvestment of all distributions. The LBGM has been adjusted to reflect reinvestment of dividends on securities in the index.

2 The LBGM is not adjusted to reflect sales charges, expenses, or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The index is unmanaged and unlike the Fund is not affected by cashflows. It is not possible to invest directly in an index.

Portfolio of Investments Summary Table

At 12/31/04, the Fund's portfolio composition1 was as follows:

Sector	Percentage of Total Net Assets
U.S. Government Agency Mortgage-Backed Securities	62.1	%
U.S. Treasury Securities	19.4	%
U.S. Government Agency Securities	13.3	%
Non-Agency Mortgage-Backed Securities	2.0	%
Cash Equivalents2	17.0	%
Other assets and liabilities--Net3	(13.8	)%
TOTAL	100.0	%

1 See the Fund's Prospectus for a description of the principal types of securities in which the Fund invests.

2 Cash Equivalents includes repurchase agreements, as more fully described in the Fund's prospectus, which are transactions in which the Fund buys a security from a dealer or bank and agrees to sell the security back at a mutually agreed-upon time and price. Includes repurchase agreements: (1) purchased with cash collateral received in securities lending transactions (11.1%); and (2) purchased with proceeds received in dollar roll transactions (2.6%).

3 See Statement of Assets and Liabilities.

Portfolio of Investments

December 31, 2004

Principal Amount				Value
			U.S. TREASURY OBLIGATIONS--19.4%
$	2,000,000		United States Treasury Bonds, 6.000%, 2/15/2026	$	2,293,440
	4,700,000	1	United States Treasury Bonds, 6.125%, 11/15/2027		5,487,250
	2,800,000		United States Treasury Bonds, 6.250%, 8/15/2023		3,279,500
	500,000		United States Treasury Bonds, 7.250%, 5/15/2016		625,860
	370,000		United States Treasury Bonds, 7.500%, 11/15/2024		494,239
	3,050,000		United States Treasury Bonds, 7.625%, 2/15/2025		4,128,450
	4,000,000		United States Treasury Bonds, 8.000%, 11/15/2021		5,490,000
	2,000,000		United States Treasury Bonds, 11.250%, 2/15/2015		3,145,000
	8,300,000	1	United States Treasury Notes, 2.250%, 4/30/2006		8,231,276
	6,500,000		United States Treasury Notes, 2.375%, 8/31/2006		6,433,960
	3,600,000	1	United States Treasury Notes, 2.500%, 5/31/2006		3,580,308
	8,000,000	1	United States Treasury Notes, 2.750%, 7/31/2006		7,973,760
	7,000,000	1	United States Treasury Notes, 3.250%, 8/15/2007		7,009,870
	2,500,000	1	United States Treasury Notes, 4.250%, 8/15/2014		2,505,075
	1,000,000		United States Treasury Notes, 4.375%, 5/15/2007		1,027,810
	5,076,000		United States Treasury Notes, 5.625%, 5/15/2008		5,447,209
	5,800,000	1	United States Treasury Notes, 5.750%, 11/15/2005		5,949,060
			TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST $71,370,542)		73,102,067
			GOVERNMENT AGENCIES--13.3%
	7,300,000		Federal Farm Credit System, 5.750%, 1/18/2011 - 12/7/2028		7,894,890
	1,245,000		Federal Farm Credit System, 6.000%, 6/11/2008		1,341,052
	1,000,000		Federal Farm Credit System, 7.350%, 3/24/2005		1,011,060
	6,000,000		Federal Home Loan Bank System, 4.625%, 4/15/2005		6,037,620
	3,000,000		Federal Home Loan Bank System, 4.875%, 11/15/2011		3,108,630
	4,000,000		Federal Home Loan Bank System, 5.250%, 8/15/2006		4,130,480
	750,000		Federal Home Loan Bank System, 6.185%, 5/6/2008		810,638
	3,300,000		Federal Home Loan Bank System, 6.500%, 11/15/2005		3,400,749
	1,000,000		Federal Home Loan Bank System, 6.750%, 8/15/2007		1,082,090
	2,100,000		Federal Home Loan Bank System, 7.125%, 2/15/2005 - 2/15/2030		2,385,407
	72,000		Federal Home Loan Mortgage Corp., 6.750%, 9/15/2029		87,001
	1,500,000		Federal National Mortgage Association, 6.000%, 5/15/2008		1,613,640
	4,000,000		Tennessee Valley Authority, 5.375%, 11/13/2008		4,235,600
	1,000,000		Tennessee Valley Authority, 5.625%, 1/18/2011		1,078,190
	10,700,000		Tennessee Valley Authority, 6.000%, 3/15/2013		11,852,069
			TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $48,589,440)		50,069,116
Principal Amount				Value
			MORTGAGE-BACKED SECURITIES--61.1%
			Federal Home Loan Mortgage Corp.--31.2%
$	16,964,112		Federal Home Loan Mortgage Corp., 4.500%, 10/1/2018 - 6/1/2019	$	16,947,898
	30,652,414		Federal Home Loan Mortgage Corp., 5.000%, 8/1/2018 - 5/1/2034		30,814,368
	35,059,754		Federal Home Loan Mortgage Corp., 5.500%, 8/1/2033 - 5/1/2034		35,689,787
	12,300,670		Federal Home Loan Mortgage Corp., 6.000%, 1/1/2014 - 7/1/2034		12,758,557
	12,090,127		Federal Home Loan Mortgage Corp., 6.500%, 6/1/2015 - 9/1/2032		12,734,026
	5,234,310		Federal Home Loan Mortgage Corp., 7.000%, 9/1/2015 - 12/1/2032		5,545,975
	1,522,167		Federal Home Loan Mortgage Corp., 7.500%, 9/1/2030 - 5/1/2032		1,628,880
	1,452,143		Federal Home Loan Mortgage Corp., 8.000%, 5/1/2030 - 7/1/2032		1,565,548
	58,350		Federal Home Loan Mortgage Corp., 8.500%, 5/1/2030		63,224
	31,255		Federal Home Loan Mortgage Corp., 9.000%, 2/1/2025 - 5/1/2025		34,490
			TOTAL		117,782,753
			Federal National Mortgage Association--23.8%
	6,433,695		Federal National Mortgage Association, 4.500%, 11/1/2018 - 5/1/2019		6,429,912
	26,301,014	2	Federal National Mortgage Association, 5.000%, 2/1/2018 - 1/1/2035		26,428,218
	25,228,265	2	Federal National Mortgage Association, 5.500%, 3/1/2023 - 1/1/2035		25,721,912
	21,693,952	2	Federal National Mortgage Association, 6.000%, 5/1/2014 - 1/1/2035		22,503,275
	4,291,017		Federal National Mortgage Association, 6.500%, 11/1/2014 - 4/1/2032		4,533,461
	3,081,077		Federal National Mortgage Association, 7.000%, 3/1/2015 - 4/1/2032		3,270,231
	898,322		Federal National Mortgage Association, 7.500%, 5/1/2015 - 2/1/2032		962,311
	62,382		Federal National Mortgage Association, 8.000%, 7/1/2030		67,429
			TOTAL		89,916,749
			Government National Mortgage Association--6.1%
	5,844,449		Government National Mortgage Association, 5.000%, 7/15/2034		5,874,898
	3,985,060		Government National Mortgage Association, 5.500%, 1/15/2033 - 2/15/2034		4,076,314
	6,747,138		Government National Mortgage Association, 6.000%, 4/15/2029 - 10/15/2033		7,003,757
	5,172,655		Government National Mortgage Association, 6.500%, 12/15/2023 - 5/15/2032		5,453,760
	223,269		Government National Mortgage Association, 7.500%, 10/15/2026 - 3/20/2030		239,445
	287,951		Government National Mortgage Association, 8.000%, 12/15/2029 - 4/15/2030		313,276
	93,726		Government National Mortgage Association, 9.500%, 11/15/2016		105,276
			TOTAL		23,066,726
			TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $226,370,580)		230,766,228
			COLLATERALIZED MORTGAGE OBLIGATIONS--2.0%
	2,009,628		Chase Mortgage Finance Corp. 2003-S15, Class 1A3, 6.000%, 1/25/2034		2,058,321
	2,888,723		Master Asset Securitization Trust 2003-8, Class 1A1, 5.500%, 9/25/2033		2,903,513
	2,565,220		Wells Fargo Mortgage-Backed Securities Trust 2003-18, Class A1, 5.500%, 12/25/2033		2,584,665
			TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (IDENTIFIED COST $7,431,943)		7,546,499
			ASSET-BACKED SECURITIES--0.0%
	32,008		Long Beach Asset Holdings Corp. 2003-2, Class N1, 7.627%, 6/25/2033 (IDENTIFIED COST $32,008)		32,003
			ADJUSTABLE RATE MORTGAGES--1.0%
	3,851,680		Federal National Mortgage Association ARM, 4.426%, 5/1/2034 (IDENTIFIED COST $3,862,363)		3,859,499
Principal Amount				Value
			REPURCHASE AGREEMENTS--17.0%
$	12,191,000		Interest in $2,000,000,000 joint repurchase agreement with UBS Securities LLC, 2.280%, dated 12/31/2004 to be repurchased at $12,193,316 on 1/3/2005, collateralized by U.S. Government Agency Obligations with various maturities to 9/25/2034, collateral market value $2,060,003,250	$	12,191,000
	10,000,000	3,4	Interest in $81,500,000 joint repurchase agreement with UBS Securities LLC, 2.300%, dated 12/13/2004 to be repurchased at $10,019,806 on 1/13/2005, collateralized by U.S. Government Agency Obligations with various maturities to 6/25/2033, collateral market value $83,947,934		10,000,000
	41,793,000		Interest in $1,000,000,000 joint repurchase agreement with Westdeutsche Landesbank Girozentrale, 2.280%, dated 12/31/2004 to be repurchased at $41,800,941 on 1/3/2005, collateralized by U.S. Government Agency Obligations with various maturities to 5/1/2043, collateral market value $1,028,425,899 (held as collateral for securities lending)		41,793,000
			TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST)		63,984,000
			TOTAL INVESTMENTS--113.8% (IDENTIFIED COST $421,640,876)5		429,359,412
			OTHER ASSETS AND LIABILITIES - NET--(13.8)%		(51,991,245	)
			TOTAL NET ASSETS--100%	$	377,368,167

1 Certain principal amounts are temporarily on loan to unaffiliated broker/dealers.

2 All or a portion of this security is subject to a dollar-roll transaction.

3 Although final maturity falls beyond seven days at date of purchase, a liquidity feature is included in each transaction to permit termination of the repurchase agreement within seven days.

4 Securities held as collateral for dollar transactions.

5 The cost of investments for federal tax purposes amounts to $421,647,644.

Note: The categories of investments are shown as a percentage of total net assets at December 31, 2004.

The following acronym is used throughout this portfolio:

ARM	--Adjustable Rate Mortgage

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

December 31, 2004

Assets:
Investments in securities			$	365,375,412
Investments in repurchase agreements				63,984,000
Total investments in securities, at value including $40,736,599 of securities loaned (identified cost $421,640,876)				429,359,412
Cash				968
Income receivable				2,545,301
Receivable for shares sold				569,100
TOTAL ASSETS				432,474,781
Liabilities:
Payable for investments purchased	$	3,031,121
Payable for shares redeemed		90,169
Payable for collateral due to broker		41,793,000
Payable for dollar-roll transactions		10,161,044
Payable for Trustees' fee		281
Accrued expenses		30,999
TOTAL LIABILITIES				55,106,614
Net assets for 32,531,331 shares outstanding			$	377,368,167
Net Assets Consist of:
Paid-in capital			$	355,920,358
Net unrealized appreciation of investments				7,718,536
Accumulated net realized loss on investments				(1,319,047	)
Undistributed net investment income				15,048,320
TOTAL NET ASSETS			$	377,368,167
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
$377,368,167 ÷ 32,531,331 shares outstanding, no par value, unlimited shares authorized				$11.60

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended December 31, 2004

Investment Income:
Interest (net of dollar roll expense of $151,319 and including income on securities loaned of $40,504)							$	17,869,390
Expenses:
Investment adviser fee (Note 5)				$	2,315,734
Administrative personnel and services fee (Note 5)					309,206
Custodian fees					25,670
Transfer and dividend disbursing agent fees and expenses (Note 5)					17,997
Directors'/Trustees' fees					4,435
Auditing fees					16,726
Legal fees					2,658
Portfolio accounting fees					85,446
Printing and postage					47,345
Insurance premiums					16,286
Miscellaneous					3,425
TOTAL EXPENSES					2,844,928
Waivers (Note 5):
Waiver of investment adviser fee	$	(32,027	)
Waiver of administrative personnel and services fee		(15,107	)
TOTAL WAIVERS					(47,134	)
Net expenses								2,797,794
Net investment income								15,071,596
Realized and Unrealized (Loss) on Investments:
Net realized loss on investments								(1,305,845	)
Net change in unrealized appreciation of investments								(182,111	)
Net realized and unrealized loss on investments								(1,487,956	)
Change in net assets resulting from operations							$	13,583,640

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

Year Ended December 31		2004			2003
Increase (Decrease) in Net Assets
Operations:
Net investment income	$	15,071,596		$	17,243,227
Net realized gain (loss) on investments		(1,305,845	)		2,024,119
Net change in unrealized appreciation/depreciation of investments		(182,111	)		(9,051,039	)
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS		13,583,640			10,216,307
Distributions to Shareholders:
Distributions from net investment income		(17,265,666	)		(18,122,627	)
Distributions from net realized gains on investments		(2,009,772	)		(2,350,331	)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS		(19,275,438	)		(20,472,958	)
Share Transactions:
Proceeds from sale of shares		71,845,475			143,311,851
Net asset value of shares issued to shareholders in payment of distributions declared		19,275,435			20,472,956
Cost of shares redeemed		(113,478,693	)		(237,345,189	)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS		(22,357,783	)		(73,560,382	)
Change in net assets		(28,049,581	)		(83,817,033	)
Net Assets:
Beginning of period		405,417,748			489,234,781
End of period (including undistributed net investment income of $15,048,320 and $17,242,390, respectively)	$	377,368,167		$	405,417,748

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

December 31, 2004

1. ORGANIZATION

Federated Insurance Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end, management investment company. The Trust consists of 11 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.

2. SIGNIFICANT ACCOUNTING POLICIES

Investment Valuation

U.S. government securities, listed corporate bonds, other fixed-income, and asset-backed 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. Securities for which no quotations are readily available are valued at fair value as determined in accordance with procedures established by and under general supervision of the Board of Trustees (the "Trustees").

Repurchase Agreements

Investment Income, Expenses and Distributions

Premium and Discount Amortization/ Paydown Gains and Losses

All premiums and discounts on fixed-income securities are amortized/ accreted for financial statement purposes. Gains and losses realized on principal payment of mortgage-backed securities (paydown gains and losses) are classified as part of investment income.

Federal Taxes

When-Issued and Delayed Delivery Transactions

The Fund may transact in To Be Announced Securities (TBAs). As with other delayed delivery transactions, a seller agrees to issue a TBA security at a future date. However, the seller does not specify the particular securities to be delivered. Instead, the Fund agrees to accept any security that meets specified terms such as issuer, interest rate, and terms of underlying mortgages. The Fund records TBA securities on the trade date utilizing information associated with the specified terms of the transaction as opposed to the specific mortgages. TBAs are marked to market daily and begin earning interest on the settlement date. Losses may occur due to the fact that the actual underlying mortgages received may be less favorable than those anticipated by the Fund.

Securities Lending

The Fund participates in a securities lending program providing for the lending of corporate bonds, equity, and government securities to qualified brokers. Collateral for securities loaned is invested in cash or invested in short-term securities including repurchase agreements. Collateral is maintained at a minimum level of 102% of the market value of investments loaned, plus interest, if applicable. Earnings on collateral are allocated between the securities lending agent, as a fee for its services under the program, and the Fund, according to agreed-upon rates.

As of December 31, 2004, securities subject to this type of arrangement and related collateral were as follows:

Market Value of Securities Loaned		Market Value of Collateral
$40,736,599		$41,793,000

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 TBAs and are treated as short-term financing arrangements which will not exceed 12 months. The Fund will use the proceeds generated from the transaction to invest in short-term investments or mortgage-backed securities which may enhance the Fund's current yield and total return.

Information regarding dollar-roll transactions for the Fund for the year ended December 31, 2004, was as follows:

Maximum amount outstanding during the period		$56,034,047
Average amount outstanding during the period1		$11,815,242
Average shares outstanding during the period		33,565,634
Average debt per shares outstanding during the period		$0.35

1 The average amount outstanding during the period was calculated by adding the borrowings at the end of the day and dividing the sum by the number of days in the year ended December 31, 2004.

Use of Estimates

Other

Investment transactions are accounted for on a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.

3. SHARES OF BENEFICIAL INTEREST

The following table summarizes share activity:

Year Ended December 31	2004		2003
Shares sold	6,251,125		12,160,487
Shares issued to shareholders in payment of distributions declared	1,683,444		1,781,806
Shares redeemed	(9,839,410	)	(20,341,060	)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS	(1,904,841	)	(6,398,767	)

4. FEDERAL TAX INFORMATION

The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due to differing treatments for discount accretion/premium amortization on debt securities.

For the year ended December 31, 2004, permanent differences identified and reclassified among the components of net assets were as follows:

Increase (Decrease)
Paid-In Capital		Accumulated Net Realized Loss
$6,434		$(6,434)

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

The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended December 31, 2004 and 2003, was as follows:

	2004	2003
Ordinary income1	$17,975,455	$19,435,922
Long-term capital gains	$ 1,299,983	$ 1,037,036

1 For tax purposes short-term capital gain distributions are considered ordinary income distributions.

As of December 31, 2004, the components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income	$	15,048,320
Unrealized appreciation	$	7,711,768
Capital loss carryforward	$	1,312,279

The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the tax deferral of losses on wash sales.

At December 31, 2004, the cost of investments for federal tax purposes was $421,647,644. The net unrealized appreciation of investments for federal tax purposes was $7,711,768. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $8,207,551 and net unrealized depreciation from investments for those securities having an excess of cost over value of $495,783.

At December 31, 2004, the Fund had a capital loss carryforward of $1,312,279 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distribution 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
2012		$1,312,279

5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Federated Investment Management Company, the Fund's investment adviser (the "Adviser") receives for its services an annual investment adviser 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. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion.

Administrative Fee

Maximum Administrative Fee		Average Aggregate Daily Net Assets of the Federated Funds
0.150%		on the first $5 billion
0.125%		on the next $5 billion
0.100%		on the next $10 billion
0.075%		on assets in excess of $20 billion

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 the average daily net assets of the Fund's Shares for the period. The fee paid to FSSC is used to finance certain services for shareholders and to maintain shareholder accounts. 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. For the year ended December 31, 2004, the Fund did not incur a shareholder services fee.

Transfer and Dividend Disbursing Agent Fees and Expenses

Prior to July 1, 2004, Federated Services Company (FServ), through its subsidiary FSSC, served as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC was based on the size, type, and number of accounts and transactions made by shareholders. The fee paid to FSSC during the reporting period was $9,244, after voluntary waiver, if applicable.

General

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

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations (and in-kind contributions), for the year ended December 31, 2004, were as follows:

Purchases		$	1,324,303
Sales		$	54,407,114

7. LEGAL PROCEEDINGS

8. FEDERAL TAX INFORMATION (UNAUDITED)

For the year ended December 31, 2004, the amount of long-term capital gain designated by the Fund was $1,299,983.

Report of Independent Registered Public Accounting Firm

TO THE BOARD OF TRUSTEES OF FEDERATED INSURANCE SERIES AND THE SHAREHOLDERS OF FEDERATED U.S. GOVERNMENT SECURITIES FUND II:

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated U.S. Government Securites Fund II (the "Fund") (a Portfolio of Federated Insurance Series) (the "Trust") as of December 31, 2004, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to provide reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

Deloitte & Touche LLP

Boston, Massachusetts
February 15, 2005

Board of Trustees and Trust Officers

INTERESTED TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
John F. Donahue* Birth Date: July 28, 1924 CHAIRMAN AND TRUSTEE Began serving: September 1993		Principal Occupations: Chairman and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Chairman and Director, Federated Investment Counseling.

J. Christopher Donahue* Birth Date: April 11, 1949 TRUSTEE Began serving: September 1993		Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd.

Lawrence D. Ellis, M.D.* Birth Date: October 11, 1932 3471 Fifth Avenue Suite 1111 Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center. Other Directorships Held: Member, National Board of Trustees, Leukemia Society of America. Previous Positions: Trustee, University of Pittsburgh; Director, University of Pittsburgh Medical Center.

INDEPENDENT TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
Thomas G. Bigley Birth Date: February 3, 1934 15 Old Timber Trail Pittsburgh, PA TRUSTEE Began serving: November 1994		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director, University of Pittsburgh. Previous Position: Senior Partner, Ernst & Young LLP.

John T. Conroy, Jr. Birth Date: June 23, 1937 Investment Properties Corporation 3838 North Tamiami Trail Suite 402 Naples, FL TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation.

Nicholas P. Constantakis Birth Date: September 3, 1939 175 Woodshire Drive Pittsburgh, PA TRUSTEE Began serving: February 1998		Principal Occupations: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Member of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC.

John F. Cunningham Birth Date: March 5, 1943 353 El Brillo Way Palm Beach, FL TRUSTEE Began serving: January 1999		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc.

Peter E. Madden Birth Date: March 16, 1942 One Royal Palm Way 100 Royal Palm Way Palm Beach, FL TRUSTEE Began serving: September 1993		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.

Charles F. Mansfield, Jr. Birth Date: April 10, 1945 80 South Road Westhampton Beach, NY TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; Management Consultant; Executive Vice President, DVC Group, Inc. (marketing communications and technology) (prior to 9/1/00). Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University.

John E. Murray, Jr., J.D., S.J.D. Birth Date: December 20, 1932 Chancellor, Duquesne University Pittsburgh, PA TRUSTEE Began serving: February 1995		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chancellor and Law Professor, Duquesne University; Partner, Murray, Hogue and Lannis. Other Directorships Held: Director, Michael Baker Corp. (engineering, construction, operations and technical services). Previous Positions: President, Duquesne University; Dean and Professor of Law, University of Pittsburgh School of Law; Dean and Professor of Law, Villanova University School of Law.

Marjorie P. Smuts Birth Date: June 21, 1935 4905 Bayard Street Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Public Relations/Marketing Consultant/Conference Coordinator. Previous Positions: National Spokesperson, Aluminum Company of America; television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord.

John S. Walsh Birth Date: November 28, 1957 2604 William Drive Valparaiso, IN TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc.

OFFICERS


Name Birth Date Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years and Previous Position(s)
John B. Fisher Birth Date: May 16, 1956 PRESIDENT Began serving: November 2004		Principal Occupations: Vice President of some of the Funds in the Federated Fund Complex; and President and Director of the Institutional Sales Division of Federated Securities Corp., which is a wholly owned subsidiary of Federated. Mr. Fisher is responsible for the distribution of Federated's products and services to investment advisers, insurance companies, retirement plans, and corporations. In addition, Mr. Fisher serves as President and Director of Federated Investment Counseling, a wholly owned subsidiary of Federated involved in the management of separate accounts and sub-advised mandates. He is also President, Technology, Federated Services Corp. responsible for the technological infrastructure of the various Federated companies. He is also Director, Edgewood Securities Corp., as well as Director, Federated Investors Trust Company. Previous Positions: Senior Vice President of Federated Investment Counseling.

John W. McGonigle Birth Date: October 26, 1938 EXECUTIVE VICE PRESIDENT AND SECRETARY Began serving: September 1993		Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc.

Richard J. Thomas Birth Date: June 17, 1954 TREASURER Began serving: September 1997		Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services.

Richard B. Fisher Birth Date: May 17, 1923 VICE PRESIDENT Began serving: November 1998		Principal Occupations: Vice Chairman or President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. Previous Positions: President and Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice President, Federated Investors, Inc.; and Director and Chief Executive Officer, Federated Securities Corp.

Stephen F. Auth Birth Date: September 3, 1956 CHIEF INVESTMENT OFFICER Began serving: November 2002		Principal Occupations: Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Equity Management Company of Pennsylvania and Passport Research II, Ltd. Previous Positions: Executive Vice President, Federated Investment Management Company, and Passport Research, Ltd.; Senior Vice President, Global Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd.; Senior Managing Director and Portfolio Manager, Prudential Investments.

Robert J. Ostrowski Birth Date: April 26, 1963 CHIEF INVESTMENT OFFICER Began serving: May 2004		Principal Occupations: Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of taxable, fixed-income products in 2004 and also serves as a Senior Portfolio Manager. He has been a Senior Vice President of the Fund's Adviser since 1997. Mr. Ostrowski is a Chartered Financial Analyst. He received his M.S. in Industrial Administration from Carnegie Mellon University.

VOTING PROXIES ON FUND PORTFOLIO SECURITIES

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Federated's Internet site. Go to www.federatedinvestors.com; select "Products," open the "Variable Annuities" section, then select the link to "sec.gov" to access the link to Form N-PX. This information is also available from the EDGAR database on the SEC's Internet site at http://www.sec.gov.

QUARTERLY PORTFOLIO SCHEDULE

The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of the Federated Investors website at www.federatedinvestors.com by clicking on "Variable Annuities" and selecting link to "sec.gov" to access the link to Form N-Q.

Federated
World-Class Investment Manager

Federated Fund for U.S. Government Securities II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Cusip 313916207

G00846-01 (2/05)

Federated is a registered mark of Federated Investors, Inc. 2005 (c)Federated Investors, Inc.

Federated
World-Class Investment Manager

Federated High Income Bond Fund II

A Portfolio of Federated Insurance Series

ANNUAL SHAREHOLDER REPORT

December 31, 2004

Primary Shares
Service Shares

FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLES
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
VOTING PROXIES ON FUND PERFORMANCE SECURITIES
QUARTERLY PORTFOLIO SCHEDULE

Not FDIC Insured * May Lose Value * No Bank Guarantee

Financial Highlights - Primary Shares

(For a Share Outstanding Throughout Each Period)

Year Ended December 31	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$7.99		$7.08		$7.72		$8.46		$10.24
Income From Investment Operations:
Net investment income	0.58	1	0.59	1	0.67	1	0.83	1,2	0.99
Net realized and unrealized gain (loss) on investments	0.21		0.89		(0.55	)	(0.69	)2	(1.84	)
TOTAL FROM INVESTMENT OPERATIONS	0.79		1.48		0.12		0.14		(0.85	)
Less Distributions:
Distributions from net investment income	(0.58	)	(0.57	)	(0.76	)	(0.88	)	(0.93	)
Net Asset Value, End of Period	$8.20		$7.99		$7.08		$7.72		$ 8.46
Total Return3	10.46	%	22.22	%	1.39	%	1.38	%	(9.02	)%

Ratios to Average Net Assets:
Expenses	0.74	%	0.75	%	0.77	%	0.76	%	0.76	%
Net investment income	7.44	%	7.95	%	9.30	%	10.33	%2	10.50	%
Expense waiver/reimbursement4	0.00	%5	0.00	%5	--		--		0.00	%5
Supplemental Data:
Net assets, end of period (000 omitted)	$311,095		$324,216		$231,305		$229,885		$208,516
Portfolio turnover	55	%	53	%	40	%	37	%	19	%

1 Amount based on average shares outstanding.

2 Effective January 1, 2001, the Fund adopted the provisions of the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for Investment Companies and began amortizing long-term premiums and discounts on debt securities. For the year ended December 31, 2001, the effect of this change was to increase net investment income per share by $0.02, decrease net realized and unrealized gain/loss per share by $0.02, and increase the ratio of net investment income to average net assets from 10.19% to 10.33%. Per share, ratios and supplemental data for periods prior to December 31, 2001 have not been restated to reflect this change in presentation.

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

Total returns for periods of less than one year are not annualized.

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

5 Amount represents less than 0.01%.

See Notes which are an integral part of the Financial Statements

Financial Highlights - Service Shares

(For a Share Outstanding Throughout Each Period)

Year Ended December 31	2004		2003		2002		2001		2000	1
Net Asset Value, Beginning of Period	$7.97		$7.08		$7.72		$8.46		$9.01
Income From Investment Operations:
Net investment income	0.56	2	0.57	2	0.63	2	0.79	2,3	0.13
Net realized and unrealized gain (loss) on investments	0.20		0.88		(0.51	)	(0.65	)3	(0.68	)
TOTAL FROM INVESTMENT OPERATIONS	0.76		1.45		0.12		0.14		(0.55	)
Less Distributions:
Distributions from net investment income	(0.56	)	(0.56	)	(0.76	)	(0.88	)	--
Net Asset Value, End of Period	$8.17		$7.97		$7.08		$7.72		$8.46
Total Return4	10.16	%	21.79	%	1.36	%	1.38	%	(6.10	)%

Ratios to Average Net Assets:
Expenses	0.99	%	1.00	%	1.00	%	0.86	%	0.86	%5
Net investment income	7.19	%	7.66	%	9.03	%	10.27	%3	11.29	%5
Expense waiver/reimbursement6	0.00	%7	0.00	%7	0.03	%	0.15	%	0.15	%5
Supplemental Data:
Net assets, end of period (000 omitted)	$111,572		$97,600		$51,062		$8,424		$427
Portfolio turnover	55	%	53	%	40	%	37	%	19	%8

1 Reflects operations for the period from May 1, 2000 (date of initial public investment) to December 31, 2000.

2 Amount based on average shares outstanding.

3 Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing long-term premiums and discounts on debt securities. For the year ended December 31, 2001 the effect of this change was to increase net investment income per share by $0.01, decrease net realized and unrealized gain/loss per share by $0.01, and increase the ratio of net investment income to average net assets from 10.13% to 10.27%. Per share, ratios and supplemental data for periods prior to December 31, 2001 have not been restated to reflect this change in presentation.

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

Total returns for periods of less than one year are not annualized.

5 Computed on an annualized basis.

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

7 Amount represents less than 0.01%.

8 Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the year ended December 31, 2000.

See Notes which are an integral part of the Financial Statements

Shareholder Expense Example

As a shareholder of the Fund, you incur ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees and/or shareholder services fees; and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other variable investment options. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2004 to December 31, 2004.

ACTUAL EXPENSES

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

	Beginning Account Value 7/1/2004	Ending Account Value 12/31/2004	Expenses Paid During Period1
Actual:
Primary Shares	$1,000	$1,080.40	$3.87
Service Shares	$1,000	$1,079.30	$5.17
Hypothetical (assuming a 5% return before expenses):
Primary Shares	$1,000	$1,021.42	$3.76
Service Shares	$1,000	$1,020.16	$5.03

Primary Shares		0.74%
Service Shares		0.99%

Management Discussion and Analysis

The Fund's total return, based on net asset value, for the 12-month reporting period was 10.46% for Primary Shares and 10.16% for Service Shares. By comparison, the total return of the Lehman Brothers U.S. Corporate High Yield Bond Index, a broad-based securities market index (LBHYBI)1 was 11.13% during the 12-month reporting period. The Fund's total return for the most recently completed fiscal year reflected actual cashflows, transaction costs and other expenses which were not reflected in the total return of the LBHYBI.

MARKET OVERVIEW

For the fiscal year ended December 31, 2004, the high yield market significantly outperformed the high-quality bond market. For example, the Lehman Brothers U.S. Aggregate Index,2 a measure of high-quality bond performance, returned 4.34% versus an 11.13% return for the Lehman Brothers U.S. Corporate High Yield Bond Index.

The combination of sustained economic growth and stable interest rates provided a particularly good environment for the high-yield bond market during 2004. During the year, the increase in corporate profitability allowed companies the opportunity to either reduce overall debt or to refinance at attractive rates. The combination of improved profitability and balance sheet repair led the way for credit-quality improvement and the lowest default rate since the late 1990s. The significant decline in corporate defaults led to a contraction of the risk premium or "credit spread" investors require for investing in the high-yield market and consequently led to the price appreciation experienced in the high-yield market. For example, the spread over Treasury's for the Credit Suisse High Yield Index3 contracted from 4.86% on December 31, 2003 to 3.46% on December 31, 2004. The lower credit-quality sector of the high-yield market was the area with the strongest performance during 2004. For example, bonds rated CCC, the lowest credit quality, returned 13.80%, compared to higher rated B bonds, which returned 10.36%, and BB rated bonds, which returned 9.61%. From an industry perspective, the Financial Institution, Metals & Mining, and Natural Gas Utility sectors all had good relative performance, while the Airline, Environmental, and Retail sectors lagged the overall market. From a technical standpoint, demand for high-yield bonds remained strong throughout 2004. Although high-yield mutual funds experienced net cash outflows during 2004, increased allocations to the high-yield market from hedge funds, pension funds and insurance companies created more than ample demand for what was one of the busiest years for new high-yield bond issuance in recent years.

FACTORS THAT MATERIALLY AFFECTED FUND PERFORMANCE

The Fund's less aggressive positioning in the lower quality tier of the high-yield market and shorter duration negatively impacted its relative performance versus the Lehman Brothers U.S. Corporate High Yield Bond Index. From an industry sector perspective, relative to the LBHYBI, the Fund's overweight in the Building Products and Textile sectors and underweight in the Airline sector contributed to Fund performance. Relative to the LBHYBI, the Fund's underweight in the Metals and Mining and Electric Utility sectors and overweight in the Gaming sector detracted somewhat from Fund performance. Specific holdings which underperformed during the reporting period included: Tekni-Plex (Packaging); PCA International (Retail); American Cellular Corp. (Wireless Telecommunications); Eagle Picher Industries (Industrial); and ICON Health & Fitness (Consumer Products). Conversely, portfolio holdings which had a positive impact on overall portfolio performance included: El Paso Corp. (Utilities - Natural Gas); Levi Strauss & Co. (Textiles); AT&T Corp. (Wireline Telecommunications); BCP Caylux Holdings (Chemicals); and Neenah Corp. (Industrial).

1 Lehman Brothers U.S. Corporate High Yield Bond Index is an unmanaged index that includes all fixed-income securities having a maximum quality rating of Ba1, a minimum amount outstanding of $100m, and at least one year to maturity.

2 Lehman Brothers U.S. Aggregate Bond Index is an unmanaged index composed of securities from the Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index and the Asset-Backed Securities Index.

3 Credit Suisse First Boston High Yield Index: Serves as a benchmark to evaluate the performance of low-quality bonds. Low quality is defined as those bonds in the range from BBB to CCC and defaults. Morningstar receives and publishes this figure as a monthly total return.

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

Average Annual Total Return for the Period Ended 12/31/2004
1 Year		10.46%
5 Years		4.77%
10 Years		7.59%

The graph above illustrates the hypothetical investment of $10,0001 in Federated High Income Bond Fund II - Primary Shares (the "Fund") from December 31, 1994 to December 31, 2004, compared to the Lipper High Current Yield Fund Average (LHCYFA),2 Lehman Brothers Single B Rated Index (LBSBRI),3 and Lehman Brothers U.S. Corporate High Yield Bond Index (LBHYBI).3

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

2 The LHCYFA represents the average of the total returns reported by all of the mutual fund designated by Lipper, Inc. as falling into the respective categories indicated, 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 (SEC) requires to be reflected in a Fund's performance.

3 The Fund has designated the LBHYBI as its broad-based securities market index, since the LBHYBI is more representative of the securities typically held by the Fund. The LBSBRI and the LBHYBI are not adjusted to reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. The indexes are unmanaged and unlike the Fund, is not affected by cashflows. It is not possible to invest directly in an index.

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

Average Annual Total Return for the Period Ended 12/31/2004
1 Year		10.16%
Start of Performance (4/28/2000)		5.67%

The graph above illustrates the hypothetical investment of $10,0001 in Federated High Income Bond Fund II - Service Shares (the "Fund") from April 28, 2000 to December 31, 2004, compared to the Lipper High Current Yield Fund Average (LHCYFA),2 Lehman Brothers Single B Rated Index (LBSBRI),3 and Lehman Brothers U.S. Corporate High Yield Bond Index (LBHYBI).3

2 The LHCYFA represents the average of the total returns reported by all of the mutual fund designated by Lipper, Inc. as falling into the respective categories indicated, 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 Summary Tables

At December 31, 2004, the Fund's credit-quality ratings composition1 was as follows:

S&P Long-Term Ratings as Percentage of Total Net Assets		Moody's Long-Term Ratings as Percentage of Total Net Assets
AAA	0.0%	Aaa	0.0%
AA	0.0%	Aa	0.0%
A	0.0%	A	0.0%
BBB	1.0%	Baa	0.5%
BB	26.5%	Ba	22.5%
B	54.1%	B	52.9%
CCC	11.7%	Caa	17.9%
CC	0.1%	Ca	0.8%
C	0.0%	C	0.0%
D	0.0%	D	0.0%
Not rated by S&P	2.4%	Not rated by Moody's	1.2%
Cash Equivalents2	2.2%	Cash Equivalents2	2.2%
Other Securities3	0.3%	Other Securities3	0.3%
Other Assets and Liabilities--Net4	1.7%	Other Assets and Liabilities--Net4	1.7%
TOTAL	100.0%	TOTAL	100.0%

At December 31, 2004, the Fund's index classification5 was as follows:

Index Classification		Percentage of Total Net Assets
Media - Non-cable		9.9%
Wireline Communications		6.0%
Food & Beverage		5.9%
Chemicals		5.6%
Gaming		4.9%
Healthcare		4.9%
Industrial - Other		4.8%
Consumer Products		4.2%
Utility - Natural Gas		3.8%
Paper		3.7%
Retailers		3.6%
Technology		3.5%
Utility - Electric		3.5%
Automotive		3.3%
Other 6		28.5%
Cash Equivalents2		2.2%
Other Assets and Liabilities--Net4		1.7%
TOTAL		100.0%

1 These tables depict the long-term, credit-quality ratings assigned to the Fund's portfolio holdings by Standard & Poor's (S&P) and Moody's Investors Service (Moody's), each of which is a nationally recognized statistical rating organization (NRSRO). These credit-quality ratings are shown without regard to gradations within a given rating category. For example, securities rated "B-" have been included in the "B" rated category. Holdings that are rated only by a different NRSRO than the one identified have been included in the "Not rated by..." category.

