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Federated Insurance Series – ‘N-CSR’ for 12/31/17

On:  Monday, 2/26/18, at 9:35am ET   ·   Effective:  2/26/18   ·   For:  12/31/17   ·   Accession #:  1623632-18-268   ·   File #:  811-08042

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 2/26/18  Federated Insurance Series        N-CSR      12/31/17    3:6.4M                                   Federated Admin… Svcs/FAFederated Hermes Fund for U.S. Government Securities IIFederated Hermes Government Money Fund II Primary SharesService SharesFederated Hermes High Income Bond Fund II Primary SharesService SharesFederated Hermes Kaufmann Fund II Primary SharesService SharesFederated Hermes Managed Volatility Fund II Primary SharesFederated Hermes Quality Bond Fund II Primary SharesService SharesFederated Managed Tail Risk Fund II Primary SharesService Shares

Certified Annual Shareholder Report by a Management Investment Company   —   Form N-CSR
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: N-CSR       Certified Annual Shareholder Report by a            HTML   2.32M 
                          Management Investment Company                          
 2: EX-99.CERT 302  Miscellaneous Exhibit                           HTML     13K 
 3: EX-99.CERT 906  Miscellaneous Exhibit                           HTML      5K 


N-CSR   —   Certified Annual Shareholder Report by a Management Investment Company
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
"Table of Contents
"Management's Discussion of Fund Performance
"Portfolio of Investments Summary Table
"Portfolio of Investments
"Financial Highlights-Primary Shares
"Financial Highlights-Service Shares
"Statement of Assets and Liabilities
"Statement of Operations
"Statement of Changes in Net Assets
"Notes to Financial Statements
"Report of Independent Registered Public Accounting Firm
"Shareholder Expense Example
"In Memoriam
"Board of Trustees and Trust Officers
"Evaluation and Approval of Advisory Contract-May 2017
"Voting Proxies on Fund Portfolio Securities
"Quarterly Portfolio Schedule
"Portfolio of Investments Summary Tables
"Financial Highlights

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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

4000 Ericsson Drive

Warrendale, Pennsylvania 15086-7561

(Address of Principal Executive Offices)

 

 

(412) 288-1900

(Registrant's Telephone Number)

 

 

Peter J. Germain, 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: 12/31/17

 

 

Date of Reporting Period: 12/31/17

 

 

 

 

 

 

 

 

Item 1.Reports to Stockholders

 

 

 

 

 

 

 

 

Annual Shareholder Report
Share Class Primary Service            

Federated Managed Tail Risk Fund II

A Portfolio of Federated Insurance Series
Dear Valued Shareholder,
I am pleased to present the Annual Shareholder Report for your fund covering the period from January 1, 2017 through December 31, 2017. This report includes Management's Discussion of Fund Performance, a complete listing of your fund's holdings, performance information and financial statements along with other important fund information.
In addition, our website, FederatedInvestors.com, offers easy access to Federated resources that include timely fund updates, economic and market insights from our investment strategists, and financial planning tools. We invite you to register to take full advantage of its capabilities.
Thank you for investing with Federated. I hope you find this information useful and look forward to keeping you informed.
Sincerely,
John B. Fisher, President

Not FDIC Insured ■ May Lose Value ■ No Bank Guarantee

CONTENTS

Table of Contents
Management's Discussion of Fund Performance (unaudited)
The total return of Federated Managed Tail Risk Fund II (the “Fund”), based on net asset value for the 12-month reporting period ended December 31, 2017, was 10.95% for the Primary Shares and 10.67% for the Service Shares. The total return of the S&P 500 Index (S&P 500),1 the Fund's broad-based securities market index, was 21.83% for the same period. The total returns of the MSCI All Country World Index2 (MSCI ACWI) and the Bloomberg Barclays U.S. Universal Index2 (BBUSUI) were 23.97% and 4.09%, respectively. Weighting these benchmarks (60% MSCI ACWI and 40% BBUSUI),2 the total return of the blended benchmark (“Blended Index”) was 15.65%.The Fund's total returns reflected actual cash flows, transaction costs and other expenses, which were not reflected in the total return of the Blended Index.
During the reporting period, the Fund's performance was affected by: (a) the Fund's targeted neutral asset allocation; (b) tactical allocation relative to these neutral points; (c) the security selection of the underlying funds; and (d) the Fund's risk management overlay. The risk management overlay was the most significant factor affecting the Fund's performance relative to the Blended Index.
The following discussion will focus on the performance of the Fund's Primary Shares.
MARKET OVERVIEW
During the reporting period, equity markets reached all-time highs amid record low volatility,3 supported by a strong global economy and hopes of domestic tax reform. Tax reform was passed at the end of the year to help propel equity markets to their year-end levels. The march to these levels was relatively smooth, with only a few bouts of volatility that saw the Chicago Board Options Exchange (CBOE) Volatility Index (VIX),4 a measure of implied forward volatility of the S&P 500, close above 15, which would ordinarily be a typical value rather than a maximum. The most notable of these occurred in May when Deputy Attorney General Rod Rosenstein appointed Robert Mueller as a special prosecutor for the investigation of Russian interference in the 2016 election. This led some to speculate about the potential of an impeachment of President Donald Trump; however, those fears quickly faded, and volatility returned to low levels. During this reporting period, the U.S. Federal Reserve (the Fed) continued to increase the federal funds target rate by hiking the rate by 25 basis points three times during the year. Furthermore, they initiated a process to unwind the Fed's balance sheet in a process dubbed “normalization” in the fall. This process will see several trillion dollars of assets expire from the Fed's balance sheet over the coming years, in a slow, managed process, which could affect the valuation of similar bonds.
The market, as measured by the S&P 500, ended the year up 21.83%, and domestic small-caps, as measured by the Russell 2000® Index,5 were up 14.65%. U.S. equities underperformed the rest of the world with the S&P 500 underperforming the MSCI ACWI, which returned 23.97%. Equities continued to outpace the 3.54% return of the Bloomberg Barclays U.S. Aggregate Bond Index.6 The commodity market continued to strengthen on improving economic conditions, as indicated by the strong 6.16% return of the DBIQ Optimum Yield Diversified Commodity Index.7 High-yield bond spreads declined substantially, and high-yield bonds, as measured by the BofA Merrill Lynch U.S. High Yield Index,8 returned 7.48%. Renewed inflation expectations following the election led to solid performance of the Treasury Inflation-Protected Securities (TIPS) asset class, as the total return of U.S. TIPS, as measured by the Bloomberg Barclays U.S. TIPS Index,9 was 1.90%.
Market volatility decreased slightly from a moderate level of 14 to a low level of 11 during the reporting period, as measured by the VIX. It only increased a few times during the year peaking at 15.96, 15.59 and 16.04 in April, May and August, respectively. All of these volatility increases were short-lived and receded quickly.
NEUTRAL ASSET ALLOCATION
The diversified10 neutral allocation, which was intended to provide resilience in down markets, was tilted toward Value Equities relative to the Blended Index. Also, the fixed-income portion of the Fund held TIPS, commodities and floating-rate notes for inflation protection. The diversified mix contributed negatively to Fund performance over the reporting period.
TACTICAL ALLOCATION
The Fund began the reporting period overweight in equities and maintained the overweight for the entire year. This tactical move positively impacted Fund performance.
SECURITY SELECTION
Security selection positively impacted Fund performance in the reporting period, with several underlying funds outperforming their respective benchmarks.
Annual Shareholder Report
1

Table of Contents
RISK MANAGEMENT OVERLAY
The Fund uses an S&P 500 futures11 overlay to reduce the Fund's risk in markets with unusually high volatility. None of the aforementioned volatility spikes were to a high enough level to require the use of the risk management overlay. As such, this had no impact on Fund performance. At the end of the reporting period, the Fund had no overlay position.
1 Please see the footnotes to the line graphs under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the S& P 500.
2 Please see the footnotes to the line graphs under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the Blended Index (60% MSCI ACWI and 40% BBUSUI). The Blended Index is being used for comparison purposes because, although it is not the Fund's broad-based securities market index, the Fund's Adviser believes it more closely reflects the market sectors in which the Fund invests.
3 Volatility is a statistical measurement of the frequency and level of changes in the value of an asset, index or instrument without regard to the direction of those changes. Volatility may result from rapid and dramatic price swings.
4 The CBOE Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.*
5 The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The R2000 is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set.*
6 The Bloomberg Barclays U.S. Aggregate Bond Index measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid ARM pass-throughs), asset-backed securities and commercial mortgage-backed securities.*
7 The DBIQ Optimum Yield Diversified Commodity Index is based on 14 commodities drawn from the Energy, Precious Metals, Industrial Metals and Agriculture sectors.*
8 The BofA Merrill Lynch U.S. High Yield Index tracks the performance of U.S. dollar-denominated below investment-grade corporate debt publicly issued in the U.S. domestic market.*
9 The Bloomberg Barclays U.S. TIPS Index is a market value-weighted index that tracks inflation-protected securities issued by the U.S. Treasury.*
10 Diversification does not assure a profit nor protect against loss.
11 The Fund's use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional instruments.
* The index is unmanaged, and it is not possible to invest directly in an index.
Annual Shareholder Report
2

Table of Contents
FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,0001 in the Federated Managed Tail Risk Fund II from December 31, 2007 to December 31, 2017, compared to the Standard & Poor's 500 Index (S&P 500),2 the Fund's broad-based securities market index, and a blended index comprised of 60% of the MSCI All Country World Index (MSCI ACWI) and 40% of the Bloomberg Barclays U.S. Universal Index (BBUSUI) (the “Blended Index”).3 The Average Annual Total Return table below shows returns for each class averaged over the stated periods.
Growth of a $10,000 Investment
Growth of $10,000 as of December 31, 2017
The Fund offers multiple share classes whose performance may be greater than or less than its other share class(es) due to differences in sales charges and expenses.
Average Annual Total Returns for the Period Ended 12/31/2017
  1 Year 5 Years 10 Years
Primary Shares 10.95% 2.81% 0.83%
Service Shares 10.67% 2.53% 0.59%
S&P 500 21.83% 15.79% 8.50%
Blended Index 15.65% 7.53% 4.86%
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. 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, the MSCI ACWI and the BBUSUI have been adjusted to reflect reinvestment of dividends on securities in the index.
2 The 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 not adjusted to reflect sales loads, 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 cash flows. It is not possible to invest directly in an index.
3 The MSCI ACWI captures large- and mid-cap representation across 23 developed markets and 23 emerging markets countries. The index covers approximately 85% of the global investable equity opportunity set. The BBUSUI covers USD-denominated taxable bonds that are rated either investment-grade or high-yield. The indexes are not adjusted to reflect sales loads, expenses or other fees that the SEC requires to be reflected in the Fund's performance. The indexes are unmanaged and, unlike the Fund, are not affected by cash flows. It is not possible to invest directly in an index.
Annual Shareholder Report
3

Table of Contents
Portfolio of Investments Summary Table (unaudited)
At December 31, 2017, the Fund's portfolio composition1 was as follows:
Portfolio Composition Percentage of
Total Net Assets
Securities Sold Short (2.3)%
Derivative Contracts—Short (notional value)2 (1.7)%
Domestic Equity Securities 37.8%
International Equity Securities 20.4%
U.S. Treasury Securities 9.3%
Domestic Fixed-Income Securities 3.8%
Trade Finance Agreements 4.9%
Asset-Backed Securities 0.3%
International Fixed-Income Securities 1.0%
Floating Rate Loan 0.4%
Non-Agency Mortgage-Backed Securities 0.3%
U.S. Government Agency Mortgage-Backed Securities 1.4%
Foreign Governments/Agencies 0.1%
Adjustment for Derivative Contracts (notional value)2 1.7%
Derivative Contracts3,4 0.0%
Other Security Types5 11.1%
Cash Equivalents6 8.1%
Other Assets and Liabilities—Net7 3.4%
TOTAL 100.0%
1 See the Fund's Prospectus for a description of the principal types of securities in which the Fund invests. As of the date specified above, the Fund owned shares of one or more affiliated investment companies. For purposes of this table, the affiliated investment company (other than an affiliated money market mutual fund) is not treated as a single portfolio security, but rather the Fund is treated as owning a pro rata portion of each security and each other asset and liability owned by the affiliated investment company. Accordingly, the percentages of total net assets shown in the table will differ from those presented on the Portfolio of Investments.
2 Represents the notional value of S&P 500 futures contracts held by the Federated Prudent Bear Fund and Federated Absolute Return Fund.
3 Based upon net unrealized appreciation (depreciation) or value of the derivative contracts as applicable. Derivative contracts may consist of futures, forwards, options and swaps. The impact of a derivative contract on the Fund's performance may be larger than its unrealized appreciation (depreciation) or value may indicate. In many cases, the notional value or amount of a derivative contract may provide a better indication of the contract's significance to the portfolio. More complete information regarding the Fund's direct investments in derivative contracts, including unrealized appreciation (depreciation), value, and notional values or amounts of such contracts, can be found in the table at the end of the Portfolio of Investments included in this Report.
4 Represents less than 0.1%.
5 Other Security Types consist of exchange-traded funds.
6 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
7 Assets, other than investments in securities and derivative contracts, less liabilities. See Statement of Assets and Liabilities.
Annual Shareholder Report
4

Table of Contents
Portfolio of Investments
Shares or
Principal
Amount
    Value
  1 INVESTMENT COMPANIES—79.1%  
71,406   Emerging Markets Core Fund $723,341
1,561,176   Federated Absolute Return Fund, Institutional Shares 15,580,536
71,954   Federated Bank Loan Core Fund 724,581
817,546   Federated Clover Small Value Fund, Institutional Shares 21,256,199
826,451   Federated Equity Income Fund, Inc., Institutional Shares 20,909,216
704,213   Federated Intermediate Corporate Bond Fund, Institutional Shares 6,464,674
401,179   Federated International Leaders Fund, Class R6 Shares 14,992,066
3,816,293   Federated International Strategic Value Dividend Fund, Institutional Shares 14,387,424
602,953   Federated Kaufmann Large Cap Fund, Class R6 Shares 14,507,040
316,796   Federated Mortgage Core Portfolio 3,104,599
1,232,320   Federated Project and Trade Finance Core Fund 11,189,468
488,874   Federated Prudent Bear Fund, Institutional Shares 7,797,536
3,394,487   Federated Strategic Value Dividend Fund, Institutional Shares 20,876,093
992   Federated U.S. Gov't Securities Fund: 2-5 Years, Institutional Shares 10,672
200,581   High Yield Bond Portfolio 1,283,721
    TOTAL INVESTMENT COMPANIES
(IDENTIFIED COST $158,194,997)
153,807,166
    CORPORATE BONDS—1.3%  
$25,000   Abbott Laboratories, Sr. Unsecd. Note, 4.9%, 11/30/2046 28,753
25,000   Advance Auto Parts, Inc., 4.5%, 12/01/2023 26,313
150,000   American Honda Finance Co., Unsecd. Deb., Series MTN, 2.25%, 8/15/2019 150,245
60,000   Atmos Energy Corp., Sr. Unsecd. Note, 4.125%, 10/15/2044 65,622
75,000   Autodesk, Inc., Sr. Unsecd. Note, 4.375%, 6/15/2025 78,805
100,000   AutoZone, Inc., Sr. Unsecd. Note, 3.250%, 4/15/2025 99,755
20,000   BB&T Corp., Sr. Unsecd. Note, Series MTN, 2.250%, 2/01/2019 20,036
50,000 2 Bank of America Corp., Sr. Unsecd. Note, Series MTN, 1.971%, (3-month USLIBOR +0.650%), 10/01/2021 50,252
50,000   Bank of America Corp., Sub. Note, Series L, 3.95%, 4/21/2025 51,743
100,000   Becton Dickinson & Co., Sr. Unsecd. Note, 4.685%, 12/15/2044 109,682
30,000   Berkshire Hathaway, Inc., Sr. Unsecd. Note, 3.125%, 3/15/2026 30,363
100,000   Canadian Natural Resources Ltd., 3.900%, 2/01/2025 103,087
22,000   Carpenter Technology Corp., Sr. Unsecd. Note, 4.450%, 3/01/2023 22,451
30,000   Chubb INA Holdings, Inc., 3.35%, 5/03/2026 30,641
30,000   Comerica, Inc., 3.8%, 7/22/2026 30,482
50,000   Embraer Overseas Ltd., Sr. Unsecd. Note, Series 144A, 5.696%, 9/16/2023 54,875
40,000   Energy Transfer Partners LP, Sr. Unsecd. Note, 4.900%, 2/01/2024 42,346
50,000   Energy Transfer Partners, Sr. Unsecd. Note, 4.05%, 3/15/2025 50,029
70,000   Enterprise Products Operating, Sr. Unsecd. Note, 3.95%, 2/15/2027 72,872
70,000   EverSource Energy, Sr. Unsecd. Note, 3.350%, 3/15/2026 70,487
70,000   Exelon Corp., Sr. Unsecd. Note, 3.4%, 4/15/2026 70,130
50,000   Exelon Generation Co. LLC, Sr. Unsecd. Note, 4.250%, 6/15/2022 52,508
20,000   Indiana Michigan Power Co., Sr. Unsecd. Note, Series K, 4.55%, 3/15/2046 22,884
40,000   Invesco Finance PLC, Sr. Unsecd. Note, 3.75%, 1/15/2026 41,385
40,000   Liberty Mutual Group, Inc., 4.85%, Series 144A, 8/01/2044 44,589
70,000   Liberty Property LP, Sr. Unsecd. Note, 3.75%, 4/01/2025 71,777
40,000   Masco Corp., Sr. Unsecd. Note, 4.375%, 4/01/2026 42,420
50,000   National Rural Utilities Cooperative Finance Corp., Sr. Sub., 5.250%, 4/20/2046 53,789
70,000   Newell Rubbermaid, Inc., Sr. Unsecd. Note, 4.2%, 4/01/2026 73,165
25,000   NextEra Energy Capital Holdings, Inc., Sr. Unsecd. Note, 2.700%, 9/15/2019 25,160
Annual Shareholder Report
5

Table of Contents
Shares or
Principal
Amount
    Value
    CORPORATE BONDS—continued  
$40,000   O'Reilly Automotive, Inc., Sr. Unsecd. Note, 3.55%, 3/15/2026 $40,471
35,000   ONEOK, Inc., Sr Unsecd. Note, Series 0, 4.95%, 7/13/2047 36,524
100,000   Omnicom Group, Inc., Sr. Unsecd. Note, 3.600%, 4/15/2026 101,317
10,000   Stryker Corp., Sr. Unsecd. Note, 3.5%, 3/15/2026 10,334
60,000   SunTrust Banks, Inc., Sr. Unsecd. Note, 2.9%, 3/03/2021 60,711
20,000   Textron, Inc., Sr. Unsecd. Note, 4.000%, 3/15/2026 20,892
25,000   Textron, Inc., Sr. Unsecd. Note, 4.300%, 3/01/2024 26,467
20,000   Total System Services, Inc., Sr. Unsecd. Note, 4.8%, 4/01/2026 21,669
25,000   Verisk Analytics, Inc., Sr. Unsecd. Note, 5.500%, 6/15/2045 29,212
125,000   Verizon Communications, Inc., Sr. Unsecd. Note, 5.150%, 9/15/2023 139,232
16,000   Viacom, Inc., Sr. Unsecd. Note, 3.875%, 4/01/2024 15,982
30,000   Visa, Inc., Sr. Unsecd. Note, 3.15%, 12/14/2025 30,693
50,000 2 Wells Fargo & Co., Sr. Unsecd. Note, 2.610%, (3-month USLIBOR +1.230%), 10/31/2023 51,364
90,000   Williams Partners LP, 4.9%, 1/15/2045 95,760
35,000   Worthington Industries, Inc., Sr Unsecd. Note, Series 0, 4.3%, 8/01/2032 35,224
55,000   Worthington Industries, Inc., Sr. Unsecd. Note, 4.550%, 4/15/2026 57,073
    TOTAL CORPORATE BONDS
(IDENTIFIED COST $2,351,232)
2,459,571
    ASSET-BACKED SECURITIES—0.1%  
150,000 2 American Express Credit Account Master Trust 2014-1, Class A, 1.847%, (1-month USLIBOR +0.370%), 12/15/2021 150,572
90,000 2 Navistar Financial Dealer Note Master Trust 2016-1, Class A, 2.902%, (1-month USLIBOR +1.350%), 9/27/2021 90,536
42,000   PFS Financing Corp., 2016-BA, Class A, 1.87%, 10/15/2021 41,472
    TOTAL ASSET-BACKED SECURITIES
(IDENTIFIED COST $281,999)
282,580
    COMMERCIAL MORTGAGE-BACKED SECURITIES—0.3%  
60,000   Banc of America Commercial Mortgage Trust 2016-UBS10, Class A4, 3.17%, 7/15/2049 60,077
95,000   CD Commercial Mortgage Trust 2016-CD1, Class A4, 2.724%, 8/10/2049 92,348
50,000   Commercial Mortgage Trust 2015-DC1, Class AM, 3.724%, 2/10/2048 50,882
150,000   Federal Home Loan Mortgage Corp., 2.566%, 9/25/2020 151,016
100,000   JPMDB Commercial Mortgage Securities Trust 2016-C4, Class A3, 3.1413%, 12/15/2049 100,188
105,000   WF-RBS Commercial Mortgage Trust 2014-C25, Class B, 4.236%, 11/15/2047 106,975
    TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $373,418)
561,486
    COLLATERALIZED MORTGAGE OBLIGATION—0.0%  
85,000   Bank A4, 3.488%, 11/15/2050
(IDENTIFIED COST $87,547)
87,104
    EXCHANGE-TRADED FUNDS—8.1%  
83,160   iShares MSCI Emerging Market 3,918,499
70,312   iShares Dow Jones U.S. Real Estate Index Fund 5,695,975
366,452 3 PowerShares DB Commodity Index Tracking Fund 6,086,768
    TOTAL EXCHANGE-TRADED FUNDS
(IDENTIFIED COST $16,870,959)
15,701,242
    U.S. TREASURY—6.3%  
$106,981   U.S. Treasury Inflation-Protected Bond, 0.750%, 2/15/2042 107,859
437,855   U.S. Treasury Inflation-Protected Bond, 0.750%, 2/15/2045 439,558
51,092   U.S. Treasury Inflation-Protected Bond, 0.875%, 2/15/2047 53,045
51,011   U.S. Treasury Inflation-Protected Bond, 1.000%, 2/15/2046 54,423
872,431   U.S. Treasury Inflation-Protected Bond, 1.375%, 2/15/2044 1,006,495
1,436,465   U.S. Treasury Inflation-Protected Bond, 1.750%, 1/15/2028 1,612,714
1,140,890   U.S. Treasury Inflation-Protected Bond, 2.000%, 1/15/2026 1,282,171
765,537   U.S. Treasury Inflation-Protected Bond, 2.375%, 1/15/2025 871,794
1,579,050   U.S. Treasury Inflation-Protected Note, 0.125%, 4/15/2019 1,575,222
Annual Shareholder Report
6

Table of Contents
Shares or
Principal
Amount
    Value
    U.S. TREASURY—continued  
$461,354   U.S. Treasury Inflation-Protected Note, 0.125%, 4/15/2020 $460,357
353,858   U.S. Treasury Inflation-Protected Note, 0.125%, 4/15/2021 352,300
190,722   U.S. Treasury Inflation-Protected Note, 0.125%, 1/15/2022 189,888
740,424   U.S. Treasury Inflation-Protected Note, 0.125%, 4/15/2022 735,066
3,116   U.S. Treasury Inflation-Protected Note, 0.125%, 7/15/2024 3,078
49,989   U.S. Treasury Inflation-Protected Note, 0.250%, 1/15/2025 49,515
104,016   U.S. Treasury Inflation-Protected Note, 0.375%, 7/15/2025 104,123
229,759   U.S. Treasury Inflation-Protected Note, 0.375%, 1/15/2027 228,021
55,461   U.S. Treasury Inflation-Protected Note, 0.375%, 7/15/2027 55,149
1,026,502   U.S. Treasury Inflation-Protected Note, 0.625%, 1/15/2024 1,043,681
67,478   U.S. Treasury Inflation-Protected Note, 0.625%, 1/15/2026 68,515
1,710,163   U.S. Treasury Inflation-Protected Note, 1.250%, 7/15/2020 1,765,335
55,000   United States Treasury Bond, 2.750%, 8/15/2047 55,069
1,000   United States Treasury Bond, 3.000%, 11/15/2044 1,051
25,000   United States Treasury Bond, 3.000%, 5/15/2047 26,287
90,000   United States Treasury Note, 2.000%, 11/30/2022 89,191
15,000   United States Treasury Note, 2.250%, 8/15/2027 14,798
    TOTAL U.S. TREASURY
(IDENTIFIED COST $12,291,578)
12,244,705
    REPURCHASE AGREEMENT—4.8%  
9,246,000   Interest in $950,000,000 joint repurchase agreement 1.42%, dated 12/29/2017 under which Bank of America, N.A. will repurchase securities provided as collateral for $950,149,889 on 1/2/2018. The securities provided as collateral at the end of the period held with BNY Mellon as tri-party agent, were U.S. Government Agency securities maturing on 7/20/2046 and the market value of those underlying securities was $969,152,887.
(IDENTIFIED COST $9,246,000)
9,246,000
    TOTAL INVESTMENT IN SECURITIES—100.0%
(IDENTIFIED COST $199,697,730)4
194,389,854
    OTHER ASSETS AND LIABILITIES - NET—0.0%5 (50,889)
    TOTAL NET ASSETS—100% $194,338,965
At December 31, 2017, the Fund had the following outstanding futures contracts:
Description Number of
Contracts
Notional
Value
Expiration
Date
Value and
Unrealized
Appreciation
(Depreciation)
3United States Treasury Long Bond Long Futures 3 $459,000 March 2018 $1,204
3United States Treasury Notes 2-Year Long Futures 16 $3,425,750 March 2018 $(1,046)
3United States Treasury Notes 5-Year Long Futures 2 $232,328 March 2018 $167
3United States Treasury Ultra Bond Long Futures 7 $1,173,594 March 2018 $5,180
3United States Treasury Notes 10-Year Short Futures 10 $1,240,469 March 2018 $7,803
3United States Treasury Ultra 10-Year Short Futures 6 $801,375 March 2018 $(1,232)
NET UNREALIZED APPRECIATION ON FUTURES CONTRACTS $12,076
Net Unrealized Appreciation on Futures Contracts is included in “Other Assets and Liabilities—Net.”
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1 Affiliated holdings.
Affiliated fund holdings are investment companies which are managed by Federated Global Investment Management Corp., Federated Investment Management Company and Federated Equity Management Company of Pennsylvania (collectively, the “Co-Advisers”) or an affiliate of the Co-Advisers. Transactions with affiliated fund holdings during the year ended December 31, 2017, were as follows:
  Balance of
Shares Held
12/31/2016
Purchases/
Additions
Sales/
Reductions
Balance of
Shares Held
12/31/2017
Value Change
in
Unrealized
Appreciation/
Depreciation
Net
Realized
Gain/(Loss)
Dividend
Income
Gain
Distributions
Received
Emerging Markets Core Fund 51,306 20,100 71,406 $723,341 $12,092 $$33,215 $834
Federated Absolute Return Fund, Institutional Shares 1,659,003 20,125 (117,952) 1,561,176 15,580,536 815,661 (8,718) 96,242
Federated Bank Loan Core Fund 77,949 3,565 (9,560) 71,954 724,581 (10,491) 3,339 36,112
Federated Clover Small Value Fund, Institutional Shares 730,265 184,407 (97,126) 817,546 21,256,199 (1,237,090) 438,749 159,370 3,025,002
Federated Equity Income Fund, Inc., Institutional Shares 833,185 114,586 (121,320) 826,451 20,909,216 1,739,827 233,600 475,082 677,436
Federated Intermediate Corporate Bond Fund, Institutional Shares 798,016 28,513 (122,316) 704,213 6,464,674 37,400 (30,934) 207,481 73,164
Federated International Leaders Fund, Class R6 Shares 349,652 127,110 (75,583) 401,179 14,992,066 2,842,187 22,891 98,675
Federated International Strategic Value Dividend Fund, Institutional Shares 2,977,505 1,321,549 (482,761) 3,816,293 14,387,424 1,044,943 (45,606) 495,249
Federated Kaufmann Large Cap Fund, Class R6 Shares 744,525 8,568 (150,140) 602,953 14,507,040 2,562,418 385,224 202,456
Federated Mortgage Core Portfolio 494,493 10,345 (188,042) 316,796 3,104,599 25,757 (26,708) 101,666
Federated Project and Trade Finance Core Fund 1,182,345 49,975 1,232,320 11,189,468 (252,606) 458,066
Federated Prudent Bear Fund, Institutional Shares 417,944 83,700 (12,770) 488,874 7,797,536 (1,290,203) (1,405)
Federated Strategic Value Dividend Fund, Institutional Shares 3,245,193 499,370 (350,076) 3,394,487 20,876,093 591,936 225,805 752,745 1,316,516
Federated U.S. Gov't Securities Fund: 2-5 Years, Institutional Shares 980 12 992 10,672 (108) 138
High Yield Bond Portfolio 232,162 19,800 (51,381) 200,581 1,283,721 30,236 (13,274) 77,096
Affiliated issuers no longer in the portfolio at period end 545,762 (545,762) 2,501,233
TOTAL OF AFFILIATED TRANSACTIONS 14,340,285 2,491,725 (2,324,789) 14,507,221 $153,807,166 $9,413,192 $1,182,963 $2,991,137 $5,295,408
2 Floating/variable note with current rate and current maturity or next reset date shown.
3 Non-income-producing security.
4 The cost of investments for federal tax purposes amounts to $199,987,119.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at December 31, 2017.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1—quoted prices in active markets for identical securities.
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Also includes securities valued at amortized cost.
Level 3—significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
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The following is a summary of the inputs used, as of December 31, 2017, in valuing the Fund's assets carried at fair value:
Valuation Inputs
  Level 1—
Quoted
Prices
Level 2—
Other
Significant
Observable
Inputs
Level 3—
Significant
Unobservable
Inputs
Total
Investment Companies1 $136,781,456 $$— $153,807,166
Debt Securities:        
Corporate Bonds 2,459,571 2,459,571
Asset-Backed Securities 282,580 282,580
Commercial Mortgage-Backed Securities 561,486 561,486
Collateralized Mortgage Obligations 87,104 87,104
U.S. Treasury 12,244,705 12,244,705
Exchange-Traded Funds 15,701,242 15,701,242
Repurchase Agreement 9,246,000 9,246,000
TOTAL SECURITIES $152,482,698 $24,881,446 $— $194,389,854
Other Financial Instruments2        
Assets $14,354 $$— $14,354
Liabilities (2,278) (2,278)
TOTAL OTHER FINANCIAL INSTRUMENTS $12,076 $$— $12,076
1 As permitted by U.S. generally accepted accounting principles (GAAP), Investment Companies valued at $17,025,710 are measured at fair value using the net asset value (NAV) per share practical expedient and have not been categorized in the chart above but are included in the Total column. The amount included herein is intended to permit reconciliation of the fair value classifications to the amounts presented on the Statement of Assets and Liabilities. The price of shares redeemed in Emerging Markets Core Fund, Federated Bank Loan Core Fund, Federated Mortgage Core Portfolio and High Yield Bond Portfolio is the next determined NAV after receipt of a shareholder redemption request. The price of shares redeemed of Federated Project and Trade Finance Core Fund may be determined as of the closing NAV of the fund up to twenty-four days after receipt of a shareholder redemption request.
2 Other Financial Instruments are futures contracts.
The following acronyms are used throughout this portfolio:
LIBOR —London Interbank Offered Rate
MTN —Medium Term Note
See Notes which are an integral part of the Financial Statements
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Financial HighlightsPrimary Shares
(For a Share Outstanding Throughout Each Period)
Year Ended December 31 2017 2016 2015 2014 2013
Net Asset Value, Beginning of Period $4.81 $5.11 $5.55 $7.06 $6.25
Income From Investment Operations:          
Net investment income 0.081 0.081 0.08 0.081 0.111
Net realized and unrealized gain (loss) on investments, futures contracts, written options and foreign currency transactions 0.44 (0.29) (0.42) (0.13) 0.91
TOTAL FROM INVESTMENT OPERATIONS 0.52 (0.21) (0.34) (0.05) 1.02
Less Distributions:          
Distributions from net investment income (0.08) (0.09) (0.09) (0.12) (0.07)
Distributions from net realized gain on investments, futures contracts, written options and foreign currency transactions (0.01) (1.34) (0.14)
TOTAL DISTRIBUTIONS (0.08) (0.09) (0.10) (1.46) (0.21)
Net Asset Value, End of Period $5.25 $4.81 $5.11 $5.55 $7.06
Total Return2 10.95% (4.20)% (6.29)% (0.97)% 16.45%
Ratios to Average Net Assets:          
Net expenses 0.30% 0.28% 0.28% 0.30% 0.50%
Net investment income 1.65% 1.57% 1.54% 1.41% 1.62%
Expense waiver/reimbursement3 0.67% 0.69% 0.67% 0.61% 0.53%
Supplemental Data:          
Net assets, end of period (000 omitted) $137,245 $133,556 $141,823 $153,165 $169,658
Portfolio turnover 18% 21% 49% 39% 137%
1 Per share numbers have been calculated using the average shares method.
2 Based on net asset value. Total returns do not reflect any additional fees or expenses that may be imposed by separate accounts of insurance companies or in connection with any variable annuity or variable life insurance contract.
3 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
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Financial HighlightsService Shares
(For a Share Outstanding Throughout Each Period)
Year Ended December 31 2017 2016 2015 2014 2013
Net Asset Value, Beginning of Period $4.80 $5.10 $5.54 $7.07 $6.26
Income From Investment Operations:          
Net investment income 0.071 0.061 0.07 0.081 0.141
Net realized and unrealized gain (loss) on investments, futures contracts, written options and foreign currency transactions 0.44 (0.29) (0.42) (0.16) 0.86
TOTAL FROM INVESTMENT OPERATIONS 0.51 (0.23) (0.35) (0.08) 1.00
Less Distributions:          
Distributions from net investment income (0.07) (0.07) (0.08) (0.11) (0.05)
Distributions from net realized gain on investments, futures contracts, written options and foreign currency transactions (0.01) (1.34) (0.14)
TOTAL DISTRIBUTIONS (0.07) (0.07) (0.09) (1.45) (0.19)
Net Asset Value, End of Period $5.24 $4.80 $5.10 $5.54 $7.07
Total Return2 10.67% (4.48)% (6.43)% (1.33)% 16.11%
Ratios to Average Net Assets:          
Net expenses 0.54% 0.53% 0.53% 0.54% 0.75%
Net investment income 1.36% 1.32% 1.29% 1.46% 2.01%
Expense waiver/reimbursement3 0.67% 0.69% 0.67% 0.63% 0.54%
Supplemental Data:          
Net assets, end of period (000 omitted) $57,094 $63,317 $69,876 $67,434 $10,101
Portfolio turnover 18% 21% 49% 39% 137%
1 Per share numbers have been calculated using the average shares method.
2 Based on net asset value. Total returns do not reflect any additional fees or expenses that may be imposed by separate accounts of insurance companies or in connection with any variable annuity or variable life insurance contract.
3 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
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Statement of Assets and Liabilities
Assets:    
Investment in securities, at value including $153,807,166 of investment in affiliated holdings (identified cost $199,697,730)   $194,389,854
Cash   863
Restricted cash (Note 2)   27,605
Income receivable   159,294
Receivable for shares sold   44,234
Receivable for daily variation margin on futures contracts   2,206
TOTAL ASSETS   194,624,056
Liabilities:    
Payable for investments purchased $58,822  
Payable for shares redeemed 129,500  
Payable to adviser (Note 5) 1,804  
Payable for administrative fees (Note 5) 1,282  
Payable for custodian fees 7,490  
Payable for auditing fees 24,980  
Payable for portfolio accounting fees 36,690  
Payable for distribution services fee (Note 5) 12,066  
Accrued expenses (Note 5) 12,457  
TOTAL LIABILITIES   285,091
Net assets for 37,047,959 shares outstanding   $194,338,965
Net Assets Consist of:    
Paid-in capital   $210,802,186
Net unrealized depreciation of investments and futures contracts   (5,295,800)
Accumulated net realized loss on investments and futures contracts   (15,697,041)
Undistributed net investment income   4,529,620
TOTAL NET ASSETS   $194,338,965
Net Asset Value, Offering Price and Redemption Proceeds Per Share    
Primary Shares:    
Net asset value per share ($137,244,938 ÷ 26,148,844 shares outstanding), no par value, unlimited shares authorized   $5.25
Service Shares:    
Net asset value per share ($57,094,027 ÷ 10,899,115 shares outstanding), no par value, unlimited shares authorized   $5.24
See Notes which are an integral part of the Financial Statements
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Statement of Operations
Investment Income:    
Dividends (including $2,991,137 received from affiliated holdings, see footnotes to Portfolio of Investments)   $3,267,492
Interest   486,717
TOTAL INCOME   3,754,209
Expenses:    
Investment adviser fee (Note 5) $1,455,690  
Administrative fee (Note 5) 153,638  
Custodian fees 16,747  
Transfer agent fee 19,288  
Directors'/Trustees' fees (Note 5) 2,836  
Auditing fees 29,390  
Legal fees 9,208  
Portfolio accounting fees 70,925  
Distribution services fee (Note 5) 146,314  
Printing and postage 89,004  
Miscellaneous (Note 5) 21,213  
TOTAL EXPENSES 2,014,253  
Waiver/reimbursement of investment adviser fee (Note 5) (1,295,516)  
Net expenses   718,737
Net investment income   3,035,472
Realized and Unrealized Gain (Loss) on Investments and Futures Contracts:    
Net realized gain on investments (including net realized gain of $1,182,963 on sales of investments in affiliated holdings)   1,184,194
Net realized gain on futures contracts   42,074
Realized gain distributions from affiliated investment company shares   5,295,408
Net change in unrealized depreciation of investments (including net change in unrealized depreciation of $9,413,192 on investments in affiliated holdings)   10,601,729
Net change in unrealized depreciation of futures contracts   16,245
Net realized and unrealized gain on investments and futures contracts   17,139,650
Change in net assets resulting from operations   $20,175,122
See Notes which are an integral part of the Financial Statements
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Statement of Changes in Net Assets
Year Ended December 31 2017 2016
Increase (Decrease) in Net Assets    
Operations:    
Net investment income $3,035,472 $2,994,802
Net realized gain (loss) on investments including allocation from affiliated partnership, futures contracts, written options and foreign currency transactions 6,521,676 (17,484,676)
Net change in unrealized appreciation of investments, futures contracts and translation of assets and liabilities in foreign currency 10,617,974 5,118,358
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 20,175,122 (9,371,516)
Distributions to Shareholders:    
Distributions from net investment income    
Primary Shares (2,206,940) (2,372,125)
Service Shares (825,106) (959,350)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (3,032,046) (3,331,475)
Share Transactions:    
Proceeds from sale of shares 9,582,389 25,650,999
Net asset value of shares issued to shareholders in payment of distributions declared 3,032,046 3,331,475
Cost of shares redeemed (32,291,581) (31,104,930)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (19,677,146) (2,122,456)
Change in net assets (2,534,070) (14,825,447)
Net Assets:    
Beginning of period 196,873,035 211,698,482
End of period (including undistributed net investment income of $4,529,620 and $3,069,391, respectively) $194,338,965 $196,873,035
See Notes which are an integral part of the Financial Statements
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Notes to Financial Statements
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 seven portfolios. The financial statements included herein are only those of Federated Managed Tail Risk 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. Each portfolio pays its own expenses. The Fund offers two classes of shares: Primary Shares and Service Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. Fund shares are available exclusively as a funding vehicle for life insurance companies writing variable life insurance policies and variable annuity contracts. The investment objective of the Fund is capital appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with GAAP.
Investment Valuation
In calculating its NAV, the Fund generally values investments as follows:
Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs.
Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
Fixed-income securities are fair valued using price evaluations provided by a pricing service approved by the Fund's Board of Trustees (the “Trustees”).
Derivative contracts listed on exchanges are valued at their reported settlement or closing price, except that options are valued at the mean of closing bid and asked quotations.
Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
For securities that are fair valued in accordance with procedures established by and under the general supervision of the Trustees, certain factors may be considered such as: the last traded or purchase price of the security, information obtained by contacting the issuer or dealers, analysis of the issuer's financial statements or other available documents, fundamental analytical data, the nature and duration of restrictions on disposition, the movement of the market in which the security is normally traded, public trading in similar securities or derivative contracts of the issuer or comparable issuers, movement of a relevant index, or other factors including but not limited to industry changes and relevant government actions.
If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, if the Fund cannot obtain price evaluations from a pricing service or from more than one dealer for an investment within a reasonable period of time as set forth in the Fund's valuation policies and procedures, or if information furnished by a pricing service, in the opinion of the valuation committee (“Valuation Committee”), is deemed not representative of the fair value of such security, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could obtain the fair value assigned to an investment if it sold the investment at approximately the time at which the Fund determines its NAV per share.
Fair Valuation and Significant Events Procedures
The Trustees have ultimate responsibility for determining the fair value of investments for which market quotations are not readily available. The Trustees have appointed a Valuation Committee comprised of officers of the Fund, the Co-Advisers and certain of the Co-Adviser's affiliated companies to assist in determining fair value and in overseeing the calculation of the NAV. The Trustees have also authorized the use of pricing services recommended by the Valuation Committee to provide fair value evaluations of the current value of certain investments for purposes of calculating the NAV. The Valuation Committee employs various methods for reviewing third-party pricing-service evaluations including periodic reviews of third-party pricing services' policies, procedures and valuation methods (including key inputs, methods, models and assumptions), transactional back-testing, comparisons of evaluations of different pricing services, and review of price challenges by the Co-Advisers based on recent market activity. In the event that market quotations and price evaluations are not available for an investment, the Valuation Committee determines the fair value of the investment in accordance with procedures adopted by the Trustees. The Trustees periodically review and approve the fair valuations made by the Valuation Committee and any changes made to the procedures.
Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a “bid” evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a “mid” evaluation). The Fund normally uses bid evaluations for any U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for any other types of fixed-income securities and any OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
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The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Co-Advisers determine that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
With respect to securities traded principally in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures contracts;
Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded;
Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, or a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have adopted procedures whereby the Valuation Committee uses a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Co-Advisers determine that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment in accordance with the fair valuation procedures approved by the Trustees. The Trustees have ultimate responsibility for any fair valuations made in response to a significant event.
Repurchase Agreements
The Fund may invest in repurchase agreements for short-term liquidity purposes. It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a “securities entitlement” and exercises “control” as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
The insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Co-Advisers and their affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Repurchase agreements are subject to Master Netting Agreements (MNA) which are agreements between the Fund and its counterparties that provide for the net settlement of all transactions and collateral with the Fund, through a single payment, in the event of default or termination. Amounts presented on the Portfolio of Investments and Statement of Assets and Liabilities are not net settlement amounts but gross. As indicated above, the cash or securities to be repurchased, as shown on the Portfolio of Investments, exceeds the repurchase price to be paid under the agreement reducing the net settlement amount to zero.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Positive or negative inflation adjustments on Treasury Inflation-Protected Securities (TIPS) are included in interest income. Distributions of net investment income, if any, are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Amortization/accretion of premium and discount is included in investment income. Gains and losses realized on principal payment of mortgage-backed securities (paydown gains and losses) are classified as part of investment income. The Fund had invested in Emerging Markets Fixed Income Core Fund (EMCORE), a portfolio of Federated Core Trust II, L.P., which was a limited partnership established under the laws of the state of Delaware. The Fund recorded daily its proportionate share of income, expenses, realized and unrealized gains and losses from EMCORE. 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 Primary Shares and Service Shares may bear distribution services fees unique to those classes. The detail of the total fund expense waiver and reimbursement of $1,295,516 is disclosed in various locations in Note 5.
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.
Restricted Securities
The Fund may purchase securities which are considered restricted. Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration under the 1933 Act; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security 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 such restricted securities may be resold in the secondary market in transactions exempt from registration. 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, like other securities, are priced in accordance with procedures established by and under the general supervision of the Trustees.
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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. As of and during the year ended December 31, 2017, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of December 31, 2017, tax years 2014 through 2017 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
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.
Futures Contracts
The Fund purchases and sells financial futures contracts to manage duration, market and yield curve risks. Upon entering into a financial futures contract with a broker, the Fund is required to deposit in a segregated account, either U.S. government securities or a specified amount of Restricted cash, which is shown in the Statement of Assets and Liabilities. 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. There is minimal counterparty risk to the Fund since futures contracts are exchange traded and the exchange's clearing house, as counterparty to all exchange traded futures contracts, guarantees the futures contracts against default.
Futures contracts outstanding at period end are listed after the Fund's Portfolio of Investments.
The average notional value of long and short futures contracts held by the Fund throughout the period was $6,685,875 and $3,464,670, respectively. This is based on amounts held as of each month-end throughout the fiscal period.
Option Contracts
The Fund buys or sells put and call options to seek to increase return and to manage market risk. The seller (“writer”) of an option receives a payment or premium, from the buyer, which the writer keeps regardless of whether the buyer exercises the option. When the Fund writes a put or call option, an amount equal to the premium received is recorded as a liability and subsequently marked to market to reflect the current value of the option written. Premiums received from writing options which expire are treated as realized gains. The Fund, as a writer of an option, bears the market risk of an unfavorable change in the price of the underlying reference instrument. When the Fund purchases a put or call option, an amount equal to the premium paid is recorded as an increase to the cost of the investment and subsequently marked to market to reflect the current value of the option purchased. Premiums paid for purchasing options which expire are treated as realized losses. Premiums received/paid for writing/purchasing options which are exercised or closed are added to the proceeds or offset against amounts paid on the underlying reference instrument to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Options can trade on securities or commodities exchanges. In this case, the exchange sets all the terms of the contract except for the price. Most exchanges require investors to maintain margin accounts through their brokers to cover their potential obligations to the exchange. This protects investors against potential defaults by the counterparty.
At December 31, 2017, and during the year then ended, the Fund had no outstanding written option contracts.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies 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 foreign currencies, 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.
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Additional Disclosure Related to Derivative Instruments
Fair Value of Derivative Instruments  
  Asset
  Statement of
Assets and
Liabilities
Location
Fair
Value
Derivatives not accounted for as hedging instruments under ASC Topic 815    
Interest rate contracts Receivable for daily
variation margin
on futures contracts
$12,076*
* Includes cumulative net appreciation of futures contracts as reported in the footnotes to the Portfolio of Investments. Only the current day's variation margin is reported within the Statement of Assets and Liabilities.
The Effect of Derivative Instruments on the Statement of Operations for the Year Ended December 31, 2017
Amount of Realized Gain or (Loss) on Derivatives Recognized in Income  
  Futures
Contracts
Interest rate contracts $42,074
    
Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized in Income  
  Futures
Contracts
Interest rate contracts $16,245
Other
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. The Fund applies investment company accounting and reporting guidance.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
Year Ended December 31 2017 2016
Primary Shares: Shares Amount Shares Amount
Shares sold 1,260,101 $6,261,034 2,955,103 $14,301,919
Shares issued to shareholders in payment of distributions declared 452,242 2,206,940 492,142 2,372,125
Shares redeemed (3,354,022) (16,735,488) (3,387,677) (16,394,502)
NET CHANGE RESULTING FROM PRIMARY SHARE TRANSACTIONS (1,641,679) $(8,267,514) 59,568 $279,542
    
Year Ended December 31 2017 2016
Service Shares: Shares Amount Shares Amount
Shares sold 666,337 $3,321,355 2,349,268 $11,349,080
Shares issued to shareholders in payment of distributions declared 169,079 825,106 199,035 959,350
Shares redeemed (3,140,069) (15,556,093) (3,041,516) (14,710,428)
NET CHANGE RESULTING FROM SERVICE SHARE TRANSACTIONS (2,304,653) $(11,409,632) (493,213) $(2,401,998)
NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS (3,946,332) $(19,677,146) (433,645) $(2,122,456)
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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 the expiration of capital loss carryforwards, short-term capital gain distributions from registered investment companies, recognition of passive losses, and discount accretion/premium amortization on debt securities.
For the year ended December 31, 2017, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease)
Paid-In Capital Undistributed
Net Investment
Income (Loss)
Accumulated
Net Realized
Gain (Loss)
$(2,259,665) $1,456,803 $802,862
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, 2017 and 2016, was as follows:
  2017 2016
Ordinary income $3,032,046 $3,331,475
As of December 31, 2017, the components of distributable earnings on a tax-basis were as follows:
Undistributed ordinary income $4,529,905
Net unrealized depreciation $(5,597,265)
Capital loss carryforwards $(15,395,861)
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, mark-to-market of futures contracts, discount accretion/premium amortization on debt securities, partnership basis adjustments and TIPS deflation deferrals.
At December 31, 2017, the cost of investments for federal tax purposes was $199,987,119. The net unrealized depreciation of investments for federal tax purposes was $5,597,265. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $6,917,864 and net unrealized depreciation from investments for those securities having an excess of cost over value of $12,515,129. The amounts presented are inclusive of derivative contracts.
At December 31, 2017, the Fund had a capital loss carryforward of $15,395,861 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, thereby reducing the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, a net capital loss incurred in taxable years beginning after December 22, 2010, retains its character as either short-term or long-term and does not expire. All of the Fund's capital loss carryforwards were incurred in taxable years beginning after December 22, 2010.
The following schedule summarizes the Fund's capital loss carryforwards:
Short-Term Long-Term Total
$14,315,581 $1,080,280 $15,395,861
Capital loss carryforwards of $2,259,665 expired during the year ended December 31, 2017.
The Fund used capital loss carryforwards of $5,041,316 to offset capital gains realized during the year ended December 31, 2017.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The co-advisory agreement between the Fund and the Co-Advisers, provides for an annual fee equal to 0.75% of the Fund's average daily net assets. Subject to the terms described in the Expense Limitation note, the Co-Advisers may voluntarily choose to waive any portion of their fee. For the year ended December 31, 2017, the Co-Advisers voluntarily waived $370,245 of their fee. The Co-Advisers have agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated investment companies. For the year ended December 31, 2017, the Co-Advisers reimbursed $925,271.
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Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below:
Administrative Fee Average Daily Net Assets
of the Investment Complex
0.100% on assets up to $50 billion
0.075% on assets over $50 billion
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the year ended December 31, 2017, the annualized fee paid to FAS was 0.079% of average daily net assets of the Fund.
Prior to September 1, 2017, the breakpoints of the Administrative Fee paid to FAS, described above, were:
Administrative Fee Average Daily Net Assets
of the Investment Complex
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
In addition, FAS may charge certain out-of-pocket expenses to the Fund.
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 Primary Shares and Service Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name Percentage of Average
Daily Net Assets of Class
Primary Shares 0.25%
Service Shares 0.25%
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. For the year ended December 31, 2017, distribution services fees for the Fund were as follows:
  Distribution Services
Fees Incurred
Service Shares $146,314
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended December 31, 2017, FSC retained $63 of fees paid by the Fund. For the year ended December 31, 2017, the Fund's Primary Shares did not incur a distribution services fee; however, it may begin to incur this fee upon approval of the Trustees.
Expense Limitation
The Co-Advisers and certain of their affiliates (which may include FSC and FAS) on their own initiative have agreed to waive certain amounts of their respective fees and/or reimburse expenses. Effective May 1, 2017, total annual fund operating expenses (as shown in the financial highlights, excluding interest expenses, extraordinary expenses, line of credit expenses and proxy-related expenses paid by the Fund, if any) paid by the Fund's Primary Shares and Service Shares (after the voluntary waivers and/or reimbursements) will not exceed 0.30% and 0.55% (the “Fee Limit”), respectively, up to but not including the later of (the “Termination Date”): (a) May 1, 2018; or (b) the date of the Fund's next effective Prospectus. While the Co-Advisers and their applicable affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Trustees.
Directors'/Trustees' and Miscellaneous Fees
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Directors'/Trustees' fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Co-Advisers which in due course are reimbursed by the Fund. These expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
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6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended December 31, 2017, were as follows:
Purchases $29,871,767
Sales $37,950,234
7. LINE OF CREDIT
The Fund participates with certain other Federated Funds, on a several basis, in an up to $500,000,000 unsecured, 364-day, committed, revolving line of credit (LOC) agreement. The LOC was made available to finance temporarily the repurchase or redemption of shares of the Fund, failed trades, payment of dividends, settlement of trades and for other short-term, temporary or emergency general business purposes. The Fund cannot borrow under the LOC if an inter-fund loan is outstanding. The Fund's ability to borrow under the LOC also is subject to the limitations of the Act and various conditions precedent that must be satisfied before the Fund can borrow. Loans under the LOC are charged interest at a fluctuating rate per annum equal to the highest, on any day, of (a) (i) the federal funds effective rate, (ii) the one month London Interbank Offered Rate (LIBOR), and (iii) 0.0%, plus (b) a margin. The LOC also requires the Fund to pay, quarterly in arrears and at maturity, its pro rata share of a commitment fee based on the amount of the lenders' commitment that has not been utilized. As of December 31, 2017, the Fund had no outstanding loans. During the year ended December 31, 2017, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the Fund to borrow from other participating affiliated funds. As of December 31, 2017, there were no outstanding loans. During the year ended December 31, 2017, the program was not utilized.
9. Subsequent Event
On February 2, 2018, the Fund filed a supplement to its current Prospectus notifying shareholders that the Trustees have approved a proposed Agreement and Plan of Reorganization (Reorganization) pursuant to which Federated Managed Volatility Fund II, another fund of the Trust, would acquire all or substantially all of the assets of the Fund in complete liquidation and termination of the Fund. Pending submission of proxy materials to shareholders, a special meeting of the shareholders is proposed to be held in the third quarter of 2018 to approve or disapprove the proposed Reorganization.
10. FEDERAL TAX INFORMATION (UNAUDITED)
Of the ordinary income distributions made by the Fund during the year ended December 31, 2017, 32.98% qualify for the dividend received deduction available to corporate shareholders.
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Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF The FEDERATED INSURANCE SERIES AND SHAREHOLDERS OF FEDERATED MANAGED TAIL RISK FUND II:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Federated Managed Tail Risk Fund II (the “Fund”), a portfolio of Federated Insurance Series, as of December 31, 2017, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. 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, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor for one or more of Federated Investors' - investment companies since 2006.
Boston, Massachusetts
February 14, 2018
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Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or other service 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 funds used as 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, 2017 to December 31, 2017.
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 required to be provided to enable you to compare the ongoing costs of investing in the Fund with 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
7/1/2017
Ending
Account Value
12/31/2017
Expenses Paid
During Period1
Actual:      
Primary Shares $1,000 $1056.30 $1.55
Service Shares $1,000 $1054.30 $2.85
Hypothetical (assuming a 5% return before expenses):      
Primary Shares $1,000 $1,023.70 $1.53
Service Shares $1,000 $1,022.40 $2.80
1 Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). The expenses shown in the table do not include the charges and expenses imposed by the insurance company under the variable insurance product contract. Please refer to the variable insurance product prospectus for a complete listing of these expenses. The annualized net expense ratios are as follows:
   