These tables depict the long-term, credit-quality ratings as assigned only by the NRSRO identified in each table. Of the portfolio's total investments, 0.7% are other fixed-income securities (excluding cash equivalents) that do not have long-term, credit-quality ratings by either of these NRSROs.

2 Cash Equivalents includes any investments in money market mutual funds and/or overnight repurchase agreements.

3 Other Securities consists of common stock and warrants that do not qualify for credit ratings from an NRSRO.

4 See Statement of Assets and Liabilities.

5 Index classifications are based upon, and individual portfolio securities are assigned to, the classifications and sub-classifications of the Lehman Brothers U.S. High Yield Bond Index (LHYBI). Individual portfolio securities that are not included in the LHYBI are assigned to an index classification at the discretion of the Fund's adviser.

6 For purposes of this table, index classifications which constitute less than 3.3% of the Fund's total investments have been aggregated under the designation "Other."

Portfolio of Investments

December 31, 2004

Principal Amount					Value
			ASSET-BACKED SECURITIES--1.9%
			Diversified--1.9%
$	7,151,163	1,2	Trains HY-2004-1, Class A, 8.218%, 8/1/2015 (IDENTIFIED COST $7,887,511)	$	7,835,701
			CORPORATE BONDS--93.2%
			Aerospace/Defense--1.7%
	825,000		Alliant Techsystems, Inc., Sr. Sub. Note, 8.50%, 5/15/2011		907,500
	725,000		Argo Tech Corp., Sr. Note, 9.25%, 6/1/2011		799,312
	325,000	4	Condor Systems, Inc., Sr. Sub. Note, Series B, 11.875%, 5/1/2009		5,980
	725,000		Hexcel Corp., Sr. Secd. Note, 9.875%, 10/1/2008		808,375
	375,000	1,2	K&F Acquisition, Inc., Sr. Sub. Note, 7.75%, 11/15/2014		389,062
	2,200,000		L-3 Communications Corp., Sr. Sub. Note, 6.125%, 1/15/2014		2,277,000
	775,000	1,2	Standard Aero Holdings Inc., Sr. Sub. Note, 8.25%, 9/1/2014		840,875
	1,125,000		TransDigm, Inc., Sr. Sub. Note, 8.375%, 7/15/2011		1,212,187
			TOTAL		7,240,291
			Automotive--3.3%
	1,025,000		Accuride Corp., Sr. Sub. Note, Series B, 9.25%, 2/1/2008		1,045,500
	1,125,000		Advanced Accessory Systems LLC, Sr. Note, 10.75%, 6/15/2011		1,074,375
	450,000	1,2	Affinia Group, Inc., Sr. Sub. Note, 9.00%, 11/30/2014		471,375
	1,100,000	1,2	Cooper-Standard Automotive, Inc., Sr. Sub. Note, 8.375%, 12/15/2014		1,102,750
	825,000		General Motors Corp., Note, 7.125%, 7/15/2013		845,590
	1,075,000		General Motors Corp., Note, 8.375%, 7/15/2033		1,116,873
	925,000	1,2	Stanadyne Corp., Sr. Sub. Note, 10.00%, 8/15/2014		1,003,625
	625,000	1,2,3	Stanadyne Holdings, Inc., Sr. Disc. Note, 0/12.00%, 2/15/2015		372,656
	1,225,000		Stoneridge, Inc., Company Guarantee, 11.50%, 5/1/2012		1,430,187
	1,704,000		TRW Automotive, Inc., Sr. Sub. Note, 11.00%, 2/15/2013		2,061,840
	925,000	1,2	Tenneco Automotive, Inc., Sr. Sub. Note, 8.625%, 11/15/2014		966,625
	925,000	1,2	Transportation Technologies Industries, Inc., Sr. Sub. Note, 12.50%, 3/31/2010		955,062
	1,250,000		United Components, Inc., Sr. Sub. Note, 9.375%, 6/15/2013		1,362,500
			TOTAL		13,808,958
			Building Materials--2.9%
	1,475,000	3	AMH Holdings, Inc., Sr. Disc. Note, 0/11.25%, 3/1/2014		1,069,375
	725,000		Associated Materials, Inc., Company Guarantee, 9.75%, 4/15/2012		813,812
	1,100,000		Collins & Aikman Floorcoverings, Inc., Company Guarantee, 9.75%, 2/15/2010		1,188,000
	1,050,000		ERICO International Corp., Sr. Sub. Note, 8.875%, 3/1/2012		1,107,750
	1,475,000		Euramax International PLC, Sr. Sub. Note, 8.50%, 8/15/2011		1,581,937
	475,000	1,2	Goodman Global Holdings, Inc., 5.76%, 6/15/2012		484,500
	925,000	1,2	Goodman Global Holdings, Inc., Sr. Sub. Note, 7.875%, 12/15/2012		920,375
	350,000		Legrand SA, Sr. Note, 10.50%, 2/15/2013		416,500
	700,000		Norcraft Cos. LLC, Sr. Sub. Note, Series WI, 9.00%, 11/1/2011		759,500
	2,025,000	3	Norcraft Holdings LP, Sr. Disc. Note, 0/9.75%, 9/1/2012		1,528,875
	500,000	1,2	Nortek Holdings, Inc., Sr. Sub. Note, 8.50%, 9/1/2014		525,000
	975,000		Ply Gem Industries, Inc., Sr. Sub. Note, 9.00%, 2/15/2012		994,500
	725,000		U.S. Concrete, Inc., Sr. Sub. Note, 8.375%, 4/1/2014		784,812
			TOTAL		12,174,936
Principal Amount					Value
			CORPORATE BONDS--continued
			Chemicals--5.6%
$	450,000	1,2	Aventine Renewable Energy Holdings, Inc., Sr. Secd. Note, 8.50125%, 12/15/2011	$	456,750
	1,475,000	1,2	BCP Caylux Holding LUX SCA, Sr. Sub. Note, 9.625%, 6/15/2014		1,670,437
	1,150,000	1,2	Borden U.S. Finance Corp., Sr. Secd. Note, 9.00%, 7/15/2014		1,282,250
	950,000		Compass Minerals Group, Inc., Sr. Sub. Note, 10.00%, 8/15/2011		1,073,500
	1,225,000	3	Compass Minerals International, Inc., Sr. Disc. Note, 0/12.00%, 6/1/2013		998,375
	875,000	3	Compass Minerals International, Inc., Sr. Disc. Note, 0/12.75%, 12/15/2012		752,500
	2,325,000	1,2,3	Crystal US Holdings, Sr. Disc. Note, 0/10.50%, 10/1/2014		1,604,250
	1,375,000		Equistar Chemicals LP, Sr. Note, 10.125%, 9/1/2008		1,591,562
	750,000		FMC Corp., Sr. Secd. Note, 10.25%, 11/1/2009		864,375
	725,000	1,2	Huntsman Advanced Materials, Inc., Sr. Secd. Note, 11.00%, 7/15/2010		866,375
	1,260,000		Huntsman ICI Chemicals LLC, Sr. Sub. Note, 10.125%, 7/1/2009		1,332,450
	87,000		IMC Global, Inc., Series B, 10.875%, 6/1/2008		104,835
	1,075,000	1,2	Invista, Unit, 9.25%, 5/1/2012		1,202,656
	775,000		Koppers, Inc., Sr. Secd. Note, 9.875%, 10/15/2013		887,375
	375,000		Lyondell Chemical Co., Sr. Secd. Note, 10.50%, 6/1/2013		448,125
	1,075,000		Lyondell Chemical Co., Sr. Secd. Note, 9.50%, 12/15/2008		1,171,750
	805,000		Lyondell Chemical Co., Sr. Secd. Note, 9.875%, 5/1/2007		847,262
	1,075,000		Lyondell Chemical Co., Sr. Sub. Note, 10.875%, 5/1/2009		1,142,187
	87,000		Millenium America, Inc., 9.25%, 6/15/2008		99,398
	664,000	3	Nalco Co., Sr. Disc. Note, 0/9.00%, 2/1/2014		494,680
	325,000		Nalco Co., Sr. Note, 7.75%, 11/15/2011		352,625
	1,025,000		Nalco Co., Sr. Sub. Note, 8.875%, 11/15/2013		1,130,062
	1,025,000		Polypore, Inc., Sr. Sub. Note, 8.75%, 5/15/2012		1,076,250
	400,000	1,2	Rockwood Specialties Group, Inc., Sr. Sub. Note, 7.50%, 11/15/2014		417,000
	650,000		Union Carbide Corp., Deb., 7.50%, 6/1/2025		666,250
	100,000		Union Carbide Corp., Sr. Deb., 7.875%, 4/1/2023		105,500
	1,025,000		Union Carbide Corp., Sr. Deb., 8.75%, 8/1/2022		1,085,219
			TOTAL		23,723,998
			Construction Machinery--1.7%
	1,175,000		AGCO Corp., Sr. Note, 9.50%, 5/1/2008		1,257,250
	1,750,000	1,2	Case New Holland, Sr. Note, 9.25%, 8/1/2011		1,955,625
	975,000	4	Clark Material Handling Corp., Sr. Note, 10.75%, 11/15/2006		0
	200,000		Columbus McKinnon Corp., Sr. Secd. Note, 10.00%, 8/1/2010		226,000
	1,375,000		Columbus McKinnon Corp., Sr. Sub. Note, 8.50%, 4/1/2008		1,388,750
	1,325,000		NationsRent Cos., Inc., Sr. Secd. Note, 9.50%, 10/15/2010		1,490,625
	725,000		United Rentals, Inc., Sr. Note, 6.50%, 2/15/2012		710,500
			TOTAL		7,028,750
			Consumer Products--4.2%
	1,050,000	1,2,3	AAC Group Holding Corp., Sr. Disc. Note, 0/10.25%, 10/1/2012		711,375
	1,475,000		Alltrista Corp., Unsecd. Note, 9.75%, 5/1/2012		1,644,625
	350,000		American Achievement Corp., Sr. Sub. Note, 8.25%, 4/1/2012		364,875
	1,125,000		Ames True Temper, Inc., Sr. Sub. Note, 10.00%, 7/15/2012		1,158,750
	725,000		Chattem, Inc., Sr. Sub. Note, 7.00%, 3/1/2014		750,375
	550,000	1,2	Church and Dwight, Inc., Sr. Sub. Note, 6.00%, 12/15/2012		562,375
	200,000	4	Diamond Brands Operating Corp., Sr. Sub. Note, 10.125%, 4/15/2008		13,900
	250,000	4	Diamond Brands, Inc., Sr. Disc. Deb., 12.875%, 4/15/2009		5,050
Principal Amount					Value
			CORPORATE BONDS--continued
			Consumer Products--continued
$	900,000		ICON Health & Fitness, Inc., Company Guarantee, 11.25%, 4/1/2012	$	760,500
	2,150,000	3	Jostens Holding Corp., Discount Bond, 0/10.25%, 12/1/2013		1,537,250
	1,200,000	1,2	Jostens IH Corp., 7.625%, 10/1/2012		1,254,000
	175,000	1,2	K2, Inc., Sr. Note, 7.375%, 7/1/2014		192,500
	850,000		Leiner Health Products, Unsecd. Note, 11.00%, 6/1/2012		932,875
	1,425,000		Playtex Products, Inc., Company Guarantee, 9.375%, 6/1/2011		1,528,312
	875,000		Sealy Mattress Co., Sr. Sub. Note, 8.25%, 6/15/2014		931,875
	1,300,000	1,2,3	Simmons Co., Sr. Disc. Note, 0/10.00%, 12/15/2014		799,500
	1,000,000		Simmons Co., Sr. Sub. Note, 7.875%, 1/15/2014		1,040,000
	455,000		Tempur World, Sr. Sub. Note, 10.25%, 8/15/2010		525,525
	825,000		True Temper Sports, Inc., Sr. Sub. Note, 8.375%, 9/15/2011		771,375
	1,250,000		United Industries Corp., Sr. Sub. Note, Series D, 9.875%, 4/1/2009		1,314,062
	800,000		WH Holdings Ltd., Sr. Note, 9.50%, 4/1/2011		884,000
			TOTAL		17,683,099
			Diversified--1.0%
	4,000,000	1,2	Dow Jones Credit Derivative Index High Yield, Series 3-3, 8.00%, 12/29/2009		4,107,500
			Energy--1.2%
	1,300,000		Compton Petroleum Corp., Sr. Note, 9.90%, 5/15/2009		1,443,000
	575,000	1,2	Inergy LP, Sr. Note, 6.875%, 12/15/2014		580,750
	325,000		Lone Star Technologies, Inc., Company Guarantee, Series B, 9.00%, 6/1/2011		349,375
	900,000		Petroleum Helicopters, Inc., Company Guarantee, Series B, 9.375%, 5/1/2009		990,000
	350,000		Range Resources Corp., Sr. Sub. Note, 7.375%, 7/15/2013		377,125
	1,200,000		Swift Energy Co., Sr. Sub. Note, 9.375%, 5/1/2012		1,350,000
			TOTAL		5,090,250
			Entertainment--2.6%
	200,000		AMC Entertainment, Inc., Sr. Sub. Note, 8.00%, 3/1/2014		200,000
	1,475,000		AMC Entertainment, Inc., Sr. Sub. Note, 9.875%, 2/1/2012		1,615,125
	750,000		Cinemark USA, Sr. Sub. Note, 9.00%, 2/1/2013		859,687
	2,200,000	3	Cinemark, Inc., Sr. Disc. Note, 0/9.75%, 3/15/2014		1,672,000
	875,000	1,2	Intrawest Corp., Sr. Note, 7.50%, 10/15/2013		935,156
	2,150,000	1,2	Loews Cineplex Entertainment Corp., Sr. Sub. Note, 9.00%, 8/1/2014		2,338,125
	2,150,000		Universal City Development Partners Ltd., Sr. Note, 11.75%, 4/1/2010		2,550,437
	350,000	1,2	Universal City Florida Holding Co., Floating Rate Note, 7.25%, 5/1/2010		365,750
	275,000	1,2	Universal City Florida Holding Co., Sr. Note, 8.375%, 5/1/2010		286,687
			TOTAL		10,822,967
			Environmental--1.4%
	2,750,000		Allied Waste North America, Inc., Company Guarantee, Series B, 9.25%, 9/1/2012		2,990,625
	1,050,000		Allied Waste North America, Inc., Sr. Secd. Note, 6.125%, 2/15/2014		992,250
	900,000	1,2	Clean Harbors, Inc., Sr. Secd. Note, 11.25%, 7/15/2012		1,012,500
	725,000		Synagro Technologies, Inc., Sr. Sub. Note, 9.50%, 4/1/2009		793,875
			TOTAL		5,789,250
			Food & Beverage--5.8%
	1,900,000	1,2,3	ASG Consolidated LLC, Sr. Disc. Note, 0/11.50%, 11/1/2011		1,220,750
	413,000		Agrilink Foods, Inc., Company Guarantee, 11.875%, 11/1/2008		432,101
	1,400,000		American Seafoods Group LLC, Company Guarantee, 10.125%, 4/15/2010		1,505,000
	1,025,000		B&G Foods Holdings Corp., Sr. Note, 8.00%, 10/1/2011		1,096,750
	950,000		Constellation Brands, Inc., Company Guarantee, Series B, 8.00%, 2/15/2008		1,037,875
Principal Amount					Value
			CORPORATE BONDS--continued
			Food & Beverage--continued
$	1,800,000		Del Monte Corp., Company Guarantee, Series B, 9.25%, 5/15/2011	$	1,980,000
	850,000		Del Monte Corp., Sr. Sub. Note, 8.625%, 12/15/2012		956,250
	1,300,000		Dole Food, Inc., Company Guarantee, 7.25%, 6/15/2010		1,342,250
	1,250,000		Dole Food, Inc., Sr. Note, 8.625%, 5/1/2009		1,365,625
	725,000		Eagle Family Foods, Inc., Sr. Sub. Note, 8.75%, 1/15/2008		561,875
	455,000		Gold Kist, Inc., Sr. Note, 10.25%, 3/15/2014		534,625
	1,300,000		Michael Foods, Inc., Sr. Sub. Note, 8.00%, 11/15/2013		1,378,000
	575,000		National Beef Packaging Co. LLC, Sr. Note, 10.50%, 8/1/2011		606,625
	1,250,000	1,2	Pierre Foods, Inc., Sr. Sub. Note, 9.875%, 7/15/2012		1,300,000
	500,000		Pilgrim's Pride Corp., Sr. Note, 9.625%, 9/15/2011		565,000
	875,000		Pilgrim's Pride Corp., Sr. Sub. Note, 9.25%, 11/15/2013		984,375
	1,425,000	1,2,3	Reddy Ice Group, Inc., Sr. Disc. Note, 0/10.50%, 11/1/2012		990,375
	1,000,000		Reddy Ice Group, Inc., Sr. Sub. Note, 8.875%, 8/1/2011		1,085,000
	1,775,000		Smithfield Foods, Inc., Note, 7.75%, 5/15/2013		1,983,562
	450,000		Smithfield Foods, Inc., Sr. Sub. Note, 7.625%, 2/15/2008		483,750
	575,000		Swift & Co., Sr. Note, 10.125%, 10/1/2009		644,000
	625,000		Swift & Co., Sr. Sub. Note, 12.50%, 1/1/2010		709,375
	1,600,000	1,2,3	UAP Holding Corp., Sr. Disc. Note, 0/10.75%, 7/15/2012		1,264,000
	293,000	1,2	United Agri Products, Inc., Sr. Note, 8.25%, 12/15/2011		315,707
			TOTAL		24,342,870
			Gaming--4.9%
	300,000		Boyd Gaming Corp., Sr. Sub. Note, 7.75%, 12/15/2012		328,875
	1,325,000		Boyd Gaming Corp., Sr. Sub. Note, 8.75%, 4/15/2012		1,480,687
	350,000	1,2	Herbst Gaming, Inc., Sr. Sub. Note, 7.00%, 11/15/2014		356,125
	725,000		Isle of Capri Casinos, Inc., Company Guarantee, 9.00%, 3/15/2012		802,937
	400,000		Isle of Capri Casinos, Inc., Sr. Sub. Note, Series WI, 7.00%, 3/1/2014		410,000
	625,000		MGM Grand, Inc., Sr. Sub. Note, 8.375%, 2/1/2011		707,812
	3,050,000		MGM Grand, Inc., Sr. Sub. Note, 9.75%, 6/1/2007		3,400,750
	1,150,000		MTR Gaming Group, Inc., Company Guarantee, Series B, 9.75%, 4/1/2010		1,270,750
	825,000		Majestic Star Casino LLC, Company Guarantee, 9.50%, 10/15/2010		878,625
	1,650,000		Mandalay Resort Group, Sr. Sub. Note, 10.25%, 8/1/2007		1,872,750
	900,000		Mohegan Tribal Gaming Authority, Sr. Sub. Note, 8.00%, 4/1/2012		981,000
	2,525,000		Park Place Entertainment Corp., Sr. Sub. Note, 7.875%, 3/15/2010		2,856,406
	700,000		Penn National Gaming, Inc., Company Guarantee, 11.125%, 3/1/2008		750,750
	725,000		Penn National Gaming, Inc., Company Guarantee, 8.875%, 3/15/2010		794,781
	275,000		Station Casinos, Inc., Sr. Note, 6.00%, 4/1/2012		281,531
	850,000		Station Casinos, Inc., Sr. Sub. Note, 6.50%, 2/1/2014		877,625
	1,050,000		Sun International Hotels Ltd., Sr. Sub. Note, 8.875%, 8/15/2011		1,152,375
	1,175,000		Venetian Casino/LV Sands, Company Guarantee, 11.00%, 6/15/2010		1,346,844
	250,000	1,2	Virgin River Casino Corp., Sr. Secd. Disc. Note, 9.00%, 1/15/2012		261,250
			TOTAL		20,811,873
			Healthcare--4.9%
	1,575,000		AmeriPath, Inc., Company Guarantee, 10.50%, 4/1/2013		1,681,312
	1,025,000		Ardent Health Services, Sr. Sub. Note, 10.00%, 8/15/2013		1,081,375
	525,000	1,2	Bio Rad Laboratories, Inc., Sr. Sub. Note, 6.125%, 12/15/2014		531,562
	2,950,000	1,2,3	CDRV Investors, Inc., Sr. Disc. Note, 0/9.625%, 1/1/2015		1,847,437
	375,000	1,2	Concentra Operating Corp., Sr. Sub. Note, 9.125%, 6/1/2012		425,625
Principal Amount					Value
			CORPORATE BONDS--continued
			Healthcare--continued
$	300,000		Concentra Operating Corp., Sr. Sub. Note, 9.50%, 8/15/2010	$	340,500
	1,825,000		Fisher Scientific International, Inc., Sr. Sub. Note, 8.00%, 9/1/2013		2,080,500
	350,000		HCA - The Healthcare Corp., Sr. Note, 6.375%, 1/15/2015		352,062
	1,000,000		HCA - The Healthcare Corp., Sr. Note, 6.91%, 6/15/2005		1,014,764
	1,250,000		HCA - The Healthcare Corp., Sr. Note, 7.875%, 2/1/2011		1,378,550
	2,175,000		HCA Inc., Sr. Note, 6.75%, 7/15/2013		2,264,188
	775,000		HCA Inc., Sr. Note, 7.50%, 11/6/2033		792,958
	550,000		Hanger Orthopedic Group, Inc., Company Guarantee, 10.375%, 2/15/2009		570,625
	610,293		Magellan Health Services, Inc., Sr. Note, Series A, 9.375%, 11/15/2008		667,508
	1,150,000	1,2	Medical Device Manufacturing, Inc., Sr. Sub. Note, 10.00%, 7/15/2012		1,244,875
	1,200,000	1,2	National Mentor, Inc., Sr. Sub. Note, 9.625%, 12/1/2012		1,281,000
	750,000		Sybron Dental Specialties, Inc., Company Guarantee, 8.125%, 6/15/2012		821,250
	675,000	1,2	Tenet Healthcare Corp., Note, 9.875%, 7/1/2014		739,125
	350,000	1,2	VWR International, Inc., Sr. Sub. Note, 8.00%, 4/15/2014		375,375
	750,000	1,2	Vanguard Health Holdings II, Sr. Sub. Note, 9.00%, 10/1/2014		806,250
	375,000	1,2	Ventas Realty LP, Sr. Note, 6.625%, 10/15/2014		385,312
			TOTAL		20,682,153
			Industrial - Other--4.7%
	1,200,000		Aearo Co. I, Sr. Sub. Note, 8.25%, 4/15/2012		1,242,000
	750,000	1,2	Amsted Industries, Inc., Sr. Note, 10.25%, 10/15/2011		851,250
	1,475,000		Brand Services, Inc., Company Guarantee, 12.00%, 10/15/2012		1,659,375
	900,000	1,2	Coleman Cable, Inc., Sr. Note, 9.875%, 10/1/2012		960,750
	725,000		Da-Lite Screen Co., Inc., Sr. Note, 9.50%, 5/15/2011		801,125
	1,650,000		Eagle Picher Industries, Inc., Sr. Note, 9.75%, 9/1/2013		1,658,250
	950,000	1,2	Hawk Corp., Sr. Note, 8.75%, 11/1/2014		978,500
	1,150,000		Interline Brands, Inc., Sr. Sub. Note, 11.50%, 5/15/2011		1,299,500
	850,000		Mueller Group, Inc., Sr. Sub. Note, 10.00%, 5/1/2012		930,750
	475,000	1,2	NSP Holdings LLC, Sr. Note, 11.75%, 1/1/2012		482,125
	1,300,000	1,2	Neenah Corp., Sr. Secd. Note, 11.00%, 9/30/2010		1,443,000
	833,333	1,2	Neenah Corp., Sr. Sub. Note, 13.00%, 9/30/2013		858,333
	1,300,000		Norcross Safety Products, Sr. Sub. Note, Series B, 9.875%, 8/15/2011		1,443,000
	1,150,000		Rexnord Corp., Company Guarantee, 10.125%, 12/15/2012		1,305,250
	1,300,000		Sensus Metering Systems, Inc., Sr. Sub. Note, 8.625%, 12/15/2013		1,339,000
	1,150,000		Superior Essex Communications LLC, Sr. Note, 9.00%, 4/15/2012		1,190,250
	450,000		Thermadyne Holdings Corp., Sr. Secd. Note, 9.25%, 2/1/2014		441,000
	450,000		Valmont Industries, Inc., Sr. Sub. Note, 6.875%, 5/1/2014		470,250
	700,000		WESCO Distribution, Inc., Sr. Sub. Note, 9.125%, 6/1/2008		724,500
			TOTAL		20,078,208
			Lodging--1.7%
	750,000	1,2	Gaylord Entertainment Co., Sr. Note, 6.75%, 11/15/2014		757,500
	223,000		HMH Properties, Inc., Sr. Note, Series B, 7.875%, 8/1/2008		230,247
	1,675,000		Host Marriott LP, Unsecd. Note, 7.125%, 11/1/2013		1,798,531
	850,000		Lodgenet Entertainment, Sr. Sub. Note, 9.50%, 6/15/2013		943,500
	1,000,000		Royal Caribbean Cruises Ltd., Sr. Note, 8.00%, 5/15/2010		1,135,000
	550,000		Starwood Hotels & Resorts Worldwide, Inc., Company Guarantee, 7.875%, 5/1/2012		631,125
	1,725,000		Starwood Hotels & Resorts Worldwide, Inc., Note, 7.375%, 5/1/2007		1,847,906
			TOTAL		7,343,809
Principal Amount					Value
			CORPORATE BONDS--continued
			Media - Cable--2.6%
$	2,075,000		CSC Holdings, Inc., Sr. Note, 7.875%, 12/15/2007	$	2,235,813
	925,000		CSC Holdings, Inc., Sr. Note, 8.125%, 7/15/2009		1,016,344
	1,225,000	1,2	Cablevision Systems Corp., Sr. Note, 8.00%, 4/15/2012		1,313,813
	1,125,000		Charter Communications Holdings Capital Corp., Sr. Disc. Note, 9.92%, 4/1/2011		964,688
	700,000		Charter Communications Holdings Capital Corp., Sr. Note, 10.00%, 5/15/2011		602,000
	1,850,000		Charter Communications Holdings II, Sr. Note, 10.25%, 9/15/2010		1,970,250
	2,100,000	1,2	Kabel Deutschland GMBH, Sr. Note, 10.625%, 7/1/2014		2,425,500
	400,000		Rogers Cablesystems Ltd., Sr. Sub. Gtd. Note, 11.00%, 12/1/2015		448,000
			TOTAL		10,976,408
			Media - Non-Cable--9.4%
	1,925,000		Advanstar Communications, Company Guarantee, Series B, 12.00%, 2/15/2011		2,086,219
	775,000	3	Advanstar, Inc., Company Guarantee, Series B, 0/15.00%, 10/15/2011		659,719
	150,000	1,2	Advertising Directory Solutions Holdings, Inc., Sr. Note, 9.25%, 11/15/2012		158,250
	675,000		Affinity Group, Inc., Sr. Sub. Note, 9.00%, 2/15/2012		734,063
	1,150,000		American Media Operations, Inc., Company Guarantee, Series B, 10.25%, 5/1/2009		1,217,563
	450,000		American Media Operations, Inc., Sr. Sub. Note, 8.875%, 1/15/2011		480,938
	525,000		Block Communications, Inc., Company Guarantee, 9.25%, 4/15/2009		574,875
	950,000	1,2	CBD Media Holdings, 9.25%, 7/15/2012		982,063
	400,000		Cadmus Communications Corp., Sr. Sub. Note, 8.375%, 6/15/2014		437,500
	1,925,000		DIRECTV Holdings LLC, Sr. Note, 8.375%, 3/15/2013		2,168,031
	1,576,000		Dex Media East LLC, Company Guarantee, 12.125%, 11/15/2012		1,928,630
	2,022,000		Dex Media West LLC, Sr. Sub. Note, Series B, 9.875%, 8/15/2013		2,340,465
	1,425,000	3	Dex Media, Inc., Discount Bond, 0/9.00%, 11/15/2013		1,123,969
	1,800,000		Echostar DBS Corp., Sr. Note, 5.75%, 10/1/2008		1,831,500
	775,000		Echostar DBS Corp., Sr. Note, 6.375%, 10/1/2011		796,313
	375,000	1,2	Echostar DBS Corp., Sr. Note, 6.625%, 10/1/2014		381,563
	350,000	1,2	Fisher Communications, Inc., Sr. Note, 8.625%, 9/15/2014		379,750
	750,000	3	Houghton Mifflin Co., Sr. Disc. Note, 0/11.50%, 10/15/2013		555,000
	1,100,000		Lamar Media Corp., Sr. Sub. Note, 7.25%, 1/1/2013		1,193,500
	800,000		Liberty Group Ltd., Sr. Sub. Note, 9.375%, 2/1/2008		816,000
	925,000	3	NBC Acqusition Corp., Sr. Disc. Note, 0/11.00%, 3/15/2013		679,875
	775,000		Nebraska Book Co., Inc., Sr. Sub. Note, 8.625%, 3/15/2012		798,250
	1,250,000	1,2	PanAmSat Corp., Sr. Note, 9.00%, 8/15/2014		1,401,563
	3,075,000	1,2,3	PanAmSat Holding Corp., Sr. Disc. Note, 0/10.375%, 11/1/2014		2,129,438
	725,000	3	Quebecor Media Inc., Sr. Disc. Note, 0/13.75%, 7/15/2011		721,375
	875,000		Quebecor Media Inc., Sr. Note, 11.125%, 7/15/2011		1,004,063
	1,400,000	1,2	R.H. Donnelly Finance Corp., Sr. Sub. Note, 10.875%, 12/15/2012		1,669,500
	1,625,000	1,2	Rainbow National Services LLC, Sr. Sub. Note, 10.375%, 9/1/2014		1,840,313
	800,000		Readers Digest Association, Inc., Sr. Note, Series 144A, 6.50%, 3/1/2011		840,000
	950,000		Sinclair Broadcast Group, Inc., Sr. Sub. Note, 8.00%, 3/15/2012		1,014,125
	2,725,000		Vertis, Inc., Sr. Note, Series B, 10.875%, 6/15/2009		2,970,250
	600,000	1,2	WDAC Subsidiary Corp., Sr. Note, 8.375%, 12/1/2014		594,750
	859,893	3	XM Satellite Radio, Inc., Sec. Fac. Bond, 0/14.00%, 12/31/2009		881,390
	560,000		XM Satellite Radio, Inc., Sr. Secd. Note, 12.00%, 6/15/2010		664,300
	894,000	3	Yell Finance BV, Sr. Disc. Note, 0/13.50%, 8/1/2011		882,825
Principal Amount					Value
			CORPORATE BONDS--continued
			Media - Non-Cable--continued
$	650,000		Yell Finance BV, Sr. Note, 10.75%, 8/1/2011	$	754,000
	160,819		Ziff Davis Media, Inc., Company Guarantee, Series, 13.00%, 8/12/2009		172,880
			TOTAL		39,864,808
			Metals & Mining--1.5%
	800,000		California Steel Industries, Inc., Sr. Note, 6.125%, 3/15/2014		798,000
	425,000	1,2	Imco Recycling Escrow, Sr. Note, 9.00%, 11/15/2014		444,125
	1,325,000		Imco Recycling, Inc., Sr. Secd. Note, 10.375%, 10/15/2010		1,510,500
	455,000		Ispat Inland ULC, Sr. Secd. Note, 9.75%, 4/1/2014		563,973
	625,000	4	Republic Technologies International, Inc., Company Guarantee, 13.75%, 7/15/2009		0
	975,000		Ryerson Tull, Inc., Sr. Note, 9.125%, 7/15/2006		999,375
	1,093,000		United States Steel Corp., Sr. Note, 9.75%, 5/15/2010		1,251,485
	625,000		Wise Metals Group LLC, Sr. Secd. Note, 10.25%, 5/15/2012		634,375
			TOTAL		6,201,833
			Packaging--2.5%
	1,300,000		Berry Plastics Corp., Company Guarantee, 10.75%, 7/15/2012		1,495,000
	525,000	1,2	Graham Packaging Co., Sub. Note, 8.50%, 10/15/2012		553,875
	800,000		Greif Brothers Corp., Sr. Sub. Note, 8.875%, 8/1/2012		894,000
	825,000		Huntsman Packaging Corp., Company Guarantee, 13.00%, 6/1/2010		808,500
	1,000,000	1,2	Owens-Brockway Glass Container, Inc., 6.75%, 12/1/2014		1,015,000
	725,000		Owens-Brockway Glass Container, Inc., Company Guarantee, 7.75%, 5/15/2011		788,438
	625,000		Owens-Brockway Glass Container, Inc., Company Guarantee, 8.25%, 5/15/2013		690,625
	1,000,000		Owens-Brockway Glass Container, Inc., Sr. Secd. Note, 8.875%, 2/15/2009		1,091,250
	1,050,000		Owens-Illinois, Inc., Sr. Note, 8.10%, 5/15/2007		1,123,500
	250,000		Pliant Corp., Sr. Secd. Note, 11.125%, 9/1/2009		273,750
	800,000		Pliant Corp., Sr. Sub. Note, 13.00%, 6/1/2010		780,000
	135,423	1,2	Russell Stanley Holdings, Inc., Sr. Sub. Note, 9.00%, 11/30/2008		77,977
	975,000		Tekni-Plex, Inc., Company Guarantee, Series B, 12.75%, 6/15/2010		931,125
			TOTAL		10,523,040
			Paper--3.7%
	325,000	1,2	Boise Cascade LLC, Sr. Note, 4.945%, 10/15/2012		338,813
	475,000	1,2	Boise Cascade LLC, Sr. Sub. Note, 7.125%, 10/15/2014		504,688
	5,150,000		Georgia-Pacific Corp., Sr. Note, 9.375%, 2/1/2013		6,025,500
	1,200,000		Graphic Packaging International Corp., Sr. Sub. Note, 9.50%, 8/15/2013		1,371,000
	400,000		Jefferson Smurfit Corp., Company Guarantee, 7.50%, 6/1/2013		429,000
	700,000		Jefferson Smurfit Corp., Company Guarantee, 8.25%, 10/1/2012		766,500
	1,150,000		MDP Acquisitions PLC, 9.625%, 10/1/2012		1,288,000
	1,148,603		MDP Acquisitions PLC, Sub. Note, 15.50%, 10/1/2013		1,349,609
	750,000		Riverside Forest Products Ltd., Sr. Note, 7.875%, 3/1/2014		828,750
	1,375,000		Stone Container Corp., Sr. Note, 9.75%, 2/1/2011		1,512,500
	1,100,000		Tembec Industries, Inc., 8.50%, 2/1/2011		1,111,000
			TOTAL		15,525,360
			Restaurants--0.6%
	275,000		Buffets, Inc., Sr. Sub. Note, 11.25%, 7/15/2010		295,625
	650,000	1,2	Carrols Corp., Sr. Sub. Note, 9.00%, 1/15/2013		676,000
	675,000		Domino's, Inc., Sr. Sub. Note, 8.25%, 7/1/2011		740,813
	925,000	1,2	Landry's Seafood Restaurants, Inc., Sr. Note, 7.50%, 12/15/2014		922,688
			TOTAL		2,635,126
Principal Amount					Value
			CORPORATE BONDS--continued
			Retailers--3.3%
$	1,175,000		Couche-Tard Financing Corp., Sr. Sub. Note, 7.50%, 12/15/2013	$	1,266,063
	1,000,000		FTD, Inc., Sr. Sub. Note, 7.75%, 2/15/2014		1,035,000
	375,000		Finlay Fine Jewelry Corp., Sr. Note, 8.375%, 6/1/2012		406,875
	575,000		General Nutrition Center, Sr. Sub. Note, 8.50%, 12/1/2010		546,250
	1,000,000		Hines Nurseries, Inc., Company Guarantee, 10.25%, 10/1/2011		1,097,500
	1,725,000	1,2	Jean Coutu Group (PLC), Inc., Sr. Sub. Note, 8.50%, 8/1/2014		1,776,750
	875,000		Lazy Days' R.V. Center, Inc., Sr. Note, 11.75%, 5/15/2012		955,938
	600,000		Michaels Stores, Inc., Sr. Note, 9.25%, 7/1/2009		645,942
	1,450,000		PCA International, Inc., Sr. Note, 11.875%, 8/1/2009		1,283,250
	575,000		Penney (J.C.) Co., Inc., Note, 7.60%, 4/1/2007		623,875
	1,509,000		Penney (J.C.) Co., Inc., Note, 9.00%, 8/1/2012		1,867,388
	1,400,000		Rite Aid Corp., Sr. Secd. Note, 8.125%, 5/1/2010		1,487,500
	325,000		Rite Aid Corp., Sr. Secd. Note, 9.50%, 2/15/2011		358,313
	700,000		United Auto Group, Inc., Company Guarantee, 9.625%, 3/15/2012		777,000
			TOTAL		14,127,644
			Services--0.9%
	195,000		CB Richard Ellis Services, Sr. Note, 9.75%, 5/15/2010		223,275
	1,100,000		Global Cash Access LLC, Sr. Sub. Note, 8.75%, 3/15/2012		1,190,750
	75,000		Language Line, Inc., Sr. Sub. Note, 11.125%, 6/15/2012		79,875
	855,000		SITEL Corp., Sr. Sub. Note, 9.25%, 3/15/2006		867,825
	1,125,000		The Brickman Group Ltd., Sr. Sub. Note, Series B, 11.75%, 12/15/2009		1,321,875
			TOTAL		3,683,600
			Technology--3.5%
	911,000		AMI Semiconductor, Inc., Sr. Sub. Note, 10.75%, 2/1/2013		1,074,980
	1,325,000		Activant Solutions, Inc., Sr. Note, 10.50%, 6/15/2011		1,431,000
	825,000		Danka Business Systems PLC, Sr. Note, 11.00%, 6/15/2010		878,625
	825,000		Freescale Semiconductor, Inc., Sr. Note, 7.125%, 7/15/2014		899,250
	1,350,000		Ingram Micro, Inc., Sr. Sub. Note, 9.875%, 8/15/2008		1,474,875
	475,000	1,2	MagnaChip Semiconductor S.A., Sr. Sub. Note, 8.00%, 12/15/2014		497,563
	1,075,000		Seagate Technology HDD Holdings, Sr. Note, 8.00%, 5/15/2009		1,166,375
	650,000		Telex Communications, Inc., Sr. Secd. Note, 11.50%, 10/15/2008		711,750
	1,600,000	1,2	UGS Corp., Sr. Sub. Note, 10.00%, 6/1/2012		1,828,000
	925,000		Unisys Corp., Sr. Note, 6.875%, 3/15/2010		994,375
	1,000,000		Xerox Corp., Sr. Note, 7.625%, 6/15/2013		1,102,500
	2,375,000		Xerox Corp., Sr. Note, 9.75%, 1/15/2009		2,802,500
			TOTAL		14,861,793
			Textile--0.7%
	625,000		GFSI, Inc., Sr. Sub. Note, 9.625%, 3/1/2007		609,375
	350,000		Phillips Van Heusen Corp., Sr. Note, 8.125%, 5/1/2013		381,500
	1,100,000		Warnaco Group, Inc., Sr. Note, 8.875%, 6/15/2013		1,215,500
	634,000		William Carter Co., Sr. Sub. Note, Series B, 10.875%, 8/15/2011		713,250
			TOTAL		2,919,625
			Tobacco--0.8%
	1,100,000	1,2	Commonwealth Brands, Inc., Sr. Sub. Secd. Note, 10.625%, 9/1/2008		1,160,500
	700,000		Dimon, Inc., Sr. Note, 7.75%, 6/1/2013		738,500
Principal Amount					Value
			CORPORATE BONDS--continued
			Tobacco--continued
$	425,000		Dimon, Inc., Sr. Note, Series B, 9.625%, 10/15/2011	$	467,500
	950,000		Standard Commercial Corp., Sr. Note, 8.00%, 4/15/2012		980,875
			TOTAL		3,347,375
			Transportation--0.7%
	825,000		Allied Holdings, Inc., Sr. Note, 8.625%, 10/1/2007		665,156
	700,000	4	AmeriTruck Distribution Corp., Sr. Sub. Note, 12.25%, 11/15/2005		0
	800,000		Stena AB, Sr. Note, 7.50%, 11/1/2013		842,000
	1,200,000		Stena AB, Sr. Note, 9.625%, 12/1/2012		1,362,000
	800,000	4	The Holt Group, Inc., Company Guarantee, 9.75%, 1/15/2006		0
			TOTAL		2,869,156
			Utility - Electric--3.5%
	1,275,000		CMS Energy Corp., Sr. Note, 7.50%, 1/15/2009		1,364,250
	1,239,625		Caithness Coso Funding Corp., Sr. Secd. Note, Series B, 9.05%, 12/15/2009		1,369,786
	475,000		Calpine Canada Energy Finance Corp., Company Guarantee, 8.50%, 5/1/2008		391,875
	1,750,000		Calpine Corp., Note, 8.50%, 2/15/2011		1,343,125
	1,025,000	1,2	NRG Energy, Inc., Sr. Secd. Note, 8.00%, 12/15/2013		1,122,375
	100,000		Nevada Power Co., 6.50%, 4/15/2012		106,250
	500,000	1,2	Nevada Power Co., Mtg. Note, 5.875%, 1/15/2015		506,250
	1,850,000		Nevada Power Co., Second Mortgage Notes, 9.00%, 8/15/2013		2,173,750
	275,000	1,2	Northwestern Corp., Sr. Secd. Note, 5.875%, 11/1/2014		282,692
	1,700,000		PSEG Energy Holdings, Sr. Note, 10.00%, 10/1/2009		2,018,750
	375,000		Reliant Energy, Inc., Sr. Secd. Note, 6.75%, 12/15/2014		374,531
	650,000		Reliant Resources, Inc., Sr. Secd. Note, 9.25%, 7/15/2010		728,000
	1,225,000		Reliant Resources, Inc., Sr. Secd. Note, 9.50%, 7/15/2013		1,398,031
	1,425,000	1,2	Texas Genco LLC, Sr. Note, 6.875%, 12/15/2014		1,480,219
			TOTAL		14,659,884
			Utility - Natural Gas--3.8%
	250,000		ANR Pipeline Co., Sr. Note, 8.875%, 3/15/2010		281,250
	1,350,000		El Paso Corp., 6.75%, 5/15/2009		1,377,000
	425,000		El Paso Corp., Note, 6.95%, 12/15/2007		447,313
	2,375,000		El Paso Corp., Sr. Note, 7.80%, 8/1/2031		2,291,875
	1,150,000		El Paso Corp., Sr. Note, 8.05%, 10/15/2030		1,118,375
	1,450,000		El Paso Production Holding Co., Company Guarantee, 7.75%, 6/1/2013		1,526,125
	725,000		Ferrellgas Escrow LLC, Sr. Note, 6.75%, 5/1/2014		748,563
	250,000	1,2	MarkWest Energy Partners LP, Sr. Note, 6.875%, 11/1/2014		255,000
	950,000		Pacific Energy Partners LP, Sr. Note, 7.125%, 6/15/2014		1,016,500
	650,000		Semco Energy, Inc., Sr. Note, 7.125%, 5/15/2008		698,927
	1,800,000		Tennessee Gas Pipeline, Bond, 8.375%, 6/15/2032		2,038,500
	375,000		Tennessee Gas Pipeline, Sr. Deb., 7.50%, 4/1/2017		415,313
	1,125,000		Transcontinental Gas Pipe Corp., Sr. Note, 8.875%, 7/15/2012		1,373,906
	1,325,000		Williams Cos., Inc., Note, 7.625%, 7/15/2019		1,464,125
	775,000		Williams Cos., Inc., Note, 7.875%, 9/1/2021		868,000
			TOTAL		15,920,772
			Wireless Communications--2.4%
	550,000	1,2,3	Inmarsat Finance PLC, 0/10.375%, 11/15/2012		398,750
	200,000		Inmarsat Finance PLC, Sr. Note, 7.625%, 6/30/2012		209,000
Principal Amount or Shares					Value
			CORPORATE BONDS--continued
			Wireless Communications--continued
$	475,000	1,2	New Skies Satellites NV, Sr. Sub. Note, 9.125%, 11/1/2012	$	486,875
	3,775,000		NEXTEL Communications, Inc., Sr. Note, 7.375%, 8/1/2015		4,171,375
	278,000		Nextel Partners, Inc., Sr. Note, 12.50%, 11/15/2009		316,225
	450,000		Nextel Partners, Inc., Sr. Note, 8.125%, 7/1/2011		501,750
	1,050,000		Rogers Wireless, Inc., 6.375%, 3/1/2014		1,044,750
	475,000	1,2	Rogers Wireless, Inc., Sr. Secd. Note, 5.525%, 12/15/2010		499,938
	225,000	1,2	Rogers Wireless, Inc., Sr. Secd. Note, 7.25%, 12/15/2012		239,625
	225,000	1,2	Rogers Wireless, Inc., Sr. Secd. Note, 7.50%, 3/15/2015		238,500
	900,000	1,2	Rogers Wireless, Inc., Sr. Sub. Note, 8.00%, 12/15/2012		956,250
	900,000		US Unwired, Inc., Sr. Secd. Note, 10.00%, 6/15/2012		1,019,250
			TOTAL		10,082,288
			Wireline Communications--6.0%
	5,000,000		AT&T Corp., Sr. Note, 9.75%, 11/15/2031		5,993,750
	1,425,000		Alaska Communications Systems Holdings, Inc., Sr. Note, 9.875%, 8/15/2011		1,539,000
	1,300,000		Cincinnati Bell, Inc., Company Guarantee, 7.25%, 7/15/2013		1,342,250
	975,000		Cincinnati Bell, Inc., Sr. Sub. Note, 8.375%, 1/15/2014		992,063
	900,000		Citizens Communications Co., 9.00%, 8/15/2031		1,032,750
	750,000		Citizens Communications Co., Sr. Note, 6.25%, 1/15/2013		759,376
	350,000		Citizens Communications Co., Unsecd. Note, 9.25%, 5/15/2011		411,250
	650,000		Eircom Funding, Sr. Sub. Note, 8.25%, 8/15/2013		721,500
	2,350,000		MCI, Inc., Sr. Note, 8.735%, 5/1/2014		2,532,125
	925,000		Primus Telecommunications Holding, Inc., Sr. Note, 8.00%, 1/15/2014		818,625
	500,000		Qwest Capital Funding, Company Guarantee, 7.25%, 2/15/2011		492,500
	3,925,000	1,2	Qwest Corp., Note, 9.125%, 3/15/2012		4,553,000
	3,350,000	1,2	Qwest Services Corp., Sr. Sub. Note, 14.00%, 12/15/2010		4,045,125
			TOTAL		25,233,314
			TOTAL CORPORATE BONDS (IDENTIFIED COST $372,634,273)		394,160,938
			PREFERRED STOCKS--0.7%
			Media - Non-Cable--0.5%
	9,950		Primedia, Inc., Cumulative Pfd., Series D, $10.00		999,975
	9,475		Primedia, Inc., Pfd., $9.20		914,338
	42		Ziff Davis Media, Inc., PIK Pfd., Series E-1		29,085
			TOTAL		1,943,398
			Retailers--0.2%
	1,100		General Nutrition Centers Holding Co., Exchangeable Pfd. Stock, Series A		1,069,750
			Wireline Communications--0.0%
	11,079		McLeodUSA, Inc., Conv. Pfd., Series A		40,383
			TOTAL PREFERRED STOCKS (IDENTIFIED COST $5,435,219)		3,053,531
			COMMON STOCKS & WARRANTS--0.3%
			Chemicals--0.0%
	332	4	General Chemical Industrial Products, Inc.		61,772
	192	4	General Chemical Industrial Products, Inc., Warrants		0
	142	4	General Chemical Industrial Products, Inc., Warrants		0
			TOTAL		61,772
			Consumer Products--0.0%
	580	1,4	Sleepmaster LLC		157,168
Shares or Principal Amount					Value
			COMMON STOCKS & WARRANTS--continued
			Food & Beverage--0.1%
	26,415		B&G Foods, Inc.	$	395,697
			Industrial - Other--0.1%
	156,932	1,2,4	ACP Holdings Corp., Warrants		278,554
			Media - Cable--0.1%
	2,922	4	NTL, Inc.		213,189
			Media - Non-Cable--0.0%
	425	4	Advanstar, Inc., Warrants		8
	850	4	XM Satellite Radio, Inc., Warrants		73,100
	7,700	4	Ziff Davis Media, Inc., Warrants		3,850
			TOTAL		76,958
			Metals & Mining--0.0%
	625	4	Republic Technologies International, Inc., Warrants		6
	23,013	4	Royal Oak Mines, Inc.		127
			TOTAL		133
			Other--0.0%
	71	1,4	CVC Claims Litigation LLC		0
			Packaging--0.0%
	650	4	Pliant Corp., Warrants		6
	15,500	1,4	Russell Stanley Holdings, Inc.		7,750
			TOTAL		7,756
			Paper--0.0%
	450	1,2,4	MDP Acquisitions PLC, Warrants		12,825
			Wireline Communications--0.0%
	24,549	4	McLeodUSA, Inc., Warrants		5,155
	7,366	4	Viatel Holding (Bermuda) Ltd.		8,839
			TOTAL		13,994
			TOTAL COMMON STOCKS & WARRANTS (IDENTIFIED COST $5,111,451)		1,218,046
			REPURCHASE AGREEMENT--2.2%
$	9,256,000		Interest in $2,000,000,000 joint repurchase agreement with UBS Securities LLC, 2.28%, dated 12/31/2004 to be repurchased at $9,257,759 on 1/3/2005, collateralized by U.S. Government Agency Obligations with maturity to 9/25/2034, collateral market value of $2,060,003,250 (AT AMORTIZED COST)		9,256,000
			TOTAL INVESTMENTS--98.3% (IDENTIFIED COST $400,324,454)5		415,524,216
			OTHER ASSETS AND LIABILITIES - NET--1.7%		7,143,350
			TOTAL NET ASSETS--100%	$	422,667,566