Primary Shares 0.30%
Service Shares 0.55%
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In Memoriam
With profound sadness, Federated announces the passing of John F. (“Jack”) Donahue and John W. (“John”) McGonigle. They will be greatly missed.
Jack Donahue
(Former Chairman and President, and Emeritus Director/Trustee, of the Federated Funds, and Founder, Former Chairman, President and Chief Executive Officer, and Chairman Emeritus, of Federated Investors, Inc.)
Jack Donahue, along with Richard B. Fisher, founded Federated in 1955 and served as a leader and member of the Boards of Directors/Trustees of the Federated Funds and the Board of Directors of Federated Investors, Inc. Mr. Donahue was a family man of deep faith with exemplary character and fealty, who served his religion, family, community, and the Federated Funds and Federated, as well as their shareholders, officers and employees, with distinction. His integrity, intelligence, and keen sense of fiduciary duty, coupled with his faith, family and background as a West Point graduate and Strategic Air Command B-29 pilot, served as a foundation for his strong business acumen and leadership. Among his many achievements, Mr. Donahue's steadfast and innovative leadership of the Federated Funds and Federated, as well as within the investment management industry, led to the birth of money market funds in the 1970s and their growth as an innovative, efficient and effective cash management vehicle throughout the 1980s, 1990s, 2000s and beyond. Federated expresses deep gratitude to Mr. Donahue for his inspiring leadership, distinguished service and contributions as a husband, father, founder, Board member and officer, colleague and friend.
John McGonigle
(Former Secretary of the Federated Funds, Former Director, Secretary and Chief Legal Officer of Federated Investors, Inc.)
John McGonigle served the Federated Funds and their respective Boards with distinction for more than 50 years as Fund Secretary and also served as Director for several closed-end funds. Mr. McGonigle was a gifted lawyer and wise counselor with a genial presence, keen intellect and convivial demeanor. A man of deep faith, he was a devoted husband, father and grandfather. A graduate of Duquesne University School of Law, Mr. McGonigle served as an officer in the U.S. Army for two years, achieving the rank of Captain. He also served on the staff of the Securities and Exchange Commission before joining Federated in 1966. Among many professional accomplishments, Mr. McGonigle helped fashion the regulatory foundation for money market funds, established Federated's first offshore funds in Ireland, and represented Federated on the Board of Governors of the Investment Company Institute where he was a member of the Executive Committee. Federated expresses deep gratitude for Mr. McGonigle and his impact on his family, friends, the community, and the mutual fund industry.
Board of Trustees and Trust Officers
The Board of Trustees 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 Trustee and the senior officers of the Fund. Where required, the tables separately list Trustees who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Trustees listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2017, the Trust comprised seven portfolio(s), and the Federated Fund Family consisted of 40 investment companies (comprising 108 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Trustee oversees all portfolios in the Federated Fund Family and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
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Interested Trustees Background
Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
J. Christopher Donahue*
Birth Date: April 11, 1949
Trustee
Indefinite Term
Began serving: September 1993
Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of the Funds in the Federated Fund Family; 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 and Trustee, Federated Equity Management Company of Pennsylvania; 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; Chairman, Passport Research, Ltd.
Thomas R. Donahue*
Birth Date: October 20, 1958
Trustee
Indefinite Term
Began serving: May 2016
Principal Occupations: Director or Trustee of certain of the funds in the Federated Fund Family; Chief Financial Officer, Treasurer, Vice President and Assistant Secretary, Federated Investors, Inc.; Chairman and Trustee, Federated Administrative Services; Chairman and Director, Federated Administrative Services, Inc.; Trustee and Treasurer, Federated Advisory Services Company; Director or Trustee and Treasurer, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, and Federated Investment Management Company; Director, MDTA LLC; Director, Executive Vice President and Assistant Secretary, Federated Securities Corp.; Director or Trustee and Chairman, Federated Services Company and Federated Shareholder Services Company; and Director and President, FII Holdings, Inc.
Previous Positions: Director, Federated Investors, Inc.; Assistant Secretary, Federated Investment Management Company, Federated Global Investment Management Company and Passport Research, LTD; Treasurer, Passport Research, LTD; Executive Vice President, Federated Securities Corp.; and Treasurer, FII Holdings, Inc.
* Family relationships and reasons for “interested” status: J. Christopher Donahue and Thomas R. Donahue are brothers. Both are “interested” due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT Trustees Background
Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
John T. Collins
Birth Date: January 24, 1947
Trustee
Indefinite Term
Began serving: October 2013
Principal Occupations: Director or Trustee of the Federated Fund Family; formerly, Chairman and CEO, The Collins Group, Inc. (a private equity firm) (Retired).
Other Directorships Held: Director, Current Chair of the Compensation Committee, KLX Corp.
Qualifications: Mr. Collins has served in several business and financial management roles and directorship positions throughout his career. Mr. Collins previously served as Chairman and CEO, The Collins Group, Inc. (a private equity firm). Mr. Collins serves as Chairman Emeriti, Bentley University. Mr. Collins previously served as Director and Audit Committee Member, Bank of America Corp.; Director, FleetBoston Financial Corp.; and Director, Beth Israel Deaconess Medical Center (Harvard University Affiliate Hospital).
G. Thomas Hough
Birth Date: February 28, 1955
Trustee
Indefinite Term
Began serving: August 2015
Principal Occupations: Director or Trustee of the Federated Fund Family; formerly, Vice Chair, Ernst & Young LLP (public accounting firm) (Retired).
Other Directorships Held: Director, Chair of the Audit Committee, Governance Committee, Publix Super Markets, Inc.; Director, Member of the Audit Committee and Technology Committee of Equifax, Inc.
Qualifications: Mr. Hough has served in accounting, business management and directorship positions throughout his career. Mr. Hough most recently held the position of Americas Vice Chair of Assurance with Ernst & Young LLP (public accounting firm). Mr. Hough is an Executive Committee member of the United States Golf Association, he serves on the President's Cabinet and Business School Board of Visitors for the University of Alabama and is on the Business School Board of Visitors for Wake Forest University.
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Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
Maureen Lally-Green
Birth Date: July 5, 1949
Trustee
Indefinite Term
Began serving: August 2009
Principal Occupations: Director or Trustee of the Federated Fund Family; Dean of the Duquesne University School of Law; Professor and Adjunct Professor of Law, Duquesne University School of Law; formerly, Interim Dean of the Duquesne University School of Law; Associate General Secretary and Director, Office of Church Relations, Diocese of Pittsburgh.
Other Directorships Held: Director, CNX Resources Corporation (formerly known as CONSOL Energy Inc.).
Qualifications: Judge Lally-Green has served in various legal and business roles and directorship positions throughout her career. Judge Lally-Green previously served as: Associate General Secretary, Diocese of Pittsburgh; a member of the Superior Court of Pennsylvania; and as a Professor of Law, Duquesne University School of Law. Judge Lally-Green also currently holds the positions on either a public or not for profit Board of Directors as follows: Director and Chair, UPMC Mercy Hospital; Director and Vice Chair, Our Campaign for the Church Alive!, Inc.; Director, Saint Vincent College; Member, Pennsylvania State Board of Education (public); and Director CNX Resources Corporation (formerly known as CONSOL Energy Inc.), where she currently serves as a member of the Compensation, Nominating and Corporate Governance Committee (Chair) and the Health, Safety and Environmental Committee. Judge Lally-Green has held the positions of: Director, Auberle; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Ireland Institute of Pittsburgh; Director, Saint Thomas More Society; Director and Chair, Catholic High Schools of the Diocese of Pittsburgh, Inc.; Director, Pennsylvania Bar Institute; Regent, St. Vincent Seminary; and Director and Chair, Cardinal Wuerl North Catholic High School, Inc.
Charles F. Mansfield, Jr.
Birth Date: April 10, 1945
Trustee

Indefinite Term
Began serving: September 1999
Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant.
Other Directorships Held: None.
Qualifications: Mr. Mansfield has served as a Marine Corps officer and in several banking, business management, educational roles and directorship positions throughout his long career. He remains active as a Management Consultant.
Thomas M. O'Neill
Birth Date: June 14, 1951
Trustee

Indefinite Term
Began serving: August 2006
Principal Occupations: Director or Trustee, Chair of the Audit Committee of the Federated Fund Family; Sole Proprietor, Navigator Management Company (investment and strategic consulting).
Other Directorships Held: None.
Qualifications: Mr. O'Neill has served in several business, mutual fund and financial management roles and directorship positions throughout his career. Mr. O'Neill serves as Director, Medicines for Humanity and Director, The Golisano Children's Museum of Naples, Florida. Mr. O'Neill previously served as Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); and Director, Midway Pacific (lumber).
P. Jerome Richey
Birth Date: February 23, 1949
Trustee
Indefinite Term
Began serving: October 2013
Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant; formerly, Senior Vice Chancellor and Chief Legal Officer, University of Pittsburgh and Executive Vice President and Chief Legal Officer, CNX Resources Corporation (formerly known as CONSOL Energy Inc.)
Other Directorships Held: None.
Qualifications: Mr. Richey has served in several business and legal management roles and directorship positions throughout his career. Mr. Richey most recently held the positions of Senior Vice Chancellor and Chief Legal Officer, University of Pittsburgh. Mr. Richey previously served as Chairman of the Board, Epilepsy Foundation of Western Pennsylvania and Chairman of the Board, World Affairs Council of Pittsburgh. Mr. Richey previously served as Chief Legal Officer and Executive Vice President, CNX Resources Corporation (formerly known as CONSOL Energy Inc.); and Board Member, Ethics Counsel and Shareholder, Buchanan Ingersoll & Rooney PC (a law firm).
John S. Walsh
Birth Date: November 28, 1957
Trustee

Indefinite Term
Began serving: January 1999
Principal Occupations: Director or Trustee, and Chair of the Board of Directors or Trustees, of the Federated Fund Family; 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.
Other Directorships Held: None.
Qualifications: Mr. Walsh has served in several business management roles and directorship positions throughout his career. Mr. Walsh previously served as Vice President, Walsh & Kelly, Inc. (paving contractors).
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OFFICERS
Name
Birth Date
Address
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years
and Previous Position(s)
Lori A. Hensler
Birth Date: January 6, 1967
TREASURER
Officer since: April 2013
Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Family; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp. and Edgewood Services, Inc.; and Assistant Treasurer, Federated Investors Trust Company. Ms. Hensler has received the Certified Public Accountant designation.
Previous Positions: Controller of Federated Investors, Inc.; Senior Vice President and Assistant Treasurer, Federated Investors Management Company; Treasurer, Federated Investors Trust Company; Assistant Treasurer, Federated Administrative Services, Federated Administrative Services, Inc., Federated Securities Corp., Edgewood Services, Inc., Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company, Passport Research, Ltd., and Federated MDTA, LLC; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc.
Peter J. Germain
Birth Date: September 3, 1959
CHIEF LEGAL OFFICER, SECRETARY and EXECUTIVE VICE PRESIDENT
Officer since: January 2005
Principal Occupations: Mr. Germain is Chief Legal Officer, Secretary and Executive Vice President of the Federated Fund Family. He is General Counsel, Chief Legal Officer, Secretary and Executive Vice President, Federated Investors, Inc.; Trustee and Senior Vice President, Federated Investors Management Company; Trustee and President, Federated Administrative Services; Director and President, Federated Administrative Services, Inc.; Director and Vice President, Federated Securities Corp.; Director and Secretary, Federated Private Asset Management, Inc.; Secretary, Federated Shareholder Services Company; and Secretary, Retirement Plan Service Company of America. Mr. Germain joined Federated in 1984 and is a member of the Pennsylvania Bar Association.
Previous Positions: Deputy General Counsel, Special Counsel, Managing Director of Mutual Fund Services, Federated Investors, Inc.; Senior Vice President, Federated Services Company; and Senior Corporate Counsel, Federated Investors, Inc.
Richard B. Fisher
Birth Date: May 17, 1923
Vice President
Officer since: September 1993
Principal Occupations: Vice Chairman or Vice President of some of the Funds in the Federated Fund Family; 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 Family; Executive Vice President, Federated Investors, Inc.; Director and Chief Executive Officer, Federated Securities Corp.
John B. Fisher
Birth Date: May 16, 1956
President
Officer since: November 2004
Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of certain of the Funds in the Federated Fund Family; Vice President, Federated Investors, Inc.; President, Director/Trustee and CEO, Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company; President and CEO of Passport Research, Ltd.; President of some of the Funds in the Federated Fund Complex and Director, Federated Investors Trust Company.
Previous Positions: President and Director of the Institutional Sales Division of Federated Securities Corp.; President and Director of Federated Investment Counseling; Director, Edgewood Securities Corp.; Director, Federated Services Company; Director, Federated Investors, Inc.; Chairman and Director, Southpointe Distribution Services, Inc. and President, Technology, Federated Services Company.
Stephen Van Meter
Birth Date: June 5, 1975
CHIEF COMPLIANCE OFFICER AND SENIOR VICE PRESIDENT
Officer since: July 2015
Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Family; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of certain of its subsidiaries. Mr. Van Meter joined Federated in October 2011. He holds FINRA licenses under Series 3, 7, 24 and 66.
Previous Positions: Mr. Van Meter previously held the position of Compliance Operating Officer, Federated Investors, Inc. Prior to joining Federated, Mr. Van Meter served at the United States Securities and Exchange Commission in the positions of Senior Counsel, Office of Chief Counsel, Division of Investment Management and Senior Counsel, Division of Enforcement.
Stephen F. Auth
Birth Date: September 13, 1956
101 Park Avenue
41st Floor
New York, NY 10178
CHIEF INVESTMENT OFFICER
Officer since: November 2002
Principal Occupations: Stephen F. Auth is Chief Investment Officer of various Funds in the Federated Fund Family; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp. and Federated Equity Management Company of Pennsylvania.
Previous Positions: Executive Vice President, Federated Investment Management Company and Passport Research, Ltd. (investment advisory subsidiary of Federated); 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
Officer since: May 2004
Principal Occupations: Robert J. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of Federated's taxable fixed-income products in 2004 and also serves as a Senior Portfolio Manager. Mr. Ostrowski became an Executive Vice President of the Fund's Adviser in 2009 and served as a Senior Vice President of the Fund's Adviser from 1997 to 2009. Mr. Ostrowski has received the Chartered Financial Analyst designation. He received his M.S. in Industrial Administration from Carnegie Mellon University.
Deborah A. Cunningham
Birth Date: September 15, 1959
Chief Investment Officer
Officer since: June 2012
Principal Occupations: Deborah A. Cunningham was named Chief Investment Officer of Federated's money market products in 2004. She joined Federated in 1981 and has been a Senior Portfolio Manager since 1997 and an Executive Vice President of the Fund's Adviser since 2009. Ms. Cunningham has received the Chartered Financial Analyst designation and holds an M.S.B.A. in Finance from Robert Morris College.
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Evaluation and Approval of Advisory ContractMay 2017
Federated Managed Tail Risk Fund II (the “Fund”)
Following a review and recommendation of approval by the Fund's independent trustees, the Fund's Board of Trustees (the “Board”) reviewed and unanimously approved the continuation of the Fund's investment advisory contract, under which Federated Investment Management Company, Federated Equity Management Company of Pennsylvania and Federated Global Investment Management Corp. will serve as co-advisers to the Fund (“Co-Advisers”) for an additional one-year term at its May 2017 meetings. The Board's decision regarding the contract reflects the exercise of its business judgment after considering all of the information received on whether to continue the existing arrangements.
The Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below (the “Senior Officer's Evaluation”). The Board considered the Senior Officer's Evaluation, along with other information, in deciding to approve the investment advisory contract.
The Board also considered judicial decisions concerning allegedly excessive investment advisory fees in its decision. Using these judicial decisions as a guide, the Board has indicated that the following factors may be relevant to an adviser's fiduciary duty with respect to its receipt of compensation from a fund: (1) the nature and quality of the services provided by an adviser to a fund and its shareholders (including the performance of the Fund and of comparable funds); (2) an adviser's cost of providing the services (including the profitability to an adviser of providing advisory services to a fund); (3) the extent to which an adviser may realize “economies of scale” as a fund grows larger and, if such economies of scale exist, whether they have been shared with a fund and its shareholders or the family of funds; (4) any “fall-out financial benefits” that accrue to an adviser because of its relationship with a fund (including research services received from brokers that execute fund trades and any fees paid to affiliates of an adviser for services rendered to a fund); (5) comparative fee and expense structures (including a comparison of fees paid to an adviser with those paid by similar funds); and (6) the extent of care, conscientiousness and independence with which the Fund's board members perform their duties and their expertise (including whether they are fully informed about all facts the Board deems relevant to its consideration of an adviser's services and fees). The Board noted that the Securities and Exchange Commission (“SEC”) disclosure requirements regarding the basis for the Board's approval of the Fund's investment advisory contract generally align with the factors listed above. Consistent with the judicial decisions and SEC disclosure requirements, the Board also considered management fees charged to institutional and other clients of each Co-Adviser and their advisory affiliates for what might be viewed as like services. The Board was aware of these factors and was guided by them in its review of the Fund's investment advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below. Also, in weighing these factors, the Board considered the aggregate advisory fee paid by the Fund for the services of all Co-Advisers in addition to considering the allocation of that aggregate fee among the Co-Advisers and the rationale for that allocation.
The Board considered and weighed these factors in light of its substantial accumulated experience in governing the Fund and working with Federated Investors, Inc. and its affiliates (“Federated”) on matters relating to the Federated funds. The Board was assisted in its deliberations by independent legal counsel. In addition to the extensive materials that comprise and accompany the Senior Officer's Evaluation, the Board received detailed information about the Fund and the Federated organization throughout the year, and in connection with its May meetings. Federated provided much of this information at each regular meeting of the Board, and furnished additional information in connection with the May meetings, at which the Board's formal approval of the investment advisory contract occurred. At the May meetings, in addition to meeting in separate sessions of the independent trustees without management present, senior management of the Co-Advisers also met with the independent trustees and their counsel to discuss the materials presented and any other matters thought relevant by the Co-Advisers or the trustees. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. The Board's consideration of the investment advisory contract included review of the Senior Officer's Evaluation, accompanying data and additional information covering such matters as: the Co-Advisers' investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in terms relative to its particular investment program and certain competitor or “peer group” funds and/or other benchmarks, as appropriate) and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses, including the advisory fee and the overall expense structure of the Fund (both in absolute terms and relative to similar and/or competing funds), with due regard for contractual or voluntary expense limitations; the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Co-Advisers and their affiliates. The Board also considered the preferences and expectations of Fund shareholders; the entrepreneurial risk assumed by the Co-Advisers in sponsoring the Fund; the continuing state of
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competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are generally available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
While mindful that courts have cautioned against giving such comparisons too much weight, the Board has found the use of comparisons of the Fund's fees and expenses to other mutual funds with comparable investment programs to be relevant to its deliberations. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, total expense ratios and each element of the Fund's total expense ratio (i.e., gross and net advisory fees, custody fees, portfolio accounting fees and transfer agency fees) relative to the Fund's peers. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, in that they are readily available to Fund shareholders as alternative investment vehicles. Also, they are the type of investment vehicle, in fact, chosen and maintained by the Fund's investors. The range of their fees and expenses, therefore, appears to be a relevant indicator of what consumers have found to be reasonable in the marketplace in which the Fund competes.
The investment advisory contract between the Fund and the Co-Advisers provides for payment of a single advisory fee by the Fund for all services provided by the Co-Advisers. The investment advisory contract permits the Co-Advisers to allocate the advisory fee in a manner commensurate with the services they provide to the Fund. Throughout the year, as well as in connection with its May meetings, the Board considered the fee allocation and analyzed whether the allocation of fees among the Co-Advisers continued to be a reasonable proxy for and measurement of the level of resources and services provided by each Co-Adviser toward the management of the Fund.
The Board reviewed the contractual advisory fee rate, net advisory fee rate where partially waived and other expenses of the Fund and noted the position of the Fund's contractual advisory fee rate and other expenses relative to its peers. In this regard, the Board noted that the contractual advisory fee rate was above the median of the relevant peer group, but the Board noted the applicable waivers and reimbursements, and that the overall expense structure of the Fund remained competitive in the context of other factors considered by the Board.
For comparison, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated funds (e.g., institutional and separate accounts and sub-adviser services). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes and portfolio management techniques made necessary by different cash flows and different associated costs; and the time spent by portfolio managers and their teams, funds financial services, legal, compliance and risk management in reviewing securities pricing, addressing different administrative responsibilities, addressing different degrees of risk associated with management and a variety of different costs. The Senior Officer did not consider the fees for providing advisory services to these outside products to be determinative in judging the appropriateness of mutual fund advisory fees.
Following such evaluation, and full deliberations, the Board concluded that the expenses of the Fund are reasonable and supported renewal of the Fund's investment advisory contract.
The Board considered the nature, extent and quality of the services provided to the Fund by the Co-Advisers and the resources of the Co-Advisers and their affiliates dedicated to the Fund. In particular, the Board considered the services provided by the Co-Advisers in the aggregate, to the extent that the Co-Advisers collaborate in the implementation of the Fund's strategy, as well as separately, to the extent to which specific services provided by a Co-Adviser are distinguishable and subject to meaningful assessment. In this regard, the Board evaluated, among other things, the Co-Advisers' personnel, experience, track record, overall reputation and willingness to invest in personnel and infrastructure that benefit the Fund. In addition, the Board reviewed the qualifications, backgrounds and responsibilities of the portfolio management team primarily responsible for the day-to-day management of the Fund. The Board noted the compliance programs of, and the compliance-related resources provided to, the Fund by the Co-Advisers. The Fund's ability to deliver competitive performance when compared to its peer group was also deemed to be relevant by the Board as a useful indicator of how the Co-Advisers are executing the Fund's investment program. The Co-Advisers' ability to execute this program was one of the Board's considerations in reaching a conclusion that the nature, extent, and quality of the Co-Advisers' investment management services warrant the continuation of the investment advisory contract.
In evaluating the Fund's investment performance, the Board considered performance results in light of the Fund's investment objective, strategies and risks, as disclosed in the Fund's prospectus. The Board particularly considered detailed investment reports on the Fund's performance that were provided to the Board throughout the year and in connection with the May meetings. The Senior Officer also reviewed information compiled by Federated, using data supplied by
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independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups may be helpful, though not conclusive, in judging the reasonableness of the proposed fees. The Board considered, in evaluating such comparisons, that in some cases individual funds may exhibit significant and unique differences in their objectives and management techniques when compared to other funds within an industry peer group.
The Fund's performance fell below the median of the relevant peer group for the one-year, three-year and five-year periods covered by the Senior Officer's Evaluation. The Board discussed the Fund's performance with the Co-Advisers and recognized the efforts being taken by the Co-Advisers in the context of the other factors considered relevant by the Board.
Following such evaluation, and full deliberations, the Board concluded that the expenses of the Fund are reasonable and supported renewal of the investment advisory contract.
The Board also received financial information about Federated, including information regarding the compensation and ancillary (or “fall-out”) benefits Federated derived from its relationships with the Federated funds. This information covered not only the fees under the investment advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The information also detailed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to Fund investors and/or indicated to the Board their intention to do so in the future. Moreover, the Board receives regular reporting as to the institution, adjustment or elimination of these voluntary waivers.
The Board considered Federated's previous reductions in contractual management fees to certain funds in response to the Senior Officer's recommendations.
Federated furnished information, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in allocating costs continues to cause the Senior Officer to question the precision of the process and to conclude that such reports may be unreliable, since a single change in an allocation estimate may dramatically alter the resulting estimate of cost and/or profitability of a fund and may produce unintended consequences. The allocation information, including the Senior Officer's view that fund-by-fund estimations may be unreliable, was considered in the analysis by the Board.
The Board and the Senior Officer also reviewed information compiled by Federated comparing its profitability information to other publicly held fund management companies. In this regard, the Senior Officer concluded that Federated's profit margins did not appear to be excessive. The Senior Officer also noted that Federated appeared financially sound, with the resources to fulfill its obligations under its contracts with the Fund.
The Senior Officer's Evaluation also discussed the notion of possible realization of “economies of scale” as a fund grows larger. In this regard, the Board considered that the Co-Advisers have made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, shareholder services, compliance, internal audit and risk management functions, as well as systems technology (including technology relating to cybersecurity) and that the benefits of these efforts (as well as any economies of scale, should they exist) were likely to be enjoyed by the fund family as a whole. The Board noted that the Co-Advisers' investments in these areas are extensive. In addition, the Board considered that Federated and its affiliates have frequently waived fees and/or reimbursed expenses and that this has allowed fund shareholders to share potential economies of scale from a fund's inception. Federated, as it does throughout the year, and in connection with the Board's review, furnished information relative to revenue sharing or adviser paid fees. Federated and the Senior Officer noted that this information should be viewed to determine if there was an incentive to either not apply breakpoints or to apply breakpoints, at higher levels. It should not be viewed to determine the appropriateness of advisory fees because it would represent marketing and distribution expenses. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's Evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with “breakpoints” that serve to reduce the fee as a fund attains a certain size.
While the Senior Officer noted certain items for follow-up reporting to the Board and further consideration by management, he stated that his observations and information accompanying the Senior Officer's Evaluation supported a finding by the Board that the management fee for the Fund was reasonable. Under these circumstances, no changes were recommended to, and no objection was raised to the continuation of, the Fund's investment advisory contract.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an investment advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Co-Advisers' industry standing and reputation and with the expectation that the Co-Advisers will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the
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investment advisory contract reflected the fact that it is the shareholders who have effectively selected the Co-Advisers by virtue of having invested in the Fund. The Board concluded that, in light of the factors discussed above, including the nature, quality and scope of the services provided to the Fund by the Co-Advisers and their affiliates, continuation of the investment advisory contract was appropriate.
The Board based its decision to approve the investment advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the continuation of the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
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Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, 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 via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at www.FederatedInvestors.com/FundInformation. Form N-PX filings are also available at the SEC's website at 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 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 via the link to the Fund and share class name at www.FederatedInvestors.com/FundInformation.
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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 Managed Tail Risk Fund II

Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313916835
CUSIP 313916819
G00433-19 (2/18)
Federated is a registered trademark of Federated Investors, Inc.
2018 ©Federated Investors, Inc.
Annual Shareholder Report

Federated Managed Volatility Fund II

A Portfolio of Federated Insurance Series
Dear Valued Shareholder,
I am pleased to present the Annual Shareholder Report for your fund covering the period from January 1, 2017 through December 31, 2017. This report includes Management's Discussion of Fund Performance, a complete listing of your fund's holdings, performance information and financial statements along with other important fund information.
In addition, our website, FederatedInvestors.com, offers easy access to Federated resources that include timely fund updates, economic and market insights from our investment strategists, and financial planning tools. We invite you to register to take full advantage of its capabilities.
Thank you for investing with Federated. I hope you find this information useful and look forward to keeping you informed.
Sincerely,
John B. Fisher, President

Not FDIC Insured ■ May Lose Value ■ No Bank Guarantee

CONTENTS

Table of Contents
Management's Discussion of Fund Performance (unaudited)
The total return of Federated Managed Volatility Fund II (the “Fund”), based on net asset value for the 12-month reporting period ended December 31, 2017, was 18.11%. The 18.11% total return for the reporting period consisted of 13.44% in price appreciation and 4.67% in reinvested dividends. For the same period, the Russell 1000® Value Index (R1000V) returned 13.66%, the Bloomberg Barclays High Yield 2% Issuer Capped Index (BBHY2%ICI) returned 7.50%, the Bloomberg Barclays Mortgage Backed Securities Index (BBMB) returned 2.47% and the Bloomberg Barclays Emerging Markets USD Aggregate Index (BBEMAI) returned 8.17%. Weighting these benchmarks (40% R1000V, 20% BBHY2%ICI, 20% BBMB and 20% BBEMAI), the blended index (“Blended Index”)1 return for the period was 9.06%. The Fund's total return for the most recently completed fiscal year reflected actual cash flows, transaction costs and other expenses, which are not reflected in the total return of the Blended Index.
The Fund's investment strategy focused on income-earning investments, specifically high-quality, dividend-paying stocks and fixed-income securities with high current yield through: (1) portfolio allocation; (2) sector and security selection for equities; and (3) sector and security selection for bonds to achieve the Fund's objectives of high current income and moderate capital appreciation.2
MARKET OVERVIEW
During the reporting period, equity markets reached all-time highs amid record low volatility,3 supported by a strong global economy and hopes of domestic tax reform. Tax reform was passed at the end of the year to help propel equity markets to their year-end levels. The march to these levels was relatively smooth, with only a few bouts of volatility that saw the Chicago Board Options Exchange (CBOE) Volatility Index (VIX),4 a measure of implied forward volatility of the S&P 500 Index (S&P 500),5 close above 15, which would ordinarily be a typical value rather than a maximum. The most notable of these occurred in May when Deputy Attorney General Rod Rosenstein appointed Robert Mueller as a special prosecutor for the investigation of Russian interference in the 2016 election. This led some to speculate about the potential of an impeachment of President Donald Trump; however, those fears quickly faded, and volatility returned to low levels. During this reporting period, the U.S. Federal Reserve (the Fed) continued to increase the federal funds target rate by hiking the rate by 25 basis points three times during the year. Furthermore, they initiated a process to unwind the Fed's balance sheet in a process dubbed “normalization” in the fall. This process will see several trillion dollars of assets expire from the Fed's balance sheet over the coming years, in a slow, managed process, which could affect the valuation of similar bonds.
The S&P 500 returned 21.83% during the reporting period. In general, value stocks underperformed growth stocks, with cyclical sectors outperforming defensive sectors. The S&P 500's weak performance in the Energy and Telecommunications sectors was overshadowed by stronger performance in the Information Technology, Materials and Consumer Discretionary sectors.
On the fixed-income side, changes to U.S. Treasury rates during the reporting period were driven primarily by actions of the Fed. The raising of the federal funds target rate three times in 2017 led to a “Bear Flattening” of the U.S. Treasury curve. Specifically, interest rates for maturities of 1-month to 2-years increased by at least 70 basis points, while rates at the longer end were essentially unchanged for the 10-year maturity and down 32 basis points for the 30-year maturity. Low levels of domestic and global inflation and low sovereign yields in other developed markets combined to put downward pressure on the long end of the treasury curve. As a result of this low interest rate environment, global investor demand for yield drove U.S. credit spreads tighter. The credit-sensitive U.S. fixed-income markets such as high yield,6 investment-grade corporates7 and commercial mortgage-backed securities8 all outperformed the U.S. Treasury market on a total return and duration-adjusted basis.9 The Bloomberg Barclays U.S. Treasury Index10 total return was 2.31% during the reporting period, compared to the BBHY2%ICI total return of 7.5%, the BBEMAI total return of 8.2% and the BBMB total return of 2.5%. The fixed-income portfolio's blended benchmark's total return for the reporting period was 5.1%.
PORTFOLIO ALLOCATION
During the reporting period, the Fund's portfolio was allocated between stocks and fixed-income securities in a manner reflecting the Fund's primary investment objective of income and its secondary objective of capital appreciation. Factors used in making this allocation were: (1) the Fund's ability to pay and maintain an attractive level of dividends; and (2) the expected relative total return of fixed-income securities and stocks. The allocation at the end of the reporting period was 54% fixed-income securities, 40% stocks and 6% cash equivalents and other assets/liabilities.
Relative to the Blended Index, the Fund's allocation had a moderate negative effect on Fund performance because of an allocation to cash for futures margin.
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SECTOR AND SECURITY SELECTIONEQUITY
The equity component of the Fund contributed to the Fund's current income objective; additionally, it outperformed the R1000V benchmark during the reporting period. Fund management focused on realization of the Fund's income and total return objectives by purchasing and holding income-producing equity securities with favorable valuation levels. Relative to the equity component of the Blended Index, stock selection and sector allocation both contributed positively to the Fund's equity performance. Stock selection in the Industrials sector contributed positively to the Fund's equity performance. This was partially offset by negative stock selection in the Energy and Consumer Staples sectors. Sector selection in Energy and Information Technology helped the Fund's performance relative to the R1000V but was partially offset by negative sector selection in Utilities.
During the reporting period, the Fund invested in S&P 500 futures contracts for volatility risk management purposes.11 There were only limited volatility spikes throughout the year causing the Fund to not trade away from its maximum allocation to futures, ending the year at about +58%. The long futures exposure in the year was the major positive contributor to Fund performance for the reporting period. However, due to the maximum 60% futures exposure limitation and the record low market volatility, the realized, annualized daily volatility of the Fund during the reporting period was 6.1%, short of the 8%-12% target range.
SECTOR AND SECURITY SELECTIONBONDS12
Sector was the largest positive contributor to the Fund's fixed-income performance during the reporting period. The overweight to the high-yield sector and the resulting underweight to the mortgage-backed securities market (MBS) were the primary drivers of the positive sector contribution. As discussed above, the return of the high-yield market outperformed the total return of the fixed-income portion of the Blended Index, while the return of the MBS market underperformed the total return of the fixed-income portion of the Blended Index. Security selection in the emerging-market,13 MBS and investment-grade corporate sectors also positively contributed to the fixed-income portfolio's performance during the reporting period. The largest negative contributor to performance was the fixed-income portfolio's yield curve steepener positioning, which resulted in an overweight of shorter maturities and an underweight to longer maturities. The negative contribution from the yield curve position was partially offset by the fixed-income duration position, which averaged 95% of the fixed-income benchmark during the reporting period. However, interest rates overall had a negative impact on the fixed-income portfolio's performance.
1 Please see the footnotes to the line graphs under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the Blended Index.
2 There are no guarantees that dividend-paying stocks will continue to pay dividends. In addition, dividend-paying stocks may not experience the same capital appreciation potential as non-dividend-paying stocks.
3 Volatility is a statistical measurement of the frequency and level of changes in the value of an asset, index or instrument without regard to the direction of those changes. Volatility may result from rapid and dramatic price swings.
4 The CBOE Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.*
5 Please see the footnotes to the line graphs under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the S& P 500.
6 High-yield, lower-rated securities generally entail greater market, credit and liquidity risks than investment-grade securities and may include higher volatility and a higher risk of default.
7 Investment-grade securities are securities that are rated at least “BBB- (minus)” or unrated securities of a comparable quality. Noninvestment-grade securities are securities that are not rated at least “BBB- (minus)” or unrated securities of a comparable quality. Credit ratings are an indication of the risk that a security will default. They do not protect a security from credit risk. Lower-rated bonds typically offer higher yields to help compensate investors for the increased risk associated with them. Among these risks are lower credit-worthiness, greater price volatility, more risk to principal and income than with higher-rated securities and increased possibilities of default.
8 The value of some mortgage-backed securities may be particularly sensitive to changes in the prevailing interest rates, and although the securities are generally supported by some form of government or private insurance, there is no assurance that private guarantors or insurers will meet their obligations.
9 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.
10 The Bloomberg Barclays U.S. Treasury Index measures U.S dollar-denominated, fixed-rate, nominal debt issued by the U.S. Treasury.*
11 The Fund's use of derivative instruments involves risks different from, and possibly greater than, the risks associated with investing directly in securities or other traditional instruments.
12 Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.
13 International investing involves special risks including currency risk, increased volatility, political risks and differences in auditing and other financial standards. Prices of emerging-market securities can be significantly more volatile than the prices of securities in developed countries, and currency risk and political risks are accentuated in emerging markets.
* The index is unmanaged, and it is not possible to invest directly in an index.
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FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,0001 in the Federated Managed Volatility Fund II from December 31, 2007 to December 31, 2017, compared to the Standard & Poor's 500 Index (S&P 500),2,3 the Russell 1000® Value Index (R1000V),3,4 both broad-based securities market indexes, and a blend of indexes comprised of 40% R1000V/20% Bloomberg Barclays Emerging Markets USD Aggregate Index (BBEMAI)/20% Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index (BBHY2%ICI)/20% Bloomberg Barclays Mortgage Backed Securities Index (BBMB) (“Blended Index”).3,4 The Average Annual Total Return table below shows returns averaged over the stated periods.
GROWTH of a $10,000 Investment
Growth of $10,000 as of December 31, 2017
Average Annual Total Returns for the Period Ended 12/31/2017
  1 Year 5 Years 10 Years
Fund 18.11% 8.26% 7.31%
S&P 500 21.83% 15.79% 8.50%
R1000V 13.66% 14.04% 7.10%
Blended Index 9.06% 7.96% 6.92%
    