1 Denotes a restricted security, including securities purchased under Rule 144A of the Securities Act of 1933. These securities, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. At December 31, 2004, these securities amounted to $96,738,771 which represents 22.9% of total net assets.

2 Denotes a restricted security, including securities purchased under Rule 144A that has been deemed liquid by criteria approved by the Fund's Board of Trustees. At December 31, 2004, these securities amounted to $96,573,853 which represents 22.8% of total net assets.

3 Denotes a zero coupon bond with effective rate at time of purchase.

4 Non-income producing security.

5 The cost of investments for federal tax purposes amounts to $404,225,721.

Note: The categories of investments are shown as a percentage of total net assets at December 31, 2004.

The following acronyms are used throughout this portfolio:

GTD	--Guaranteed
PIK	--Payment in Kind

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

December 31, 2004

Assets:
Total investments in securities, at value (identified cost $400,324,454)			$	415,524,216
Cash				6,602
Income receivable				7,966,694
Receivable for shares sold				50,842
TOTAL ASSETS				423,548,354
Liabilities:
Payable for investments purchased	$	475,000
Payable for shares redeemed		342,981
Payable for distribution services fees (Note 5)		23,053
Accrued expenses		39,754
TOTAL LIABILITIES				880,788
Net assets for 51,573,940 shares outstanding			$	422,667,566
Net Assets Consist of:
Paid-in capital			$	449,220,927
Net unrealized appreciation of investments				15,199,762
Accumulated net realized loss on investments				(72,025,668	)
Undistributed net investment income				30,272,545
TOTAL NET ASSETS			$	422,667,566
Net Asset Value, Offering Price and Redemption Proceeds Per Share
Primary Shares:
$311,095,420 ÷ 37,922,287 shares outstanding, no par value, unlimited shares authorized				$8.20
Service Shares:
$111,572,146 ÷ 13,651,653 shares outstanding, no par value, unlimited shares authorized				$8.17

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended December 31, 2004

Investment Income:
Interest				$	32,072,556
Dividends					216,378
TOTAL INCOME					32,288,934
Expenses:
Investment adviser fee (Note 5)	$	2,367,704
Administrative personnel and services fee (Note 5)		316,144
Custodian fees		20,909
Transfer and dividend disbursing agent fees and expenses (Note 5)		32,660
Directors'/Trustees' fees		3,816
Auditing fees		20,385
Legal fees		4,984
Portfolio accounting fees		115,873
Distribution services fee--Service Shares (Note 5)		228,378
Printing and postage		38,253
Insurance premiums		16,997
Miscellaneous		2,863
TOTAL EXPENSES		3,168,966
Waiver of administrative personnel and services fee (Note 5)		(15,445	)
Net expenses					3,153,521
Net investment income					29,135,413
Realized and Unrealized Gain on Investments:
Net realized gain on investments					6,625,639
Net change in unrealized appreciation of investments					2,326,554
Net realized and unrealized gain on investments					8,952,193
Change in net assets resulting from operations				$	38,087,606

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

Year Ended December 31		2004			2003
Increase (Decrease) in Net Assets
Operations:
Net investment income	$	29,135,413		$	27,636,710
Net realized gain (loss) on investments		6,625,639			(5,754,933	)
Net change in unrealized appreciation/depreciation of investments		2,326,554			47,722,022
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS		38,087,606			69,603,799
Distributions to Shareholders:
Distributions from net investment income
Primary Shares		(22,381,790	)		(19,635,355	)
Service Shares		(6,562,870	)		(3,390,505	)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS		(28,944,660	)		(23,025,860	)
Share Transactions:
Proceeds from sale of shares		202,817,425			432,307,382
Net asset value of shares issued to shareholders in payment of distributions declared		28,944,654			23,025,854
Cost of shares redeemed		(240,052,889	)		(362,462,409	)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS		(8,290,810	)		92,870,827
Change in net assets		852,136			139,448,766
Net Assets:
Beginning of period		421,815,430			282,366,664
End of period (including undistributed net investment income of $30,272,545 and $28,203,000, respectively)	$	422,667,566		$	421,815,430

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

December 31, 2004

1. ORGANIZATION

Federated Insurance Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of 11 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 Fund offers two classes of shares: Primary Shares and Service Shares. The investment objective of the Fund is to seek high current income.

2. SIGNIFICANT ACCOUNTING POLICIES

Investment Valuation

Listed corporate bonds, other fixed income and asset-backed securities, 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 or official closing price reported on a national securities exchange. If unavailable, the security is generally valued at the mean between the last closing bid and asked prices. 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. Securities for which no quotations are readily available are valued at fair value as determined in good faith using methods approved by the Board of Trustees (the "Trustees").

Repurchase Agreements

Investment Income, Gains and Losses, Expenses and Distributions

Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses, and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class bears certain expenses unique to that class such as distribution fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.

Premium and Discount Amortization/Paydown Gains and Losses

All premiums and discounts on fixed income securities are amortized/accreted for financial statement purposes. Gains and losses realized on principal payment of mortgage backed securities (paydown gains and losses) are classified as part of investment income.

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 in accordance with procedures established by and under general supervision of the Trustees.

Additional information on restricted securities, excluding securities purchased under Rule 144A that have been deemed liquid by the Trustees, held at December 31, 2004, is as follows:

Security	Acquisition Date	Acquisition Cost
CVC Claims Litigation LLC	3/26/1997	$590,616
Russell Stanley Holdings, Inc.	2/5/1999	$ 1,250
Sleepmaster LLC	12/13/1999	$ 517,718

Use of Estimates

The preparation of financial statements in conformity with GAAP 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 a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.

3. SHARES OF BENEFICIAL INTEREST

The following table summarizes share activity:

Year Ended December 31	2004					2003
Primary Shares:	Shares			Amount		Shares			Amount
Shares sold	12,097,970		$	94,965,634		43,307,921		$	315,286,098
Shares issued to shareholders in payment of distributions declared	2,968,407			22,381,787		2,879,084			19,635,353
Shares redeemed	(17,698,451	)		(137,581,096	)	(38,284,007	)		(279,912,452	)
NET CHANGE RESULTING FROM PRIMARY SHARE TRANSACTIONS	(2,632,074	)	$	(20,233,675	)	7,902,998		$	55,008,999

Year Ended December 31	2004					2003
Service Shares:	Shares			Amount		Shares			Amount
Shares sold	13,728,648		$	107,851,791		15,812,831		$	117,021,284
Shares issued to shareholders in payment of distributions declared	871,563			6,562,867		497,141			3,390,501
Shares redeemed	(13,190,577	)		(102,471,793	)	(11,276,205	)		(82,549,957	)
NET CHANGE RESULTING FROM SERVICE SHARE TRANSACTIONS	1,409,634		$	11,942,865		5,033,767		$	37,861,828
NET CHANGE RESULTING FROM SHARE TRANSACTIONS	(1,222,440	)	$	(8,290,810	)	12,936,765		$	92,870,827

4. FEDERAL TAX INFORMATION

The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due in part to differing treatments for reversal of prior income adjustments on bonds sold, defaulted bond adjustments and discount accretion/premium amortization on debt securities.

For the year ended December 31, 2004, permanent differences identified and reclassified among the components of net assets were as follows:

Increase (Decrease)
Paid-In Capital	Undistributed Net Investment Income	Accumulated Net Realized Loss
$(8,524)	$1,878,792	$(1,870,268)

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

The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended December 31, 2004 and 2003 was as follows:

		2004		2003
Ordinary income1		$28,944,660		$23,025,860

1 For tax purposes short-term capital gain distributions are considered ordinary income distributions.

As of December 31, 2004, the components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income	$	30,835,287
Net unrealized appreciation	$	11,298,495
Capital loss carryforward	$	68,687,129

The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable in part to differing treatments for the tax deferral of losses on wash sales, defaulted bond adjustments and discount accretion/premium amortization on debt securities.

At December 31, 2004, the cost of investments for federal tax purposes was $404,225,721. The net unrealized appreciation of investments for federal tax purposes was $11,298,495. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $24,288,740 and net unrealized depreciation from investments for those securities having an excess of cost over value of $12,990,245.

At December 31, 2004, the Fund had a capital loss carryforward of $68,687,129 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire as follows:

Expiration Year		Expiration Amount
2008		$ 2,658,794
2009		$ 27,754,606
2010		$32,328,794
2011		$ 5,944,935

5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Administrative Fee

Maximum Administrative Fee		Average Aggregate Daily Net Assets of the Federated Funds
0.150%		on the first $5 billion
0.125%		on the next $5 billion
0.100%		on the next $10 billion
0.075%		on assets in excess of $20 billion

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 daily net assets of the Fund's Service Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses of up to 0.25% of average daily net assets, annually, to compensate FSC. FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion.

Shareholder Services Fee

Transfer and Dividend Disbursing Agent Fees and Expenses

Prior to July 1, 2004 Federated Services Company, through its subsidiary FSSC, served as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC was based on the size, type and number of accounts and transactions made by shareholders. The fee paid to FSSC during the reporting period was $16,364, after voluntary waiver, if applicable.

General

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

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations (and in-kind contributions), for the year ended December 31, 2004, were as follows:

Purchases		$	210,114,013
Sales		$	212,741,090

7. LEGAL PROCEEDINGS

Report of Independent Registered Public Accounting Firm

TO THE BOARD OF TRUSTEES OF FEDERATED INSURANCE SERIES AND THE 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 Federated Insurance Series) (the "Trust") as of December 31, 2004, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to provide reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of the securities owned at December 31, 2004, by correspondence with the custodian and brokers; where replies were not required from brokers, we performed other auditing procedures. We believe our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund of December 31, 2004, the results of its operations, the changes in its net assets and its financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Boston, Massachusetts
February 15, 2005

Board of Trustees and Trust Officers

INTERESTED TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
John F. Donahue* Birth Date: July 28, 1924 CHAIRMAN AND TRUSTEE Began serving: September 1993		Principal Occupations: Chairman and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Chairman and Director, Federated Investment Counseling.

J. Christopher Donahue* Birth Date: April 11, 1949 TRUSTEE Began serving: September 1993		Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd.

Lawrence D. Ellis, M.D.* Birth Date: October 11, 1932 3471 Fifth Avenue Suite 1111 Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center. Other Directorships Held: Member, National Board of Trustees, Leukemia Society of America. Previous Positions: Trustee, University of Pittsburgh; Director, University of Pittsburgh Medical Center.

INDEPENDENT TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
Thomas G. Bigley Birth Date: February 3, 1934 15 Old Timber Trail Pittsburgh, PA TRUSTEE Began serving: November 1994		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director, University of Pittsburgh. Previous Position: Senior Partner, Ernst & Young LLP.

John T. Conroy, Jr. Birth Date: June 23, 1937 Investment Properties Corporation 3838 North Tamiami Trail Suite 402 Naples, FL TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation.


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
Nicholas P. Constantakis Birth Date: September 3, 1939 175 Woodshire Drive Pittsburgh, PA TRUSTEE Began serving: February 1998		Principal Occupations: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Member of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC.

John F. Cunningham Birth Date: March 5, 1943 353 El Brillo Way Palm Beach, FL TRUSTEE Began serving: January 1999		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc.

Peter E. Madden Birth Date: March 16, 1942 One Royal Palm Way 100 Royal Palm Way Palm Beach, FL TRUSTEE Began serving: September 1993		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.

Charles F. Mansfield, Jr. Birth Date: April 10, 1945 80 South Road Westhampton Beach, NY TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; Management Consultant; Executive Vice President, DVC Group, Inc. (marketing communications and technology) (prior to 9/1/00). Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University.

John E. Murray, Jr., J.D., S.J.D. Birth Date: December 20, 1932 Chancellor, Duquesne University Pittsburgh, PA TRUSTEE Began serving: February 1995		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chancellor and Law Professor, Duquesne University; Partner, Murray, Hogue and Lannis. Other Directorships Held: Director, Michael Baker Corp. (engineering, construction, operations and technical services). Previous Positions: President, Duquesne University; Dean and Professor of Law, University of Pittsburgh School of Law; Dean and Professor of Law, Villanova University School of Law.

Marjorie P. Smuts Birth Date: June 21, 1935 4905 Bayard Street Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Public Relations/Marketing Consultant/Conference Coordinator. Previous Positions: National Spokesperson, Aluminum Company of America; television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord.

John S. Walsh Birth Date: November 28, 1957 2604 William Drive Valparaiso, IN TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc.

OFFICERS


Name Birth Date Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years and Previous Position(s)
John B. Fisher Birth Date: May 16, 1956 PRESIDENT Began serving: November 2004		Principal Occupations: Vice President of some of the Funds in the Federated Fund Complex; and President and Director of the Institutional Sales Division of Federated Securities Corp., which is a wholly owned subsidiary of Federated. Mr. Fisher is responsible for the distribution of Federated's products and services to investment advisers, insurance companies, retirement plans, and corporations. In addition, Mr. Fisher serves as President and Director of Federated Investment Counseling, a wholly owned subsidiary of Federated involved in the management of separate accounts and sub-advised mandates. He is also President, Technology, Federated Services Corp. responsible for the technological infrastructure of the various Federated companies. He is also Director, Edgewood Securities Corp., as well as Director, Federated Investors Trust Company. Previous Positions: Senior Vice President of Federated Investment Counseling.

John W. McGonigle Birth Date: October 26, 1938 EXECUTIVE VICE PRESIDENT AND SECRETARY Began serving: September 1993		Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc.

Richard J. Thomas Birth Date: June 17, 1954 TREASURER Began serving: September 1997		Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services.

Richard B. Fisher Birth Date: May 17, 1923 VICE PRESIDENT Began serving: November 1998		Principal Occupations: Vice Chairman or President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. Previous Positions: President and Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice President, Federated Investors, Inc.; and Director and Chief Executive Officer, Federated Securities Corp.

Stephen F. Auth Birth Date: September 3, 1956 CHIEF INVESTMENT OFFICER Began serving: November 2002		Principal Occupations: Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Equity Management Company of Pennsylvania and Passport Research II, Ltd. Previous Positions: Executive Vice President, Federated Investment Management Company, and Passport Research, Ltd.; Senior Vice President, Global Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd.; Senior Managing Director and Portfolio Manager, Prudential Investments.

Robert J. Ostrowski Birth Date: April 26, 1963 CHIEF INVESTMENT OFFICER Began serving: May 2004		Principal Occupations: Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of taxable, fixed-income products in 2004 and also serves as a Senior Portfolio Manager. He has been a Senior Vice President of the Fund's Adviser since 1997. Mr. Ostrowski is a Chartered Financial Analyst. He received his M.S. in Industrial Administration from Carnegie Mellon University

VOTING PROXIES ON FUND PORTFOLIO SECURITIES

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Federated's Internet site. Go to http://www.federatedinvestors.com, select "Products," open the "Variable Annuities" Section, then select the link to "sec-gov" to access to the link for Form N-PX. This information is also available from the EDGAR database on the SEC's Internet site at http://www.sec.gov.

QUARTERLY PORTFOLIO SCHEDULE

Variable investment options 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. Investments in variable investment options involves investment risk, including the possible loss of principal.

Federated
World-Class Investment Manager

Federated High Income Bond Fund II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Cusip 313916306
Cusip 313916843

G00844-01 (2/05)

Federated is a registered mark of Federated Investors, Inc. 2005 (c)Federated Investors, Inc.

Federated
World-Class Investment Manager

Federated International Equity Fund II

A Portfolio of Federated Insurance Series

ANNUAL SHAREHOLDER REPORT

December 31, 2004

Not FDIC Insured * May Lose Value * No Bank Guarantee

Financial Highlights

(For a Share Outstanding Throughout Each Period)

Year Ended December 31	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$11.59		$ 8.79		$11.38		$18.49		$27.64
Income From Investment Operations:
Net investment income	0.00	1	0.01	2	0.02		0.03	2	0.05
Net realized and unrealized gain (loss) on investments and foreign currency transactions	1.63		2.79		(2.61	)	(5.15	)	(4.93	)
TOTAL FROM INVESTMENT OPERATIONS	1.63		2.80		(2.59	)	(5.12	)	(4.88	)
Less Distributions:
Distributions from net realized gain on investments and foreign currency transactions	--		--		--		(1.99	)	(4.27	)
Net Asset Value, End of Period	$13.22		$11.59		$ 8.79		$11.38		$18.49
Total Return3	14.06	%	31.85	%	(22.76	)%	(29.42	)%	(22.61	)%

Ratios to Average Net Assets:
Expenses	1.57	%4	1.70	%4	1.50	%4	1.41	%	1.28	%
Net investment income	0.03	%	0.15	%	0.26	%	0.23	%	0.17	%
Expense waiver/reimbursement5	0.05	%	0.05	%	0.10	%	0.10	%	0.02	%
Supplemental Data:
Net assets, end of period (000 omitted)	$53,093		$45,924		$37,488		$60,632		$98,180
Portfolio turnover	87	%	193	%	103	%	206	%	262	%

1 Amount represents less than $0.01.

2 Per share information is based on average shares outstanding.

4 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios are 1.57%, 1.70%, and 1.50% for the years ended December 31, 2004, 2003, and 2002, respectively, after taking into account these expense reductions.

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

See Notes which are an integral part of the Financial Statements

Shareholder Expense Example

As a shareholder of the Fund, you incur ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees and/or shareholder services fees; and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other variable investment options. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2004 to December 31, 2004.

ACTUAL EXPENSES

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

	Beginning Account Value 7/1/2004	Ending Account Value 12/31/2004	Expenses Paid During Period1
Actual	$1,000	$1,110.90	$7.96
Hypothetical (assuming a 5% return before expenses)	$1,000	$1,017.60	$7.61

1 Expenses are equal to the Fund's annualized expense ratio of 1.50%, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).

Management's Discussion of Fund Performance

World markets as measured by the Morgan Stanley Capital International World Index (MSCI-WI)1 appreciated 16.38% in 2004. International markets trailed the U.S. (up 18% as measured by the MSCI-WI, slightly. Most notable in their differences from the average were Australia to the upside (32%) as measured by the MSCI-WI and Japan as measured by the MSCI-WI to the downside (up 10%). Excluding minor markets, the year was notable for its lack of spread in returns. Almost all of the positive performance came in the fourth quarter of 2004, buoyed by the Bush re-election, lower oil prices, low inflation, and slowing interest rate hikes.

FUND PERFORMANCE

As of December 31, 2004, Federated International Equity Fund II produced a 12-month total return of 14.06%. The Fund underperformed its benchmark, the Morgan Stanley Capital International-Europe, Australasia and Far East Growth Index (MSCI-EAFE GI),2 which returned 16.12% for the same period.

The biggest positive contributors in the year were stock selection in the tech sector (notably in Guernsey incorporated telecom software provider Amdocs), in the U.K. (most notably in food retailer Tesco), our Russian energy stocks (especially Gazprom) and stock selection and our overweight in Germany (industrial conglomerate Siemens was the star here). The biggest detractors from performance were our underweight in Australia (which was somewhat counterbalanced in the like-sectored Canadian market), our underweight in Italy, our stock selection in diversified financials (especially Amvescap), our stock selection in consumer staples, not owning Spanish telco Telefonica, not owning French pharmaceutical Sanofi-Aventis and owning Japanese stocks SMC and Nomura. Our largest holdings as of December 31, 2004, included Vodafone Group, GlaxoSmithKline PLC, Siemens AG, Deutsche Telekom AG, Mitsubishi Tokyo Financial Group, Total SA, Reckitt Benckiser PLC, Diageo PLC, Rio Tinto PLC, and Tesco PLC.

1 The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. As of December 2003, the MSCI World Index consisted of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States.

2 MSCI Europe, Australasia and Far East Index (EAFE) is an unmanaged market capitalization-weighted equity index comprising 20 of the 48 countries in the MSCI universe and representing the developed world outside of North America. Each MSCI country index is created separately, then aggregated, without change, into regional MSCI indices. EAFE performance data is calculated in U.S. dollars and in local currency.

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

Average Annual Total Returns for the Period Ended 12/31/2004
1 Year		14.06%
5 Years		(8.70)%
Start of Performance (5/8/1995)		6.39%

The graph above illustrates the hypothetical investment of $10,0001 in the Federated International Equity Fund II (the "Fund") from May 8, 1995 (start of performance) to December 31, 2004, compared to the Morgan Stanley Capital International Europe, Australasia, and Far East Growth Index (MSCI-EAFE GI).2

1 The Fund's performance assumes the reinvestment of all dividends and distributions. The MSCI-EAFE GI has been adjusted to reflect reinvestment of dividends on securities in the index.

2 The MSCI-EAFE GI is not adjusted to reflect sales charges, expenses, or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The index is unmanaged, and unlike the Fund, is not affected by cashflows. It is not possible to invest directly in an index.

Portfolio of Investments Summary Tables

At December 31, 2004, the Fund's portfolio composition1 was as follows:

Country		Percentage of Total Net Assets
United Kingdom		24.3%
Japan		18.3%
Germany		12.6%
France		11.6%
Switzerland		8.5%
Canada		3.8%
Taiwan		3.5%
Netherlands		2.7%
Russia		2.4%
United States		1.9%
Hong Kong		1.3%
Singapore		1.3%
Mexico		1.2%
Spain		1.1%
Ireland		1.0%
Finland		1.0%
Denmark		1.0%
Cash Equivalents2		2.3%
Other Assets and Liabilities--Net3		0.2%
TOTAL		100.0%

At December 31, 2004, the Fund's sector classification composition4 was as follows:

Sector Classification		Percentage of Total Net Assets
Information Technology		13.7%
Financials		13.1%
Materials		11.9%
Consumer Discretionary		10.6%
Industrials		10.5%
Healthcare		10.3%
Consumer Staples		9.9%
Telecommunication Services		9.0%
Energy		7.1%
Utilities		1.4%
Cash Equivalents2		2.3%
Other Assets and Liabilities--Net3		0.2%
TOTAL	100.0%

1 Country allocations are based primarily on the country in which a company is incorporated. However, the Fund's adviser may allocate a company to a country based on other factors such as location of the company's principal office, the location of the principal trading market for the company's securities, or the country where a majority of the company's revenues are derived.

2 Cash Equivalents includes investments in money market mutual funds and any investments in overnight repurchase agreements. This does not include cash held in the Fund that is denominated in foreign currencies. See the Statement of Assets and Liabilities for information regarding the Fund's foreign cash position.

3 See Statement of Assets and Liabilities.

4 Except for cash equivalents, sector classifications are based upon, and individual securities assigned to, the classifications of the Global Industry Classification System except that the adviser assigns an index classification to securities not classified by the Global Industry Classification System and to securities for which the adviser does not have access to the classification made by the Global Industry Classification System.

Portfolio of Investments

December 31, 2004

Shares				Value in U.S. Dollars
			COMMON STOCKS--97.5%
			CANADA--3.8%
			Materials--2.8%
	11,600		Alcan, Inc.	$	568,864
	22,100	1	Glamis Gold Ltd.		379,236
	28,700		Placer Dome, Inc.		541,282
			TOTAL		1,489,382
			Technology Hardware & Equipment--1.0%
	36,200	1	Celestica, Inc.		510,782
			TOTAL CANADA		2,000,164
			DENMARK--1.0%
			Health Care Equipment & Services--1.0%
	47,500		GN Store Nord AS		512,101
			FINLAND--1.0%
			Materials--1.0%
	35,900		Stora Enso Oyj, Class R		549,943
			FRANCE--11.6%
			Banks--1.0%
	7,600		BNP Paribas SA		550,605
			Capital Goods--1.4%
	10,600		Schneider Electric SA		737,692
			Energy--3.7%
	2,900		Technip-Coflexip SA		536,088
	6,440		Total SA, Class B		1,406,698
			TOTAL		1,942,786
			Insurance--1.5%
	33,300		AXA		822,882
			Software & Services--1.4%
	14,500		Dassault Systemes SA		731,208
			Telecommunication Services--1.2%
	19,400		France Telecommunications		642,360
			Utilities--1.4%
	20,500		Veolia Environnement		742,035
			TOTAL FRANCE		6,169,568
			GERMANY, FEDERAL REPUBLIC OF--12.6%
			Capital Goods--3.2%
	20,200		Siemens AG		1,712,758
			Materials--1.1%
	17,300		Bayer AG		586,465
			Pharmaceuticals & Biotechnology--1.4%
	9,500		Schering AG		710,337
Shares				Value in U.S. Dollars
			COMMON STOCKS--continued
			GERMANY, FEDERAL REPUBLIC OF--continued
			Software & Services--2.1%
	6,300		SAP AG (Systeme, Anwendungen, Produkte in der Datenverarbeitung)	$	1,125,214
			Telecommunication Services--3.2%
	75,100	1	Deutsche Telekom AG, Class REG		1,699,626
			Transportation--1.6%
	36,600		Deutsche Post AG		840,750
			TOTAL GERMANY, FEDERAL REPUBLIC OF		6,675,150
			HONG KONG--1.3%
			Real Estate--1.3%
	70,000		Sun Hung Kai Properties		700,207
			IRELAND--1.0%
			Pharmaceuticals & Biotechnology--1.0%
	20,700	1	Elan Corp. PLC, ADR		564,075
			JAPAN--18.3%
			Automobiles & Components--1.0%
	10,400		Honda Motor Co. Ltd.		538,929
			Banks--2.7%
	142		Mitsubishi Tokyo Financial Group, Inc.		1,441,202
			Capital Goods--1.2%
	9,700		Fanuc Ltd.		634,234
			Commercial Services & Supplies--0.9%
	12,500		Secom Co. Ltd.		500,146
			Consumer Durables & Apparel--3.3%
	63,000		Matsushita Electric Industrial Co.		999,688
	45,000		Sharp Corp.		734,703
			TOTAL		1,734,391
			Food & Staples Retailing--1.6%
	27,000		Seven-Eleven Japan		851,078
			Materials--1.6%
	169,000		Sumitomo Chemical Co.		827,930
			Media--1.0%
	200		Dentsu, Inc.		538,694
			Pharmaceuticals & Biotechnology--1.0%
	13,800		Yamanouchi Pharmaceutical Co. Ltd.		537,348
			Retailing--1.0%
	6,800		Fast Retailing Co. Ltd.		517,615
			Software & Services--0.8%
	100		Net One Systems Co. Ltd.		416,707
			Technology Hardware & Equipment--2.2%
	5,500		Hoya Corp.		621,011
	12,100		Seiko Epson Corp.		538,460
			TOTAL		1,159,471
			TOTAL JAPAN		9,697,745
Shares				Value in U.S. Dollars
			COMMON STOCKS--continued
			MEXICO--1.2%
			Media--1.2%
	11,100		Grupo Televisa SA, GDR	$	671,550
			NETHERLANDS--2.7%
			Banks--1.0%
	20,500		ABN AMRO Holdings NV		543,081
			Semiconductors & Semiconductor Equipment--1.7%
	55,900	1	ASM Lithography Holding NV		897,348
			TOTAL NETHERLANDS		1,440,429
			RUSSIA--2.4%
			Energy--2.4%
	21,800		Gazprom, ADR		773,900
	13,000		Surgutneftegaz, ADR		486,200
			TOTAL RUSSIA		1,260,100
			SINGAPORE--1.3%
			Banks--1.3%
	84,000		Oversea-Chinese Banking Corp. Ltd.		694,683
			SPAIN--1.1%
			Energy--1.1%
	22,300		Repsol YPF SA		580,764
			SWITZERLAND--8.5%
			Consumer Durables & Apparel--1.2%
	18,800		Compagnie Financiere Richemont AG		625,785
			Diversified Financials--1.3%
	8,300		UBS AG		695,985
			Food Beverage & Tobacco--1.0%
	2,000		Nestle SA		523,261
			Materials--3.0%
	13,000		Holcim Ltd.		783,133
	14,100		Lonza AG		793,598
			TOTAL		1,576,731
			Pharmaceuticals & Biotechnology--2.0%
	9,400		Roche Holding AG		1,082,104
			TOTAL SWITZERLAND		4,503,866
			TAIWAN, PROVINCE OF CHINA--3.5%
			Semiconductors & Semiconductor Equipment--2.1%
	692,000	1	Nanya Technology Corp.		565,566
	329,482	1	Taiwan Semiconductor Manufacturing Co.		525,050
			TOTAL		1,090,616
			Technology Hardware & Equipment--1.4%
	288,200		Asustek Computer, Inc.		768,473
			TOTAL TAIWAN, PROVINCE OF CHINA		1,859,089
Shares or Principal Amount				Value in U.S. Dollars
			COMMON STOCKS--continued
			UNITED KINGDOM--24.3%
			Banks--1.5%
	23,270		Royal Bank of Scotland PLC, Edinburgh	$	782,726
			Capital Goods--1.2%
	39,500		Smiths Industries		623,373
			Commercial Services & Supplies--0.9%
	211,600		Hays PLC		504,767
			Diversified Financials--1.4%
	121,000		Amvescap PLC		745,128
			Food & Staples Retailing--2.4%
	208,400		Tesco PLC		1,287,346
			Food Beverage & Tobacco--2.4%
	91,200		Diageo PLC		1,300,956
			Household & Personal Products--2.5%
	43,150		Reckitt Benckiser PLC		1,303,961
			Materials--2.4%
	43,900		Rio Tinto PLC		1,292,069
			Pharmaceuticals & Biotechnology--3.9%
	87,900		GlaxoSmithKline PLC		2,062,239
			Software & Services--1.1%
	22,400	1	Amdocs Ltd.		588,000
			Telecommunication Services--4.6%
	893,018		Vodafone Group PLC		2,421,741
			TOTAL UNITED KINGDOM		12,912,306
			UNITED STATES--1.9%
			Media--1.9%
	52,050		News Corp., Inc.		999,360
			TOTAL COMMON STOCKS (IDENTIFIED COST $41,493,453)		51,791,100
			REPURCHASE AGREEMENT--2.3%
$	1,207,000		Interest in $2,000,000,000 joint repurchase agreement with UBS Securities LLC, 2.280%, dated 12/31/2004 to be repurchased at $1,207,229 on 1/3/2005, collateralized by U.S. Government Agency Obligations with various maturities to 9/25/2034, collateral market value $2,060,003,250 (AT AMORTIZED COST)		1,207,000
			TOTAL INVESTMENTS--99.8% (IDENTIFIED COST $42,700,453)2		52,998,100
			OTHER ASSETS AND LIABILITIES - NET--0.2%		94,550
			TOTAL NET ASSETS--100%	$	53,092,650

1 Non-income producing security.

2 The cost of investments for federal tax purposes amounts to $42,898,178.

Note: The categories of investments are shown as a percentage of total net assets at December 31, 2004.

The following acronyms are used throughout this portfolio:

ADR	--American Depositary Receipt
GDR	--Global Depositary Receipt

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

December 31, 2004

Assets:
Total investments in securities, at value (identified cost $42,700,453)			$	52,998,100
Cash				781
Cash denominated in foreign currencies (identified cost $90,724)				98,913
Income receivable				84,311
Receivable for shares sold				13,002
TOTAL ASSETS				53,195,107
Liabilities :
Payable for shares redeemed	$	72,551
Payable for transfer and dividend disbursing agent fees and expenses		6,258
Payable for auditing fees		15,500
Payable for custodian fees		5,024
Accrued expenses		3,124
TOTAL LIABILITIES				102,457
Net assets for 4,016,983 shares outstanding			$	53,092,650
Net Assets Consist of:
Paid-in capital			$	72,434,077
Net unrealized appreciation of investments and translation of assets and liabilities in foreign currency				10,311,423
Accumulated net realized loss on investments and foreign currency transactions				(29,652,850	)
TOTAL NET ASSETS			$	53,092,650
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
$53,092,650 ÷ 4,016,983 shares outstanding, no par value, unlimited shares authorized				$13.22

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended December 31, 2004

Investment Income:
Dividends (net of foreign taxes withheld of $95,425)							$	748,856
Interest								15,983
TOTAL INCOME								764,839
Expenses:
Investment adviser fee (Note 5)				$	477,763
Administrative personnel and services fee (Note 5)					150,000
Custodian fees					28,920
Transfer and dividend disbursing agent fees and expenses (Note 5)					15,615
Directors'/Trustees' fees					1,091
Auditing fees					18,171
Legal fees					6,409
Portfolio accounting fees					48,175
Printing and postage					19,982
Insurance premiums					7,506
Interest expense					419
Miscellaneous					962
TOTAL EXPENSES					775,013
Waiver and Expense Reductions (Note 5):
Waiver of administrative personnel and services fee	$	(24,524	)
Fees paid indirectly from directed brokerage arrangement		(683	)
TOTAL WAIVER AND EXPENSE REDUCTIONS					(25,207	)
Net expenses								749,806
Net investment income								15,033
Realized and Unrealized Gain on Investments and Foreign Currency Transactions:
Net realized gain on investments and foreign currency transactions (net of foreign capital gain taxes withheld of $1,060)								4,537,766
Net change in unrealized appreciation of investments and translation of assets and liabilities in foreign currency								1,956,463
Net realized and unrealized gain on investments and foreign currency transactions								6,494,229
Change in net assets resulting from operations							$	6,509,262

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

Year Ended December 31		2004			2003
Increase (Decrease) in Net Assets
Operations:
Net investment income	$	15,033		$	63,180
Net realized gain on investments and foreign currency transactions		4,537,766			2,273,424
Net change in unrealized appreciation/depreciation of investments and translation of assets and liabilities in foreign currency		1,956,463			9,869,547
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS		6,509,262			12,206,151
Share Transactions:
Proceeds from sale of shares		17,525,821			112,239,677
Cost of shares redeemed		(16,866,895	)		(116,009,033	)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS		658,926			(3,769,356	)
Change in net assets		7,168,188			8,436,795
Net Assets:
Beginning of period		45,924,462			37,487,667
End of period	$	53,092,650		$	45,924,462

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

December 31, 2004

1. ORGANIZATION

Federated Insurance Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of 11 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 primary investment objective of the Fund is to obtain a total return on its assets.

2. SIGNIFICANT ACCOUNTING POLICIES

Investment Valuation

Domestic and foreign equity securities are valued at the last sale price or official closing price reported in the market in which they are primarily traded (either a national securities exchange or the over-the-counter market), if available. If unavailable, the security is generally valued at the mean between the last closing bid and asked prices. 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 (NYSE). Therefore, foreign securities are valued at the latest closing price on the exchange on which they are traded immediately prior to the closing of the NYSE. Foreign securities quoted in foreign currencies are translated in U.S. dollars at the foreign exchange rate in effect at 4:00 p.m., Eastern Time, on the day the value of the foreign security is determined. Fixed income, listed corporate bonds, 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. 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. Securities for which no quotations are readily available or whose values have been affected by a significant event occurring between the close of their primary markets and the closing of the NYSE are valued at fair value as determined in accordance with procedures established by and under general supervision of the Board of Trustees (the "Trustees").

Repurchase Agreements

Investment Income, Expenses and Distributions

Premium and Discount Amortization

All premiums and discounts on fixed income securities are amortized/accreted for financial statement purposes.

Federal Taxes

Withholding taxes on foreign interest, dividends and capital gains have been provided for in accordance with the applicable country's tax rules and rates.

When-Issued and Delayed Delivery Transactions

Foreign Exchange Contracts

At December 31, 2004, the Fund had no outstanding foreign currency commitments.

Foreign Currency Translation

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

The preparation of financial statements in conformity with GAAP 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 a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.

3. SHARES OF BENEFICIAL INTEREST

The following table summarizes share activity:

Year Ended December 31	2004		2003
Shares sold	1,467,430		12,171,909
Shares redeemed	(1,412,811	)	(12,473,804	)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS	54,619		(301,895	)

4. FEDERAL TAX INFORMATION

For the year ended December 31, 2004, permanent differences identified and reclassified among the components of net assets were as follows:

Increase (Decrease)
Paid-In Capital	Undistributed Net Investment Income	Accumulated Net Realized Losses
$(21,252)	$(8,453)	$29,705

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

As of December 31, 2004, the components of distributable earnings on a tax basis were as follows:

Net unrealized appreciation		$	10,113,698
Capital loss carryforward		$	29,455,125

The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the tax deferral of losses on wash sales.

At December 31, 2004, the cost of investments for federal tax purposes was $42,898,178. The net unrealized appreciation of investments for federal tax purposes excluding any unrealized appreciation resulting from changes in foreign currency exchange rates was $10,099,922. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $10,150,451 and net unrealized depreciation from investments for those securities having an excess of cost over value of $50,529.

At December 31, 2004, the Fund had a capital loss carryforward of $29,455,125 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire as follows:

Expiration Year		Expiration Amount
2009		$17,531,854
2010		$11,923,271

5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Federated Global Investment Management Corp., the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser 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

Maximum Administrative Fee		Average Aggregate Daily Net Assets of the Federated Funds
0.150%		on the first $5 billion
0.125%		on the next $5 billion
0.100%		on the next $10 billion
0.075%		on assets in excess of $20 billion

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 the average daily net assets of the Fund's Shares for the period. The fee paid to FSSC is used to finance certain services for shareholders and to maintain shareholder accounts. 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

Prior to July 1, 2004, Federated Services Company, through its subsidiary FSSC, served as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC was based on the size, type and number of accounts and transactions made by shareholders. The fee paid to FSSC during the reporting period was $7,778, after voluntary waiver, if applicable.

Expense Reduction

The Fund directs certain portfolio trades to a broker that in turn pays a portion of the Fund's operating expenses. For the year ended December 31, 2004, the Fund's expenses were reduced by $683 under these arrangements.

General

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

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations (and in-kind contributions), for the year ended December 31, 2004, were as follows:

Purchases		$	41,504,749
Sales		$	40,300,768

7. CONCENTRATION OF CREDIT RISK

At December 31, 2004, the diversification of sectors was as follows:

Sector		Percentage of Net Assets
Information Technology		13.7%
Financials		13.1%
Materials		11.9%
Consumer Discretionary		10.6%
Industrials		10.5%
Healthcare		10.3%
Consumer Staples		9.9%
Telecommunication Services		9.0%
Energy		7.1%
Utilities		1.4%

8. LINE OF CREDIT

The Fund, along with Federated World Investment Series, Inc. and Federated International Series, Inc., has entered into a $75,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with State Street Corporation. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate of 0.50% over the federal funds rate. As of December 31, 2004, there were no outstanding loans. During the year ended December 31, 2004, the maximum outstanding borrowing was $1,471,000. The Fund had an average outstanding daily balance of $482,545 with a high and low interest rate of 2.25% and 1.50%, respectively, representing only the days the LOC was utilized. Interest expense totaled $419 for the year ended December 31, 2004.

9. LEGAL PROCEEDINGS

Beginning in October 2003, Federated Investors, Inc. and various subsidiaries thereof (including the advisers and distributor for various investment companies, collectively, "Federated"), along with various investment companies sponsored by Federated (Funds) were named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland seeking damages of unspecified amounts. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. Federated and various Funds have also been named as defendants in several additional lawsuits, the majority of which are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees, and seeking damages of unspecified amounts. The Board of the Funds has retained the law firm of Dickstein Shapiro Morin & Oshinsky LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these recent lawsuits and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Fund redemptions, reduced sales of Fund shares, or other adverse consequences for the Funds.

Report of Independent Registered Public Accounting Firm

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 Federated Insurance Series) (the "Trust") as of December 31, 2004, the related statement of operations for the year then ended, the statement of changes in net assets for the years ended December 31, 2004 and 2003, and the financial highlights for each of the five years in the period then ended. 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to provide reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures include confirmation of securities owned as of December 31, 2004, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2004, the results of its operations, the changes in its net assets and its financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Boston, Massachusetts
February 15, 2005

Board of Trustees and Trust Officers

INTERESTED TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
John F. Donahue* Birth Date: July 28, 1924 CHAIRMAN AND TRUSTEE Began serving: September 1993		Principal Occupations: Chairman and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Chairman and Director, Federated Investment Counseling.

J. Christopher Donahue* Birth Date: April 11, 1949 TRUSTEE Began serving: September 1993		Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd.

Lawrence D. Ellis, M.D.* Birth Date: October 11, 1932 3471 Fifth Avenue Suite 1111 Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center. Other Directorships Held: Member, National Board of Trustees, Leukemia Society of America. Previous Positions: Trustee, University of Pittsburgh; Director, University of Pittsburgh Medical Center.

INDEPENDENT TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
Thomas G. Bigley Birth Date: February 3, 1934 15 Old Timber Trail Pittsburgh, PA TRUSTEE Began serving: November 1994		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director, University of Pittsburgh. Previous Position: Senior Partner, Ernst & Young LLP.

John T. Conroy, Jr. Birth Date: June 23, 1937 Investment Properties Corporation 3838 North Tamiami Trail Suite 402 Naples, FL TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation.


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
Nicholas P. Constantakis Birth Date: September 3, 1939 175 Woodshire Drive Pittsburgh, PA TRUSTEE Began serving: February 1998		Principal Occupations: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Member of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC.

John F. Cunningham Birth Date: March 5, 1943 353 El Brillo Way Palm Beach, FL TRUSTEE Began serving: January 1999		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc.

Peter E. Madden Birth Date: March 16, 1942 One Royal Palm Way 100 Royal Palm Way Palm Beach, FL TRUSTEE Began serving: September 1993		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.

Charles F. Mansfield, Jr. Birth Date: April 10, 1945 80 South Road Westhampton Beach, NY TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; Management Consultant; Executive Vice President, DVC Group, Inc. (marketing communications and technology) (prior to 9/1/00). Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University.

John E. Murray, Jr., J.D., S.J.D. Birth Date: December 20, 1932 Chancellor, Duquesne University Pittsburgh, PA TRUSTEE Began serving: February 1995		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chancellor and Law Professor, Duquesne University; Partner, Murray, Hogue and Lannis. Other Directorships Held: Director, Michael Baker Corp. (engineering, construction, operations and technical services). Previous Positions: President, Duquesne University; Dean and Professor of Law, University of Pittsburgh School of Law; Dean and Professor of Law, Villanova University School of Law.

Marjorie P. Smuts Birth Date: June 21, 1935 4905 Bayard Street Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Public Relations/Marketing Consultant/Conference Coordinator. Previous Positions: National Spokesperson, Aluminum Company of America; television producer; President, Marj Palmer Assoc.; Owner, Scandia Board.

John S. Walsh Birth Date: November 28, 1957 2604 William Drive Valparaiso, IN TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc.

OFFICERS


Name Birth Date Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years and Previous Position(s)
John B. Fisher Birth Date: May 16, 1956 PRESIDENT Began serving: November 2004		Principal Occupations: Vice President of some of the Funds in the Federated Fund Complex; and President and Director of the Institutional Sales Division of Federated Securities Corp., which is a wholly owned subsidiary of Federated. Mr. Fisher is responsible for the distribution of Federated's products and services to investment advisers, insurance companies, retirement plans, and corporations. In addition, Mr. Fisher serves as President and Director of Federated Investment Counseling, a wholly owned subsidiary of Federated involved in the management of separate accounts and sub-advised mandates. He is also President, Technology, Federated Services Corp. responsible for the technological infrastructure of the various Federated companies. He is also Director, Edgewood Securities Corp., as well as Director, Federated Investors Trust Company. Previous Positions: Senior Vice President of Federated Investment Counseling.

John W. McGonigle Birth Date: October 26, 1938 EXECUTIVE VICE PRESIDENT AND SECRETARY Began serving: September 1993		Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc.

Richard J. Thomas Birth Date: June 17, 1954 TREASURER Began serving: September 1997		Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services.

Richard B. Fisher Birth Date: May 17, 1923 VICE PRESIDENT Began serving: November 1998		Principal Occupations: Vice Chairman or President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. Previous Positions: President and Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice President, Federated Investors, Inc.; and Director and Chief Executive Officer, Federated Securities Corp.

Stephen F. Auth Birth Date: September 3, 1956 CHIEF INVESTMENT OFFICER Began serving: November 2002		Principal Occupations: Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Equity Management Company of Pennsylvania and Passport Research II, Ltd. Previous Positions: Executive Vice President, Federated Investment Management Company, and Passport Research, Ltd.; Senior Vice President, Global Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd.; Senior Managing Director and Portfolio Manager, Prudential Investments.

Robert J. Ostrowski Birth Date: April 26, 1963 CHIEF INVESTMENT OFFICER Began serving: May 2004		Principal Occupations: Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of taxable, fixed-income products in 2004 and also serves as a Senior Portfolio Manager. He has been a Senior Vice President of the Fund's Adviser since 1997. Mr. Ostrowski is a Chartered Financial Analyst. He received his M.S. in Industrial Administration from Carnegie Mellon University.

VOTING PROXIES ON FUND PORTFOLIO SECURITIES

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Federated's Internet site. Go to http://www.federatedinvestors.com, select "Products," open the "Variable Annuities" Section, then select the link to "sec-gov" to access to the link for Form N-PX. This information is also available from the EDGAR database on the SEC's Internet site at http://www.sec.gov.

QUARTERLY PORTFOLIO SCHEDULE

Variable investment options 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. Investments in variable investment options involves investment risk, including the possible loss of principal.

Federated
World-Class Investment Manager

Federated International Equity Fund II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Cusip 313916603

G01077-01 (2/05)

Federated is a registered mark of Federated Investors, Inc. 2005 (c)Federated Investors, Inc.

Federated
World-Class Investment Manager

Federated Kaufmann Fund II

A Portfolio of Federated Insurance Series

ANNUAL SHAREHOLDER REPORT

December 31, 2004

Primary Shares
Service Shares

Not FDIC Insured * May Lose Value * No Bank Guarantee

Financial Highlights - Primary Shares

(For a Share Outstanding Throughout Each Period)

	Year Ended 12/ 31/2004		Year Ended 12/31/2003		Period Ended 12/31/2002	1
Net Asset Value, Beginning of Period	$11.40		$ 8.16		$10.00
Income From Investment Operations:
Net investment income (loss)	(0.07	) 2	(0.10	)2	(0.00	)
Net realized and unrealized gain (loss) on investments and foreign currency transactions	1.74		3.34		(1.84	)
TOTAL FROM INVESTMENT OPERATIONS	1.67		3.24		(1.84	)
Less Distributions:
Distributions from net realized gain on investments	(0.0007	)	--		--
Net Asset Value, End of Period	$13.07		$11.40		$ 8.16
Total Return3	14.66	%	39.71	%	(18.40	)%

Ratios to Average Net Assets:
Expenses	1.50	%	1.50	%	1.50	%4
Net investment income (loss)	(0.63	)%	(0.98	)%	(1.02	)%4
Expense waiver/reimbursement5	1.04	%	5.14	%	95.85	%4
Supplemental Data:
Net assets, end of period (000 omitted)	$17,940		$5,741		$651
Portfolio turnover	77	%	38	%	19	%

1 Reflects operations for the period from April 30, 2002 (date of initial public investment) to December 31, 2002.

2 Per share information is based on average shares outstanding.

4 Computed on an annualized basis.

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

See Notes which are an integral part of the Financial Statements.

Financial Highlights - Service Shares

(For a Share Outstanding Throughout Each Period)

	Year Ended 12/31/2004		Period Ended 12/31/2003	1
Net Asset Value, Beginning of Period	$11.40		$ 8.46
Income From Investment Operations:
Net investment income (loss)	(0.11	) 2	(0.08	)2
Net realized and unrealized gain on investments and foreign currency transactions	1.76		3.02
TOTAL FROM INVESTMENT OPERATIONS	1.65		2.94
Less Distributions:
Distributions from net realized gain on investments	(0.0007	)	--
Net Asset Value, End of Period	$13.05		$11.40
Total Return3	14.48	%	34.75	%

Ratios to Average Net Assets:
Expenses	1.75	%	1.75	%4
Net investment income (loss)	(0.90	)%	(1.16	)%4
Expense waiver/reimbursement5	1.04	%	5.14	%4
Supplemental Data:
Net assets, end of period (000 omitted)	$37,120		$14,575
Portfolio turnover	77	%	38	%6

1 Reflects operations for the period from May 1, 2003 (date of initial public investment) to December 31, 2003.

2 Per share information is based on average shares outstanding.

4 Computed on an annualized basis.

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

6 Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the year ended December 31, 2003.

See Notes which are an integral part of the Financial Statements.

Shareholder Expense Example

As a shareholder of the Fund, you incur ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees and/or shareholder services fees; and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other variable investment options. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2004 to December 31, 2004.

ACTUAL EXPENSES

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

	Beginning Account Value 7/1/2004	Ending Account Value 12/31/2004	Expenses Paid During Period1
Actual:
Primary Shares	$1,000	$1,089.20	$7.88
Service Shares	$1,000	$1,088.40	$9.19
Hypothetical (assuming a 5% return before expenses):
Primary Shares	$1,000	$1,017.60	$7.61
Service Shares	$1,000	$1,016.34	$8.87

1 Expenses are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). The annualized expense ratios are as follows:

Primary Shares		1.50%
Service Shares		1.75%

Management's Discussion of Fund Performance

For the fiscal year ended December 31, 2004, the Fund returned 14.66% and 14.48% at net asset value for Primary Shares and Service Shares, respectively, as compared to the average Lipper VA Mid-Cap Growth Index,1 which was up 14.75%. Broadly speaking, mid-cap growth stocks were up for the reporting period. The Russell Mid-Cap Growth Index 2 was up 15.48% and the Fund, with its highly diversified portfolio, participated in the market's move.

The Fund's performance was adversely impacted relative to the Russell Mid-Cap Growth Index, we believe, by a somewhat unusual set of circumstances. The earnings of many ordinary companies grew substantially during the year. We believe this was largely the result of cyclical or transitory factors, such as a lower U.S. dollar, low interest rates, higher oil prices and restrained corporate expenditures. In our view, this has somewhat obscured the higher quality of earnings of many companies in the Fund's portfolio--companies which have been growing primarily as a result of non-cyclical factors, such as proprietary products and services or other competitive advantages.

During the reporting period, we continued to invest in companies that we believe are dominant competitors with a history of strong returns on equity, have the ability to internally finance their own growth, have strong balance sheets that should enhance competitiveness if interest rates rise, and have strong employee incentives.

1 Lipper figures represent the average of the total returns reported by all of the funds designated by Lipper Inc. as falling into the respective categories indicated. They do not reflect sales charges.

2 The Russell Mid-Cap Growth Index is an unmanaged index that measures the performance of those Russell Mid-Cap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth Index.

GROWTH OF $10,000 INVESTED IN FEDERATED KAUFMANN FUND II - PRIMARY SHARES

Average Annual Total Return for the Period Ended 12/31/2004
1 Year		14.66%
Start of Performance (4/30/2002)		10.54%

The graph above illustrates the hypothetical investment of $10,0001 in the Federated Kaufmann Fund II (Primary Shares) (the "Fund") from April 30, 2002 (start of performance) to December 31, 2004, compared to the Russell Mid-Cap Growth Index (RMGI).2

1 The Fund's performance assumes the reinvestment of all dividends and distributions. The RMGI has been adjusted to reflect reinvestment of dividends on securities in the index.

2 The RMGI is not adjusted to reflect sales charges, expenses, or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The index is unmanaged and unlike the Fund is not affected by cashflows. It is not possible to invest directly in an index.

GROWTH OF $10,000 INVESTED IN FEDERATED KAUFMANN FUND II - SERVICE SHARES

Average Annual Total Return for the Period Ended 12/31/2004
1 Year		14.48%
Start of Performance (5/1/2003)		29.65%

The graph above illustrates the hypothetical investment of $10,0001 in the Federated Kaufmann Fund II (Service Shares) (the "Fund") from May 1, 2003 (start of performance) to December 31, 2004, compared to the Russell Mid-Cap Growth Index (RMGI).2

1 The Fund's performance assumes the reinvestment of all dividends and distributions. The RMGI has been adjusted to reflect reinvestment of dividends on securities in the index.

2 The RMGI 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 and unlike the Fund is not affected by cashflows. It is not possible to invest directly in an index.

Portfolio of Investments Summary Table

At December 31, 2004, the fund's sector composition1 was as follows:

Sector	Percentage of Total Net Assets
Consumer Discretionary	18.4	%
Healthcare	16.3	%
Information Technology	15.3	%
Financials	13.7	%
Industrials	13.4	%
Consumer Staples	2.3	%
Energy	2.3	%
Telecommunication Services	1.7	%
Materials	1.5	%
Utilities	1.3	%
Other Securities2	0.2	%
Cash Equivalents3	14.3	%
Other Assets and Liabilities--Net4	(0.7	)%
TOTAL	100.0	%

1 Except for Other Securities and Cash Equivalents, sector classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the adviser assigns an index classification to securities not classified by the GICS and to securities for which the adviser does not have access to the classification made by the GICS.

2 Portfolio securities that cannot be assigned to a sector classification. Includes a corporate bond.

3 Cash Equivalents includes investments in money market mutual funds and any investments in overnight repurchase agreements. Of the amount listed, 1.7% represents reinvestment of securities lending collateral.

4 See Statement of Assets and Liabilities.

Portfolio of Investments

December 31, 2004

Shares					Value
			COMMON STOCKS--85.9%
			Consumer Discretionary--18.4%
	3,100	1	1-800-FLOWERS.COM, Inc.	$	26,071
	34,600	1	Advance Auto Parts, Inc.		1,511,328
	5,400	1	Bed Bath & Beyond, Inc.		215,082
	2,095		Bharat Forge Ltd.		51,729
	6,400		Blockbuster, Inc.		61,056
	3,700	1,2	Brillian Corp.		12,765
	2,000	1	Cabela's, Inc., Class A		45,480
	1,300		Carnival Corp.		74,919
	5,400		Centerplate, Inc.		71,442
	2,100		Centex Corp.		125,118
	13,800	1	Central European Media Enterprises Ltd., Class A		537,952
	3,600	1	Cheesecake Factory, Inc.		116,892
	7,000		Clear Channel Communications, Inc.		234,430
	17,500	1	Clear Media Ltd.		16,605
	5,200	1	Cost Plus, Inc.		167,076
	6,900	1	Dick's Sporting Goods, Inc.		242,535
	6,800		Dollar General Corp.		141,236
	3,900	1	Dollar Tree Stores, Inc.		111,852
	10,800		Domino's Pizza, Inc.		192,240
	2,300		E.W. Scripps Co., Class A		111,044
	7,200	1	IAC Interactive Corp.		198,864
	500		International Speedway Corp., Class A		26,400
	158,500		J.D. Wetherspoon PLC		775,976
	7,000	1	Lamar Advertising Co.		299,460
	3,300	1	Lodgenet Entertainment Corp.		58,377
	2,900	1	Maruti Udyog Ltd.		30,771
	6,400	1	New York & Company		105,728
	5,900		Orient-Express Hotel Ltd.		121,363
	18,460	1	PETCO Animal Supplies, Inc.		728,801
	59,200		PetSmart, Inc.		2,103,376
	300		Regal Entertainment Group		6,225
	250	1	SKY Perfect Communications, Inc.		270,811
	2,000		Speedway Motorsports, Inc.		78,360
	3,600	1	Stamps.com, Inc.		57,024
	3,800	1	Texas Roadhouse, Inc.		112,290
	5,000	1	Timberland Co., Class A		313,350
	1,800		USS Co. Ltd.		151,069
	9,100	1	UnitedGlobalCom, Inc., Class A		87,906
	6,700		Viacom, Inc., Class B		243,813
	7,500	1	Williams-Sonoma, Inc.		262,800
	9,800	1	Wumart Stores, Inc., Class H		15,760
			TOTAL		10,115,376
Shares					Value
			COMMON STOCKS--continued
			Consumer Staples--2.3%
	15,300		B&G Foods, Inc.	$	229,194
	14,800	1	Dean Foods Co.		487,660
	72,000		People's Food Holdings Ltd.		66,160
	10,400	1	Shoppers Drug Mart Corp.		323,505
	1,600		Whole Foods Market, Inc.		152,560
			Total		1,259,079
			Energy--2.3%
	1,100		ENSCO International, Inc.		34,914
	6,600		EnCana Corp.		376,596
	5,000		Kinder Morgan, Inc.		365,650
	1,100	1	Noble Corp.		54,714
	700	1	Oil States International, Inc.		13,503
	5,400	1	The Houston Exploration Co.		304,074
	5,000	1	Todco, Class A		92,100
	1,200	1	Transocean Sedco Forex, Inc.		50,868
			Total		1,292,419
			Financials--13.7%
	10,200	1	Advance America Cash Advance, Inc.		233,580
	6,600		Assurant, Inc.		201,630
	16,800		Axis Capital Holdings Ltd.		459,648
	700		BioMed Realty Trust, Inc.		15,547
	38,000	1	CB Richard Ellis Group, Inc.		1,274,900
	6,000		Calamos Asset Management, Inc.		162,000
	9,500		Capital One Financial Corp.		799,995
	7,000		Developers Diversified Realty		310,590
	8,400		Endurance Specialty Holdings Ltd.		287,280
	3,800	2	Federal Agricultural Mortgage Association, Class C		88,540
	900		Global Signal, Inc.		24,786
	11,100		IndyMac Bancorp, Inc.		382,395
	20,000	1,2	Labranche & Co. Inc.		179,200
	1,000	1,2	Markel Corp.		364,000
	7,800	1	Philadelphia Consolidated Holding Corp.		515,892
	1,000		SFCG Co. Ltd.		252,757
	55,500		Shinsei Bank Ltd.		378,052
	7,400		St. Joe Co.		475,080
	3,600		State Bank of India		54,033
	2,500		U-Store-It Trust		43,375
	500		White Mountains Insurance Group, Inc.		323,000
	17,100		Willis Group Holdings Ltd.		704,007
	2,000	1	Ziprealty, Inc.		35,740
			TOTAL		7,566,027
Shares					Value
			COMMON STOCKS--continued
			Healthcare--16.3%
	3,200	1,2	ATS Medical, Inc.	$	14,912
	900	1	Acadia Pharmaceuticals, Inc.		6,093
	6,200	1,2	Alexion Pharmaceuticals, Inc.		156,240
	7,600		Allergan, Inc.		616,132
	9,900	1	Anika Therapeutics, Inc.		90,585
	3,300	1	Arena Pharmaceuticals, Inc.		22,077
	2,400	1	Arthrocare Corp.		76,944
	6,200	1	Aspect Medical Systems, Inc.		151,652
	2,900	1	Auxilium Pharmaceutical, Inc.		25,375
	19,293	1,2	Avigen, Inc.		62,895
	400	1,2	Biosite, Inc.		24,616
	6,000	1	Boston Scientific Corp.		213,300
	14,800		Cardinal Health, Inc.		860,620
	6,750	1	Caremark Rx, Inc.		266,153
	1,000	1	Cepheid, Inc.		9,940
	5,808	1	Charles River Laboratories International, Inc.		267,226
	4,200	1	Chindex International, Inc.		43,764
	24,100	1,2	Conceptus, Inc.		195,572
	300	1	Corgentech, Inc.		2,484
	16,700	1	Cubist Pharmaceuticals, Inc.		197,561
	7,680	1	Curon Medical, Inc.		13,440
	9,300	1	Cypress Biosciences, Inc.		130,758
	28,900	1	Cytyc Corp.		796,773
	1,000	1	Dade Behring Holdings, Inc.		56,000
	4,600	1	Digirad Corp.		40,710
	20,600	1	Dyax Corp.		148,732
	8,300	1	Dynavax Technologies Corp.		66,400
	25,000	1	Endologix, Inc.		170,750
	900	1	Gen-Probe, Inc.		40,689
	100	1,2	Given Imaging Ltd.		3,591
	3,300	1	HealthSouth Corp.		20,724
	3,900	1	I-Flow Corp.		71,097
	13,650	1	INAMED Corp.		863,363
	20,132	1	Illumina, Inc.		190,851
	6,100	1	Immunicon Corp.		42,578
	3,000	1	Incyte Genomics, Inc.		29,970
	24,600	1,2	Isis Pharmaceuticals, Inc.		145,140
	4,000	1	Kinetic Concepts, Inc.		305,200
	5,900	1	Kosan Biosciences, Inc.		40,887
	6,600	1,2	Kyphon, Inc.		170,016
	500	1	Lifeline Systems, Inc.		12,880
	7,100		Merck & Co., Inc.		228,194
	700	1	Millennium Pharmaceuticals, Inc.		8,484
Shares					Value
			COMMON STOCKS--continued
			Healthcare--continued
	5,200	1	NMT Medical, Inc.	$	25,740
	4,400	1,2	Neurochem, Inc.		77,132
	11,800	1	Nicox		66,883
	1,700	1	Northfield Laboratories, Inc.		38,335
	1,800	1	Orthofix International NV		71,062
	1,700	1	PRA International		42,126
	19,100	1	Pharmacyclics, Inc.		199,977
	2,500	1,2	Point Therapeutics, Inc.		13,400
	1,400	1	Renovis, Inc.		20,132
	1,500	1,2	Rita Medical Systems, Inc.		5,805
	1,200	1	Sangamo BioSciences, Inc.		7,200
	16,800		Schering Plough Corp.		350,784
	2,800	1	Stratagene Corp.		21,700
	500	1	Symmetry Medical, Inc.		10,525
	5,200	1	TLC Vision Corp.		54,236
	17,600	1	United Surgical Partners International, Inc.		733,920
	2,000		UnitedHealth Group, Inc.		176,060
	2,100	1	Urologix, Inc.		13,587
	2,500	1	VCA Antech, Inc.		49,000
	5,100	1	Vical, Inc.		23,970
	20,317	1	Xcyte Therapies, Inc.		56,277
			TOTAL		8,959,219
			Industrials--13.4%
	2,500	1	51JOBS, Inc., ADR		129,925
	18,800	1	ABX Air, Inc.		167,132
	3,196		Bharat Forge Ltd.		56,605
	3,600		CNF Transportation, Inc.		180,360
	29,600		Cendant Corp.		692,048
	6,600		Chicago Bridge & Iron Co., N.V.		264,000
	5,000	1	CoStar Group, Inc.		230,900
	3,300	1	Coinmach Service Corp.		45,210
	1,400	1	Concorde Career Colleges, Inc.		28,420
	3,600		Cummins, Inc.		301,644
	5,400	1	DRS Technologies, Inc.		230,634
	35,200		Deutsche Post AG		808,590
	2,300		EDO Corp.		73,025
	6,400	1	Educate, Inc.		84,736
	8,000		Expeditors International Washington, Inc.		447,040
	1,300	1	Exponent, Inc.		35,737
	8,200		FedEx Corp.		807,618
	2,800	1	Forward Air Corp.		125,160
	1,100	1	Hexcel Corp.		15,950
	9,800	1	Interline Brands, Inc.		172,382
	2,249	1	Jet Blue Airways Corp.		52,222
Shares					Value
			COMMON STOCKS--continued
			Industrials--continued
	3,600	1	Kansas City Southern Industries, Inc.	$	63,828
	1,505		Kuehne & Nagel International AG		324,268
	700		Larsen & Toubro Ltd.		15,813
	7,300		Masco Corp.		266,669
	6,700	1	NuCo2, Inc.		148,673
	8,200		Overnite Corp.		305,368
	16,100		Rinker Group Ltd.		134,411
	6,700	1,2	Ryanair Holdings PLC, ADR		273,025
	2,400		Ryder Systems, Inc.		114,648
	800	1	SI International, Inc.		24,608
	5,200		Simpson Manufacturing Co., Inc.		181,480
	6,700		United Parcel Service, Inc.		572,582
			TOTAL		7,374,711
			Information Technology--15.3%
	15,300	1	ATI Technologies, Inc.		296,727
	32,600	1	Accenture Ltd.		880,200
	9,400	1	Affiliated Computer Services, Inc., Class A		565,786
	7,000	1	Altiris, Inc.		248,010
	4,700	1	Amdocs Ltd.		123,375
	8,000		Autodesk, Inc.		303,600
	9,800	1,2	Bankrate, Inc.		135,730
	7,200	1	Blackboard Inc.		106,632
	1,000	1	Broadcom Corp.		32,280
	21,900	1	CSR PLC		163,979
	6,400	1	Check Point Software Technologies Ltd.		157,632
	2,600	1	Citrix Systems, Inc.		63,778
	11,900	1	Cogent, Inc.		392,700
	1,800	1	Cognos, Inc.		79,308
	10,650	1	Digital Impact, Inc.		15,123
	7,200	1,2	eCollege.com		81,792
	4,300	1	Filenet Corp.		110,768
	2,212	1	Google Inc.		427,137
	7,100	1	Homestore.com, Inc.		21,513
	3,500	1	Hyperion Solutions Corp.		163,170
	2,800	1	InfoSpace.com, Inc.		133,140
	7,300	1,2	Infocrossing, Inc.		123,589
	4,600	1	Intrado, Inc.		55,660
	2,000	1	Iron Mountain, Inc.		60,980
	600	1	Jamdat Mobile, Inc.		12,390
	12,900	1	Komag, Inc.		242,262
	13,400	1	M-Systems Flash Disk Pioneers Ltd.		264,248
	26,800	1	MEMC Electronic Materials		355,100
	2,700	1	Macromedia, Inc.		84,024
	25,200	1,2	Magma Design Automation		316,512
Shares					Value
			COMMON STOCKS--continued
			Information Technology--continued
	1,500	1	MicroStrategy, Inc., Class A	$	90,375
	14,800		Microsemi Corp.		256,928
	5,700		Microsoft Corp.		152,247
	6,100	1,2	Mobility Electronics, Inc.		52,338
	10,600	1	NAVTEQ Corp.		491,416
	19,100	1,2	NIC, Inc.		97,028
	1,900	1	Ninetowns Digital World, ADR		20,425
	6,700	1	NetIQ Corp.		81,807
	10,600	1	Online Resources Corp.		80,772
	1,300	1	Portalplayer, Inc.		32,084
	8,000	1	PowerDsine Ltd.		109,760
	5,600	1	Quest Software, Inc.		89,320
	500	1	RADWARE Ltd.		13,065
	6,700	1	S1 Corp.		60,702
	1,700		SAP AG (Systeme, Anwendungen, Produkte in der Datenverarbeitung), ADR		75,157
	600	1,2	Salesforce.com Inc.		10,164
	3,200	1	Sandisk Corp.		79,904
	6,000	1	Sigmatel Inc.		213,180
	1,000	1,2	Sonic Solutions		22,440
	4,500	1	Supportsoft, Inc.		29,970
	6,900	1	TNS, Inc.		150,765
	3,300	1	Tata Consultancy Services Ltd.		101,384
	2,800	1	Telvent GIT, S.A.		35,700
	4,800	1,2	Visual Networks, Inc.		16,704
	4,100	1	Xyratex Ltd.		67,568
			TOTAL		8,448,348
			Materials--1.5%
	7,000		Arch Coal, Inc.		248,780
	2,465		Cemex SA de CV, ADR		89,776
	2,500	1	Foundation Coal Holdings, Inc.		57,650
	164,000	1	Lee & Man Paper Manufacturing Ltd.		133,982
	3,000		Newmont Mining Corp.		133,230
	2,100		Peabody Energy Corp.		169,911
			TOTAL		833,329
			Telecommunication Services--1.4%
	661		123 Multimedia		33,872
	1,700	1	Callwave, Inc.		26,248
	2,200	1,2	China Netcom Group Corp. (Hong Kong) Ltd., ADR		58,872
	100		PT Telekomunikasi Indonesia, Class CS, ADR		2,102
	40,000		Singapore Telecom Ltd.		58,319
	57,000		Telia AB		341,379
	28,300	1	Time Warner Telecom, Inc.		123,388
	3,600	1	Western Wireless Corp., Class A		105,480
	2,600	1	Wireless Matrix Corp.		1,259
			TOTAL		750,919
Shares or Principal Amount					Value
			COMMON STOCKS--continued
			Utilities--1.3%
	153,200	1	China Power International Development Ltd.	$	56,173
	600		Consolidated Water Co.		18,588
	62,700		Enel SpA		616,176
	12,000	1	National Thermal Power Corp. Ltd.		24,113
			TOTAL		715,050
			TOTAL COMMON STOCKS (IDENTIFIED COST $39,315,581)		47,314,477
			CORPORATE BONDS--0.2%
			Consumer Discretionary--0.2%
$	100,000	1,3	Citadel Broadcasting Corp., Conv. Bond, 1.875%, 2/15/2011 (IDENTIFIED COST $100,000)		90,875
			PREFERRED STOCKS--0.3%
			Telecommunication Services--0.3%
	3,500		Crown Castle International Corp., Conv. Pfd., $3.13, Annual Dividend (IDENTIFIED COST $160,466)		171,507
			REPURCHASE AGREEMENTS--14.3%
$	6,937,000		Interest in $2,000,000,000 joint repurchase agreement with UBS Securities LLC, 2.28%, dated 12/31/2004, to be repurchased at $6,938,318 on 1/3/2005, collateralized by U.S. Government Agency Obligations with various maturities to 9/25/2034, collateral market value $2,060,003,250		6,937,000
	910,000		Interest in $1,000,000,000 joint repurchase agreement with Westdeutsche Landesbank Girozentrale, New York, 2.28%, dated 12/31/2004, to be repurchased at $910,173 on 1/3/2005, collateralized by U.S. Government Agency Obligations with various maturities to 5/1/2043, collateral market value $1,028,425,899 (held as collateral for securities lending)		910,000
			TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST)		7,847,000
			TOTAL INVESTMENTS--100.7% (IDENTIFIED COST $47,423,047) 4		55,423,859
			OTHER ASSETS AND LIABILITIES - NET--(0.7)%		(363,784	)
			TOTAL NET ASSETS--100%	$	55,060,075

1 Non-income producing security.

2 Certain shares are temporarily on loan to unaffiliated broker/dealers.

3 Denotes a restricted security, including securities purchased under Rule 144A of the Securities Act of 1933. This security, which has been deemed liquid by criteria approved by the Fund's Board of Directors, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. At December 31, 2004, this security amounted to $90,875 which represents 0.2% of total net assets.

4 The cost of investments for federal tax purposes amounts to $47,574,552.

Note: The categories of investments are shown as a percentage of total net assets at December 31, 2004.

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, 2004

Assets:
Investments in securities	$	47,576,859
Investments in repurchase agreements		7,847,000
Total investments in securities, at value including $886,222 of securities loaned (identified cost $47,423,047)			$	55,423,859
Receivable for foreign currency exchange contracts				1,078
Income receivable				16,790
Receivable for investments sold				552,843
Receivable for shares sold				64,606
TOTAL ASSETS				56,059,176
Liabilities:
Payable for investments purchased	$	20,554
Payable for shares redeemed		6,907
Payable to bank		10,721
Payable for collateral due to broker		910,000
Payable for distribution services fee (Note 5)		7,543
Accrued expenses		43,376
TOTAL LIABILITIES				999,101
Net assets for 4,217,233 shares outstanding			$	55,060,075
Net Assets Consist of:
Paid-in capital			$	47,140,433
Net unrealized appreciation of investments and translation of assets and liabilities in foreign currency				8,000,716
Accumulated net realized loss on investments and foreign currency transactions				(22,150	)
Accumulated net investment income (loss)				(58,924	)
TOTAL NET ASSETS			$	55,060,075
Net Asset Value, Offering Price and Redemption Proceeds Per Share
Primary Shares:
$17,940,035 ÷ 1,372,133 shares outstanding, no par value, unlimited shares authorized				$13.07
Service Shares:
$37,120,040 ÷ 2,845,100 shares outstanding, no par value, unlimited shares authorized				$13.05

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended December 31, 2004

Investment Income:
Dividends (net of foreign taxes withheld of $6,411)							$	223,241
Interest (including income on securities loaned of $7,021)								78,722
TOTAL INCOME								301,963
Expenses:
Investment adviser fee (Note 5)				$	499,139
Administrative personnel and services fee (Note 5)					190,000
Custodian fees					38,257
Transfer and dividend disbursing agent fees and expenses (Note 5)					29,529
Directors'/Trustees' fees					726
Auditing fees					17,652
Legal fees					6,832
Portfolio accounting fees					70,329
Distribution services fee--Service Shares (Note 5)					61,794
Printing and postage					20,218
Insurance premiums					13,201
Miscellaneous					3,872
TOTAL EXPENSES					951,549
Waivers (Note 5):
Waiver of investment adviser fee	$	(327,980	)
Waiver of administrative personnel and services fee		(34,650	)
TOTAL WAIVERS					(362,630	)
Net expenses								588,919
Net investment income (loss)								(286,956	)
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions:
Net realized loss on investments and foreign currency transactions								(29,112	)
Net change in unrealized appreciation of investments and translation of assets and liabilities in foreign currency								6,507,373
Net realized and unrealized gain on investments and foreign currency								6,478,261
Change in net assets resulting from operations							$	6,191,305

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

Year Ended December 31		2004			2003
Increase (Decrease) in Net Assets
Operations:
Net investment income (loss)	$	(286,956	)	$	(60,985	)
Net realized gain (loss) on investments and foreign currency transactions		(29,112	)		70,571
Net change in unrealized appreciation/depreciation of investments and translation of assets and liabilities in foreign currency		6,507,373			1,511,900
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS		6,191,305			1,521,486
Distributions to Shareholders:
Distributions from net realized gains on investments and foreign currency transactions
Primary Shares		(404	)		--
Service Shares		(1,151	)		--
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS		(1,555	)		--
Share Transactions:
Proceeds from sale of shares		34,187,245			19,051,683
Net asset value of shares issued to shareholders in payment of distributions declared		1,555			--
Cost of shares redeemed		(5,634,249	)		(907,923	)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS		28,554,551			18,143,760
Change in net assets		34,744,301			19,665,246
Net Assets:
Beginning of period		20,315,774			650,528
End of period	$	55,060,075		$	20,315,774

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

December 31, 2004

1. ORGANIZATION

Federated Insurance Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of 11 portfolios. The financial statements included herein are only those of Federated Kaufmann 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 offers two classes of shares: Primary Shares and Service Shares. The investment objective of the Fund is to provide capital appreciation.

2. SIGNIFICANT ACCOUNTING POLICIES

Investment Valuation

Domestic and foreign equity securities are valued at the last sale price or official closing price reported in the market in which they are primarily traded (either a national securities exchange or the over-the-counter market), if available. If unavailable, the security is generally valued at the mean between the last closing bid and asked prices. 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 (NYSE). Therefore, foreign securities are valued at the latest closing price on the exchange on which they are traded immediately prior to the closing of the NYSE. Foreign securities quoted in foreign currencies are translated in U.S. dollars at the foreign exchange rate in effect at 4:00 p.m., Eastern Time, on the day the value of the foreign security is determined. Fixed income, listed corporate bonds, 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. 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. Securities for which no quotations are readily available or whose values have been affected by a significant event occurring between the close of their primary markets and the closing of the NYSE are valued at fair value as determined in accordance with procedures established by and under general supervision of the Board of Trustees (the "Trustees").

Repurchase Agreements

Investment Income, Gains and Losses, Expenses and Distributions

Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses, and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class bears certain expenses unique to that class such as distribution fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.

Premium and Discount Amortization

All premiums and discounts on fixed income securities are amortized/accreted for financial statement purposes.

Federal Taxes

Withholding taxes on foreign interest, dividends and capital gains have been provided for in accordance with the applicable country's tax rules and rates.

When-Issued and Delayed Delivery Transactions

Restricted Securities

Additional information on restricted securities, excluding securities purchased under Rule 144A that have been deemed liquid by the Trustees, held at December 31, 2004, is as follows:

Security		Acquisition Date		Acquisition Cost
Citadel Broadcasting Corp., Conv. Bond, 1.875%, 2/15/2011		2/12/2004		$100,000

Securities Lending

The Fund participates in a securities lending program providing for the lending of corporate bonds, equity and government securities to qualified brokers. Collateral for securities loaned is in cash or invested in short-term securities, including repurchase agreements. Collateral is maintained at a minimum level of 102% of the market value of investments loaned, plus interest, if applicable. Earnings on collateral are allocated between the securities lending agent, as a fee for its services under the program, and the Fund, according to agreed-upon rates.

As of December 31, 2004, securities subject to this type of arrangement and related collateral were as follows:

Market Value of Securities Loaned		Market Value of Collateral
$886,222		$910,000

Foreign Exchange Contracts

Settlement Date	Foreign Currency Units to Deliver	In Exchange For	Contracts at Value	Unrealized Appreciation
C ontracts Sold:
1/3/2005	629,979 Swedish Krona	$ 95,432	$94,799	$ 633
1/4/2005	602,515 Swedish Krona	$ 90,940	$90,667	$ 273
1/5/2005	296,736 Swedish Krona	$ 44,825	$44,653	$ 172
NET UNREALIZED APPRECIATION ON FOREIGN EXCHANGE CONTRACTS				$ 1,078

Foreign Currency Translation

The accounting records of the Fund are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies (FCs) are translated into U.S. dollars based on the rates 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. 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

The preparation of financial statements in conformity with GAAP 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 a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.

3. SHARES OF BENEFICIAL INTEREST

The following table summarizes share activity:

Year Ended December 31	2004					2003
Primary Shares:	Shares			Amount		Shares			Amount
Shares sold	1,001,519		$	11,671,070		440,865		$	4,558,281
Shares issued to shareholders in payment of distributions declared	35			404		--			--
Shares redeemed	(132,837	)		(1,552,360	)	(17,209	)		(168,394	)
NET CHANGE RESULTING FROM PRIMARY SHARE TRANSACTIONS	868,717		$	10,119,114		423,656			4,389,887

Year Ended December 31	2004					20031
Service Shares:	Shares			Amount		Shares			Amount
Shares sold	1,922,028		$	22,516,175		1,346,431		$	14,493,402
Shares issued to shareholders in payment of distributions declared	101			1,151		--			--
Shares redeemed	(355,155	)		(4,081,889	)	(68,305	)		(739,529	)
NET CHANGE RESULTING FROM SERVICE SHARE TRANSACTIONS	1,566,974		$	18,435,437		1,278,126		$	13,753,873
NET CHANGE RESULTING FROM SHARE TRANSACTIONS	2,435,691		$	28,554,551		1,701,782		$	18,143,760

1 Reflects operations for the period from May 1, 2003 (date of initial public investment) to December 31, 2003.

4. FEDERAL TAX INFORMATION

The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due in part to differing treatments for foreign currency transactions, net investment loss and unrealized capital gain tax.

For the year ended December 31, 2004, permanent differences identified and reclassified among the components of net assets were as follows:

Increase (Decrease)
Paid-In Capital	Accumulated Net Investment Income (Loss)	Accumulated Net Realized Loss
$(236,142)	$228,032	$8,110

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

The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended December 31, 2004 and 2003, was as follows:

	2004	2003
Ordinary income1	$1,348	$0
Long-term capital gains	$ 207	$0

1 For tax purposes short-term capital gain distributions are considered ordinary income distributions.

As of December 31, 2004, the components of distributable earnings on a tax basis were as follows:

Undistributed long-term capital gain		$	76,738
Unrealized appreciation		$	7,849,211

The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the deferral of losses on wash sales.

At December 31, 2004, the cost of investments for federal tax purposes was $47,574,552. The net unrealized appreciation of investments for federal tax purposes, excluding any unrealized appreciation resulting from changes in foreign currency exchange rates, was $7,849,307. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $8,525,502 and net unrealized depreciation from investments for those securities having an excess of cost over value of $676,195.

5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Federated Equity Management Company of Pennsylvania (FEMCOPA), the Fund's investment adviser (the "Adviser") receives for its services an annual investment adviser fee equal to 1.425%. The adviser may voluntarily choose to waive any portion of its fee. The adviser can modify or terminate this voluntary wavier at any time at its sole discretion.

Certain of the Fund's assets are managed by Federated Global Investment Management Company (the "Sub-Adviser"). Under the terms of a sub-adviser agreement between the Adviser and the Sub-Adviser, the Sub-Adviser receives an allocable portion of the Fund's adviser fee. The fee is paid by the Adviser out of its resources and is not an incremental Fund expense. For the year ended December 31, 2004, the Sub-Adviser earned a sub-adviser fee of $329,039.

Administrative Fee

Maximum Administrative Fee		Average Aggregate Daily Net Assets of the Federated Funds
0.150%		on the first $5 billion
0.125%		on the next $5 billion
0.100%		on the next $10 billion
0.075%		on assets in excess of $20 billion

Distribution Services Fee

Share Class Name		Percentage of Average Daily Net Assets of Class
Primary Shares		0.25%
Service Shares		0.25%

FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended December 31, 2004, Primary Shares did not incur a distribution services fee.

Shareholder Services Fee

Transfer and Dividend Disbursing Agent Fees and Expenses

General

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

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations (and in-kind contributions), for the year ended December 31, 2004 were as follows:

Purchases		$	48,121,645
Sales		$	23,598,774

7. LEGAL PROCEEDINGS

Beginning in October 2003, Federated Investors, Inc. and various subsidiaries thereof (including the advisers and distributor for various investment companies, collectively, "Federated"), along with various investment companies sponsored by Federated (Funds) were named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland seeking damages of unspecified amounts. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. Federated and various Funds have also been named as defendants in several additional lawsuits, the majority of which are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees, and seeking damages of unspecified amounts. The Board of the Funds has retained the law firm of Dickstein Shapiro Morin & Oshinsky LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these recent lawsuits and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Fund redemptions, reduced sales of Fund shares, or other adverse consequences for the Funds.

Report of Independent Registered Public Accounting Firm

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

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated Kaufmann Fund II (the "Fund") (a Portfolio of Federated Insurance Series) (the "Trust") as of December 31, 2004, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended. 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to provide reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. . An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2004, the results of its operations, the changes in its net assets and its financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Boston, Massachusetts
February 15, 2005

Board of Trustees and Trust Officers

INTERESTED TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
John F. Donahue* Birth Date: July 28, 1924 CHAIRMAN AND TRUSTEE Began serving: September 1993		Principal Occupations: Chairman and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Chairman and Director, Federated Investment Counseling.

J. Christopher Donahue* Birth Date: April 11, 1949 TRUSTEE Began serving: September 1993		Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd.

Lawrence D. Ellis, M.D.* Birth Date: October 11, 1932 3471 Fifth Avenue Suite 1111 Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center. Other Directorships Held: Member, National Board of Trustees, Leukemia Society of America. Previous Positions: Trustee, University of Pittsburgh; Director, University of Pittsburgh Medical Center.

INDEPENDENT TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
Thomas G. Bigley Birth Date: February 3, 1934 15 Old Timber Trail Pittsburgh, PA TRUSTEE Began serving: November 1994		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director, University of Pittsburgh. Previous Position: Senior Partner, Ernst & Young LLP.

John T. Conroy, Jr. Birth Date: June 23, 1937 Investment Properties Corporation 3838 North Tamiami Trail Suite 402 Naples, FL TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation.

Nicholas P. Constantakis Birth Date: September 3, 1939 175 Woodshire Drive Pittsburgh, PA TRUSTEE Began serving: February 1998		Principal Occupations: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Member of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC.

John F. Cunningham Birth Date: March 5, 1943 353 El Brillo Way Palm Beach, FL TRUSTEE Began serving: January 1999		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc.

Peter E. Madden Birth Date: March 16, 1942 One Royal Palm Way 100 Royal Palm Way Palm Beach, FL TRUSTEE Began serving: September 1993		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.

Charles F. Mansfield, Jr. Birth Date: April 10, 1945 80 South Road Westhampton Beach, NY TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; Management Consultant; Executive Vice President, DVC Group, Inc. (marketing communications and technology) (prior to 9/1/00). Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University.

John E. Murray, Jr., J.D., S.J.D. Birth Date: December 20, 1932 Chancellor, Duquesne University Pittsburgh, PA TRUSTEE Began serving: February 1995		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chancellor and Law Professor, Duquesne University; Partner, Murray, Hogue and Lannis. Other Directorships Held: Director, Michael Baker Corp. (engineering, construction, operations and technical services). Previous Positions: President, Duquesne University; Dean and Professor of Law, University of Pittsburgh School of Law; Dean and Professor of Law, Villanova University School of Law.

Marjorie P. Smuts Birth Date: June 21, 1935 4905 Bayard Street Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Public Relations/Marketing Consultant/Conference Coordinator. Previous Positions: National Spokesperson, Aluminum Company of America; television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord.

John S. Walsh Birth Date: November 28, 1957 2604 William Drive Valparaiso, IN TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc.

OFFICERS


Name Birth Date Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years and Previous Position(s)
John B. Fisher Birth Date: May 16, 1956 PRESIDENT Began serving: November 2004		Principal Occupations: Vice President of some of the Funds in the Federated Fund Complex; and President and Director of the Institutional Sales Division of Federated Securities Corp., which is a wholly owned subsidiary of Federated. Mr. Fisher is responsible for the distribution of Federated's products and services to investment advisors, insurance companies, retirement plans, and corporations. In addition, Mr. Fisher serves as President and Director of Federated Investment Counseling, a wholly owned subsidiary of Federated involved in the management of separate accounts and sub-advised mandates. He is also President, Technology, Federated Services Corp. responsible for the technological infrastructure of the various Federated companies. He is also Director, Edgewood Securities Corp., as well as Director, Federated Investors Trust Company. Previous Positions: Senior Vice President of Federated Investment Counseling.

John W. McGonigle Birth Date: October 26, 1938 EXECUTIVE VICE PRESIDENT AND SECRETARY Began serving: September 1993		Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc.

Richard J. Thomas Birth Date: June 17, 1954 TREASURER Began serving: September 1997		Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services.

Richard B. Fisher Birth Date: May 17, 1923 VICE PRESIDENT Began serving: November 1998		Principal Occupations: Vice Chairman or President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. Previous Positions: President and Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice President, Federated Investors, Inc.; and Director and Chief Executive Officer, Federated Securities Corp.

Stephen F. Auth Birth Date: September 3, 1956 CHIEF INVESTMENT OFFICER Began serving: November 2002		Principal Occupations: Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Equity Management Company of Pennsylvania and Passport Research II, Ltd. Previous Positions: Executive Vice President, Federated Investment Management Company, and Passport Research, Ltd.; Senior Vice President, Global Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd.; Senior Managing Director and Portfolio Manager, Prudential Investments.

Robert J. Ostrowski Birth Date: April 26, 1963 CHIEF INVESTMENT OFFICER Began serving: May 2004		Principal Occupations: Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of taxable fixed income products in 2004 and also serves as a Senior Portfolio Manager. He has been a Senior Vice President of the Fund's Adviser since 1997. Mr. Ostrowski is a Chartered Financial Analyst. He received his M.S. in Industrial Administration from Carnegie Mellon University.

VOTING PROXIES ON FUND PORTFOLIO SECURITIES

QUARTERLY PORTFOLIO SCHEDULE

Federated
World-Class Investment Manager

Federated Kaufmann Fund II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Cusip 313916777
Cusip 313916827

28136 (2/05)

Federated is a registered mark of Federated Investors, Inc. 2005 (c)Federated Investors, Inc.

Federated
World-Class Investment Manager

Federated Mid Cap Growth Strategies Fund II

(formerly, Federated Growth Strategies Fund II)

A Portfolio of Federated Insurance Series

ANNUAL SHAREHOLDER REPORT

December 31, 2004

Not FDIC Insured * May Lose Value * No Bank Guarantee

Financial Highlights

(For a Share Outstanding Throughout Each Period)

Year Ended December 31	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$18.22		$13.00		$17.65		$23.15		$30.88
Income From Investment Operations:
Net investment income (loss)	--		--		--		(0.03	)1	(0.10	)
Net realized and unrealized gain (loss) on investments	2.80		5.22		(4.65	)	(5.15	)	(5.32	)
TOTAL FROM INVESTMENT OPERATIONS	2.80		5.22		(4.65	)	(5.18	)	(5.42	)
Less Distributions:
Distributions from net realized gain on investments	--		--		--		(0.32	)	(2.31	)
TOTAL DISTRIBUTIONS	--		--		--		(0.32	)	(2.31	)
Net Asset Value, End of Period	$21.02		$18.22		$13.00		$17.65		$23.15
Total Return2	15.37	%	40.15	%3	(26.35	)%	(22.38	)%	(19.91	)%

Ratios to Average Net Assets:
Expenses	1.17	%4	1.23	%4	1.07	%4	0.90	%	0.86	%
Net investment income (loss)	(0.42	)%	(0.72	)%	(0.32	)%	(0.15	)%	(0.39	)%
Expense waiver/reimbursement5	0.04	%	0.01	%	0.01	%	0.07	%	0.08	%
Supplemental Data:
Net assets, end of period (000 omitted)	$62,563		$64,269		$53,367		$96,126		$132,351
Portfolio turnover	148	%	173	%	194	%	219	%	128	%

1 Per share amount is based on average shares outstanding.

3 During the year, the Fund received payments from the Adviser for certain losses on investments. This increased the total return by 0.07% (Note 7).

4 The expense ratio is calculated without reduction for fees paid indirectly for directed brokerage arrangements. The expense ratios for the years ended December 31, 2004, 2003, and 2002 are 1.16%, 1.20%, and 1.06%, respectively, after taking into account these expense reductions.

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

See Notes which are an integral part of the Financial Statements.

Shareholder Expense Example

As a shareholder of the Fund, you incur ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees and/or shareholder services fees; and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other variable investment options. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2004 to December 31, 2004.

ACTUAL EXPENSES

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

	Beginning Account Value 7/1/2004	Ending Account Value 12/31/2004	Expenses Paid During Period1
Actual	$1,000	$1,099.40	$6.17
Hypothetical (assuming a 5% return before expenses)	$1,000	$1,019.25	$5.94

1 Expenses are equal to the Fund's annualized expense ratio of 1.17%, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).

Management's Discussion of Fund Performance

This report covers the Federated Mid Cap Growth Strategies Fund II fiscal year reporting period from January 1, 2004 through December 31, 2004. During this reporting period, the fund produced a total return of 15.37%, based on net asset value (NAV).

MARKET OVERVIEW

The economy was coming off of a strong 2003, as we started our fiscal year. Overall, it was still strong through most of 2004, as even though consumer growth decelerated, industrial production began to pick up. New jobs growth also began to kick in, with big increases posted in April and May 2004.

The most important domestic event of the year was the Presidential election. The closeness of the campaign created additional uncertainty for the market through the middle of the year, which was resolved by a decisive victory by President Bush. 2004 was punctuated by the one of the largest natural disasters in history, when a tsunami devastated coastlines from Southeast Asia to India. The tragedy took a horrendous human toll but appeared to have a nominal impact on the global markets.

The broader market indices were essentially flat for the first half of the year, but rallied smartly in November 2004 and December 2004 to produce near double digit returns for the year. Small stock indexes continued their outperformance with returns approaching 20%. The fund's benchmark, the Russell Mid Cap Growth Index, gained 15.48%.1

FUND PERFORMANCE

With a decent rally in the market in 2004, the Federated Mid Cap Growth Strategies Fund II produced a total return of 15.37%. This return outperformed the 10.71% average return for the fund's peers in the Lipper Multi-Cap Growth Fund category.2

While the fund did broadly add to its cyclical exposure throughout the reporting period, the key was a rotation from consumer related stocks to areas of the market more leveraged to industrial production. For instance, in Consumer Discretionary, we went from overweight to underweight and shifted the emphasis from retail to gaming and lodging, with stocks such Station Casinos, Mandalay Resorts, and Choice Hotels generating strong returns.

Within Industrials, we went from underweight to overweight and benefited from big moves in transportation stocks, such as UTI Worldwide, JB Hunt, and Expeditors International. Information Technology, though a performance lagging sector, was also a meaningful contributor to relative returns thanks to rallies in selected software stocks (Autodesk and McAfee) and semiconductor companies (MEMC and Qualcomm). Apple Computer was the fund's largest contributor, as the stock was up 180% at the end of 2004.

The areas of biggest negative relative performance occurred in the Energy sector, where lack of exposure to the exceptional gains in large benchmark holdings (namely Baker Hughes and EOG Resources) hurt; Healthcare, where disappointments in just a few names (Tenet, Forest Labs, and Watson Pharmaceuticals) accounted for a bulk of the underperformance; and the Financials sector, where the portfolio's stock selection in Banks was positive, but the fund's exposure lagged the big gains in the benchmark holdings.

1 The Russell Mid-Cap Growth Index is an unmanaged index that measures the performance of those Russell Mid-Cap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth Index.

2 Lipper figures represent the average of the total returns reported by all of the funds designated by Lipper Inc. as falling into the category indicated. They do not reflect sales charges.

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

Average Annual Total Returns for the Period Ended 12/31/2004
1 Year		15.37%
5 Years		(5.84)%
Start of Performance (11/9/1995)		10.24%

The graph above illustrates the hypothetical investment of $10,0001 in the Federated Mid Cap Growth Strategies Fund II (the "Fund") from November 9, 1995 (start of performance) to December 31, 2004 compared to the Russell 1000 Mid-Cap Growth Index (RUSMD).2

Performance data quoted represents, past performance and is no guarantee 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. Variable investment option performance changes over time and current performance may be lower or higher than what is stated. Variable investment options 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 RUSMD has been adjusted to reflect reinvestment of dividends on securities in the indexes.

2 The RUSMD 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 and unlike the Fund, is not affected by cashflows. It is not possible to invest directly in an index.

Portfolio of Investments Summary Table

At December 31, 2004, the Fund's sector composition1 was as follows:

Sector	Percentage of Total Net Assets
Information Technology	23.5	%
Consumer Discretionary	18.3	%
Healthcare	16.9	%
Industrials	15.0	%
Financials	7.2	%
Materials	5.7	%
Energy	4.2	%
Consumer Staples	3.6	%
Utilities	3.1	%
Telecommunication Services	1.8	%
Cash Equivalents2	4.8	%
Other Assets and Liabilities--Net3	(4.1	)%
TOTAL	100.0	%

1 Except for Cash Equivalents, sector classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Standard & Poor's Global Industry Classification Standard (SPGIC) except that the adviser assigns an index classification securities not classified by the SPGIC and to securities for which the adviser does not have access to the classification made by the SPGIC.

2 Cash Equivalents includes any investments in money market mutual funds and overnight repurchase agreements.

3 See Statement of Assets and Liabilities.

Portfolio of Investments

December 31, 2004

Shares					Value
			COMMON STOCKS--99.3%
			Consumer Discretionary--18.3%
	7,400		American Eagle Outfitters, Inc.	$	348,540
	5,900		Black & Decker Corp.		521,147
	9,900		Boyd Gaming Corp.		412,335
	12,000		Brunswick Corp.		594,000
	9,500		Choice Hotels International, Inc.		551,000
	8,400		D.R. Horton, Inc.		338,604
	13,000	1,2	Dick's Sporting Goods, Inc.		456,950
	5,000		Harrah's Entertainment, Inc.		334,450
	23,700		Hilton Hotels Corp.		538,938
	3,600		Las Vegas Sand Corp.		172,800
	19,200		Limited, Inc.		441,984
	8,300		Marriott International, Inc., Class A		522,734
	8,400		Neiman-Marcus Group, Inc., Class A		600,936
	10,000		Sherwin-Williams Co.		446,300
	8,500	1,2	Shuffle Master, Inc.		400,350
	11,600		Starwood Hotels & Resorts Worldwide, Inc.		677,440
	14,700		Station Casinos, Inc.		803,796
	14,900	1	Urban Outfitters, Inc.		661,560
	18,900	1	WCI Communities, Inc.		555,660
	13,900		Wolverine World Wide, Inc.		436,738
	7,500	1	Wynn Resorts Ltd.		501,900
	11,600	1,2	XM Satellite Radio Holdings, Inc., Class A		436,392
	14,500		Yum! Brands, Inc.		684,110
			TOTAL		11,438,664
			Consumer Staples--3.6%
	19,400	1	BJ's Wholesale Club, Inc.		565,122
	16,400		Church and Dwight, Inc.		551,368
	9,800	1	Constellation Brands, Inc., Class A		455,798
	8,300		Reynolds American, Inc.		652,380
			TOTAL		2,224,668
			Energy--4.2%
	22,600		Chesapeake Energy Corp.		372,900
	4,600		Noble Energy, Inc.		283,636
	18,300	1	OMI Corp.		308,355
	5,400	1	Smith International, Inc.		293,814
	8,900		Suncor Energy, Inc.		315,060
	7,400		Teekay Shipping Corp.		311,614
	7,900	1	Ultra Petroleum Corp.		380,227
	9,400		XTO Energy, Inc.		332,572
			TOTAL		2,598,178
Shares					Value
			COMMON STOCKS--continued
			Financials--7.2%
	5,100	1	Affiliated Managers Group	$	345,474
	13,600	1	Americredit Corp.		332,520
	10,600		Bank of Hawaii Corp.		537,844
	10,200	1	CB Richard Ellis Services		342,210
	6,900		Capital One Financial Corp.		581,049
	8,500		City National Corp.		600,525
	7,350		Legg Mason, Inc.		538,461
	5,100		Moody's Corp.		442,935
	6,200		Redwood Trust, Inc.		384,958
	7,100		Torchmark Corp.		405,694
			TOTAL		4,511,670
			Healthcare--16.9%
	8,100	1	Advanced Neuromodulation Systems, Inc.		319,626
	9,300		Bard (C.R.), Inc.		595,014
	6,500		Beckman Coulter, Inc.		435,435
	4,300		CIGNA Corp.		350,751
	10,800	1	Caremark Rx, Inc.		425,844
	14,200	1	Covance, Inc.		550,250
	11,300	1	Cytyc Corp.		311,541
	17,400	1	DaVita, Inc.		687,822
	27,000	1,2	Elan Corp. PLC, ADR		735,750
	43,100	1	Exelixis, Inc.		409,450
	16,400	1	Gilead Sciences, Inc.		573,836
	9,400	1	Kinetic Concepts, Inc.		717,220
	14,200		Manor Care, Inc.		503,106
	6,300	1	PacifiCare Health Systems, Inc.		356,076
	12,600	1,2	Patterson Cos., Inc.		546,714
	14,300	1	Protein Design Laboratories, Inc.		295,438
	3,200		Quest Diagnostic, Inc.		305,760
	5,900	1	Renal Care Group, Inc.		212,341
	8,700		Schering AG, ADR		645,975
	9,200	1	Sepracor, Inc.		546,204
	7,500	1	Sierra Health Services, Inc.		413,325
	15,400	1	VCA Antech, Inc.		301,840
	7,300		Varian Medical Systems, Inc.		315,652
			TOTAL		10,554,970
			Industrials--15.0%
	9,100		AMETEK, Inc.		324,597
	4,600	1	Alliant Techsystems, Inc.		300,748
	8,900	1	American Standard Cos.		367,748
	7,400		Cooper Industries Ltd., Class A		502,386
	6,900		Corporate Executive Board Co.		461,886
	5,400		Cummins, Inc.		452,466
Shares					Value
			COMMON STOCKS--continued
			Industrials--continued
	9,700		Eaton Corp.	$	701,892
	7,800		Expeditors International Washington, Inc.		435,864
	16,800		Hunt (J.B.) Transportation Services, Inc.		753,480
	14,700		Joy Global, Inc.		638,421
	8,400		L-3 Communications Holdings, Inc.		615,216
	15,700		Masco Corp.		573,521
	15,000		Pentair, Inc.		653,400
	7,200		Precision Castparts Corp.		472,896
	10,700		Rockwell Automation, Inc.		530,185
	10,000		Rockwell Collins		394,400
	8,900		UTI Worldwide, Inc.		605,378
	9,600	1	Wabash National Corp.		258,528
	6,700	1	Yellow Roadway Corp.		373,257
			TOTAL		9,416,269
			Information Technology--23.5%
	74,500	2	ARM Holdings PLC, ADR		459,665
	27,900	1	ASM Lithography Holding NV		443,889
	11,800		Acxiom Corp.		310,340
	5,700	1	Affiliated Computer Services, Inc., Class A		343,083
	23,500	1	Altera Corp.		486,450
	20,100	1	Amdocs Ltd.		527,625
	10,100	1	Anixter International, Inc.		363,499
	11,700	1	Apple Computer, Inc.		753,480
	17,600		Autodesk, Inc.		667,920
	14,600	1	Cognizant Technology Solutions Corp.		618,018
	18,600	1	Cymer, Inc.		549,444
	11,600		Harris Corp.		716,764
	21,700	1	Jabil Circuit, Inc.		555,086
	19,500	1	Juniper Networks, Inc.		530,205
	13,600	1	KLA-Tencor Corp.		633,488
	21,200	1	Lam Research Corp.		612,892
	60,000	1	MEMC Electronic Materials		795,000
	6,900		Maxim Integrated Products, Inc.		292,491
	26,300	1	McAfee, Inc.		760,859
	9,300		Plantronics, Inc.		385,671
	7,300		Qualcomm, Inc.		309,520
	27,900	1	RSA Security, Inc.		559,674
	11,900		SAP AG (Systeme, Anwendungen, Produkte in der Datenverarbeitung), ADR		526,099
	28,200	1	Symantec Corp.		726,432
	9,500		Tektronix, Inc.		286,995
	17,900	1	Veritas Software Corp.		511,045
	13,500	1	Yahoo, Inc.		508,680
	8,600	1	Zebra Technologies Corp., Class A		484,008
			TOTAL		14,718,322
Shares or Principal Amount					Value
			COMMON STOCKS--continued
			Materials--5.7%
	30,300	1	AK Steel Holding Corp.	$	438,441
	14,300		Agrium, Inc.		240,955
	7,100		CONSOL Energy, Inc.		291,455
	4,900	1	Cleveland Cliffs, Inc.		508,914
	14,700		Ecolab, Inc.		516,411
	10,400		Monsanto Co.		577,720
	6,300		Nova Chemicals Corp.		297,990
	4,900		Peabody Energy Corp.		396,459
	3,600		Potash Corporation of Saskatchewan, Inc.		299,016
			TOTAL		3,567,361
			Telecommunication Services--1.8%
	34,300	1	American Tower Systems Corp.		631,120
	10,100	1	NII Holdings, Inc.		479,245
			TOTAL		1,110,365
			Utilities--3.1%
	41,700	1	AES Corp.		570,039
	15,700		Edison International		502,871
	10,500		Pinnacle West Capital Corp.		466,305
	40,500	1	Sierra Pacific Resources		425,250
			TOTAL		1,964,465
			TOTAL COMMON STOCKS (IDENTIFIED COST $49,305,590)		62,104,932
			REPURCHASE AGREEMENTS--4.8%
$	1,074,000		Interest in $2,000,000,000 joint repurchase agreement with UBS Securities LLC, 2.28%, dated 12/31/2004 to be repurchased at $1,074,204 on 1/3/2005, collateralized by US Government Agency Obligations with various maturities to 9/25/2034, collateral market value $2,060,003,250		1,074,000
	1,952,900		Interest in $1,000,000,000 joint repurchase agreement with Westduetsche Landesbank LLC, 2.28%, dated 12/31/2004 to be repurchased at $1,952,371 on 1/3/2005, collateralized by U.S. Government Agency Obligations with various maturities to 5/1/2043, collateral market value $1,028,425,899 (held as collateral for securities lending)		1,952,000
			TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST)		3,026,000
			TOTAL INVESTMENTS--104.1% (IDENTIFIED COST $52,331,590)3		65,130,932
			OTHER ASSET AND LIABILITIES - NET--(4.1)%		(2,568,262	)
			TOTAL NET ASSETS--100%	$	62,562,670

1 Non-income producing security.

2 All or a portion of these shares are temporarily on loan to unaffiliated broker/dealers.

3 The cost of investments for federal tax purposes amounts to $52,363,962.

Note: The categories of investments are shown as a percentage of total net assets at December 31, 2004.

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, 2004

Assets:
Total investments in securities, at value, including $1,889,001 of securities loaned (identified cost $52,331,590)			$	65,130,932
Cash				182,126
Income receivable				70,681
Receivable for investments sold				1,137,757
TOTAL ASSETS				66,521,496
Liabilities:
Payable for investments purchased	$	1,987,001
Payable for shares redeemed		12,410
Payable for collateral due to broker		1,952,000
Accrued expenses		7,415
TOTAL LIABILITIES				3,958,826
Net assets for 2,976,391 shares outstanding			$	62,562,670
Net Assets Consist of:
Paid-in capital			$	66,733,610
Net unrealized appreciation of investments				12,799,342
Accumulated net realized loss on investments				(16,970,282	)
TOTAL NET ASSETS			$	62,562,670
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
$62,562,670 ÷ 2,976,391 shares outstanding, no par value, unlimited shares authorized				$21.02

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended December 31, 2004

Investment Income:
Dividends (net of foreign taxes withheld of $2,722)							$	428,520
Interest (including income on securities loaned of $9,129)								27,605
TOTAL INCOME								456,125
Expenses:
Investment adviser fee (Note 5)				$	462,888
Administrative personnel and services fee (Note 5)					150,000
Custodian fees					9,492
Transfer and dividend disbursing agent fees and expenses (Note 5)					12,324
Directors'/Trustees' fees					1,183
Auditing fees					16,727
Legal fees					4,534
Portfolio accounting fees					44,223
Share registration costs					215
Printing and postage					28,894
Insurance premiums					13,523
Miscellaneous					350
TOTAL EXPENSES					744,353
Waiver and Expense Reduction (Note 5):
Waiver of administrative personnel and services fee	$	(24,384	)
Fees paid indirectly for directed brokerage arrangements		(5,527	)
TOTAL WAIVER AND EXPENSE REDUCTION					(29,911	)
Net expenses								714,442
Net investment income (loss)								(258,317	)
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments								10,865,814
Net change in unrealized appreciation of investments								(1,940,793	)
Net realized and unrealized gain on investments								8,925,021
Change in net assets resulting from operations							$	8,666,704

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

Year Ended December 31		2004			2003
Increase (Decrease) in Net Assets
Operations:
Net investment income (loss)	$	(258,317	)	$	(405,025	)
Net realized gain on investments		10,865,814			5,957,263
Net increase due to reimbursements from adviser for certain losses on investments (Note 7)		--			23,490
Net change in unrealized appreciation/depreciation of investments		(1,940,793	)		13,548,840
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS		8,666,704			19,124,568
Share Transactions:
Proceeds from sale of shares		2,280,603			2,760,215
Cost of shares redeemed		(12,653,312	)		(10,983,511	)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS		(10,372,709	)		(8,223,296	)
Change in net assets		(1,706,005	)		10,901,272
Net Assets:
Beginning of period		64,268,675			53,367,403
End of period	$	62,562,670		$	64,268,675

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

December 31, 2004

1. ORGANIZATION

Federated Insurance Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end, management investment company. The Trust consists of 11 portfolios. The financial statements included herein are only those of Federated Mid Cap 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.

2. SIGNIFICANT ACCOUNTING POLICIES

Investment Valuation

Domestic and foreign equity securities are valued at the last sale price or official closing price reported in the market in which they are primarily traded (either a national securities exchange or the over-the-counter market), if available. If unavailable, the security is generally valued at the mean between the last closing bid and asked prices. 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 (NYSE). Therefore, foreign securities are valued at the latest closing price on the exchange on which they are traded immediately prior to the closing of the NYSE. Foreign securities quoted in foreign currencies are translated in U.S. dollars at the foreign exchange rate in effect at 4:00 p.m., Eastern Time, on the day the value of the foreign security is determined. Fixed income, listed corporate bonds, 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. 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. Securities for which no quotations are readily available or whose values have been affected by a significant event occurring between the close of their primary markets and the closing of the NYSE are valued at fair value as determined in accordance with procedures established by and under general supervision of the Board of Trustees (the "Trustees").

Repurchase Agreements

Investment Income, Expenses and Distributions

Premium and Discount Amortization

All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.

Federal Taxes

Withholding taxes on foreign interest, dividends and capital gains have been provided for in accordance with the applicable country's tax rules and rates.

When-Issued and Delayed Delivery Transactions

Securities Lending

As of December 31, 2004, securities subject to this type of arrangement and related collateral were as follows:

Market Value of Securities Loaned		Market Value of Collateral
$1,889,001		$1,952,000

Use of Estimates

The preparation of financial statements in conformity with GAAP 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 a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.

3. SHARES OF BENEFICIAL INTEREST

The following table summarizes share activity:

Year Ended December 31	2004		2003
Shares sold	121,405		179,619
Shares redeemed	(673,164	)	(756,742	)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS	(551,759	)	(577,123	)

4. FEDERAL TAX INFORMATION

The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due in part to differing treatments for net operating loss and foreign currency transactions.

For the year ended December 31, 2004, permanent differences identified and reclassified among the components of net assets were as follows:

Increase (Decrease)
Paid-In Capital	Accumulated Net Investment Income (Loss)	Accumulated Net Realized Losses
$(258,335)	$258,317	$18

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

As of December 31, 2004, the components of distributable earnings on a tax basis were as follows:

Net unrealized appreciation		$	12,766,970
Capital loss carryforward		$	16,937,912

The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the tax deferral of losses from wash sales.

At December 31, 2004, the cost of investments for federal tax purposes was $52,363,962. The net unrealized appreciation of investments for federal tax purposes was $12,766,970. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $13,036,188 and net unrealized depreciation from investments for those securities having an excess of cost over value of $269,218.

At December 31, 2004, the Fund had a capital loss carryforward of $16,937,912 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire as follows:

Expiration Year		Expiration Amount
2009		$ 2,931,362
2010		$14,006,550

5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Federated Equity Management Company of Pennsylvania, the Fund's investment adviser (the "Adviser") receives for its services an annual investment adviser 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

Maximum Administrative Fee		Average Aggregate Daily Net Assets of the Federated Funds
0.150%		on the first $5 billion
0.125%		on the next $5 billion
0.100%		on the next $10 billion
0.075%		on assets in excess of $20 billion

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 the average daily net assets of the Fund's Shares for the period. The fee paid to FSSC is used to finance certain services for shareholders and to maintain shareholder accounts. 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. For the year ended December 31, 2004, the Fund did not incur a shareholder services fee.

Transfer and Dividend Disbursing Agent Fees and Expenses

Prior to July 1, 2004, Federated Services Company, through its subsidiary FSSC, served as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC was based on the size, type and number of accounts and transactions made by shareholders. The fee paid to FSSC during the reporting period was $7,234, after voluntary waiver, if applicable.

Expense Reduction

General

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

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations (and in-kind contributions), for the year ended December 31, 2004, were as follows:

Purchases		$	89,758,256
Sales		$	99,256,457

7. OTHER

For the year ended December 31, 2003, the Fund's Adviser made a voluntary contribution to the Fund of $23,490 for losses on investments inadvertently sold by the Fund.

8. CONCENTRATION OF CREDIT RISK

The Fund may invest a portion of its assets in securities of companies that are deemed by the Fund's management to be classified in similar business sectors. The economic developments with in a particular sector may have an adverse effect on the ability of issuers to meet their obligations. Additionally, economic developments may have an effect on the liquidity and volatility of the portfolio securities.

9. LEGAL PROCEEDINGS

Report of Independent Registered Public Accounting Firm

TO THE BOARD OF TRUSTEES OF FEDERATED INSURANCE SERIES AND THE SHAREHOLDERS OF FEDERATED MID CAP GROWTH STRATEGIES FUND II:

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated Mid Cap Growth Strategies Fund II (the "Fund") (a portfolio of Federated Insurance Series) (the "Trust") as of December 31, 2004, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to provide reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2004, the results of its operations, the changes in its net assets and its financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Boston, Massachusetts
February 15, 2005

Board of Trustees and Trust Officers

INTERESTED TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
John F. Donahue* Birth Date: July 28, 1924 CHAIRMAN AND TRUSTEE Began serving: September 1993		Principal Occupations: Chairman and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Chairman and Director, Federated Investment Counseling.

J. Christopher Donahue* Birth Date: April 11, 1949 TRUSTEE Began serving: September 1993		Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd.

Lawrence D. Ellis, M.D.* Birth Date: October 11, 1932 3471 Fifth Avenue Suite 1111 Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center. Other Directorships Held: Member, National Board of Trustees, Leukemia Society of America. Previous Positions: Trustee, University of Pittsburgh; Director, University of Pittsburgh Medical Center.

INDEPENDENT TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
Thomas G. Bigley Birth Date: February 3, 1934 15 Old Timber Trail Pittsburgh, PA TRUSTEE Began serving: November 1994		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director, University of Pittsburgh. Previous Position: Senior Partner, Ernst & Young LLP.


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
John T. Conroy, Jr. Birth Date: June 23, 1937 Investment Properties Corporation 3838 North Tamiami Trail Suite 402 Naples, FL TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation.

Nicholas P. Constantakis Birth Date: September 3, 1939 175 Woodshire Drive Pittsburgh, PA TRUSTEE Began serving: February 1998		Principal Occupations: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Member of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC.

John F. Cunningham Birth Date: March 5, 1943 353 El Brillo Way Palm Beach, FL TRUSTEE Began serving: January 1999		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc.

Peter E. Madden Birth Date: March 16, 1942 One Royal Palm Way 100 Royal Palm Way Palm Beach, FL TRUSTEE Began serving: September 1993		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.

Charles F. Mansfield, Jr. Birth Date: April 10, 1945 80 South Road Westhampton Beach, NY TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; Management Consultant; Executive Vice President, DVC Group, Inc. (marketing communications and technology) (prior to 9/1/00). Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University.

John E. Murray, Jr., J.D., S.J.D. Birth Date: December 20, 1932 Chancellor, Duquesne University Pittsburgh, PA TRUSTEE Began serving: February 1995		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chancellor and Law Professor, Duquesne University; Partner, Murray, Hogue and Lannis. Other Directorships Held: Director, Michael Baker Corp. (engineering, construction, operations and technical services). Previous Positions: President, Duquesne University; Dean and Professor of Law, University of Pittsburgh School of Law; Dean and Professor of Law, Villanova University School of Law.

Marjorie P. Smuts Birth Date: June 21, 1935 4905 Bayard Street Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Public Relations/Marketing Consultant/Conference Coordinator. Previous Positions: National Spokesperson, Aluminum Company of America; television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord.

John S. Walsh Birth Date: November 28, 1957 2604 William Drive Valparaiso, IN TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc.

OFFICERS


Name Birth Date Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years and Previous Position(s)
John B. Fisher Birth Date: May 16, 1956 PRESIDENT Began serving: November 2004		Principal Occupations: Vice President of some of the Funds in the Federated Fund Complex; and President and Director of the Institutional Sales Division of Federated Securities Corp., which is a wholly owned subsidiary of Federated. Mr. Fisher is responsible for the distribution of Federated's products and services to investment advisors, insurance companies, retirement plans, and corporations. In addition, Mr. Fisher serves as President and Director of Federated Investment Counseling, a wholly owned subsidiary of Federated involved in the management of separate accounts and sub-advised mandates. He is also President, Technology, Federated Services Corp. responsible for the technological infrastructure of the various Federated companies. He is also Director, Edgewood Securities Corp., as well as Director, Federated Investors Trust Company. Previous Positions: Senior Vice President of Federated Investment Counseling.

John W. McGonigle Birth Date: October 26, 1938 EXECUTIVE VICE PRESIDENT AND SECRETARY Began serving: September 1993		Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc.

Richard J. Thomas Birth Date: June 17, 1954 TREASURER Began serving: September 1997		Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services.

Richard B. Fisher Birth Date: May 17, 1923 VICE PRESIDENT Began serving: November 1998		Principal Occupations: Vice Chairman or President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. Previous Positions: President and Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice President, Federated Investors, Inc.; and Director and Chief Executive Officer, Federated Securities Corp.

Stephen F. Auth Birth Date: September 3, 1956 CHIEF INVESTMENT OFFICER Began serving: November 2002		Principal Occupations: Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Equity Management Company of Pennsylvania and Passport Research II, Ltd. Previous Positions: Executive Vice President, Federated Investment Management Company, and Passport Research, Ltd.; Senior Vice President, Global Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd.; Senior Managing Director and Portfolio Manager, Prudential Investments.

Robert J. Ostrowski Birth Date: April 26, 1963 CHIEF INVESTMENT OFFICER Began serving: May 2004		Principal Occupations: Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of taxable fixed income products in 2004 and also serves as a Senior Portfolio Manager. He has been a Senior Vice President of the Fund's Adviser since 1997. Mr. Ostrowski is a Chartered Financial Analyst. He received his M.S. in Industrial Administration from Carnegie Mellon University.

VOTING PROXIES ON FUND PORTFOLIO SECURITIES

QUARTERLY PORTFOLIO SCHEDULE

Federated
World-Class Investment Manager

Federated Mid Cap Growth Strategies Fund II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Cusip 313916702

G00433-07 (2/05)

Federated is a registered mark of Federated Investors, Inc. 2005 (c)Federated Investors, Inc.

Federated
World-Class Investment Manager

Federated Prime Money Fund II

A Portfolio of Federated Insurance Series

ANNUAL SHAREHOLDER REPORT

December 31, 2004

FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
PORTFOLIO OF INVESTMENTS SUMMARY TABLES
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE

Not FDIC Insured * May Lose Value * No Bank Guarantee

Financial Highlights

(For a Share Outstanding Throughout Each Period)

Year Ended December 31	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$1.00		$1.00		$1.00		$1.00		$1.00
Income From Investment Operations:
Net investment income	0.008		0.007		0.014		0.037		0.058
Net realized gain (loss) on investments	0.000	1	0.000	1	0.000	1	0.000	1	(0.000	)1
TOTAL FROM INVESTMENT OPERATIONS	0.008		0.007		0.014		0.037		0.058
Less Distributions:
Distributions from net investment income	(0.008	)	(0.007	)	(0.014	)	(0.037	)	(0.058	)
Net Asset Value, End of Period	$1.00		$1.00		$1.00		$1.00		$1.00
Total Return2	0.82	%	0.69	%	1.41	%	3.75	%	5.95	%

Ratios to Average Net Assets:
Expenses	0.65	%	0.65	%	0.64	%	0.66	%	0.67	%
Net investment income	0.79	%	0.70	%	1.40	%	3.54	%	5.75	%
Expense waiver/reimbursement3	0.15	%	0.02	%	--		--		0.02	%
Supplemental Data:
Net assets, end of period (000 omitted)	$83,660		$106,007		$177,945		$214,311		$157,028

1 Represents less than $0.001.

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

See Notes which are an integral part of the Financial Statements

Shareholder Expense Example

As a shareholder of the Fund, you incur ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees and/or shareholder services fees; and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other variable investment options. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2004 to December 31, 2004.

ACTUAL EXPENSES

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

	Beginning Account Value 7/1/2004	Ending Account Value 12/31/2004	Expenses Paid During Period1
Actual	$1,000	$1,005.60	$3.28
Hypothetical (assuming a 5% return before expenses)	$1,000	$1,021.87	$3.30

1 Expenses are equal to the Fund's annualized expense ratio of 0.65%, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).

Portfolio of Investments Summary Tables

At December 31, 2004, the Fund's portfolio composition1 was as follows:

		Percentage of Total Investments2
Commercial Paper & Notes		44.7%
Variable Rate Demand Instruments		48.1%
Repurchase Agreements		7.2%
Bank Instruments		0.0%
TOTAL		100.0%

At December 31, 2004, the Fund's credit-quality ratings composition3 was as follows:

S&P Short-Term Ratings as Percentage of Total Investments3		Moody's Short-Term Ratings as Percentage of Total Investments3
A-1+	54.9%	Prime-1	91.5%
A-1	25.8%	Prime-2	6.1%
A-2	9.7%
Not Rated by S&P	9.6%	Not Rated by Moody's	2.4%
TOTAL	100.0%	TOTAL	100.0%

At December 31, 2004, the Fund's effective maturity4 schedule was as follows:

Securities With an Effective Maturity of:	Percentage of Total Investments	2
1-7 Days	48.1%	5
8-30 Days	18.9%
31-90 Days	22.9%
91-180 Days	10.1%
181 Days or more	0.0%
TOTAL	100.0%

1 Commercial paper and notes includes any fixed-rate security that is not a bank instrument. A variable rate instrument is any security which has an interest rate that resets periodically. See the Fund's Prospectus for descriptions of commercial paper, repurchase agreements, and bank instruments.

2 Percentages are based on total investments, which may differ from the Fund's total net assets used in computing the percentages in the Portfolio of Investments which follows.

3 These tables depict the short-term, credit-quality ratings assigned to the Fund's portfolio holdings by Standard & Poor's and Moody's Investors Service, each of which is a nationally recognized statistical rating organization (NRSRO). Holdings that are rated only by a different NRSRO than the one identified have been included in the "Not rated by..." category.

Rated securities include a security with an obligor and/or credit enhancer that has received a rating from an NRSRO with respect to a class of debt obligations that is comparable in priority and security with the security held by the Fund. Credit-quality ratings are an assessment of the risk that a security will default in payment and do not address other risks presented by the security. Please see the description of credit-quality ratings in the Fund's Statement of Additional Information.

Of the portfolio's total investments, 2.4% do not have short-term ratings by either of these NRSROs.

4 Effective maturity is determined in accordance with the requirements of Rule 2a-7 under the Investment Company Act of 1940, which regulates money market mutual funds.

5 Overnight securities comprised 7.2% of the Fund's portfolio.

Portfolio of Investments

December 31, 2004

Principal Amount				Value
			ASSET-BACKED SECURITIES--2.8%
			Finance - Automotive--0.5%
$	128,427		Capital One Prime Auto Receivables Trust 2004-2, Class A1, 1.687%, 7/15/2005	$	128,427
	165,639	1	DaimlerChrysler Auto Trust 2004-B, Class A1, 1.720%, 8/8/2005		165,639
	91,712		USAA Auto Owner Trust 2004-2, Class A1, 1.660%, 7/15/2005		91,712
			TOTAL		385,778
			Finance - Equipment--2.3%
	1,945,055		CNH Equipment Trust 2004-A, Class A1, 2.009%, 10/14/2005		1,945,055
			TOTAL ASSET-BACKED SECURITIES		2,330,833
			COLLATERALIZED LOAN AGREEMENTS--10.8%
			Banking--3.6%
	3,000,000		Greenwich Capital Markets, Inc., 2.437%, 1/3/2005		3,000,000
			Brokerage--7.2%
	2,000,000		Bear Stearns & Co., Inc., 2.462%, 1/3/2005		2,000,000
	2,000,000		Lehman Brothers Holdings, Inc., 2.462%, 1/3/2005		2,000,000
	2,000,000		Merrill Lynch & Co., Inc., 2.462%, 1/3/2005		2,000,000
			TOTAL		6,000,000
			TOTAL COLLATERALIZED LOAN AGREEMENTS		9,000,000
			COMMERCIAL PAPER--22.1%2
			Banking--10.7%
	1,000,000		Bank of America Corp., 2.140%, 4/6/2005		994,353
	4,000,000	1	Bavaria TRR Corp., (Bayerische Hypotheken-und Vereinsbank AG Swap Agreement), 2.350% - 2.380%, 1/5/2005 - 1/28/2005		3,997,430
	1,000,000	1	Fountain Square Commercial Funding Corp., 2.470%, 3/28/2005		994,099
	2,000,000		KBC Financial Products International Ltd., (KBC Bank N.V. GTD), 1.850%, 2/8/2005		1,996,094
	1,000,000	1	Picaros Funding LLC, (KBC Bank N.V. GTD), 2.130%, 4/4/2005		994,498
			TOTAL		8,976,474
			Conglomerate--1.0%
	800,000		Textron Financial Corp., (Textron Inc. Support Agreement), 2.240%, 1/10/2005		799,552
			Finance - Automotive--5.1%
	800,000		DaimlerChrysler North America Holding Corp., 2.480%, 3/8/2005		796,363
	2,000,000		FCAR Auto Loan Trust, (Series A1+/P1), 2.000%, 3/2/2005		1,993,333
	1,500,000		New Center Asset Trust, (Series A1/P1), 2.030%, 3/7/2005		1,494,502
			TOTAL		4,284,198
			Finance - Commercial--2.4%
	1,000,000		CIT Group, Inc., 2.100%, 3/15/2005		995,742
	1,000,000		General Electric Capital Corp., 1.990%, 3/9/2005		996,296
			TOTAL		1,992,038
			Food & Beverage--1.0%
	800,000	1	General Mills, Inc., 2.470%, 2/16/2005		797,475
			Machinery, Equipment, Auto--1.0%
	870,000		John Deere Capital Corp., (Deere & Co. Support Agreement), 2.100% - 2.150%, 1/14/2005 - 1/19/2005		869,214
Principal Amount				Value
			COMMERCIAL PAPER--continued2
			Retail--0.9%
$	800,000	1	May Department Stores Co., 2.440%, 1/10/2005	$	799,512
			TOTAL COMMERCIAL PAPER		18,518,463
			CORPORATE BONDS--1.2%
			Finance - Retail--1.2%
	1,000,000		Countrywide Home Loans, Inc., 2.140%, 1/18/2005		1,000,030
			CORPORATE NOTES--3.6%
			Brokerage--1.2%
	1,000,000		Goldman Sachs & Co., 2.060%, 3/10/2005		1,000,000
			Finance - Securities--1.2%
	1,000,000	1	K2 (USA) LLC, (K2 Corp. GTD), 1.310%, 2/28/2005		999,984
			Pharmaceuticals & Healthcare--1.2%
	1,000,000	1	Merck & Co., Inc., 4.484%, 2/22/2005		1,004,524
			TOTAL CORPORATE NOTES		3,004,508
			GOVERNMENT AGENCIES--1.7%
			Government Agency--1.7%
	1,450,000		Federal Home Loan Bank System, 1.360% - 1.500%, 4/1/2005 - 5/4/2005		1,450,000
			LOAN PARTICIPATION--2.4%
			Chemicals--2.4%
	2,000,000		DuPont Teijin Films U.K. Ltd., (Du Pont (E.I.) de Nemours & Co. GTD), 2.550%, 3/31/2005		2,000,000
			NOTES - VARIABLE--48.0%3
			Banking--30.1%
	3,000,000	1	Blue Heron Funding V-A Ltd., Class A-2, (WestLB AG GTD), 2.448%, 1/26/2005		3,000,000
	3,000,000		HBOS Treasury Services PLC, 2.550%, 3/24/2005		3,000,000
	4,045,000		Home City Ice Co. & H.C. Transport (Series 2000), (U.S. Bank, N.A. LOC), 2.450%, 1/6/2005		4,045,000
	2,000,000		Kansas City, MO Tax Increment Financing Commission, President Hotel, (Insured by MBIA Insurance Corp.), 2.470%, 1/6/2005		2,000,000
	1,550,000		Lancaster, PA IDA, Snavely's Mill, Inc. (Series 2003 - B), (Fulton Bank LOC), 2.540% 1/6/2005		1,550,000
	3,875,000		North Shore Business Development LLC (Series 2004), (Columbus Bank and Trust Co., GA LOC), 2.660%, 1/6/2005		3,875,000
	2,575,000		Prospects Aggregates, Inc. (Series 2004), (Fulton Bank LOC), 2.540%, 1/6/2005		2,575,000
	150,000		Roby Co. Ltd. Partnership, (Huntington National Bank, Columbus, OH LOC), 2.610%, 1/6/2005		150,000
	5,000,000		Societe Generale, Paris, 2.338%, 1/17/2005		4,999,767
			TOTAL		25,194,767
			Brokerage--2.4%
	2,000,000		Morgan Stanley, 2.365%, 1/3/2005		2,000,000
			Finance - Commercial--4.8%
	2,000,000	1	Compass Securitization LLC, 2.300%, 1/8/2005		1,999,917
	2,000,000		GE Capital Assurance Co., (General Electric Capital Corp. GTD), 2.325%, 2/9/2005		2,000,000
			TOTAL		3,999,917
			Finance - Retail--1.2%
	1,000,000	1	Paradigm Funding LLC, 2.291%, 1/5/2005		1,000,000
Principal Amount				Value
			NOTES VARIABLE--continued3
			Finance - Securities--6.0%
$	3,000,000	1	K2 (USA) LLC, (K2 Corp. GTD), 2.340%, 1/3/2005	$	3,000,330
	2,000,000	1	Sigma Finance, Inc., (Sigma Finance Corp. GTD), 2.370%, 1/31/2005		1,999,623
			TOTAL		4,999,953
			Insurance--3.5%
	1,000,000		Jackson National Life Insurance Co., 2.503%, 1/24/2005		1,000,000
	2,000,000	1	Pacific Life Global Funding, 2.321%, 1/4/2005		2,000,107
			TOTAL		3,000,107
			TOTAL NOTES - VARIABLE		40,194,744
			REPURCHASE AGREEMENT--7.2%
	5,993,000		Interest in $1,900,000,000 joint repurchase agreement with Countrywide Securities Corp., 2.280%, dated 12/31/2004 to be repurchased at $5,994,139 on 1/3/2005, collateralized by U.S. Government Agency Obligations with various maturities to 8/25/2044, collateral market value $1,948,917,465		5,993,000
			TOTAL INVESTMENTS--99.8% (AT AMORTIZED COST)4		83,491,578
			OTHER ASSETS AND LIABILITIES - NET--0.2%		168,519
			TOTAL NET ASSETS--100%	$	83,660,097

1 Denotes a restricted security, including securities purchased under Rule 144A of the Securities Act of 1933. These securities, all of which have been deemed liquid by criteria approved by the Fund's Board of Trustees, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. At December 31, 2004, these securities amounted to $22,753,138 which represents 27.2% of total net assets.

2 Each issue shows the rate of discount at the time of purchase.

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

4 Also represents cost for federal tax purposes.

Note: The categories of investments are shown as a percentage of total net assets at December 31, 2004.

The following acronyms are used throughout this portfolio:

GTD	--Guaranteed
IDA	--Industrial Development Authority
LOC	--Letter of Credit

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

December 31, 2004

Assets:
Total investments in securities, at amortized cost and value			$	83,491,578
Income receivable				145,985
Receivable for shares sold				74,325
TOTAL ASSETS				83,711,888
Liabilities:
Payable for shares redeemed	$	21,880
Payable to bank		6,745
Payable for custodian fees		4,785
Payable for transfer and dividend disbursing agent fees and expenses		8,726
Payable for Directors'/Trustees' fees		146
Payable for printing and postage		6,879
Accrued expenses		2,630
TOTAL LIABILITIES				51,791
Net assets for 83,888,560 shares outstanding			$	83,660,097
Net Assets Consist of:
Paid-in capital			$	83,888,152
Accumulated net realized loss on investments				(228,577	)
Undistributed net investment income				522
TOTAL NET ASSETS			$	83,660,097
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
$83,660,097 ÷ 83,888,560 shares outstanding, no par value, unlimited shares authorized				$1.00

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended December 31, 2004

Investment Income:
Interest							$	1,449,225
Expenses:
Investment adviser fee (Note 5)				$	502,032
Administrative personnel and services fee (Note 5)					150,000
Custodian fees					34,740
Transfer and dividend disbursing agent fees and expenses (Note 5)					16,707
Directors'/Trustees' fees					1,492
Auditing fees					14,644
Legal fees					5,199
Portfolio accounting fees					44,793
Printing and postage					19,014
Insurance premiums					14,587
Miscellaneous					1,352
TOTAL EXPENSES					804,560
Waivers (Note 5):
Waiver of investment adviser fee	$	(123,001	)
Waiver of administrative personnel and services fee		(23,997	)
TOTAL WAIVERS					(146,998	)
Net expenses								657,562
Net investment income								791,663
Net realized gain on investments								3,119
Change in net assets resulting from operations							$	794,782

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

Year Ended December 31		2004			2003
Increase (Decrease) in Net Assets
Operations:
Net investment income	$	791,663		$	1,050,783
Net realized gain on investments		3,119			1,185
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS		794,782			1,051,968
Distributions to Shareholders:
Distributions from net investment income		(791,141	)		(1,051,191	)
Share Transactions:
Proceeds from sale of shares		149,778,144			481,386,349
Net asset value of shares issued to shareholders in payment of distributions declared		791,077			1,051,150
Cost of shares redeemed		(172,919,348	)		(554,376,768	)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS		(22,350,127	)		(71,939,269	)
Change in net assets		(22,346,486	)		(71,938,492	)
Net Assets:
Beginning of period		106,006,583			177,945,075
End of period (including undistributed net investment income of $522 and $0, respectively)	$	83,660,097		$	106,006,583

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

December 31, 2004

1. ORGANIZATION

Federated Insurance Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of 11 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.

2. SIGNIFICANT ACCOUNTING POLICIES

Investment Valuation

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

Repurchase Agreements

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. The Fund, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into one or more repurchase agreements.

Investment Income, Expenses and Distributions

Interest income and expenses are accrued daily. Distributions to shareholders are recorded on the ex-dividend date.

Premium and Discount Amortization

All premiums and discounts are amortized/accreted.

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.

Use of Estimates

The preparation of financial statements in conformity with GAAP 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 a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.

3. SHARES OF BENEFICIAL INTEREST

The following table summarizes share activity:

Year Ended December 31	2004		2003
Shares sold	149,778,144		481,386,349
Shares issued to shareholders in payment of distributions declared	791,077		1,051,150
Shares redeemed	(172,919,348	)	(554,376,768	)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS	(22,350,127	)	(71,939,269	)

4. FEDERAL TAX INFORMATION

The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended December 31, 2004 and 2003 was as follows:

		2004		2003
Ordinary income		$791,141		$1,051,191

As of December 31, 2004, the components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income		$	522
Capital loss carryforward		$	228,577

At December 31, 2004, the Fund had a capital loss carryforward of $228,577 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire in 2008.

5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser 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

Maximum Administrative Fee		Average Aggregate Daily Net Assets of the Federated Funds
0.150%		on the first $5 billion
0.125%		on the next $5 billion
0.100%		on the next $10 billion
0.075%		on assets in excess of $20 billion

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 the average daily net assets of the Fund's Shares for the period. The fee paid to FSSC is used to finance certain services for shareholders and to maintain shareholder accounts. 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. For the year ended December 31, 2004, the Fund did not incur a shareholder services fee.

Transfer and Dividend Disbursing Agent Fees and Expenses

Prior to July 1, 2004, Federated Services Company, through its subsidiary FSSC, served as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC was based on the size, type and number of accounts and transactions made by shareholders. The fee paid to FSSC during the reporting period was $8,584, after voluntary waiver, if applicable.

General

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

6. CONCENTRATION OF CREDIT RISK

7. LEGAL PROCEEDINGS

Report of Independent Registered Public Accounting Firm

TO THE BOARD OF TRUSTEES OF FEDERATED INSURANCE SERIES AND
THE 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 Federated Insurance Series) (the "Trust") as of December 31, 2004, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to provide reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2004, the results of its operations, the changes in its net assets and its financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Boston, Massachusetts
February 15, 2005

Board of Trustees and Trust Officers

INTERESTED TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
John F. Donahue* Birth Date: July 28, 1924 CHAIRMAN AND TRUSTEE Began serving: September 1993		Principal Occupations: Chairman and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Chairman and Director, Federated Investment Counseling.

J. Christopher Donahue* Birth Date: April 11, 1949 TRUSTEE Began serving: September 1993		Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd.

Lawrence D. Ellis, M.D.* Birth Date: October 11, 1932 3471 Fifth Avenue Suite 1111 Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center. Other Directorships Held: Member, National Board of Trustees, Leukemia Society of America. Previous Positions: Trustee, University of Pittsburgh; Director, University of Pittsburgh Medical Center.

INDEPENDENT TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
Thomas G. Bigley Birth Date: February 3, 1934 15 Old Timber Trail Pittsburgh, PA TRUSTEE Began serving: November 1994		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director, University of Pittsburgh. Previous Position: Senior Partner, Ernst & Young LLP.

John T. Conroy, Jr. Birth Date: June 23, 1937 Investment Properties Corporation 3838 North Tamiami Trail Suite 402 Naples, FL TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation.

Nicholas P. Constantakis Birth Date: September 3, 1939 175 Woodshire Drive Pittsburgh, PA TRUSTEE Began serving: February 1998		Principal Occupations: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Member of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC.

John F. Cunningham Birth Date: March 5, 1943 353 El Brillo Way Palm Beach, FL TRUSTEE Began serving: January 1999		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc.

Peter E. Madden Birth Date: March 16, 1942 One Royal Palm Way 100 Royal Palm Way Palm Beach, FL TRUSTEE Began serving: September 1993		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.

Charles F. Mansfield, Jr. Birth Date: April 10, 1945 80 South Road Westhampton Beach, NY TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; Management Consultant; Executive Vice President, DVC Group, Inc. (marketing communications and technology) (prior to 9/1/00). Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University.


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
John E. Murray, Jr., J.D., S.J.D. Birth Date: December 20, 1932 Chancellor, Duquesne University Pittsburgh, PA TRUSTEE Began serving: February 1995		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chancellor and Law Professor, Duquesne University; Partner, Murray, Hogue and Lannis. Other Directorships Held: Director, Michael Baker Corp. (engineering, construction, operations and technical services). Previous Positions: President, Duquesne University; Dean and Professor of Law, University of Pittsburgh School of Law; Dean and Professor of Law, Villanova University School of Law.

Marjorie P. Smuts Birth Date: June 21, 1935 4905 Bayard Street Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Public Relations/Marketing Consultant/Conference Coordinator. Previous Positions: National Spokesperson, Aluminum Company of America; television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord.

John S. Walsh Birth Date: November 28, 1957 2604 William Drive Valparaiso, IN TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc.

OFFICERS


Name Birth Date Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years and Previous Position(s)
John B. Fisher Birth Date: May 16, 1956 PRESIDENT Began serving: November 2004		Principal Occupations: Vice President of some of the Funds in the Federated Fund Complex; and President and Director of the Institutional Sales Division of Federated Securities Corp., which is a wholly owned subsidiary of Federated. Mr. Fisher is responsible for the distribution of Federated's products and services to investment advisers, insurance companies, retirement plans, and corporations. In addition, Mr. Fisher serves as President and Director of Federated Investment Counseling, a wholly owned subsidiary of Federated involved in the management of separate accounts and sub-advised mandates. He is also President, Technology, Federated Services Corp. responsible for the technological infrastructure of the various Federated companies. He is also Director, Edgewood Securities Corp., as well as Director, Federated Investors Trust Company. Previous Positions: Senior Vice President of Federated Investment Counseling.

John W. McGonigle Birth Date: October 26, 1938 EXECUTIVE VICE PRESIDENT AND SECRETARY Began serving: September 1993		Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc.

Richard J. Thomas Birth Date: June 17, 1954 TREASURER Began serving: September 1997		Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services.

Richard B. Fisher Birth Date: May 17, 1923 VICE PRESIDENT Began serving: November 1998		Principal Occupations: Vice Chairman or President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. Previous Positions: President and Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice President, Federated Investors, Inc.; and Director and Chief Executive Officer, Federated Securities Corp.

Stephen F. Auth Birth Date: September 3, 1956 CHIEF INVESTMENT OFFICER Began serving: November 2002		Principal Occupations: Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Equity Management Company of Pennsylvania and Passport Research II, Ltd. Previous Positions: Executive Vice President, Federated Investment Management Company, and Passport Research, Ltd.; Senior Vice President, Global Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd.; Senior Managing Director and Portfolio Manager, Prudential Investments.

Robert J. Ostrowski Birth Date: April 26, 1963 CHIEF INVESTMENT OFFICER Began serving: May 2004		Principal Occupations: Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of taxable fixed income products in 2004 and also serves as a Senior Portfolio Manager. He has been a Senior Vice President of the Fund's Adviser since 1997. Mr. Ostrowski is a Chartered Financial Analyst. He received his M.S. in Industrial Administration from Carnegie Mellon University.

VOTING PROXIES ON FUND PORTFOLIO SECURITIES

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Federated's website. Go to www.federatedinvestors.com; select "Products," open the "Variable Annuities" section, then select the link to "sec.gov" to access the link to Form N-PX. This information is also available from the EDGAR database on the SEC's Internet site at http://www.sec.gov.

QUARTERLY PORTFOLIO SCHEDULE

The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of the Federated Investors website at www.federatedinvestors.com by clicking on "Variable Annuities" and selecting link to "sec.gov" to access the link to Form N-Q.

Federated
World-Class Investment Manager

Federated Prime Money Fund II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Cusip 313916504

G00842-01 (2/05)

Federated is a registered mark of Federated Investors, Inc. 2005 (c)Federated Investors, Inc.

Federated
World-Class Investment Manager

Federated Quality Bond Fund II

A Portfolio of Federated Insurance Series

ANNUAL SHAREHOLDER REPORT

December 31, 2004

Primary Shares
Service Shares

Not FDIC Insured * May Lose Value * No Bank Guarantee

Financial Highlights - Primary Shares

(For a Share Outstanding Throughout Each Period)

Year Ended December 31	2004		2003		2002		2001		2000
Net Asset Value, Beginning of Period	$11.84		$11.71		$11.27		$10.72		$ 9.80
Income From Investment Operations:
Net investment income	0.42	1	0.47	1	0.56	1	0.39		0.26
Net realized and unrealized gain on investments	0.01		0.06		0.43		0.46		0.76
TOTAL FROM INVESTMENT OPERATIONS	0.43		0.53		0.99		0.85		1.02
Less Distributions:
Distributions from net investment income	(0.49	)	(0.40	)	(0.40	)	(0.27	)	(0.10	)
Distributions from net realized gain on investments	(0.11	)	--		(0.15	)	(0.03	)	--
TOTAL DISTRIBUTIONS	(0.60	)	(0.40	)	(0.55	)	(0.30	)	(0.10	)
Net Asset Value, End of Period	$11.67		$11.84		$11.71		$11.27		$10.72
Total Return2	3.62	%	4.65	%	9.31	%	8.01	%	10.45	%

Ratios to Average Net Assets:
Expenses	0.70	%	0.70	%	0.70	%	0.70	%	0.70	%
Net investment income	3.56	%	3.98	%	5.01	%	5.64	%	6.57	%
Expense waiver/reimbursement3	0.27	%	0.26	%	0.28	%	0.30	%	0.57	%
Supplemental Data:
Net assets, end of period (000 omitted)	$518,023		$575,848		$544,018		$287,686		$119,783
Portfolio turnover	41	%	87	%	101	%	106	%	65	%

1 Based on average shares outstanding.

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

See Notes which are an integral part of the Financial Statements

Financial Highlights - Service Shares

(For a Share Outstanding Throughout Each Period)

Year Ended December 31	2004		2003		2002	1
Net Asset Value, Beginning of Period	$11.82		$11.71		$10.85
Income From Investment Operations:
Net investment income	0.38	2	0.42	2	0.35	2
Net realized and unrealized gain on investments	0.01		0.08		0.51
TOTAL FROM INVESTMENT OPERATIONS	0.39		0.50		0.86
Less Distributions:
Distributions from net investment income	(0.47	)	(0.39	)	--
Distributions from net realized gain on investments	(0.11	)	--		--
TOTAL DISTRIBUTIONS	(0.58	)	(0.39	)	--
Net Asset Value, End of Period	$11.63		$11.82		$11.71
Total Return3	3.32	%	4.44	%	7.93	%

Ratios to Average Net Assets:
Expenses	0.95	%	0.95	%	0.95	%4
Net investment income	3.31	%	3.60	%	4.65	%4
Expense waiver/reimbursement5	0.02	%	0.01	%	0.03	%4
Supplemental Data:
Net assets, end of period (000 omitted)	$64,698		$44,837		$7,590
Portfolio turnover	41	%	87	%	101	%

1 Reflects operations for the period from April 30, 2002 (date of initial public investment) to December 31, 2002.

2 Based on average shares outstanding.

4 Computed on an annualized basis.

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

See Notes which are an integral part of the Financial Statements

Shareholder Expense Example

ACTUAL EXPENSES

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

	Beginning Account Value 7/1/2004	Ending Account Value 12/31/2004	Expenses Paid During Period1
Actual:
Primary Shares	$1,000	$1,036.40	$3.58
Service Shares	$1,000	$1,034.70	$4.86
Hypothetical (assuming a 5% return before expenses):
Primary Shares	$1,000	$1,021.62	$3.56
Service Shares	$1,000	$1,020.36	$4.82

Primary Shares		0.70%
Service Shares		0.95%

Management's Discussion of Fund Performance

The fund's total return, based on net asset value, for the 12-month reporting period was 3.62% for Primary Shares and 3.32% for Service Shares. By comparison, during the same 12-month period, the total return of the Lehman Brothers U.S. Credit Index (LBCI)1 was 5.24% and the total return of the Lehman Brothers U.S. Government/Credit Index (LBGCI)2 was 4.19%. The fund's total return for the most recently completed fiscal year reflected actual cash flows, transaction costs and other expenses which were not reflected in the total return of the LBCI and the LBGCI.

The fund's investment strategy focused on: (a) the effective duration of its portfolio; (b) the selection of securities with different maturities (expressed by a "yield curve" showing the relative yield of similar securities with different maturities); (c) the allocation of portfolio among securities of similar issuers (referred to as "sectors"); (d) the credit ratings of portfolio securities (which indicates the risk that securities will default); and (e) the selection of individual securities. These were the most significant factors affecting the fund's performance during the 12-month reporting period.

MARKET OVERVIEW

The bond market did surprisingly well in 2004 in the midst of the Federal Reserve's program to gradually tighten monetary policy. The Federal Open Market Committee raised the Federal Funds Target Rate five times last year by 25 basis points, bringing the widely-followed rate to 2.25% at year-end. Interest rates, for the most part, were mixed. For example, short-term interest rates were up 130-160 basis points while long-term interest rates were down 3-25 basis points. A decline in the price of oil toward year-end helped the stock and bond markets to recover as energy costs had been lifting consumer and producer inflation during the earlier part of the year. Job growth, although showing mild improvement over the 12-month reporting period, was not so strong as to negatively impact bond market returns. (Strong employment growth tends to concern bond investors as it usually precedes a pickup in inflation.) Additionally, corporate profitability and declining default rates on corporate bonds caused corporate bonds to have solid performance relative to other sectors of the fixed-income market. Within the corporate sector, lower-credit quality bonds tended to outperform higher-credit quality bonds during the reporting period as improving economic conditions tend to improve the credit prospects for issuers of lower-credit quality bonds. One final notable marketplace development was a well-publicized bidding scandal in the insurance industry, which negatively affected the value of bonds issued by many insurance companies.

DURATION3

At the end of the reporting period, the fund's dollar-weighted average effective duration was 3.8 years, which is at the shorter end of the Fund's three- to seven-year portfolio duration range. This duration positioning contributed to fund performance in the previous year's interest rate environment.

MATURITY AND YIELD CURVE

The fund held securities with very short maturities (including cash equivalents) and long maturities, while relatively avoiding securities with short to intermediate maturities (referred to as a "barbelled maturity approach"). This strategy was used in anticipation of a greater interest rate increase for short to intermediate rates than for very short or very long rates. The fund's barbelled maturity structure significantly helped performance in that the longest maturities rose in price over the year (a fund overweight) while the short to intermediate maturities fell in price (a fund underweight).

SECTOR ALLOCATION AND CREDIT QUALITY

At the end of the reporting period, corporate bonds totaled 81% of the portfolio. This contributed to fund performance since corporate bonds performed well relative to other fixed-income sectors. Also contributing to fund performance was the fund's increased allocation to BBB-rated corporate bonds (i.e., investment-grade bonds of lower credit quality).

SECURITY SELECTION

Individual security selection both contributed to and detracted from fund performance. Our positions in Valero, Daimler Chrysler, Kellogg's, Sprint, Raytheon, Capital One, Pemex, Weyerhauser, and a few asset-backed securities, contributed to performance. Additionally, performance was helped due to our timely sale of several insurance company bonds (Marsh & McLennan, Travelers/St. Paul, Principal Financial Group, Prudential Financial, AXA and Allstate). By comparison, our holdings in General Motors/GMAC, Cox Communications, Deluxe Corp. (the check printing company) and Delta Airlines detracted from fund performance during the reporting period.

1 Lehman Brothers U.S. Credit Bond Index is composed of all publicly issued, fixed-rate, nonconvertible, investment-grade corporate debt. Issues are rated at least Baa by Moody's Investors Service or BBB by Standard & Poor's, if unrated by Moody's. Collateralized Mortgage Obligations (CMOs) are not included. Total return comprises price appreciation/depreciation and income as a percentage of the original investment.

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

3 Duration is a measure of a security's price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities of shorter durations.

GROWTH OF $10,000 INVESTED IN FEDERATED QUALITY BOND FUND II - PRIMARY SHARES

Average Annual Total Returns for the Period Ended 12/31/2004
1 Year		3.62%
5 Years		7.17%
Start of Performance (4/28/1999)		5.91%

The graph above illustrates the hypothetical investment of $10,0001 in the Federated Quality Bond Fund II (Primary Shares) (the "Fund") from April 28, 1999 (start of performance) to December 31, 2004, compared to the to the Lehman Brothers U.S. Credit Index/Lehman Brothers U.S. Government/Credit Index (LBCI/LBGCI),2 the Lehman Brothers U.S. Credit Index (LBCI),2 and the Lehman Brothers U.S. Government/Credit Index (LBGCI).2

1 The Fund's performance assumes the reinvestment of all dividends and distributions. The LBCI/LBGCI, LBCI, and LBGCI have been adjusted to reflect reinvestment of dividends on securities in the indexes.

2 The LBCI/LBGCI, LBCI, and LBGCI are not adjusted to reflect sales charges, expenses, or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The LBCI is comprised of all publicly issued, fixed-rate, nonconvertible, investment-grade corporate debt. Issues are rated at least Baa by Moody's Investors Services or BBB by Standard & Poor's, if unrated by Moody's. Collateralized Mortgage Obligations (CMOs) are not included. Total return comprises price appreciation/ depreciation and income as a percentage of the original investment. The LBGCI is comprised of approximately 5,000 issues which include: nonconvertible bonds publicly issued by the U.S. government or its agencies; corporate bonds guaranteed by the U.S. government and quasi-federal corporations; and publicly issued, fixed-rate, nonconvertible domestic bonds of companies in industry, public utilities, and finance. The average maturity of these bonds approximates nine years. Tracked by Lehman Brothers, Inc., the index calculates total returns for one-month, three-month, twelve-month, and ten-year periods and year-to-date. The indexes are unmanaged and unlike the Fund are not affected by cash flows. It is not possible to invest directly in an index.

GROWTH OF $10,000 INVESTED IN FEDERATED QUALITY BOND FUND II - SERVICE SHARES

Average Annual Total Return for the Period Ended 12/31/2004
1 Year		3.32%
Start of Performance (4/30/2002)		5.87%

The graph above illustrates the hypothetical investment of $10,0001 in the Federated Quality Bond Fund II (Service Shares) (the "Fund") from April 30, 2002 (start of performance) to December 31, 2004, compared to the to the Lehman Brothers U.S. Credit Index/Lehman Brothers U.S. Government/Credit Index (LBCI/LBGCI),2 the Lehman Brothers U.S. Credit Index (LBCI),2 and the Lehman Brothers U.S. Government/Credit Index (LBGCI).2

2 The LBCI/LBGCI, LBCI, and LBGCI are not adjusted to reflect sales charges, expenses, or other fees that the SEC requires to be reflected in the Fund's performance. The LBCI is comprised of all publicly issued, fixed-rate, nonconvertible, investment-grade corporate debt. Issues are rated at least Baa by Moody's Investors Services or BBB by Standard & Poor's, if unrated by Moody's. Collateralized Mortgage Obligations (CMOs) are not included. Total return comprises price appreciation/depreciation and income as a percentage of the original investment. The LBGCI is comprised of approximately 5,000 issues which include: nonconvertible bonds publicly issued by the U.S. government or its agencies; corporate bonds guaranteed by the U.S. government and quasi-federal corporations; and publicly issued, fixed-rate, non-convertible domestic bonds of companies in industry, public utilities, and finance. The average maturity of these bonds approximates nine years. Tracked by Lehman Brothers, Inc., the index calculates total returns for one-month, three-month, twelve-month, and ten-year periods and year-to-date. The indexes are unmanaged and unlike the Fund are not affected by cash flows. It is not possible to invest directly in an index.

Portfolio of Investments Summary Tables

At December 31, 2004, the Fund's credit quality ratings composition1 was as follows:

S&P Long-Term Ratings as Percentage of Total Net Assets		Moody's Long-Term Ratings as Percentage of Total Net Assets
AAA	5.1%	Aaa	5.1%
AA	1.6%	Aa	5.4%
A	26.3%	A	25.1%
BBB	47.7%	Baa	45.6%
BB	2.5%	Ba	2.2%
Not Rated by S&P	0.2%	Not Rated by Moody's	0.0%
Cash Equivalents2	15.4%	Cash Equivalents2	15.4%
Other Securities3	0.1%	Other Securities3	0.1%
Other Assets and Liabilities--Net4	1.1%	Other Assets and Liabilities--Net4	1.1%
TOTAL	100.0%	TOTAL	100.0%

At December 31, 2004, the Fund's portfolio composition5 was as follows:

		Percentage of Total Net Assets
Corporate Bonds		80.9%
Cash Equivalents2		15.4%
U.S. Mortgage-Backed Securities6		1.3%
Asset-Backed Securities		1.1%
Municipals		0.1%
Other Securities3		0.1%
Other Assets and Liabilities--Net4		1.1%
TOTAL		100.0%

1 These tables depict the long-term credit quality ratings assigned to the Fund's portfolio holdings by Standard & Poor's (S&P) and Moody's Investors Service (Moody's), each of which is a nationally recognized statistical rating organization (NRSRO). These credit-quality ratings are shown without regard to gradations within a given rating category. For example, securities rated "A-" have been included in the "A" rating category. Holdings that are rated only by a different NRSRO than the one identified have been included in the "Not rated by..." category.

Rated securities include a security with an obligor and/or credit enhancer that has received a rating from an NRSRO with respect to a class of debt obligations that is comparable in priority and security with the security held by the Fund. Credit-quality ratings are an assessment of the risk that a security will default in payments and do not address other risks presented by the security. Please see the descriptions of credit-quality ratings as assigned only by the NRSRO identified in each table.

2 Cash equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.

3 Other Securities consists of preferred stock that does not qualify for credit ratings from an NRSRO.

4 See Statement of Assets and Liabilities.

5 This table depicts the Fund's portfolio composition by security type. Unless otherwise noted, these security types correspond with the security types listed in the Portfolio of Investments which follows.

6 For purposes of this table, mortgage-backed securities include mortgage-backed securities guaranteed by government-sponsored entities.

Portfolio of Investments

December 31, 2004

Principal Amount					Value
			ASSET-BACKED SECURITIES--1.1%
			Credit Card--0.3%
$	1,250,000		MBNA Master Credit Card Trust 2000-A, Class A, 7.35%, 7/16/2007	$	1,257,338
	450,000		Prime Credit Card Master Trust 2000-1, Class A, 6.70%, 10/15/2009		464,243
			TOTAL		1,721,581
			Home Equity Loan--0.8%
	2,561,025		Residential Asset Mortgage Products, Inc. 2003-RS11, Class AIIB, 2.747%, 12/25/2033		2,571,397
	2,220,750		Residential Asset Securities Corp. 2003-KS11, Class AIIB, 2.717%, 1/25/2034		2,220,783
			TOTAL		4,792,180
			TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $6,481,139)		6,513,761
			COLLATERALIZED MORTGAGE OBLIGATIONS--1.3%
			Federal National Mortgage Association--1.3%
	7,303,465		Federal National Mortgage Association REMIC 2002-52 FG, 2.917%, 9/25/2032 (IDENTIFIED COST $7,298,900)		7,328,516
			CORPORATE BONDS--80.9%
			Basic Industry - Chemicals--0.2%
	1,300,000		Praxair, Inc., 3.95%, 6/1/2013		1,243,580
			Basic Industry - Metals & Mining--1.9%
	1,300,000		BHP Finance (USA), Inc., 4.80%, 4/15/2013		1,317,836
	1,570,000		BHP Finance (USA), Inc., Unsecd. Note, 6.69%, 3/1/2006		1,632,643
	2,137,000		Barrick Gold Corp., Deb., 7.50%, 5/1/2007		2,311,230
	2,000,000		Inco Ltd., 5.70%, 10/15/2015		2,087,396
	1,250,000		Noranda, Inc., 6.00%, 10/15/2015		1,311,390
	2,300,000		Thiokol Corp., Sr. Note, 6.625%, 3/1/2008		2,485,058
			TOTAL		11,145,553
			Basic Industry - Paper--2.0%
	1,300,000		International Paper Co., 4.25%, 1/15/2009		1,306,812
	3,610,000		Louisiana-Pacific Corp., 8.875%, 8/15/2010		4,318,849
	500,000		Westvaco Corp., 7.65%, 3/15/2027		586,570
	2,000,000		Westvaco Corp., Sr. Deb., 7.50%, 6/15/2027		2,323,860
	1,570,000		Weyerhaeuser Co., Note, 5.50%, 3/15/2005		1,578,321
	1,500,000		Weyerhaeuser Co., Note, 6.75%, 3/15/2012		1,690,740
			TOTAL		11,805,152
			Capital Goods - Aerospace & Defense--1.3%
	750,000		Boeing Capital Corp., 5.65%, 5/15/2006		773,962
	1,000,000		Boeing Co., Note, 5.125%, 2/15/2013		1,036,000
	1,200,000		Raytheon Co., Deb., 7.20%, 8/15/2027		1,424,486
	584,000		Raytheon Co., Note, 6.75%, 8/15/2007		629,525
	2,000,000		Raytheon Co., Unsecd. Note, 5.375%, 4/1/2013		2,086,988
	1,800,000		Rockwell Collins, Unsecd. Note, 4.75%, 12/1/2013		1,802,646
			TOTAL		7,753,607
			Capital Goods - Building Materials--0.9%
	1,430,000		CRH America, Inc., 5.30%, 10/15/2013		1,475,545
	3,700,000		Masco Corp., Note, 5.875%, 7/15/2012		3,992,596
			TOTAL		5,468,141
Principal Amount					Value
			CORPORATE BONDS--continued
			Capital Goods - Diversified Manufacturing--2.5%
$	2,140,000		Briggs & Stratton Corp., Company Guarantee, 8.875%, 3/15/2011	$	2,584,050
	1,600,000		Emerson Electric Co., 4.50%, 5/1/2013		1,590,288
	2,300,000	1	Hutchison Whampoa Ltd., 6.50%, 2/13/2013		2,478,595
	2,750,000		Kennametal, Inc., 7.20%, 6/15/2012		3,041,445
	3,000,000		Tyco International Group, Company Guarantee, 6.375%, 2/15/2006		3,098,370
	2,000,000		Tyco International Group, Note, 5.80%, 8/1/2006		2,074,280
			TOTAL		14,867,028
			Capital Goods - Environmental--1.8%
	3,000,000		Republic Services, Inc., Note, 6.75%, 8/15/2011		3,382,080
	4,000,000		Waste Management Inc., Note, 7.00%, 10/15/2006		4,238,440
	2,575,000		Waste Management Inc., Sr. Note, 7.125%, 10/1/2007		2,797,635
			TOTAL		10,418,155
			Communications - Media & Cable--3.0%
	2,000,000		Comcast Corp., 6.375%, 1/30/2006		2,065,140
	800,000		Comcast Corp., 7.05%, 3/15/2033		919,128
	1,125,000		Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013		1,199,756
	1,590,000	1	Cox Communications, Inc., 4.625%, 1/15/2010		1,588,095
	1,800,000	1	Cox Communications, Inc., 5.45%, 12/15/2014		1,803,355
	2,000,000		Cox Communications, Inc., 7.125%, 10/1/2012		2,245,106
	2,000,000		Cox Communications, Inc., 7.75%, 8/15/2006		2,128,176
	1,700,000		Grupo Televisa S.A., Note, 8.00%, 9/13/2011		1,976,250
	2,650,000		Lenfest Communications, Inc., Sr. Note, 8.375%, 11/1/2005		2,771,238
	940,000		Lenfest Communications, Inc., Sr. Sub. Note, 10.50%, 6/15/2006		1,035,081
			TOTAL		17,731,325
			Communications - Media Noncable--3.5%
	2,000,000		British Sky Broadcasting Group PLC, 8.20%, 7/15/2009		2,314,044
	2,000,000		British Sky Broadcasting Group PLC, Unsecd. Note, 7.30%, 10/15/2006		2,125,500
	2,000,000		Clear Channel Communications, Inc., 3.125%, 2/1/2007		1,970,994
	2,000,000		Clear Channel Communications, Inc., 6.00%, 11/1/2006		2,080,612
	2,000,000		News America Holdings, Inc., Note, 8.15%, 10/17/2036		2,546,088
	2,000,000		News America Holdings, Inc., Sr. Deb., 9.25%, 2/1/2013		2,581,316
	2,250,000		News America Holdings, Inc., Sr. Note, 8.50%, 2/15/2005		2,261,882
	1,905,000		Reed Elsevier, Inc., 6.75%, 8/1/2011		2,146,440
	100,000		Reed Elsevier, Inc., Company Guarantee, 6.125%, 8/1/2006		104,363
	2,000,000		Univision Communications, Inc., Sr. Note, 3.50%, 10/15/2007		1,977,696
			TOTAL		20,108,935
			Communications - Telecom Wireless--2.3%
	5,000,000		AT&T Wireless Services, Inc., 6.875%, 4/18/2005		5,055,400
	500,000		AT&T Wireless Services, Inc., 8.75%, 3/1/2031		674,830
	1,900,000		Sprint Capital Corp., 6.375%, 5/1/2009		2,065,408
	2,000,000		Sprint Capital Corp., 7.125%, 1/30/2006		2,080,768
	2,000,000		Sprint Capital Corp., Company Guarantee, 6.125%, 11/15/2008		2,146,694
	940,000		Sprint Capital Corp., Company Guarantee, 8.75%, 3/15/2032		1,256,225
			TOTAL		13,279,325
Principal Amount					Value
			CORPORATE BONDS--continued
			Communications - Telecom Wirelines--6.1%
$	4,000,000		BellSouth Corp., 5.20%, 9/15/2014	$	4,079,600
	3,500,000		CenturyTel, Inc., 8.375%, 10/15/2010		4,121,495
	2,000,000		Citizens Communications Co., 7.625%, 8/15/2008		2,200,000
	1,400,000		Citizens Communications Co., 9.00%, 8/15/2031		1,606,500
	1,000,000		Citizens Communications Co., Unsecd. Note, 9.25%, 5/15/2011		1,175,000
	3,000,000		Deutsche Telekom International Finance BV, 5.25%, 7/22/2013		3,083,400
	2,750,000	1	KT Corp., Note, 5.875%, 6/24/2014		2,900,425
	4,000,000		SBC Communications, Inc., 5.10%, 9/15/2014		4,046,320
	750,000		Telecom de Puerto Rico, Note, 6.65%, 5/15/2006		778,470
	3,700,000		Telefonos de Mexico, Note, 4.50%, 11/19/2008		3,733,907
	2,000,000		Verizon Global Funding, 7.75%, 6/15/2032		2,498,360
	3,000,000		Verizon Global Funding, Note, 4.00%, 1/15/2008		3,030,180
	2,000,000		Verizon Global Funding, Note, 6.75%, 12/1/2005		2,066,360
			TOTAL		35,320,017
			Consumer Cyclical - Automotive--6.0%
	4,000,000		DaimlerChrysler North America Holding Corp., 3.21%, 8/8/2006		4,043,360
	3,000,000		DaimlerChrysler North America Holding Corp., 6.50%, 11/15/2013		3,258,420
	2,000,000		Ford Motor Credit Co., Note, 6.50%, 1/25/2007		2,080,690
	6,000,000		Ford Motor Credit Co., Note, 7.375%, 10/28/2009		6,478,572
	6,850,000		General Motors Acceptance Corp., 4.50%, 7/15/2006		6,856,686
	900,000		General Motors Acceptance Corp., 7.50%, 7/15/2005		918,659
	9,000,000		General Motors Corp., Note, 7.20%, 1/15/2011		9,241,965
	200,000		General Motors Corp., Note, 9.45%, 11/1/2011		231,806
	1,800,000	1	Harley Davidson, Inc., 3.625%, 12/15/2008		1,787,076
			TOTAL		34,897,234
			Consumer Cyclical - Entertainment--1.9%
	3,000,000		AOL Time Warner, Inc., 5.625%, 5/1/2005		3,026,670
	3,000,000		AOL Time Warner, Inc., Bond, 7.70%, 5/1/2032		3,664,710
	3,100,000		Carnival Corp., 3.75%, 11/15/2007		3,095,784
	250,000		International Speedway Corp., 4.20%, 4/15/2009		248,971
	1,250,000		International Speedway Corp., 5.40%, 4/15/2014		1,278,726
			TOTAL		11,314,861
			Consumer Cyclical - Retailers--1.7%
	3,600,000		CVS Corp., 5.625%, 3/15/2006		3,702,456
	2,260,000	1	CVS Corp., Pass Thru Cert., 5.298%, 1/11/2027		2,268,701
	2,200,000		Neiman-Marcus Group, Inc., Sr. Deb., 7.125%, 6/1/2028		2,504,876
	1,000,000		Target Corp., 5.875%, 3/1/2012		1,091,670
	295,000		Target Corp., Unsecd. Note, 7.50%, 8/15/2010		343,439
			TOTAL		9,911,142
			Consumer Cyclical - Services--0.1%
	250,000		Boston University, 7.625%, 7/15/2097		295,566
			Consumer Non-Cyclical - Food/Beverage--2.0%
	1,385,000		Diageo Finance BV, Unsecd. Note, 3.00%, 12/15/2006		1,373,906
	4,500,000		General Mills, Inc., Unsecd. Note, 2.625%, 10/24/2006		4,435,785
	6,000,000		Kraft Foods, Inc., Note, 4.625%, 11/1/2006		6,124,560
			TOTAL		11,934,251
Principal Amount					Value
			CORPORATE BONDS--continued
			Consumer Non-Cyclical - Healthcare--1.7%
$	3,000,000		Anthem, Inc., 6.80%, 8/1/2012	$	3,387,240
	1,300,000		Boston Scientific Corp., 5.45%, 6/15/2014		1,348,737
	2,100,000		UnitedHealth Group, Inc., 3.30%, 1/30/2008		2,072,301
	2,750,000		UnitedHealth Group, Inc., 7.50%, 11/15/2005		2,844,545
			TOTAL		9,652,823
			Consumer Non-Cyclical - Pharmaceuticals--0.3%
	1,520,000		AstraZeneca PLC, 5.40%, 6/1/2014		1,600,271
			Consumer Non-Cyclical - Supermarkets--0.4%
	1,950,000		Kroger Co., 7.25%, 6/1/2009		2,184,254
			Consumer Non-Cyclical - Tobacco--0.3%
	750,000		Altria Group, Inc., 5.625%, 11/4/2008		776,347
	915,000		Philip Morris Cos., Inc., Note, 6.375%, 2/1/2006		939,220
			TOTAL		1,715,567
			Energy - Independent--2.6%
	650,000		Anadarko Petroleum Corp., Unsecd. Note, 7.00%, 10/15/2006		690,716
	500,000		Apache Finance Pty Ltd., Sr. Note, 7.00%, 3/15/2009		557,355
	3,280,000		Canadian Natural Resources Ltd., 4.90%, 12/1/2014		3,259,992
	1,200,000	1	EOG Co. of Canada, Company Guarantee, (Series 144A), 7.00%, 12/1/2011		1,348,248
	2,000,000		Occidental Petroleum Corp., Sr. Note, 7.65%, 2/15/2006		2,098,120
	2,500,000		Pemex Project Funding Master, Company Guarantee, 9.125%, 10/13/2010		3,003,750
	3,022,800	1	Ras Laffan Liquified Natural Gas, 3.437%, 9/15/2009		2,944,237
	980,000	1	Tengizchevroil LLP, (Series 144A), 6.124%, 11/15/2014		987,350
			TOTAL		14,889,768
			Energy - Integrated--2.0%
	1,250,000		Husky Oil Ltd., Deb., 7.55%, 11/15/2016		1,462,513
	7,500,000		Husky Oil Ltd., Sr. Note, 7.125%, 11/15/2006		7,949,250
	2,130,000	1	Statoil ASA, 5.125%, 4/30/2014		2,189,810
			TOTAL		11,601,573
			Energy - Refining--0.5%
	2,000,000		Valero Energy Corp., 7.375%, 3/15/2006		2,094,700
	1,000,000		Valero Energy Corp., Note, 4.75%, 4/1/2014		980,420
			TOTAL		3,075,120
			Financial Institution - Banking--5.4%
	2,500,000		Astoria Financial Corp., Note, 5.75%, 10/15/2012		2,598,875
	3,000,000		Citigroup, Inc., Sr. Note, 6.75%, 12/1/2005		3,100,500
	675,000		City National Bank, Sub. Note, 6.375%, 1/15/2008		729,688
	1,500,000		Corp Andina De Fomento, Bond, 7.375%, 1/18/2011		1,704,660
	3,500,000		FirstBank Puerto Rico, Sub. Note, 7.625%, 12/20/2005		3,576,149
	3,000,000		Household Finance Corp., Note, 6.50%, 1/24/2006		3,103,590
	2,300,000		Hudson United Bancorp, 7.00%, 5/15/2012		2,579,974
	1,670,000		J.P. Morgan Chase & Co., Sub. Deb., 8.00%, 4/29/2027		2,142,309
	285,000		PNC Funding Corp., Sub. Note, 6.875%, 7/15/2007		308,649
	2,700,000		Regions Financial Corp., 4.375%, 12/1/2010		2,697,300
	3,200,000		SunTrust Banks, Inc., 4.00%, 10/15/2008		3,212,096
	2,500,000		Wachovia Bank N.A., 4.80%, 11/1/2014		2,490,475
	250,000		Wachovia Bank N.A., Sr. Note, 4.85%, 7/30/2007		258,353
	2,900,000		Washington Mutual Bank FA, 5.125%, 1/15/2015		2,889,937
			TOTAL		31,392,555
Principal Amount					Value
			CORPORATE BONDS--continued
			Financial Institution - Brokerage--6.2%
$	4,200,000	1	Amvescap PLC, 4.50%, 12/15/2009	$	4,179,378
	4,000,000		Bear Stearns Cos., Inc., Sr. Note, 7.625%, 2/1/2005		4,016,440
	3,500,000	1	FMR Corp., Bond, 7.57%, 6/15/2029		4,327,575
	1,000,000		Franklin Resources, Inc., 3.70%, 4/15/2008		996,980
	3,500,000		Goldman Sachs Group, Inc., 3.875%, 1/15/2009		3,497,095
	1,500,000		Goldman Sachs Group, Inc., Note, (Series MTNB), 7.35%, 10/1/2009		1,709,085
	1,270,000		Lehman Brothers Holdings, Inc., 7.50%, 9/1/2006		1,354,633
	2,750,000		Lehman Brothers Holdings, Inc., 7.875%, 8/15/2010		3,233,093
	3,400,000		Merrill Lynch & Co., Inc., Note, 4.125%, 9/10/2009		3,401,870
	2,000,000		Merrill Lynch & Co., Inc., Note, 7.375%, 5/15/2006		2,110,540
	4,200,000		Morgan Stanley Group, Inc., 5.30%, 3/1/2013		4,352,208
	2,950,000		Waddell & Reed Financial, Inc., 7.50%, 1/18/2006		3,067,233
			TOTAL		36,246,130
			Financial Institution - Finance Noncaptive--3.3%
	1,750,000		American Express Co., 3.75%, 11/20/2007		1,758,977
	3,000,000		Capital One Financial Corp., Note, 7.125%, 8/1/2008		3,287,907
	3,250,000		General Electric Capital Corp., 3.75%, 12/15/2009		3,204,695
	3,000,000		MBNA America Bank, N.A., Bank Note, 5.375%, 1/15/2008		3,131,550
	3,000,000		MBNA America Bank, N.A., Sr. Note, (Series BKNT), 6.50%, 6/20/2006		3,132,870
	4,520,000		SLM Corp., Floating Rate Note, 3.269%, 1/4/2005		4,508,700
			TOTAL		19,024,699
			Financial Institution - Insurance - Life--1.1%
	1,800,000		AXA Financial, Inc., Note, 6.50%, 4/1/2008		1,937,196
	1,000,000		AXA-UAP, Sub. Note, 8.60%, 12/15/2030		1,317,820
	2,000,000	1	Pacific LifeCorp., Bond, 6.60%, 9/15/2033		2,221,300
	700,000	1	Reinsurance Group of America, Sr. Note, 7.25%, 4/1/2006		732,760
	250,000	1	Union Central Life Insurance Co., Note, 8.20%, 11/1/2026		285,035
			TOTAL		6,494,111
			Financial Institution - Insurance - P&C--0.7%
	1,500,000	1	MBIA Global Funding LLC, 2.875%, 11/30/2006		1,485,090
	250,000		MBIA Insurance Corp., Sr. Deb., 6.625%, 10/1/2028		276,258
	1,900,000	1	Oil Insurance Ltd., Sub. Deb., 5.15%, 8/15/2033		1,917,461
	400,000		USF&G Corp., Company Guarantee, 8.47%, 1/10/2027		443,859
			TOTAL		4,122,668
			Financial Institution - REITs--2.5%
	4,000,000		Archstone-Smith Trust, 5.00%, 8/15/2007		4,130,400
	3,150,000		EOP Operating LP, 7.75%, 11/15/2007		3,481,317
	4,670,000		Simon Property Group, Inc., 6.35%, 8/28/2012		5,072,647
	2,000,000		Simon Property Group, Inc., 6.375%, 11/15/2007		2,138,240
			TOTAL		14,822,604
			Foreign-Local-Government--1.2%
	6,200,000		Hydro Quebec, Sr. Deb., 6.30%, 5/11/2011		6,926,082
			Sovereign--2.4%
	7,000,000		KFW-Kredit Wiederaufbau, 2.70%, 3/1/2007		6,891,150
	500,000		Sweden, Government of, Deb., 10.25%, 11/1/2015		632,600
	3,400,000		United Mexican States, 6.625%, 3/3/2015		3,660,100
	2,600,000		United Mexican States, 7.50%, 4/8/2033		2,814,500
			TOTAL		13,998,350
Principal Amount					Value
			CORPORATE BONDS--continued
			Technology--2.9%
$	2,375,000		Computer Sciences Corp., 7.375%, 6/15/2011	$	2,761,840
	1,500,000		Dell Computer Corp., Deb., 7.10%, 4/15/2028		1,804,890
	4,300,000	1	Deluxe Corp., 5.125%, 10/1/2014		4,127,226
	2,588,000		First Data Corp., 4.70%, 11/1/2006		2,650,655
	3,150,000		International Business Machines Corp., 4.875%, 10/1/2006		3,239,145
	800,000		SunGard Data Systems, Inc., 4.875%, 1/15/2014		776,096
	1,250,000		Unisys Corp., 8.125%, 6/1/2006		1,321,875
			TOTAL		16,681,727
			Transportation - Airlines--1.5%
	58,505		Continental Airlines, Inc., Pass Thru Cert., 7.73%, 3/15/2011		44,756
	2,000,000		Delta Air Lines, Inc., Pass Thru Cert., 6.417%, 1/2/2014		2,093,300
	658,568		Northwest Airlines Corp., Equip. Trust, 8.072%, 10/1/2019		737,662
	5,290,000		Southwest Airlines Co., 6.50%, 3/1/2012		5,829,421
			TOTAL		8,705,139
			Transportation - Railroads--1.5%
	2,020,000		Burlington Northern Santa Fe Corp., 4.875%, 1/15/2015		2,016,162
	212,492		Burlington Northern Santa Fe Corp., Pass Thru Cert., 7.57%, 1/2/2021		252,866
	4,000,000		Canadian Pacific RR, 6.25%, 10/15/2011		4,410,160
	2,210,000		Union Pacific Corp., 4.875%, 1/15/2015		2,207,525
			TOTAL		8,886,713
			Transportation - Services--1.3%
	2,700,000		FedEx Corp., Note, 2.65%, 4/1/2007		2,650,185
	4,725,000		Hertz Corp., 4.70%, 10/2/2006		4,778,515
	350,000		Hertz Corp., Note, 7.625%, 8/15/2007		376,524
			TOTAL		7,805,224
			Utility - Electric--5.9%
	1,400,000		Alabama Power Co., 4.70%, 12/1/2010		1,422,372
	5,950,000		American Electric Power Co., Inc., Note, 6.125%, 5/15/2006		6,169,317
	4,240,000		Consolidated Natural Gas Co., 5.00%, 12/1/2014		4,256,663
	1,000,000		Dominion Resources, Inc., 2.59%, 5/15/2006		1,000,710
	4,800,000		FirstEnergy Corp., 5.50%, 11/15/2006		4,957,358
	1,000,000		Florida Power & Light Co., 1st Mtg. Bond, 6.00%, 6/1/2008		1,061,080
	950,000	1	Israel Electric Corp. Ltd., 7.95%, 5/30/2011		1,087,931
	2,000,000		MidAmerican Energy Co., Unsecd. Note, 6.75%, 12/30/2031		2,316,800
	1,000,000		Oncor, Inc., Deb., 7.00%, 9/1/2022		1,143,534
	2,000,000		PSEG Power LLC, 6.875%, 4/15/2006		2,086,140
	3,750,000		PSEG Power LLC, Company Guarantee, 7.75%, 4/15/2011		4,376,363
	740,000		Pacific Gas & Electric Co., 6.05%, 3/1/2034		771,013
	3,660,000		Pacific Gas & Electric Co., Unsecd. Note, 4.20%, 3/1/2011		3,608,138
			TOTAL		34,257,419
			TOTAL CORPORATE BONDS (IDENTIFIED COST $459,805,643)		471,576,669
Principal Amount or Shares					Value
			MORTGAGE-BACKED SECURITIES--0.0%
			Federal Home Loan Mortgage Corporation---0.0%
$	15,014		8.00%, 9/1/2030	$	16,209
	35,929		6.50%, 4/1/2015		38,111
			TOTAL		54,320
			Government National Mortgage Association--0.0%
	4,449		8.00%, 9/15/2030		4,844
	44,880		8.00%, 8/15/2029		48,831
			TOTAL		53,675
			TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $99,364)		107,995
			MUNICIPALS--0.1%
			Consumer Cyclical - Services--0.1%
	625,000		Harvard University, Revenue Bonds, 8.125% Bonds, 4/15/2007 (IDENTIFIED COST $654,966)		689,363
			PREFERRED STOCKS--0.1%
			Financial Institution - Banking--0.1%
	5,000		Citigroup, Inc., Cumulative Pfd., (Series F) Annual Dividend $3.1825 (IDENTIFIED COST $238,830)		270,156
			REPURCHASE AGREEMENT--15.4%
$	89,766,000		Interest in $2,000,000,000 joint repurchase agreement with UBS Securities LLC, 2.28%, dated 12/31/2004 to be repurchased at $89,783,056 on 1/3/2005, collateralized by U.S. Government Agency Obligations with various maturities to 9/25/2034, collateral market value $2,060,003,250 (AT AMORTIZED COST)		89,766,000
			TOTAL INVESTMENTS--98.9% (IDENTIFIED COST $564,344,842)2		576,252,460
			OTHER ASSETS AND LIABILITIES - NET--1.1%		6,468,030
			TOTAL NET ASSETS--100%	$	582,720,490

1 Denotes a restricted security, including securities purchased under Rule 144A of the Securities Act of 1933. These securities, all of which have been deemed liquid by criteria approved by the Fund's Board of Trustees, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. At December 31, 2004, these securities amounted to $40,659,648 which represents 7.0% of total net assets.

2 The cost of investments for federal tax purposes amounts to $564,344,842.

Note: The categories of investments are shown as a percentage of total net assets at December 31, 2004.

The following acronyms are used throughout this portfolio:

REIT	--Real Estate Investment Trust
REMIC	--Real Estate Mortgage Investment Conduit

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

December 31, 2004

Assets:
Investments in repurchase agreements	$	89,766,000
Investments in securities		486,486,460
Total investments in securities, at value (identified cost $564,344,842)			$	576,252,460
Cash				437
Income receivable				6,534,903
Receivable for shares sold				123,664
TOTAL ASSETS				582,911,464
Liabilities:
Payable for shares redeemed		132,260
Payable for custodian fees		4,542
Payable for transfer and dividend disbursing agent fees and expenses		8,966
Payable for auditing fees		13,500
Payable for portfolio accounting fees		9,957
Payable for distribution services fee (Note 5)		13,456
Accrued expenses		8,293
TOTAL LIABILITIES				190,974
Net assets for 49,949,595 shares outstanding			$	582,720,490
Net Assets Consist of:
Paid-in capital			$	546,094,998
Net unrealized appreciation of investments				11,907,618
Accumulated net realized gain on investments				3,639,423
Undistributed net investment income				21,078,451
TOTAL NET ASSETS			$	582,720,490
Net Asset Value, Offering Price and Redemption Proceeds Per Share
Primary Shares:
$518,022,523 ÷ 44,386,342 shares outstanding, no par value, unlimited shares authorized				$11.67
Service Shares:
$64,697,967 ÷ 5,563,253 shares outstanding, no par value, unlimited shares authorized				$11.63

See Notes which are an integral part of the Financial Statements

Statement of Operations

Year Ended December 31, 2004

Investment Income:
Interest (including income on securities loaned of $67,398)							$	25,401,893
Dividends								15,913
TOTAL INCOME								25,417,806
Expenses:
Investment adviser fee (Note 5)				$	3,571,638
Administrative personnel and services fee (Note 5)					476,891
Custodian fees					28,145
Transfer and dividend disbursing agent fees and expenses (Note 5)					30,531
Directors'/Trustees' fees					6,139
Auditing fees					16,972
Legal fees					4,746
Portfolio accounting fees					113,264
Distribution services fee--Service Shares (Note 5)					141,404
Shareholder services fee--Primary Shares (Note 5)					1,346,778
Printing and postage					25,369
Insurance premiums					19,881
Miscellaneous					4,248
TOTAL EXPENSES					5,786,006
Waivers (Note 5):
Waiver of investment adviser fee	$	(78,452	)
Waiver of administrative personnel and services fee		(23,292	)
Waiver of shareholder services fee--Primary Shares		(1,346,778	)
TOTAL WAIVERS					(1,448,522	)
Net expenses								4,337,484
Net investment income								21,080,322
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments								3,642,444
Net change in unrealized depreciation of investments								(4,223,899	)
Net realized and unrealized loss on investments								(581,455	)
Change in net assets resulting from operations							$	20,498,867

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

Year Ended December 31		2004			2003
Increase (Decrease) in Net Assets
Operations:
Net investment income	$	21,080,322		$	24,788,268
Net realized gain on investments		3,642,444			9,900,524
Net change in unrealized appreciation/depreciation of investments		(4,223,899	)		(7,972,714	)
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS		20,498,867			26,716,078
Distributions to Shareholders:
Distributions from net investment income
Primary Shares		(22,788,246	)		(20,059,629	)
Service Shares		(2,001,524	)		(503,173	)
Distributions from net realized gain on investments
Primary Shares		(5,001,726	)		--
Service Shares		(453,351	)		--
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS		(30,244,847	)		(20,562,802	)
Share Transactions:
Proceeds from sale of shares		81,560,857			205,555,454
Net asset value of shares issued to shareholders in payment of distributions declared		30,244,841			20,562,794
Cost of shares redeemed		(140,024,337	)		(163,194,283	)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS		(28,218,639	)		62,923,965
Change in net assets		(37,964,619	)		69,077,241
Net Assets:
Beginning of period		620,685,109			551,607,868
End of period (including undistributed net investment income of $21,078,451 and $24,787,899, respectively)	$	582,720,490		$	620,685,109

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

December 31, 2004

1. ORGANIZATION

Federated Insurance Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end, management investment company. The Trust consists of 11 portfolios. The financial statements included herein are only those of Federated Quality Bond 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 offers two classes of shares: Primary Shares and Service Shares. The investment objective of the Fund is to provide current income.

2. SIGNIFICANT ACCOUNTING POLICIES

Investment Valuation

U.S. government securities, listed corporate bonds, other fixed-income and asset-backed 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 or official closing price reported on a national securities exchange. If unavailable, the security is generally valued at the mean between the last closing bid and asked prices. 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. Securities for which no quotations are readily available are valued at fair value as determined in accordance with procedures established by and under general supervision of the Board of Trustees (the "Trustees").

Repurchase Agreements

Investment Income, Gains and Losses, Expenses and Distributions

Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses, and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class bears certain expenses unique to that class such as distribution and shareholder services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.

Premium and Discount Amortization/ Paydown Gains and Losses

All premiums and discounts on fixed income securities are amortized/ accreted. Gains and losses realized on principal payment of mortgage backed securities (paydown gains and losses) are classified as part of investment income.

Federal Taxes

When-Issued and Delayed Delivery Transactions

Securities Lending

The Fund participates in a securities lending program providing for the lending of corporate bonds, equity and government securities to qualified brokers. Collateral for securities loaned is in cash or invested in short-term securities including repurchase agreements. Collateral is maintained at a minimum level of 102% of the market value of investments loaned, plus interest, if applicable. Earnings on collateral are allocated between the securities lending agent, as a fee for its services under the program, and the Fund, according to agreed-upon rates.

As of December 31, 2004, the Fund had no outstanding securities on loan.

Restricted Securities

Use of Estimates

The preparation of financial statements in conformity with GAAP 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 a trade date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.

3. SHARES OF BENEFICIAL INTEREST

The following table summarizes share activity:

Year Ended December 31	2004					2003
Primary Shares:	Shares			Amount		Shares			Amount
Shares sold	4,280,273		$	49,796,281		13,976,542		$	164,204,937
Shares issued to shareholders in payment of distributions declared	2,397,754			27,789,969		1,767,368			20,059,627
Shares redeemed	(10,924,116	)		(126,423,129	)	(13,552,903	)		(158,154,121	)
NET CHANGE RESULTING FROM PRIMARY SHARE TRANSACTIONS	(4,246,089	)	$	(48,836,879	)	2,191,007		$	26,110,443

Year Ended December 31	2004					2003
Service Shares:	Shares			Amount		Shares			Amount
Shares sold	2,743,826		$	31,764,576		3,535,850		$	41,350,517
Shares issued to shareholders in payment of distributions declared	212,176			2,454,872		44,332			503,167
Shares redeemed	(1,187,666	)		(13,601,208	)	(433,263	)		(5,040,162	)
NET CHANGE RESULTING FROM SERVICE SHARE TRANSACTIONS	1,768,336		$	20,618,240		3,146,919		$	36,813,522
NET CHANGE RESULTING FROM SHARE TRANSACTIONS	(2,477,753	)	$	(28,218,639	)	5,337,926		$	62,923,965

4. FEDERAL TAX INFORMATION

The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended December 31, 2004 and 2003 was as follows:

	2004	2003
Ordinary income1	$24,789,770	$20,562,802
Long-term capital gains	$ 5,455,077	--

1 For tax purposes short-term capital gain distributions are considered ordinary income distributions.

As of December 31, 2004, the components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income	$	21,462,968
Undistributed long-term capital gain	$	3,254,911
Net unrealized appreciation	$	11,907,618

At December 31, 2004, the cost of investments for federal tax purposes was $564,344,842. The net unrealized appreciation of investments for federal tax purposes was $11,907,618. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $13,591,535 and net unrealized depreciation from investments for those securities having an excess of cost over value of $1,683,917.

5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser 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. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion.

Administrative Fee

Maximum Administrative Fee		Average Aggregate Daily Net Assets of the Federated Funds
0.150%		on the first $5 billion
0.125%		on the next $5 billion
0.100%		on the next $10 billion
0.075%		on assets in excess of $20 billion

Distribution Services Fee

Share Class Name		Percentage of Average Daily Net Assets of Class
Primary Shares		0.25%
Service Shares		0.25%

FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended December 31, 2004, the Primary Shares did not incur a distribution services 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 the average daily net assets of the Fund's Primary Shares and Service Shares for the period. The fee paid to FSSC is used to finance certain services for shareholders and to maintain shareholder accounts. 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. For the year ended December 31, 2004, the Service Shares did not incur a shareholder services fee.

Transfer and Dividend Disbursing Agent Fees and Expenses

Prior to July 1, 2004, Federated Services Company, through its subsidiary FSSC, served as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC was based on the size, type and number of accounts and transactions made by shareholders. The fee paid to FSSC during the reporting period was $15,898, after voluntary waiver, if applicable.

General

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

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations (and in-kind contributions), for the year ended December 31, 2004, were as follows:

Purchases		$	176,219,212
Sales		$	179,768,025

7. LEGAL PROCEEDINGS

8. FEDERAL TAX INFORMATION (UNAUDITED)

For the year ended December 31, 2004, the amount of long-term capital gain designated by the Fund was $5,455,077.

Report of Independent Registered Public Accounting Firm

TO THE BOARD OF TRUSTEES OF FEDERATED INSURANCE SERIES AND SHAREHOLDERS OF FEDERATED QUALITY BOND FUND II:

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated Quality Bond Fund II (the "Fund") (a portfolio of Federated Insurance Series) (the "Trust") as of December 31, 2004 and the related statement of operations for the year then ended, the statement of changes in net assets for the years ended December 31, 2004 and 2003, and the financial highlights each of the five years in the period ended December 31, 2004. 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to provide reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of the securities owned at December 31, 2004, by correspondence with the custodian. We believe our audits provide a reasonable basis for our opinion.

Deloitte & Touche LLP

Boston, Massachusetts
February 15, 2005

Board of Trustees and Trust Officers

INTERESTED TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
John F. Donahue* Birth Date: July 28, 1924 CHAIRMAN AND TRUSTEE Began serving: September 1993		Principal Occupations: Chairman and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Chairman and Director, Federated Investment Counseling.

J. Christopher Donahue* Birth Date: April 11, 1949 TRUSTEE Began serving: September 1993		Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd.

Lawrence D. Ellis, M.D.* Birth Date: October 11, 1932 3471 Fifth Avenue Suite 1111 Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center. Other Directorships Held: Member, National Board of Trustees, Leukemia Society of America. Previous Positions: Trustee, University of Pittsburgh; Director, University of Pittsburgh Medical Center.

INDEPENDENT TRUSTEES BACKGROUND


Name Birth Date Address Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)
Thomas G. Bigley Birth Date: February 3, 1934 15 Old Timber Trail Pittsburgh, PA TRUSTEE Began serving: November 1994		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director, University of Pittsburgh. Previous Position: Senior Partner, Ernst & Young LLP.

John T. Conroy, Jr. Birth Date: June 23, 1937 Investment Properties Corporation 3838 North Tamiami Trail Suite 402 Naples, FL TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation.

Nicholas P. Constantakis Birth Date: September 3, 1939 175 Woodshire Drive Pittsburgh, PA TRUSTEE Began serving: February 1998		Principal Occupations: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Member of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC.

John F. Cunningham Birth Date: March 5, 1943 353 El Brillo Way Palm Beach, FL TRUSTEE Began serving: January 1999		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc.

Peter E. Madden Birth Date: March 16, 1942 One Royal Palm Way 100 Royal Palm Way Palm Beach, FL TRUSTEE Began serving: September 1993		Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange.

Charles F. Mansfield, Jr. Birth Date: April 10, 1945 80 South Road Westhampton Beach, NY TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; Management Consultant; Executive Vice President, DVC Group, Inc. (marketing communications and technology) (prior to 9/1/00). Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University.

John E. Murray, Jr., J.D., S.J.D. Birth Date: December 20, 1932 Chancellor, Duquesne University Pittsburgh, PA TRUSTEE Began serving: February 1995		Principal Occupations: Director or Trustee of the Federated Fund Complex; Chancellor and Law Professor, Duquesne University; Partner, Murray, Hogue and Lannis. Other Directorships Held: Director, Michael Baker Corp. (engineering, construction, operations and technical services). Previous Positions: President, Duquesne University; Dean and Professor of Law, University of Pittsburgh School of Law; Dean and Professor of Law, Villanova University School of Law.

Marjorie P. Smuts Birth Date: June 21, 1935 4905 Bayard Street Pittsburgh, PA TRUSTEE Began serving: September 1993		Principal Occupations: Director or Trustee of the Federated Fund Complex; Public Relations/Marketing Consultant/Conference Coordinator. Previous Positions: National Spokesperson, Aluminum Company of America; television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord.

John S. Walsh Birth Date: November 28, 1957 2604 William Drive Valparaiso, IN TRUSTEE Began serving: January 1999		Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc.

OFFICERS


Name Birth Date Positions Held with Trust Date Service Began		Principal Occupation(s) for Past Five Years and Previous Position(s)
John B. Fisher Birth Date: May 16, 1956 PRESIDENT Began serving: November 2004		Principal Occupations: Vice President of some of the Funds in the Federated Fund Complex; and President and Director of the Institutional Sales Division of Federated Securities Corp., which is a wholly owned subsidiary of Federated. Mr. Fisher is responsible for the distribution of Federated's products and services to investment advisers, insurance companies, retirement plans, and corporations. In addition, Mr. Fisher serves as President and Director of Federated Investment Counseling, a wholly owned subsidiary of Federated involved in the management of separate accounts and sub-advised mandates. He is also President, Technology, Federated Services Corp. responsible for the technological infrastructure of the various Federated companies. He is also Director, Edgewood Securities Corp., as well as Director, Federated Investors Trust Company. Previous Positions: Senior Vice President of Federated Investment Counseling.

John W. McGonigle Birth Date: October 26, 1938 EXECUTIVE VICE PRESIDENT AND SECRETARY Began serving: September 1993		Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc.

Richard J. Thomas Birth Date: June 17, 1954 TREASURER Began serving: September 1997		Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services.

Richard B. Fisher Birth Date: May 17, 1923 VICE PRESIDENT Began serving: November 1998		Principal Occupations: Vice Chairman or President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. Previous Positions: President and Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice President, Federated Investors, Inc.; and Director and Chief Executive Officer, Federated Securities Corp.

Stephen F. Auth Birth Date: September 3, 1956 CHIEF INVESTMENT OFFICER Began serving: November 2002		Principal Occupations: Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Equity Management Company of Pennsylvania and Passport Research II, Ltd. Previous Positions: Executive Vice President, Federated Investment Management Company, and Passport Research, Ltd.; Senior Vice President, Global Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd.; Senior Managing Director and Portfolio Manager, Prudential Investments.

Robert J. Ostrowski Birth Date: April 26, 1963 CHIEF INVESTMENT OFFICER Began serving: May 2004		Principal Occupations: Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of taxable, fixed-income products in 2004 and also serves as a Senior Portfolio Manager. He has been a Senior Vice President of the Fund's Adviser since 1997. Mr. Ostrowski is a Chartered Financial Analyst. He received his M.S. in Industrial Administration from Carnegie Mellon University.

VOTING PROXIES ON FUND PORTFOLIO SECURITIES

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Federated's Internet site. Go to http://www.federatedinvestors.com, select "Products," open the "Variable Annuities" Section, then select the link to "sec-gov" to access to the link for Form N-PX. This information is also available from the EDGAR database on the SEC's Internet site at http://www.sec.gov.

QUARTERLY PORTFOLIO SCHEDULE

Variable investment options 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. Investments in variable investment options involves investment risk, including the possible loss of principal.

Federated
World-Class Investment Manager

Federated Quality Bond Fund II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact

Federated Securities Corp., Distributor

Cusip 313916884
Cusip 313916785

G00433-14 (2/05)

Federated is a registered mark of Federated Investors, Inc. 2005 (c)Federated Investors, Inc.


Item 2.     Code of Ethics

(a) As of the end of the  period  covered by this  report,  the  registrant  has
adopted a code of ethics (the "Section 406 Standards for Investment  Companies -
Ethical Standards for Principal Executive and Financial  Officers") that applies
to the registrant's Principal Executive Officer and Principal Financial Officer;
the  registrant's  Principal  Financial  Officer  also  serves as the  Principal
Accounting Officer.

(c) Not Applicable

(d) Not Applicable

(e) Not Applicable

(f)(3) The registrant hereby  undertakes to provide any person,  without charge,
upon  request,  a copy of the code of  ethics.  To request a copy of the code of
ethics,  contact the  registrant  at  1-800-341-7400,  and ask for a copy of the
Section 406 Standards for Investment Companies - Ethical Standards for Principal
Executive and Financial Officers.


Item 3.     Audit Committee Financial Expert

The  registrant's  Board has  determined  that each member of the Board's  Audit
Committee is an "audit committee financial expert," and that each such member is
"independent,"  for purposes of this Item. The Audit  Committee  consists of the
following  Board members:  Thomas G. Bigley,  John T. Conroy,  Jr.,  Nicholas P.
Constantakis and Charles F. Mansfield, Jr.


Item 4.     Principal Accountant Fees and Services

            (a)   Audit Fees billed to the registrant for the two most recent fiscal years:

                  Fiscal year ended 2004 - $245,706

                  Fiscal year ended 2003 - $172,000



(b)         Audit-Related Fees billed to the registrant for the two most recent fiscal
years:

                  Fiscal year ended 2004 - $36

                  Fiscal year ended 2003 - $23

                  Transfer Agent Service Auditors Report

      Amount requiring approval of the registrant's audit committee pursuant to paragraph
      (c)(7)(ii) of Rule 2-01 of Regulation S-X, $151,831 and $16,493 respectively.  Fiscal
      year ended 2004 - Attestation services relating to the review of fund share
      transactions and Transfer Agent Service Auditors report. Fiscal year ended 2003 -
      Design of Sarbanes Oxley sec. 302 procedures.

(c)          Tax Fees billed to the registrant for the two most recent fiscal years:

                  Fiscal year ended 2004 - $0

                  Fiscal year ended 2003 - $0

      Amount requiring approval of the registrant's audit committee pursuant to paragraph
      (c)(7)(ii) of Rule 2-01 of Regulation S-X, $0 and $205,000 respectively.

      Analysis regarding the realignment of advisory companies.

(d)         All Other Fees billed to the registrant for the two most recent fiscal years:

                  Fiscal year ended 2004 - $0

                  Fiscal year ended 2003 - $0

      Amount requiring approval of the registrant's audit committee pursuant to paragraph
      (c)(7)(ii) of Rule 2-01 of Regulation S-X, $62,286 and $133,922 respectively.  Fiscal
      year ended 2004 - Consultation regarding information requests by regulatory agencies,
      executive compensation analysis and discussions with auditor related to market timing
      and late trading activities.  Fiscal year ended 2003 - Executive compensation
      analysis and consultation regarding information requests by regulatory agencies.

(e)(1)      Audit Committee Policies regarding Pre-approval of Services.

     The Audit Committee is required to pre-approve audit and non-audit services
performed by the  independent  auditor in order to assure that the  provision of
such services do not impair the auditor's independence. Unless a type of service
to be provided by the independent auditor has received general pre-approval,  it
will require specific pre-approval by the Audit Committee. Any proposed services
exceeding  pre-approved  cost levels will require  specific  pre-approval by the
Audit Committee.

     Certain services have the general pre-approval of the Audit Committee.  The
term of the general  pre-approval  is 12 months  from the date of  pre-approval,
unless the Audit Committee  specifically  provides for a different  period.  The
Audit  Committee  will annually  review the services that may be provided by the
independent  auditor  without  obtaining  specific  pre-approval  from the Audit
Committee  and may  grant  general  pre-approval  for such  services.  The Audit
Committee  will revise the list of general  pre-approved  services  from time to
time, based on subsequent determinations.  The Audit Committee will not delegate
its  responsibilities  to  pre-approve  services  performed  by the  independent
auditor to management.

     The Audit Committee has delegated  pre-approval  authority to its Chairman.
The Chairman will report any  pre-approval  decisions to the Audit  Committee at
its next scheduled  meeting.  The Committee  will designate  another member with
such pre-approval authority when the Chairman is unavailable.

AUDIT SERVICES

     The annual Audit services  engagement terms and fees will be subject to the
specific  pre-approval of the Audit Committee.  The Audit Committee must approve
any changes in terms, conditions and fees resulting from changes in audit scope,
registered investment company (RIC) structure or other matters.

     In addition to the annual Audit services engagement  specifically  approved
by the Audit Committee,  the Audit Committee may grant general  pre-approval for
other Audit Services, which are those services that only the independent auditor
reasonably  can provide.  The Audit  Committee  has  pre-approved  certain Audit
services,  all other Audit  services must be  specifically  pre-approved  by the
Audit Committee.

AUDIT-RELATED SERVICES

     Audit-related   services  are  assurance  and  related  services  that  are
reasonably  related to the  performance  of the audit or review of the Company's
financial  statements  or that are  traditionally  performed by the  independent
auditor.  The Audit  Committee  believes  that the  provision  of  Audit-related
services does not impair the  independence of the auditor,  and has pre-approved
certain  Audit-related  services,  all  other  Audit-related  services  must  be
specifically pre-approved by the Audit Committee.

TAX SERVICES

     The Audit Committee  believes that the independent  auditor can provide Tax
services to the Company  such as tax  compliance,  tax  planning  and tax advice
without impairing the auditor's independence.  However, the Audit Committee will
not  permit the  retention  of the  independent  auditor  in  connection  with a
transaction  initially  recommended by the independent  auditor,  the purpose of
which may be tax  avoidance  and the tax treatment of which may not be supported
in the Internal  Revenue Code and related  regulations.  The Audit Committee has
pre-approved certain Tax services,  all Tax services involving large and complex
transactions must be specifically pre-approved by the Audit Committee.

ALL OTHER SERVICES

     With  respect to the  provision  of services  other than  audit,  review or
attest services the pre-approval requirement is waived if:



(1)  The aggregate amount of all such services provided constitutes no more than
     five percent of the total amount of revenues  paid by the  registrant,  the
     registrant's adviser (not including any sub-adviser whose role is primarily
     portfolio  management  and is  subcontracted  with or  overseen  by another
     investment  adviser),  and any entity controlling,  controlled by, or under
     common control with the investment  adviser that provides  ongoing services
     to the  registrant  to its  accountant  during the fiscal year in which the
     services are provided;

(2)  Such  services  were not  recognized by the  registrant,  the  registrant's
     adviser (not including any  sub-adviser  whose role is primarily  portfolio
     management  and is  subcontracted  with or overseen  by another  investment
     adviser),  and any  entity  controlling,  controlled  by,  or under  common
     control with the investment  adviser that provides  ongoing services to the
     registrant at the time of the engagement to be non-audit services; and

(3)  Such services are promptly  brought to the attention of the Audit Committee
     of the  issuer and  approved  prior to the  completion  of the audit by the
     Audit  Committee or by one or more members of the Audit  Committee  who are
     members of the board of directors to whom authority to grant such approvals
     has been delegated by the Audit Committee.


     The Audit  Committee may grant general  pre-approval  to those  permissible
non-audit services classified as All Other services that it believes are routine
and recurring services, and would not impair the independence of the auditor.



     The SEC's rules and relevant  guidance should be consulted to determine the
precise  definitions of prohibited  non-audit  services and the applicability of
exceptions to certain of the prohibitions.

PRE-APPROVAL FEE LEVELS

     Pre-approval  fee levels for all services to be provided by the independent
auditor  will be  established  annually  by the Audit  Committee.  Any  proposed
services exceeding these levels will require specific  pre-approval by the Audit
Committee.

PROCEDURES

     Requests or applications to provide services that require specific approval
by the Audit  Committee  will be  submitted  to the Audit  Committee by both the
independent  auditor  and  the  Principal  Accounting  Officer  and/or  Internal
Auditor,  and must include a joint  statement as to whether,  in their view, the
request  or  application   is  consistent   with  the  SEC's  rules  on  auditor
independence.

(e)(2)      Percentage of services identified in items 4(b) through 4(d) that were approved
by the registrants audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X:

            4(b)

            Fiscal year ended 2004 - 0%

            Fiscal year ended 2003 - 0%

            Percentage of services provided to the registrants investment adviser and any
            entity controlling, controlled by, or under common control with the investment
            adviser that provides ongoing services to the registrant that were approved by
            the registrants audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01
            of Regulation S-X, 0% and 0% respectively.



            4(c)

            Fiscal year ended 2004 - 0%

            Fiscal year ended 2003 - 0%

            Percentage of services provided to the registrants investment adviser and any
            entity controlling, controlled by, or under common control with the investment
            adviser that provides ongoing services to the registrant that were approved by
            the registrants audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01
            of Regulation S-X, 0% and 0% respectively.



            4(d)

            Fiscal year ended 2004 - 0%

            Fiscal year ended 2003 - 0%

            Percentage of services provided to the registrants investment adviser and any
            entity controlling, controlled by, or under common control with the investment
            adviser that provides ongoing services to the registrant that were approved by
            the registrants audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01
            of Regulation S-X, 0% and 0% respectively.



(f)  NA


(g)  Non-Audit  Fees  billed  to the  registrant,  the  registrant's  investment
     adviser,  and certain entities  controlling,  controlled by or under common
     control with the investment adviser:

            Fiscal year ended 2004 - $332,641

            Fiscal year ended 2003 - $414,809

(h)  The  registrant's  Audit  Committee  has  considered  that the provision of
     non-audit  services  that were  rendered to the  registrant's  adviser (not
     including any sub-adviser whose role is primarily portfolio  management and
     is subcontracted with or overseen by another investment  adviser),  and any
     entity  controlling,  controlled  by,  or  under  common  control  with the
     investment  adviser that provides  ongoing  services to the registrant that
     were not  pre-approved  pursuant to  paragraph  (c)(7)(ii)  of Rule 2-01 of
     Regulation S-X is compatible with  maintaining  the principal  accountant's
     independence.

Item 5.     Audit Committee of Listed Registrants

            Not Applicable

Item 6.     Schedule of Investments

            Not Applicable

Item 7.     Disclosure of Proxy Voting Policies and Procedures for Closed-End
            Management Investment Companies

            Not Applicable

Item 8.     Portfolio Managers of Closed-End Management Investment Companies

            Not Applicable

Item 9.     Purchases of Equity Securities by Closed-End Management Investment
            Company and Affiliated Purchasers

            Not Applicable

Item 10.    Submission of Matters to a Vote of Security Holders

            Not Applicable

Item 11.    Controls and Procedures

     (a)  The  registrant's  President and  Treasurer  have  concluded  that the
          registrant's  disclosure  controls and  procedures (as defined in rule
          30a-3(c)  under the Act) are effective in design and operation and are
          sufficient  to form the basis of the  certifications  required by Rule
          30a-(2) under the Act, based on their  evaluation of these  disclosure
          controls  and  procedures  within 90 days of the  filing  date of this
          report on Form N-CSR.

     (b)  There  were no  changes  in the  registrant's  internal  control  over
          financial reporting (as defined in rule 30a-3(d) under the Act) during
          the  last  fiscal  quarter  that  have  materially  affected,  or  are
          reasonably  likely to materially  affect,  the  registrant's  internal
          control over financial reporting.

Item 12.    Exhibits


SIGNATURES

Pursuant to the  requirements  of the  Securities  Exchange  Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

Registrant  Federated Insurance Series

By          /S/ Richard J. Thomas, Principal Financial Officer
                            (insert name and title)

Date        February 18, 2005


Pursuant to the  requirements  of the  Securities  Exchange  Act of 1934 and the
Investment  Company  Act of  1940,  this  report  has been  signed  below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.


By          /S/ John B. Fisher, Principal Executive Officer


Date        February 18, 2005


By          /S/ Richard J. Thomas, Principal Financial Officer
Date        February 18, 2005

Federated World-Class Investment Manager

Federated American Leaders Fund II

ANNUAL SHAREHOLDER REPORT

Primary SharesService Shares

Financial Highlights - Primary Shares

Financial Highlights - Service Shares

Shareholder Expense Example

ACTUAL EXPENSES

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

Management Discussion of Fund Performance

GROWTH OF $10,000 INVESTED IN FEDERATED AMERICAN LEADERS FUND II - PRIMARY SHARES

GROWTH OF $10,000 INVESTED IN FEDERATED AMERICAN LEADERS FUND II - SERVICE SHARES

Portfolio of Investments Summary Table

Portfolio of Investments

Statement of Assets and Liabilities

Statement of Operations

Statement of Changes in Net Assets

Notes to Financial Statements

1. ORGANIZATION

2. SIGNIFICANT ACCOUNTING POLICIES

Investment Valuation

Repurchase Agreements

Investment Income, Gains and Losses, Expenses and Distributions

Premium and Discount Amortization

Federal Taxes

When-Issued and Delayed Delivery Transactions

Use of Estimates

Other

3. SHARES OF BENEFICIAL INTEREST

4. FEDERAL TAX INFORMATION

5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Administrative Fee

Distribution Services Fee

Shareholder Services Fee

Transfer and Dividend Disbursing Agent Fees and Expenses

Expense Reduction

General

6. INVESTMENT TRANSACTIONS

7. CONCENTRATION OF CREDIT RISK

8. LEGAL PROCEEDINGS

Report of Independent Registered Public Accounting Firm

TO THE BOARD OF TRUSTEES OF FEDERATED INSURANCE SERIES AND THE SHAREHOLDERS OF FEDERATED AMERICAN LEADERS FUND II:

Board of Trustees and Trust Officers

INTERESTED TRUSTEES BACKGROUND

INDEPENDENT TRUSTEES BACKGROUND

OFFICERS

VOTING PROXIES ON FUND PORTFOLIO SECURITIES

QUARTERLY PORTFOLIO SCHEDULE

Federated World-Class Investment Manager

Federated World-Class Investment Manager

Federated Capital Appreciation Fund II

ANNUAL SHAREHOLDER REPORT

Primary SharesService Shares

Financial Highlights - Primary Shares

Financial Highlights - Service Shares

Shareholder Expense Example

ACTUAL EXPENSES

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

Managements Discussion of Fund Performance

GROWTH OF $10,000 INVESTED IN THE FEDERATED CAPITAL APPRECIATION FUND II - PRIMARY SHARES

GROWTH OF $10,000 INVESTED IN THE FEDERATED CAPITAL APPRECIATION FUND II - SERVICE SHARES

Portfolio of Investments Summary Table

Portfolio of Investments

Statement of Assets and Liabilities

Statement of Operations

Statement of Changes in Net Assets

Notes to Financial Statements

1. ORGANIZATION

2. SIGNIFICANT ACCOUNTING POLICIES

Investment Valuation

Repurchase Agreements

Investment Income, Gains and Losses, Expenses and Distributions

Premium and Discount Amortization

Federal Taxes

When-Issued and Delayed Delivery Transactions

Futures Contracts

Use of Estimates

Other

3. SHARES OF BENEFICIAL INTEREST

Federated
World-Class Investment Manager

Primary Shares
Service Shares

Federated
World-Class Investment Manager

Federated
World-Class Investment Manager

Primary Shares
Service Shares

Federated
World-Class Investment Manager

Federated
World-Class Investment Manager