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. Variable investment options are not obligations of or guaranteed by any bank and are not federally insured.
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Table of Contents
1 The Fund's performance assumes the reinvestment of all dividends and distributions. The S&P 500, R1000V and the Blended Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The 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.
3 The S&P 500, R1000V and the Blended 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 cash flows. It is not possible to invest directly in an index.
4 The Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000® Index companies with lower price-to-book ratios and lower expected growth values. The R1000V is constructed to provide a comprehensive and unbiased barometer for the large-cap value segment. The R1000V is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect value characteristics. The BBEMAI tracks total returns for external-currency-denominated debt instruments of the emerging markets. The BBHY2%ICI is an issuer-constrained version of the Bloomberg Barclays U.S. Corporate High-Yield Index that measures the market of USD-denominated, noninvestment-grade, fixed-rate, taxable corporate bonds. The index follows the same rules as the uncapped index but limits the exposure of each issuer to 2% of the total market value and redistributes any excess market value index-wide on a pro-rata basis. The BBMB covers agency mortgage-backed pass-through securities (both fixed-rate and hybrid ARM) issued by Ginnie Mae (GNMA), Fannie Mae (FNMA) and Freddie Mac (FHLMC).
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Portfolio of Investments Summary Tables (unaudited)
At December 31, 2017, the Fund's portfolio composition1 was as follows:
Portfolio Composition Percentage of
Total Net Assets
Domestic Equity Securities 38.5%
Domestic Fixed-Income Securities 38.4%
International Fixed-Income Securities 14.6%
International Equity Securities 1.9%
Derivative Contracts2 0.3%
Other Security Types3 0.2%
Cash Equivalents4 4.4%
Other Assets and Liabilities—Net5 1.7%
TOTAL 100.0%
At December 31, 2017, the Fund's sector composition6 for its equity securities was as follows:
Sector Composition of Equity Holdings Percentage of
Equity Securities
Financials 26.7%
Health Care 13.4%
Energy 10.9%
Consumer Staples 8.6%
Industrials 8.5%
Information Technology 8.4%
Consumer Discretionary 6.8%
Utilities 6.0%
Real Estate 4.8%
Telecommunication Services 3.0%
Materials 2.9%
TOTAL 100.0%
1 See the Fund's Prospectus and Statement of Additional Information for a description of the types of securities in which the Fund invests. As of the date specified above, the Fund owned shares of one or more affiliated investment companies. For purposes of this table, the affiliated investment company (other than an affiliated money market mutual fund) is not treated as a single portfolio security, but rather the Fund is treated as owning a pro rata portion of each security and each other asset and liability owned by the affiliated investment company. Accordingly, the percentages of total net assets shown in the table will differ from those presented on the Portfolio of Investments.
2 Based upon net unrealized appreciation (depreciation) or value of the derivative contracts as applicable. Derivative contracts may consist of futures, forwards, options and swaps. The impact of a derivative contract on the Fund's performance may be larger than its unrealized appreciation (depreciation) or value may indicate. In many cases, the notional value or amount of a derivative contract may provide a better indication of the contract's significance to the portfolio. More complete information regarding the Fund's direct investments in derivative contracts, including unrealized appreciation (depreciation), value and notional values or amounts of such contracts, can be found in the table at the end of the Portfolio of Investments included in this Report.
3 Other Security Types consist of purchased options.
4 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
5 Assets, other than investments in securities and derivative contracts, less liabilities. See Statement of Assets and Liabilities.
6 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 a 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.
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Table of Contents
Portfolio of Investments
Shares,
Principal
Amount or
Contracts
    Value
    COMMON STOCKS—40.4%  
    Consumer Discretionary—2.8%  
5,207   Best Buy Co., Inc. $356,523
991   Block (H&R), Inc. 25,984
1,729 1 Charter Communications, Inc. 580,875
19,221   Comcast Corp., Class A 769,801
11,631   Extended Stay America, Inc. 220,989
82,625   Ford Motor Co. 1,031,986
34,803   General Motors Co. 1,426,575
1,011   Lear Corp. 178,603
21,515 1 Liberty Expedia Holdings, Inc. 953,760
3,038 1 Liberty Sirius Group - C 120,487
184 1 Liberty Siriusxm Group 7,298
12,535 1 Liberty Ventures - Series A 679,899
113 1 Madison Square Garden, Co. - A 23,826
12,741 1 Michael Kors Holdings Ltd. 802,046
33,502   News Corp. 556,133
22,462   Pulte Group, Inc. 746,862
10,135   Ralph Lauren Corp. 1,050,898
12,765   Royal Caribbean Cruises, Ltd. 1,522,609
4,103   Scripps Networks Interactive 350,314
12,420   Signet Jewelers Ltd. 702,351
15,779   Target Corp. 1,029,580
1,432   Tiffany & Co. 148,856
20,969   Time Warner, Inc. 1,918,035
7,665   Toll Brothers, Inc. 368,073
14,520   Walt Disney Co. 1,561,045
    TOTAL 17,133,408
    Consumer Staples—3.5%  
16,163   Archer-Daniels-Midland Co. 647,813
19,838   CVS Health Corp. 1,438,255
4,527   Campbell Soup Co. 217,794
767   Clorox Co. 114,084
24,965   Colgate-Palmolive Co. 1,883,609
39,256   Conagra Brands, Inc. 1,478,773
2,704 1 Edgewell Personal Care Co. 160,591
11,274   Hershey Foods Corp. 1,279,712
4,276   Kimberly-Clark Corp. 515,942
5,044   Mondelez International, Inc. 215,883
373   Nu Skin Enterprises, Inc. 25,450
2,182   PepsiCo, Inc. 261,665
38,647   Philip Morris International, Inc. 4,083,055
21,327   Pinnacle Foods, Inc. 1,268,317
35,712   Procter & Gamble Co. 3,281,219
8,561 1 TreeHouse Foods, Inc. 423,427
35,007   Wal-Mart Stores, Inc. 3,456,941
11,314   Walgreens Boots Alliance, Inc. 821,623
    TOTAL 21,574,153
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Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    COMMON STOCKS—continued  
    Energy—4.4%  
16,698   Anadarko Petroleum Corp. $895,681
2,185   Andeavor Logistics LP 249,833
4,157   Baker Hughes a GE Co. LLC 131,527
39,635   Cabot Oil & Gas Corp., Class A 1,133,561
39,724   Chevron Corp. 4,973,048
3,277   Cimarex Energy Co. 399,827
2,537 1 Concho Resources, Inc. 381,108
30,611   ConocoPhillips 1,680,238
4,625   Devon Energy Corp. 191,475
16,275   EOG Resources, Inc. 1,756,235
88,704   Exxon Mobil Corp. 7,419,203
13,173   Halliburton Co. 643,764
8,597   Hess Corp. 408,100
27,122   Kinder Morgan, Inc. 490,095
53,990 1 Kosmos Energy LLC 369,831
7,724   Marathon Oil Corp. 130,767
18,648   Marathon Petroleum Corp. 1,230,395
1,336   Noble Energy, Inc. 38,931
1,351   Occidental Petroleum Corp. 99,515
4,518   Pioneer Natural Resources, Inc. 780,936
26,688   Schlumberger Ltd. 1,798,504
1,521   Targa Resources Investments, Inc. 73,647
18,253   Valero Energy Corp. 1,677,633
16,976   Williams Companies, Inc. 517,598
    TOTAL 27,471,452
    Financials—10.8%  
48,155   AGNC Investment Corp. 972,249
18,080   Aflac, Inc. 1,587,062
52,436   Ally Financial, Inc. 1,529,034
8,684   American Express Co. 862,408
21,499   American International Group, Inc. 1,280,910
12,181   Assurant, Inc. 1,228,332
106   Assured Guaranty Ltd. 3,590
4,928   BB&T Corp. 245,020
236,188   Bank of America Corp. 6,972,270
32,110 1 Berkshire Hathaway, Inc., Class B 6,364,844
61   BlackRock, Inc. 31,336
18,292 1 Brighthouse Financial, Inc. 1,072,643
10,578   Capital One Financial Corp. 1,053,357
69,956   Chimera Investment Corp. 1,292,787
789   Chubb Ltd. 115,297
69,410   Citigroup, Inc. 5,164,798
3,634   Citizens Financial Group, Inc. 152,555
23,752   Discover Financial Services 1,827,004
138   Fifth Third Bancorp 4,187
7,248   Goldman Sachs Group, Inc. 1,846,501
12,633   Hartford Financial Services Group, Inc. 710,985
80,697   JPMorgan Chase & Co. 8,629,737
42,753   KeyCorp 862,328
Annual Shareholder Report
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Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    COMMON STOCKS—continued  
    Financials—continued  
5,998   Lazard Ltd., Class A $314,895
16,753   Lincoln National Corp. 1,287,803
888   MetLife, Inc. 44,897
44,241   Morgan Stanley 2,321,325
72,489   Navient Corp. 965,554
11,296 1 OneMain Holdings, Inc. 293,583
2,368   PNC Financial Services Group 341,679
15,827   PacWest Bancorp 797,681
37,993   Popular, Inc. 1,348,372
4,090   Principal Financial Group 288,590
19,372   Prudential Financial 2,227,393
1,974   Regions Financial Corp. 34,111
11,265   Santander Consumer USA Holdings, Inc. 209,754
50   State Street Corp. 4,881
10,298   SunTrust Banks, Inc. 665,148
17,527   Synchrony Financial 676,717
21,613   The Bank of New York Mellon Corp. 1,164,076
14,510   The Travelers Cos, Inc. 1,968,136
78,952   Two Harbors Investment Corp. 1,283,760
27,967   U.S. Bancorp 1,498,472
88,361   Wells Fargo & Co. 5,360,862
    TOTAL 66,906,923
    Health Care—5.4%  
39,440   Abbott Laboratories 2,250,841
1,587   Aetna, Inc. 286,279
5,519   Allergan PLC 902,798
13,967   Amgen, Inc. 2,428,861
7,036   Anthem, Inc. 1,583,170
28,202   Baxter International, Inc. 1,822,977
14,901   Bristol-Myers Squibb Co. 913,133
3,650   CIGNA Corp. 741,279
12,412 1 Centene Corp. 1,252,123
3,336   Cooper Cos., Inc. 726,848
4,586 1 Davita, Inc. 331,339
26,126 1 Endo International PLC 202,477
11,486   Gilead Sciences, Inc. 822,857
6,719 1 HCA Healthcare, Inc. 590,197
5,126   Humana, Inc. 1,271,607
46,912   Johnson & Johnson 6,554,545
1,157 1 Juno Therapeutics, Inc. 52,886
1,357 1 Mallinckrodt PLC 30,614
15,055   Medtronic PLC 1,215,691
69,155   Merck & Co., Inc. 3,891,352
5,885 1 Mylan NV 248,994
128,554   Pfizer, Inc. 4,656,226
6,256   Quest Diagnostics, Inc. 616,153
1,420   Zimmer Biomet Holdings, Inc. 171,351
    TOTAL 33,564,598
Annual Shareholder Report
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Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    COMMON STOCKS—continued  
    Industrials—3.4%  
18,394   AMETEK, Inc. $1,333,013
943   CSX Corp. 51,874
9,449   Caterpillar, Inc. 1,488,973
7,216   Copa Holdings, Class A 967,377
11,273   Crane Co. 1,005,777
5,478   Cummins, Inc. 967,634
12,780   Delta Air Lines, Inc. 715,680
3,776   Eaton Corp. PLC 298,342
3,928   Fortive Corp. 284,191
72,646   General Electric Co. 1,267,673
282   Huntington Ingalls Industries, Inc. 66,467
10,897   Ingersoll-Rand PLC 971,903
284   Jacobs Engineering Group, Inc. 18,733
4,894   L3 Technologies, Inc. 968,278
2,752   Lockheed Martin Corp. 883,530
13,159   Masco Corp. 578,207
1,997   Norfolk Southern Corp. 289,365
10,417   Orbital ATK, Inc. 1,369,836
5,887   Owens Corning, Inc. 541,251
6,693   Parker-Hannifin Corp. 1,335,789
429   Pitney Bowes, Inc. 4,796
2,610   Roper Technologies, Inc. 675,990
13,060   Ryder Systems, Inc. 1,099,260
5,465   Spirit AeroSystems Holdings, Inc. Class A 476,821
6,695   Terex Corp. 322,833
7,440   Textron, Inc. 421,030
4,274   Union Pacific Corp. 573,143
8,318   United Technologies Corp. 1,061,127
15,841   Waste Management, Inc. 1,367,078
    TOTAL 21,405,971
    Information Technology—3.4%  
36,242 1 Arris International PLC 931,057
69,864   Cisco Systems, Inc. 2,675,791
1,552 1 CoreLogic, Inc. 71,718
2,302   Cypress Semiconductor Corp. 35,082
539 1 Echostar Holding Corp. 32,286
2,566   Fidelity National Information Services, Inc. 241,435
4,106 1 First Solar, Inc. 277,237
26,588   HP, Inc. 558,614
66,968   Intel Corp. 3,091,243
4,690   International Business Machines Corp. 719,540
51,353   Juniper Networks, Inc. 1,463,561
4,662   Leidos Holdings, Inc. 301,025
60,191   Marvell Technology Group Ltd. 1,292,301
6,717 1 Micron Technology, Inc. 276,203
6,198 1 NXP Semiconductors NV 725,724
1,576   NetApp, Inc. 87,184
8,411 1 Nuance Communications, Inc. 137,520
332 1 ON Semiconductor Corp. 6,952
Annual Shareholder Report
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Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    COMMON STOCKS—continued  
    Information Technology—continued  
63,426   Oracle Corp. $2,998,781
23,798   Qualcomm, Inc. 1,523,548
17,033 1 Synopsys, Inc. 1,451,893
4,433 1 Trimble, Inc. 180,157
14,284 1 Twitter, Inc. 342,959
20,080   Western Digital Corp. 1,596,962
1,056 1 Zynga, Inc. 4,224
    TOTAL 21,022,997
    Materials—1.2%  
3,812 1 Alcoa Corp. 205,352
14,169   CF Industries Holdings, Inc. 602,749
6,775   DowDuPont, Inc. 482,516
34,056 1 Freeport-McMoRan, Inc. 645,702
79,694   Graphic Packaging Holding Co. 1,231,272
25,699   Huntsman Corp. 855,520
7,266   LyondellBasell Industries NV Class A 801,585
31,488   Newmont Mining Corp. 1,181,430
2,871   Olin Corp. 102,150
3,750   Praxair, Inc. 580,050
11,498   WestRock Co. 726,789
    TOTAL 7,415,115
    Real Estate—1.9%  
49,799   American Homes 4 Rent 1,087,610
2,676   Avalonbay Communities, Inc. 477,425
62,867   Brandywine Realty Trust 1,143,551
20,827 1 CBRE Group, Inc. 902,017
4,361   CoreCivic, Inc. 98,123
13,051   DCT Industrial Trust, Inc. 767,138
47,579   Duke Realty Corp. 1,294,625
10,600 1 Equity Commonwealth 323,406
543   Essex Property Trust, Inc. 131,064
464   Gaming and Leisure Properties, Inc. 17,168
42,000   Host Hotels & Resorts, Inc. 833,700
12,573   Lamar Advertising Co. Class A 933,420
9,374   Paramount Group, Inc. 148,578
12,648   Park Hotels & Resorts, Inc. 363,630
29,575   ProLogis, Inc. 1,907,883
11,359   Rayonier, Inc. 359,285
1,524   Vornado Realty Trust 119,146
8,946   Welltower, Inc. 570,486
14,421   Weyerhaeuser Co. 508,484
    TOTAL 11,986,739
    Telecommunication Services—1.2%  
132,337   AT&T, Inc. 5,145,263
11,726 1 T-Mobile USA, Inc. 744,718
24,274   Telephone and Data System, Inc. 674,817
17,190   Verizon Communications 909,867
    TOTAL 7,474,665
Annual Shareholder Report
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Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    COMMON STOCKS—continued  
    Utilities—2.4%  
56,577   AES Corp. $612,729
8,204   Ameren Corp. 483,954
21,741   American Electric Power Co., Inc. 1,599,485
5,256   Atmos Energy Corp. 451,438
28,382   CMS Energy Corp. 1,342,469
90,315 1 Calpine Corp. 1,366,466
48,805   CenterPoint Energy, Inc. 1,384,110
10,938   DTE Energy Co. 1,197,274
377   Duke Energy Corp. 31,710
1,735   EverSource Energy 109,617
31,223   MDU Resources Group, Inc. 839,274
6,522   NextEra Energy, Inc. 1,018,671
24,699   P G & E Corp. 1,107,256
13,218   Pinnacle West Capital Corp. 1,125,909
6,106   UGI Corp. 286,677
5,715   Vectren Corp. 371,589
34,092   Xcel Energy, Inc. 1,640,166
    TOTAL 14,968,794
    TOTAL COMMON STOCKS
(IDENTIFIED COST $221,736,054)
250,924,815
    ADJUSTABLE RATE MORTGAGE—0.0%  
$10,805 2 Federal National Mortgage Association, 3.569%, 09/01/2037
(IDENTIFIED COST $10,883)
11,379
    COLLATERALIZED MORTGAGE OBLIGATIONS—2.5%  
1,275,000   Banc of America Commercial Mortgage Trust 2016-UBS10, Class A4, 3.170%, 07/15/2049 1,276,639
1,100,000   CD Commercial Mortgage Trust 2016-CD1, Class A4, 2.724%, 08/10/2049 1,069,292
875,000   Deutsche Bank Commercial Mortgage Trust 2016-C3, Class A5, 2.890%, 09/10/2049 860,981
1,100,000   Federal Home Loan Mortgage Corp. REMIC K060, Class A2, 3.271%, 10/25/2026 1,137,321
983,540   Federal Home Loan Mortgage Corp. REMIC K062, Class A1, 3.032%, 09/25/2026 1,003,687
1,979,687   Federal Home Loan Mortgage Corp. REMIC K063, Class A1, 3.045%, 08/25/2026 2,023,575
1,000,000 2 Federal Home Loan Mortgage Corp. REMIC K729, Class A2, 3.136% (1-month USLIBOR), 10/25/2024 1,027,897
306,752 2 Federal National Mortgage Association REMIC 2006-117, Class GF, 1.902% (1-month USLIBOR +0.350%) , 12/25/2036 307,018
259,926 2 Federal National Mortgage Association REMIC 2012-1, Class F, 2.002% (1-month USLIBOR +0.450%) , 02/25/2042 260,971
1,500,000   Federal National Mortgage Association REMIC 2016-M11, Class A2, 2.369%, 07/25/2026 1,440,204
980,000   GS Mortgage Securities Trust 2014-GC24, Class B, 4.508%, 09/10/2047 1,024,079
1,500,000   JPMDB Commercial Mortgage Securities Trust 2016-C4, Class A3, 3.141%, 12/15/2049 1,502,814
1,500,000   Morgan Stanley Capital I Trust 2016-UB12, Class A4, 3.596%, 12/15/2049 1,538,744
590,000   UBS-Barclays Commercial Mortgage Trust 2013-C6, Class B, 3.875%, 04/10/2046 597,547
495,000   WF-RBS Commercial Mortgage Trust 2014-C25, Class B, 4.236%, 11/15/2047 504,309
    TOTAL COLLATERALIZED MORTGAGE OBLIGATION
(IDENTIFIED COST $15,820,034)
15,575,078
    COMMERCIAL MORTGAGE-BACKED SECURITIES—0.4%  
750,000   Federal Home Loan Mortgage Corp., K055, Class A2, 2.673%, 03/25/2026 741,897
1,050,000   FREMF Mortgage Trust 2013-K25, Class B, 3.619%, 11/25/2045 1,071,002
790,000   FREMF Mortgage Trust 2015-K49, Class B, 3.721%, 10/25/2048 797,114
    TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $2,567,283)
2,610,013
    CORPORATE BONDS—14.9%  
    Air Transportation—0.0%  
70,000   Gol Finance, Sr. Unsecd. Note, Series 144A, 7.000%, 01/31/2025 69,161
Annual Shareholder Report
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Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    CORPORATE BONDS—continued  
    Airport—0.1%  
$400,000   Mexico City Airport Trust, Sec. Fac. Bond, Series 144A, 5.500%, 10/31/2046 $396,500
    Banking—3.3%  
200,000   Access Bank PLC, Sr. Unsecd. Note, Series REGS, 10.500%, 10/19/2021 225,736
200,000   Axiata SPV2 Bhd, Sr. Unsecd. Note, Series EMTN, 4.357%, 03/24/2026 211,541
195,000   BB&T Corp., Sr. Unsecd. Note, Series MTN, 2.750%, 04/01/2022 196,477
200,000   BBVA Banco Continental, Series REGS, 5.000%, 08/26/2022 216,250
300,000   BBVA Bancomer S.A. Mexico, Jr. Sub. Note, Series 144A 5.350%, 11/12/2029 300,000
200,000   BBVA Bancomer S.A. Texas, Sub. Note, Series REGS, 6.500%, 03/10/2021 218,250
200,000   Banco Bilbao Vizcaya Arge, Jr. Sub. Note, 6.125%, 02/16/2066 206,750
200,000   Banco Bradesco (Cayman), Sub Note, Series REGS, 5.750%, 03/01/2022 209,688
200,000   Banco De Bogota S.A., Sub. Note, Series REGS, 6.250%, 05/12/2026 216,160
100,000   Banco de Credito del Peru, Jr. Sub. Note, Series REGS, 9.750%, 11/06/2069 111,500
100,000   Banco de Credito del Peru, Series REGS, 6.125%, 04/24/2027 110,250
100,000   Banco Del Estado, Sr. Unsecd. Note, Series REGS, 4.125%, 10/07/2020 104,465
219,000   Banco Do Brasil S.A., 3.875%, 10/10/2022 215,879
200,000   Banco Inbursa S.A. Institucion, Sr. Unsecd. Note, Series 144A, 4.375%, 04/11/2027 200,876
300,000   Banco Internacional del Peru, Sr. Unsecd. Note, Series REGS, 5.750%, 10/07/2020 323,250
150,000   Banco Macro S.A., Sub. Note, Series 144A, 6.750%, 11/04/2026 155,582
200,000   Bancolombia S.A., 5.950%, 06/03/2021 216,800
200,000   Bangkok Bank PCL, Sr. Unsecd. Note, Series REGS, 3.875%, 09/27/2022 208,129
250,000   Bank of America Corp., Sr. Unsecd. Note, 3.705%, 04/24/2028 256,827
150,000   Bank of America Corp., Sub. Note, 6.500%, 09/15/2037 186,919
300,000   Bank of America Corp., Sub. Note, Series MTN, 4.000%, 01/22/2025 312,325
510,000   Bank of China Ltd., Series 144A, 5.000%, 11/13/2024 544,655
600,000   Bank of China Ltd., Sub. Note, Series REGS, 5.000%, 11/13/2024 640,771
200,000   Bank of East Asia Ltd., Sub. Note, 4.000%, 11/03/2026 200,052
200,000   Bank of New York Mellon Corp., Sr. Unsecd. Note, Series MTN, 2.661%, 05/16/2023 199,991
200,000   CBQ Finance Ltd., Sub. Note, Series REGS, 7.500%, 11/18/2019 214,087
300,000   China Construction Bank Corp., Sub. Note, Series EMTN, 4.250%, 08/20/2024 304,844
570,000   Citigroup, Inc., Sr. Unsecd. Note, 3.400%, 05/01/2026 574,287
250,000   Citizens Bank NA, Sr. Unsecd. Note, Series BKNT, 2.550%, 05/13/2021 249,250
25,000   Compania General de Combustibles, Sr. Unsecd. Note, Series REGS, 9.500%, 11/07/2021 26,750
350,000   Compass Bank, Birmingham, Sub. Note, Series BKNT, 3.875%, 04/10/2025 351,582
200,000   Credit Bank of Moscow, Sub. Note, Series 144A, 7.500%, 10/05/2027 185,871
200,000   Dib Tier 1 Sukuk 2 Ltd., Jr. Sub. Note, 6.750%, 07/20/2166 207,622
300,000   Emirates NBD Tier 1 Ltd., Jr. Sub. Note, 5.750%, 11/30/2066 305,270
200,000   Export-Import Bank Korea, Sr. Unsecd. Note, 1.750%, 05/26/2019 197,553
600,000   Export-Import Bank Korea, Sr. Unsecd. Note, 2.625%, 12/30/2020 594,702
200,000   Export-Import Bank of China/The via Avi Funding Co. Ltd., Sr. Unsecd. Note, Series REGS, 3.800%, 09/16/2025 204,946
750,000   Export-Import Bank of India, Sr. Unsecd. Note, Series EMTN, 3.875%, 10/02/2019 764,048
200,000   Global Bank Corp., Sr. Unsecd. Note, Series 144A, 4.500%, 10/20/2021 204,240
500,000   Goldman Sachs Group, Inc., Sr. Unsecd. Note, 6.250%, 02/01/2041 674,672
200,000   Hazine Mustesarligi Varlik Kiralama A.S., Sr. Unsecd. Note, Series 144A, 5.004%, 04/06/2023 203,631
400,000   HSBC Holdings PLC, Sr. Unsecd. Note, 3.900%, 05/25/2026 415,191
200,000   Huntington Bancshares, Inc., Sr. Unsecd. Note, 3.150%, 03/14/2021 203,278
250,000   ICICI Bank Ltd., Series REGS, 5.750%, 11/16/2020 268,644
200,000   ICICI Bank Ltd./Dubai, Sr. Unsecd. Note, Series 144A, 3.800%, 12/14/2027 197,727
200,000   Industrial and Commercial Bank of China Ltd., Sr. Unsecd. Note, 3.538%, 11/08/2027 199,184
500,000   Industrial and Commercial Bank of China Ltd., Sr. Unsecd. Note, Series MTN, 2.905%, 11/13/2020 499,284
Annual Shareholder Report
12

Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    CORPORATE BONDS—continued  
    Banking—continued  
$400,000   Industrial and Commercial Bank of China Ltd., Jr. Sub. Note, Series REGS, 6.000%,12/10/2066 $414,700
200,000   Industrial Bank of Korea, Sr. Unsecd. Note, Series REGS, 2.000%, 04/23/2020 196,091
300,000   Itau Unibanco Holding S.A., Sub. Note, Series REGS, 6.200%, 12/21/2021 319,800
850,000   J.P. Morgan Chase & Co., Sub. Note, 3.375%, 05/01/2023 864,493
300,000   Korea Development Bank, Sr. Unsecd. Note, 2.250%, 05/18/2020 295,586
200,000   Manufacturers & Traders Trust Co., Sr. Unsecd. Note, Series BKNT, 2.500%, 05/18/2022 199,237
200,000   MTN Mauritius Investment, Sr. Unsecd. Note, Series 144A, 5.373%, 02/13/2022 207,279
250,000   Morgan Stanley, Sr. Unsecd. Note, Series MTN, 6.250%, 08/09/2026 298,821
275,000   Morgan Stanley, Sub. Note, Series MTN, 4.100%, 05/22/2023 286,810
200,000   Multibank, Inc., Sr. Unsecd. Note, Series 144A, 4.375%, 11/09/2022 199,750
250,000   Pampa Energia S.A., Sr. Unsecd. Note, Series 144A, 7.500%, 01/24/2027 275,035
250,000 2 QIB Sukuk Ltd., Sr. Unsecured Note, 2.936%, (3-month USLIBOR +1.500%) 08/18/2019 248,134
250,000   Regions Financial Corp., Sr. Unsecd. Note, 3.200%, 02/08/2021 254,525
200,000   Sberbank, Sub. Note, Series REGS, 5.500%, 02/26/2024 203,630
200,000   Shinhan Bank, Sub. Note, Series 144A, 3.875%, 03/24/2026 202,904
200,000   Sibur Securities DAC, Sr. Unsecd. Note, Series 144A, 4.125%, 10/05/2023 200,346
200,000   T.C. Ziraat Bankasi A.S., Sr. Unsecd. Note, Series 144A, 5.125%, 09/29/2023 195,310
300,000   Turkiye Garanti Bankasi AS, Sr. Unsecd. Note, Series 144A, 5.875%, 03/16/2023 311,973
300,000   Turkiye Garanti Bankasi AS, Sub. Note, Series 144A, 6.125%, 05/24/2027 300,171
300,000   Turkiye Is Bankasi, Sub. Note, Series 144A, 7.000%, 06/29/2028 300,958
200,000   Turkiye Is Bankasi, Series REGS, 5.500%, 04/21/2019 204,231
200,000   Turkiye Vakiflar Bankasi T.A.O., Series 144A, 5.000%, 10/31/2018 202,051
230,000   Turkiye Vakiflar Bankasi, Sr. Unsecd. Note, Series 144A, 5.500%, 10/27/2021 230,710
200,000   United Bank for Africa PLC, Sr. Unsecured Note, Series REGS, 7.750%, 06/08/2022 207,032
200,000   VNESHECONOMBANK(VEB), Series REGS, 5.942%, 11/21/2023 217,869
300,000   VTB Bank OJSC, Sub. Note, Series REGS, 9.500%, 12/06/2066 332,778
300,000   Wells Fargo & Co., Sr. Unsecd. Note, 3.000%, 10/23/2026 294,302
200,000   Yapi ve Kredi Bankasi A.S., Sr. Unsecd. Note, Series 144A, 5.850%, 06/21/2024 200,378
200,000   Zenith Bank Ltd., Sr. Unsecd. Note, Series 144A, 7.375%, 05/30/2022 208,640
    TOTAL 20,909,330
    Brewing—0.1%  
300,000   Anadolu Efes Biracilik ve Malt Sanayii A.S., Series REGS, 3.375%, 11/01/2022 293,938
    Building & Development—0.0%  
100,000   Odebrecht S.A., Company Guarantee, Series 144A, 7.500%, 12/14/2066 32,800
    Business Equipment & Services—0.0%  
200,000   GNL Quintero S.A., Sr. Unsecd. Note, Series REGS, 4.634%, 07/31/2029 209,000
    Capital Goods - Aerospace & Defense—0.2%  
250,000   Airbus Group SE, Sr. Unsecd. Note, Series 144A, 3.150%, 04/10/2027 251,011
200,000   Embraer Netherlands Finance, Sr. Unsecd. Note, 5.400%, 02/01/2027 216,250
160,000   Huntington Ingalls Industries, Sr. Unsecd. Note, Series 144A, 3.483%, 12/01/2027 159,800
400,000   Lockheed Martin Corp., Sr. Unsecd. Note, 2.900%, 03/01/2025 399,279
185,000   Northrop Grumman Corp., Sr. Unsecd. Note, 3.250%, 01/15/2028 185,607
200,000   Textron, Inc., Sr. Unsecd. Note, 3.650%, 03/15/2027 203,589
    TOTAL 1,415,536
    Capital Goods - Building Materials—0.1%  
50,000   Allegion US Holdings Co., Sr. Unsecd. Note, 3.200%, 10/01/2024 49,538
90,000   Allegion US Holdings Co., Sr. Unsecd. Note, 3.550%, 10/01/2027 89,218
200,000   Cemex Finance LLC, Series REGS, 6.000%, 04/01/2024 212,000
Annual Shareholder Report
13

Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    CORPORATE BONDS—continued  
    Capital Goods - Building Materials—continued  
$200,000   Cemex, Sab De Cv, Series 144A, 7.750%, 04/16/2026 $227,000
165,000   Masco Corp., Sr. Unsecured Note, Series 0, 4.500%, 05/15/2047 168,417
    TOTAL 746,173
    Capital Goods - Construction Machinery—0.0%  
120,000   CNH Industrial NV, Sr. Unsecd. Note, Series MTN, 3.850%, 11/15/2027 119,872
    Capital Goods - Diversified Manufacturing—0.1%  
300,000   Parker-Hannifin Corp., Sr. Unsecd. Note, 3.250%, 03/01/2027 302,910
    Chemicals & Plastics—0.3%  
200,000   Albemarle Corp., 4.150%, 12/01/2024 212,182
200,000   Albemarle Corp., Sr. Unsecd. Note, 5.450%, 12/01/2044 236,683
200,000   Alpek Sa De CV, Sr. Unsecd. Note, Series REGS, 4.500%, 11/20/2022 205,750
200,000   Braskem Finance Ltd., 6.450%, 02/03/2024 225,002
200,000   Mexichem S.A. de CV, Sr. Unsecd. Note, Series 144A, 5.500%, 01/15/2048 195,250
200,000   OCP S.A., Sr. Unsecd. Note, Series REGS, 4.500%, 10/22/2025 200,659
200,000   PTT Global Chemical PCL, Series REGS, 4.250%, 09/19/2022 209,607
200,000   Phosagro OAO via Phosagro, Sr. Unsecd. Note, Series 144A, 3.950%, 11/03/2021 201,873
250,000   Sinochem Overseas Capital Co. Ltd., Company Guarantee, Series REGS, 4.500%, 11/12/2020 261,077
    TOTAL 1,948,083
    Communications - Cable & Satellite—0.2%  
250,000   CCO Safari II LLC, 6.484%, 10/23/2045 292,264
200,000   Comcast Corp., Sr. Unsecd. Note, 3.150%, 02/15/2028 200,831
350,000   Comcast Corp., Sr. Unsecd. Note, 3.300%, 02/01/2027 357,379
300,000   Time Warner Cable, Inc., Company Guarantee, 5.500%, 09/01/2041 313,492
    TOTAL 1,163,966
    Communications - Media & Entertainment—0.2%  
300,000   CBS Corp., 4.900%, 08/15/2044 316,206
250,000   Discovery Communications, Sr. Unsecd. Note, 4.900%, 03/11/2026 267,076
300,000   WPP Finance 2010, Sr. Unsecd. Note, 5.125%, 09/07/2042 324,267
    TOTAL 907,549
    Communications - Telecom Wireless—0.1%  
300,000   American Tower Corp., Sr. Unsecd. Note, 5.000%, 02/15/2024 328,982
360,000   Crown Castle International Corp., Sr. Unsecd. Note, 3.700%, 06/15/2026 360,307
    TOTAL 689,289
    Communications - Telecom Wirelines—0.2%  
700,000   AT&T, Inc., Sr. Unsecd. Note, 5.150%, 03/15/2042 728,271
180,000   Telefonica Emisiones SAU, Sr. Unsecd. Note, 5.213%, 03/08/2047 204,902
534,000   Verizon Communications, Inc., Sr. Unsecd. Note, 5.012%, 04/15/2049 561,806
    TOTAL 1,494,979
    Conglomerates—0.0%  
100,000   Arcos Dorados Holdings, Inc., Sr. Unsecd. Note, Series 144A, 5.875%, 04/04/2027 105,966
    Consumer Cyclical - Automotive—0.3%  
200,000   Daimler Finance NA LLC, Sr. Unsecd. Note, Series 144A, 2.850%, 01/06/2022 200,947
170,000   Ford Motor Co., Sr. Unsecd. Note, 4.750%, 01/15/2043 172,893
350,000   General Motors Co., Sr. Unsecd. Note, 5.200%, 04/01/2045 370,893
200,000   Hyundai Capital America, Sr. Unsecd. Note, Series 144A, 3.100%, 04/05/2022 199,107
200,000   Hyundai Capital Services, Sr. Unsecd. Note, Series 144A, 3.000%, 08/29/2022 196,825
200,000   Kia Motors Corp., Sr. Unsecd. Note, Series 144A, 3.500%, 10/25/2027 196,968
Annual Shareholder Report
14

Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    CORPORATE BONDS—continued  
    Consumer Cyclical - Automotive—continued  
$200,000   Nissan Motor Acceptance Corp., Sr. Unsecd. Note, Series 144A, 2.250%, 01/13/2020 $199,689
    TOTAL 1,537,322
    Consumer Cyclical - Retailers—0.1%  
185,000   AutoZone, Inc., Sr. Unsecd. Note, 3.750%, 06/01/2027 188,068
140,000   Dollar General Corp., Sr. Unsecd. Note, 3.875%, 04/15/2027 146,244
    TOTAL 334,312
    Consumer Cyclical - Services—0.1%  
80,000   Visa, Inc., Sr. Unsecd. Note, 2.750%, 09/15/2027 79,008
200,000   Visa, Inc., Sr. Unsecd. Note, 2.800%, 12/14/2022 203,038
    TOTAL 282,046
    Consumer Non-Cyclical - Food/Beverage—0.4%  
200,000   Becle S.A. de CV, Sr. Unsecd. Note, Series 144A, 3.750%, 05/13/2025 201,037
100,000   BFF International Ltd., Sr. Unsecd. Note, Series 144A, 7.250%, 01/28/2020 107,500
200,000   Danone S.A., Sr. Unsecd. Note, Series 144A, 2.947%, 11/02/2026 195,060
200,000   Grupo Bimbo SAB de CV, Sr. Unsecd. Note, Series 144A, 3.875%, 06/27/2024 206,804
200,000   Grupo Bimbo SAB de CV, Series 144A, 4.875%, 06/27/2044 208,189
90,000   Heineken NV, Sr. Unsecd. Note, Series 144A, 3.500%, 01/29/2028 91,981
200,000   JBS Investments GmbH, Series REGS, 7.750%, 10/28/2020 204,750
150,000   JBS USA LLC/JBS USA Finance, Sr. Unsecd. Note, Series 144A, 7.250%, 06/01/2021 153,188
140,000   Kraft Heinz Foods Co., Sr. Unsecd. Note, 4.375%, 06/01/2046 139,112
200,000   Marfrig Holding Europe BV, Sr. Unsecd. Note, Series 144A, 7.000%, 03/15/2024 201,250
200,000   Minerva Luxembourg S.A., Sr. Unsecd. Note, Series 144A, 5.875%, 01/19/2028 194,850
150,000   Molson Coors Brewing Co., Sr. Unsecd. Note, 3.000%, 07/15/2026 147,051
140,000   Mondelez International Holdings Netherlands BV, Sr. Unsecd. Note, Series 144A, 2.000%, 10/28/2021 136,310
200,000   Sigma Alimentos S.A., Sr. Unsecd. Note, Series 144A, 4.125%, 05/02/2026 202,250
50,000   Smithfield Foods, Inc., Sr. Unsecd. Note, Series 144A, 4.250%, 02/01/2027 51,390
95,000   Tyson Foods, Inc., Sr. Unsecd. Note, 3.550%, 06/02/2027 97,438
    TOTAL 2,538,160
    Consumer Non-Cyclical - Health Care—0.1%  
200,000   Agilent Technologies, Inc., Sr. Unsecd. Note, 3.875%, 07/15/2023 207,362
200,000   Becton Dickinson & Co., Sr. Unsecd. Note, 4.669%, 06/06/2047 217,230
120,000   Medtronic Global Holdings, Sr. Unsecd. Note, 3.350%, 04/01/2027 123,236
    TOTAL 547,828
    Consumer Non-Cyclical - Pharmaceuticals—0.1%  
100,000   Abbott Laboratories, Sr. Unsecd. Note, 3.750%, 11/30/2026 102,848
100,000   Abbott Laboratories, Sr. Unsecd. Note, 4.900%, 11/30/2046 115,011
190,000   AstraZeneca PLC, Sr. Unsecd. Note, 2.375%, 06/12/2022 187,919
200,000   Celgene Corp., Sr. Unsecd. Note, 4.350%, 11/15/2047 208,424
175,000   Teva Pharmaceutical Industries Ltd., Sr. Unsecd. Note, 2.950%, 12/18/2022 157,144
200,000   Teva Pharmaceutical Finance, Sr. Unsecd. Note, 3.150%, 10/01/2026 165,389
    TOTAL 936,735
    Consumer Non-Cyclical - Products—0.0%  
200,000   Reckitt Benckiser Treasury, Sr. Unsecd. Note, Series 144A, 3.000%, 06/26/2027 195,507
    Consumer Non-Cyclical - Supermarkets—0.0%  
200,000   Kroger Co., Sr. Unsecd. Note, 4.450%, 02/01/2047 200,328
    Consumer Non-Cyclical - Tobacco—0.1%  
280,000   Reynolds American, Inc., Sr. Unsecd. Note, 7.000%, 08/04/2041 379,864
Annual Shareholder Report
15

Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    CORPORATE BONDS—continued  
    Consumer Products—0.0%  
$62,000   Mastellone Hermanos S.A., Sr. Unsecd. Note, Series REGS, 12.625%, 07/03/2021 $68,617
    Energy - Independent—0.2%  
300,000   Anadarko Petroleum Corp., Sr. Unsecd. Note, 5.550%, 03/15/2026 337,063
400,000   Canadian Natural Resources Ltd., Sr. Unsecd. Note, 3.800%, 04/15/2024 412,406
300,000   EOG Resources, Inc., Sr. Unsecd. Note, 4.150%, 01/15/2026 319,744
300,000   Marathon Oil Corp., Sr. Unsecd. Note, 3.850%, 06/01/2025 305,799
    TOTAL 1,375,012
    Energy - Integrated—0.1%  
110,000   BP Capital Markets PLC, 3.119%, 05/04/2026 111,269
185,000   BP Capital Markets PLC, Sr. Unsecd. Note, 3.279%, 09/19/2027 187,446
300,000   Husky Energy, Inc., Sr. Unsecd. Note, 3.950%, 04/15/2022 310,640
90,000   Shell International Finance, Sr. Unsecd. Note, 2.875%, 05/10/2026 90,076
75,000   Shell International Finance, Sr. Unsecd. Note, 4.000%, 05/10/2046 80,009
    TOTAL 779,440
    Energy - Midstream—0.3%  
60,000   Andeavor Logistics LP, Sr. Unsecd. Note, 4.250%, 12/01/2027 60,617
175,000   Energy Transfer Partners, Sr. Unsecd. Note, 4.050%, 03/15/2025 175,100
300,000   Enterprise Products Operating, Sr. Unsecd. Note, 3.950%, 02/15/2027 312,307
200,000   Kinder Morgan Energy Partners LP, Sr. Unsecd. Note, 6.375%, 03/01/2041 233,054
240,000   MPLX LP, Sr. Unsecd. Note, 4.125%, 03/01/2027 246,207
200,000   ONEOK, Inc., Sr Unsecured Note, Series 0, 4.950%, 07/13/2047 208,709
120,000   TC Pipelines, LP, Sr. Unsecd. Note, 3.900%, 05/25/2027 120,796
200,000   Williams Partners LP, Sr. Unsecd. Note, 3.900%, 01/15/2025 204,093
200,000   Williams Partners LP, Sr. Unsecd. Note, 4.125%, 11/15/2020 207,793
    TOTAL 1,768,676
    Energy - Oil Field Services—0.0%  
200,000   Weatherford International Ltd., 7.000%, 03/15/2038 169,000
    Energy - Refining—0.1%  
200,000   HollyFrontier Corp., Sr. Unsecd. Note, 5.875%, 04/01/2026 222,834
220,000   Phillips 66, Sr. Unsecd. Note, 4.875%, 11/15/2044 252,749
300,000   Valero Energy Corp., Sr. Unsecd. Note, 3.650%, 03/15/2025 308,473
    TOTAL 784,056
    Farming & Agriculture—0.2%  
1,000,000   Kazagro Natl Mgmt Hldng., Series 144A, 4.625%, 05/24/2023 1,013,678
    Finance—0.2%  
300,000   Corp Financi De Desarrol, Sr. Unsecd. Note, Series 144A, 4.750%, 07/15/2025 319,350
200,000   Gazprombk (GPB Finance), Sub. Note, 7.496%, 12/28/2023 205,644
200,000   ICD Sukuk Co. Ltd., Sr. Unsecd. Note, Series EMTN, 5.000%, 02/01/2027 207,915
200,000   Latam Finance Ltd., Sr. Unsecd. Note, Series 144A, 6.875%, 04/11/2024 209,000
200,000   MAF Global Securities, Jr. Sub. Note, 5.500%, 09/07/2066 205,006
150,000   SURA Asset Management S.A., Sr. Unsecd. Note, Series 144A, 4.375%, 04/11/2027 151,875
    TOTAL 1,298,790
    Financial Institution - Broker/Asset Mgr/Exchange—0.2%  
200,000   Jefferies Group LLC, Sr. Unsecd. Note, 6.500%, 01/20/2043 236,527
200,000   Jefferies Group, Inc., Sr. Unsecd. Note, 6.250%, 01/15/2036 227,930
400,000   Stifel Financial Corp., Sr. Unsecd. Note, 3.500%, 12/01/2020 403,390
200,000   TD Ameritrade Holding Corp., Sr. Unsecd. Note, 3.300%, 04/01/2027 201,995
    TOTAL 1,069,842
Annual Shareholder Report
16

Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    CORPORATE BONDS—continued  
    Financial Institution - Finance Companies—0.1%  
$200,000   Discover Financial Services, Sr. Unsecd. Note, 4.100%, 02/09/2027 $205,189
200,000   GE Capital International, Sr. Unsecd. Note, 3.373%, 11/15/2025 203,572
    TOTAL 408,761
    Financial Institution - Insurance - Life—0.2%  
350,000   Aflac, Inc., Sr. Unsecd. Note, 3.625%, 06/15/2023 363,676
350,000   Lincoln National Corp., Sr. Unsecd. Note, 4.200%, 03/15/2022 368,894
150,000   Massachusetts Mutual Life, Sub. Note, Series 144A, 4.900%, 04/01/2077 170,875
170,000   Pacific Life Insurance Co., Sub. Note, Series 144A, 4.30%, 10/24/2067 170,952
300,000   Prudential Financial, Inc., Sr. Unsecd. Note, Series MTN, 4.600%, 05/15/2044 341,688
    TOTAL 1,416,085
    Financial Institution - Insurance - P&C—0.2%  
200,000   Liberty Mutual Group, Inc., Series 144A, 4.850%, 08/01/2044 222,948
500,000   Nationwide Mutual Insurance Co., Sub. Note, Series 144A, 9.375%, 08/15/2039 852,331
    TOTAL 1,075,279
    Financial Institution - REIT - Apartment—0.1%  
200,000   Avalonbay Communities, Inc., Sr. Unsecd. Note, Series MTN, 3.350%, 05/15/2027 201,725
200,000   UDR, Inc., 3.750%, 07/01/2024 205,959
    TOTAL 407,684
    Financial Institution - REIT - Healthcare—0.1%  
300,000   Health Care REIT, Inc., Sr. Unsecd. Note, 4.950%, 01/15/2021 318,964
200,000   Healthcare Trust of America, Sr. Unsecd. Note, 3.750%, 07/01/2027 199,525
100,000   Physicians Realty Trust, Sr. Unsecd. Note, 3.950%, 01/15/2028 99,011
100,000   Physicians Realty Trust, Sr. Unsecd. Note, 4.300%, 03/15/2027 101,907
    TOTAL 719,407
    Financial Institution - REIT - Office—0.1%  
350,000   Alexandria Real Estate Equities, Inc., Sr. Unsecd. Note, 3.900%, 06/15/2023 362,091
    Financial Institution - REIT - Other—0.0%  
250,000   WP Carey, Inc., Sr. Unsecd. Note, 4.600%, 04/01/2024 261,455
    Financial Institution - REIT - Retail—0.0%  
190,000   Kimco Realty Corp., Sr. Unsecd. Note, 3.800%, 04/01/2027 192,208
    Financial Intermediaries—0.1%  
200,000   ADIB Capital Invest 1 Ltd., Jr. Sub. Note, 6.375%, 04/16/2066 203,625
200,000   Huarong Finance II Co. Ltd., Sr. Unsecd. Note, Series EMTN, 3.250%, 06/03/2021 198,911
250,000   Ooredoo International Finance Ltd., Sr. Unsecd. Note, Series REGS, 5.000%, 10/19/2025 270,377
200,000   Trust F/1401, Sr. Unsecd. Note, Series 144A, 6.950%, 01/30/2044 218,500
    TOTAL 891,413
    Food & Drug Retailers—0.0%  
200,000   Cencosud S.A., Series REGS, 4.875%, 01/20/2023 210,260
    Forest Products—0.0%  
200,000   Bahia SUL Holdings GmbH, Sr. Unsecd. Note, Series 144A, 5.750%, 07/14/2026 217,620
    Home Products & Furnishings—0.0%  
200,000   Arcelik AS, Sr. Unsecd. Note, Series REGS, 5.000%, 04/03/2023 202,594
    Metals & Mining—0.7%  
110,000   Anglogold Ashanti Holdings PLC, Sr. Unsecd. Note, 5.125%, 08/01/2022 115,315
100,000   CSN Islands XII Corp., Sr. Unsecd. Note, Series 144A, 7.000%, 12/23/2066 80,700
200,000   Chinalco Capital Holdings, Sr. Unsecd. Note, 4.000%, 08/25/2021 198,764
300,000   Codelco, Inc., Sr. Unsecd. Note, Series 144A, 4.250%, 07/17/2042 312,733
200,000   Codelco, Inc., Sr. Unsecd. Note, Series 144A, 4.875%, 11/04/2044 228,337
Annual Shareholder Report
17

Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    CORPORATE BONDS—continued  
    Metals & Mining—continued  
$100,000   Codelco, Inc., Sr. Unsecd. Note, Series 144A, 6.150%, 10/24/2036 $127,469
200,000   Evraz Group S.A., Sr. Unsecd. Note, Series 144A, 5.375%, 03/20/2023 208,250
200,000   Fresnillo PLC, Series REGS, 5.500%, 11/13/2023 219,750
200,000   GTL Trade Finance, Inc., Sr. Unsecd. Note, Series 144A, 5.893%, 04/29/2024 215,500
200,000   Gerdau Trade, Inc., Sr. Unsecd. Note, Series 144A, 4.875%, 10/24/2027 199,250
200,000   JSW Steel Ltd., Sr. Unsecd. Note, 5.250%, 04/13/2022 205,022
200,000   Metalloinvest Finance DAC, Sr. Unsecd. Note, Series 144A, 4.850%, 05/02/2024 204,759
75,000   Southern Copper Corp., Sr. Unsecd. Note, 3.875%, 04/23/2025 77,982
200,000   Southern Copper Corp., Sr. Unsecd. Note, 5.250%, 11/08/2042 224,033
150,000   Southern Copper Corp., Sr. Unsecd. Note, 5.875%, 04/23/2045 181,697
200,000   VM Holding S.A., Sr. Unsecd. Note, Series 144A, 5.375%, 05/04/2027 212,500
375,000   Vale Overseas Ltd., 4.375%, 01/11/2022 388,687
110,000   Vale Overseas Ltd., 6.875%, 11/21/2036 135,300
100,000   Vale Overseas Ltd., Sr. Unsecd. Note, 5.875%, 06/10/2021 109,150
120,000   Vale Overseas Ltd., Sr. Unsecd. Note, 6.250%, 08/10/2026 139,320
40,000   Vale Overseas Ltd., Sr. Unsecd. Note, 8.250%, 01/17/2034 53,050
200,000   Vedanta Resources PLC, Sr. Unsecd. Note, Series 144A, 6.125%, 08/09/2024 204,572
100,000   Volcan Compania Minera S.A., Series 144A, 5.375%, 02/02/2022 105,000
115,000   Worthington Industries, Inc., Sr. Unsecured Note, Series 0, 4.300%, 08/01/2032 115,736
    TOTAL 4,262,876
    Oil & Gas—2.5%  
200,000   Abu Dhabi Crude Oil Pipel, Series 144A, 4.600%, 11/02/2047 206,254
1,000,000   CNOOC Finance 2014 ULC, 4.250%, 04/30/2024 1,055,924
500,000   CNPC General Capital Ltd., Sr. Unsecd. Note, Series EMTN, 2.700%, 11/25/2019 500,304
200,000   China Oil & Gas Group Ltd., Sr. Unsecd. Note, 5.000%, 05/07/2020 204,000
150,000   Ecopetrol S.A., Sr. Unsecd. Note, 4.125%, 01/16/2025 151,125
100,000   Ecopetrol S.A., Sr. Unsecd. Note, 5.375%, 06/26/2026 108,220
100,000   Ecopetrol S.A., Sr. Unsecd. Note, 5.875%, 05/28/2045 102,450
117,000   Ecopetrol S.A., Sr. Unsecd. Note, 5.875%, 09/18/2023 129,578
200,000   Equate Petrochemical BV, Sr. Unsecd. Note, Series 144A, 3.000%, 03/03/2022 197,422
200,000   Gaz Capital S.A., Sr. Unsecd. Note, Series REGS, 4.950%, 02/06/2028 208,677
500,000   Gazprom Via Gaz Capital S.A., Sr. Unsecd. Note, Series 144A, 4.950%, 03/23/2027 521,325
200,000   Harvest Operations Corp., Sr. Unsecd. Note, Series 144A, 3.000%, 09/21/2022 198,218
400,000   KazMunayGas National Co. JSC, Sr. Unsecd. Note, Series 144A, 4.750%, 04/19/2027 422,504
200,000   KazMunayGas National Co. JSC, Sr. Unsecd. Note, Series 144A, 5.750%, 04/19/2047 213,750
374,000   ONGC Videsh Ltd., 3.750%, 05/07/2023 380,763
200,000   Oil & Gas Holdings, Sr. Unsecd. Note, Series 144A, 7.500%, 10/25/2027 205,224
200,000   PTTEP Treasury Center Co., Jr. Sub. Note, Series REGS, 4.875%, 12/18/2066 203,375
150,000   Pemex Project Funding Master Trust, Sr. Unsecd. Note, 6.625%, 06/15/2038 156,750
200,000   Pertamina Persero PT, Sr. Unsecd. Note, Series REGS, 5.625%, 05/20/2043 217,981
200,000   Pertamina Persero PT, Series 144A, 4.300%, 05/20/2023 209,502
150,000   Petrobras Global Finance BV, Sr. Unsecd. Note, 6.850%, 06/05/2115 144,937
100,000   Petrobras Global Finance, Sec. Fac. Bond, 7.250%, 03/17/2044 104,250
400,000   Petrobras Global Finance, Sr. Unsecd. Note, 7.375%, 01/17/2027 441,200
200,000   Petrobras Global Finance, Sr. Unsecd. Note, 8.750%, 05/23/2026 239,500
200,000   Petrobras Global Finance, Sr. Unsecd. Note, Series 144A, 5.299%, 01/27/2025 200,850
742,000   Petrobras Global Finance, Sr. Unsecd. Note, Series 144A, 5.999%, 01/27/2028 744,782
250,000   Petrobras International Finance Co., Sr. Unsecd. Note, 5.375%, 01/27/2021 260,625
850,000   Petroleos de Venezuela, S.A., Sr. Unsecd. Note, Series REGS, 6.000%, 11/15/2026 190,400
Annual Shareholder Report
18

Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    CORPORATE BONDS—continued  
    Oil & Gas—continued  
$100,000   Petroleos Mexicanos, 5.500%, 06/27/2044 $92,246
150,000   Petroleos Mexicanos, 6.500%, 06/02/2041 154,650
875,000   Petroleos Mexicanos, Sr. Unsecured Note, Series 144A, 6.500%, 03/13/2027 957,469
450,000   Petroleos Mexicanos, Sr. Unsecd. Note, 4.875%, 01/18/2024 467,302
500,000   Petroleos Mexicanos, Sr. Unsecd. Note, 4.875%, 01/24/2022 522,375
410,000   Petroleos Mexicanos, Sr. Unsecd. Note, 6.375%, 01/23/2045 413,218
100,000   Petroleos Mexicanos, Sr. Unsecd. Note, 6.750%, 09/21/2047 104,635
270,000   Petroleos Mexicanos, Sr. Unsecd. Note, 6.875%, 08/04/2026 306,787
100,000   Petroleum Co. of Trinidad, Sr. Unsecd. Note, Series REGS, 9.750%, 08/14/2019 107,000
200,000   Puma International Financing S.A., Series REGS, 6.750%, 02/01/2021 204,202
250,000   Puma International Financing S.A., Sr. Unsecd. Note, Series 144A, 5.125%, 10/06/2024 255,496
250,000   Reliance Industries Ltd., Sr. Unsecd. Note, Series 144A, 3.667%, 11/30/2027 247,838
250,000   Reliance Industries Ltd., Sr. Unsecd. Note, Series 144A, 4.875%, 02/10/2045 278,922
200,000   Rosneft Oil Co., Series 144A, 4.199%, 03/06/2022 202,157
200,000   Saka Energi Indonesia PT, Sr. Unsecd. Note, Series 144A, 4.450%, 05/05/2024 203,430
500,000   Sinochem Offshore Capital Co. Ltd., Sr. Unsecd. Note, Series REGS, 3.250%, 04/29/2019 503,395
200,000   Sinopec Group Overseas Development 2017 Ltd., Sr. Unsecd. Note, Series 144A, 3.625%, 04/12/2027 201,462
800,000   Sinopec Group Overseas Development 2015 Ltd., Sr. Unsecd. Note, Series REGS, 3.250%, 04/28/2025 795,461
396,000   Sinopec Group Overseas Development 2016 Ltd., Sr. Unsecd. Note, Series REGS, 3.500%, 05/03/2026 399,120
200,000   Southern Gas Corridor CJSC, Unsecd. Note, Series 144A, 6.875%, 03/24/2026 227,738
300,000   Turkiye Petrol Rafinerile, Sr. Unsecd. Note, Series 144A, 4.500%, 10/18/2024 297,056
200,000   Ultrapar International S.A., Sr. Unsecd. Note, Series REGS, 5.250%, 10/06/2026 204,644
200,000   YPF Sociedad Anonima, Series 144A, 8.750%, 04/04/2024 230,200
200,000   YPF Sociedad Anonima, Sr. Unsecd. Note, Series 144A, 6.950%, 07/21/2027 212,800
200,000   YPF Sociedad Anonima, Sr. Unsecd. Note, Series 144A, 7.000%, 12/15/2047 198,700
    TOTAL 15,708,193
    Paper Products—0.1%  
100,000   Fibria Overseas Finance, Sr. Unsecd. Note, 4.000%, 01/14/2025 99,187
200,000   Fibria Overseas Finance, Sr. Unsecd. Note, 5.500%, 01/17/2027 215,000
    TOTAL 314,187
    Printing & Publishing—0.0%  
200,000   Myriad International Holdings BV, Sr. Unsecd. Note, Series 144A, 4.850%, 07/06/2027 207,883
    Real Estate—0.3%  
200,000   Alpha Star Holding Ltd., 4.970%, 04/09/2019 201,750
300,000   China Overseas Finance Cayman V Ltd., Sr. Unsecd. Note, Series A, 3.950%, 11/15/2022 309,107
200,000   Country Garden Holdings, Sr. Unsecd. Note, 7.500%, 03/09/2020 208,870
400,000   Franshion Brilliant Ltd., 5.750%, 03/19/2019 412,514
300,000   Franshion Brilliant Ltd., Sub. Note, 5.75%, 07/17/2066 309,046
200,000   Shimao Property Holdings , Sr. Unsecd. Note, 4.750%, 07/03/2022 199,657
200,000   Yanlord Land Group Ltd., Sr. Unsecd. Note, 5.875%, 01/23/2022 205,263
    TOTAL 1,846,207
    Retailers—0.1%  
200,000   Golden Eagle Retail Group, Sr. Unsecd. Note, Series REGS, 4.625%, 05/21/2023 187,760
100,000   InRetail Consumer, Sr. Unsecd. Note, Series 144A, 5.250%, 10/10/2021 103,500
200,000   JD.com, Inc., Sr. Unsecd. Note, 3.875%, 04/29/2026 201,517
200,000   Saci Falabella, Series REGS, 3.750%, 04/30/2023 205,287
    TOTAL 698,064
Annual Shareholder Report
19

Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    CORPORATE BONDS—continued  
    Sovereign—0.0%  
$200,000   Kazakhstan Temir Zholy, Sr. Unsecd. Note, Series 144A, 4.850%, 11/17/2027 $208,923
    State/Provincial—0.4%  
400,000   Buenos Aires, City of, Sr. Unsecd. Note, Series 144A, 8.950%, 02/19/2021 445,000
200,000   Province of Santa Fe, Sr. Unsecd. Note, Series 144A, 6.900%, 11/01/2027 211,730
600,000   Provincia De Buenos Aires, Series REGS, 10.875%, 01/26/2021 682,500
700,000   Provincia De Buenos Aires, Sr. Unsecd. Note, Series 144A, 7.875%, 06/15/2027 776,874
150,000   Provincia De Cordoba, Sr. Unsecd. Note, Series 144A, 7.450%, 09/01/2024 164,044
    TOTAL 2,280,148
    Steel—0.0%  
200,000   OJSC Novo(Steel Funding), Sr. Unsecd. Note, Series REGS, 4.000%, 09/21/2024 200,860
    Technology—0.4%  
600,000   Apple, Inc., Sr. Unsecd. Note, 2.500%, 02/09/2022 600,803
400,000   Apple, Inc., Sr. Unsecd. Note, 2.900%, 09/12/2027 395,637
70,000   Diamond 1 Finance Corp./Diamond 2 Finance Corp., Sr. Secd. Note, Series 144A, 4.420%, 06/15/2021 72,991
260,000   Diamond 1 Finance Corp./Diamond 2 Finance Corp., Sr. Secd. Note, Series 144A, 6.020%, 06/15/2026 287,080
125,000   Equifax, Inc., Sr. Unsecd. Note, 2.300%, 06/01/2021 122,100
100,000   Microsoft Corp., Sr. Unsecd. Note, 2.400%, 08/08/2026 96,521
245,000   Microsoft Corp., Sr. Unsecd. Note, 4.000%, 02/12/2055 262,597
200,000   Oracle Corp., Sr. Unsecd. Note, 3.250%, 11/15/2027 203,583
150,000   Qualcomm, Inc., Sr. Unsecd. Note, 2.100%, 05/20/2020 149,411
    TOTAL 2,190,723
    Technology Services—0.3%  
200,000   Alibaba Group Holding Ltd., Sr. Unsecd. Note, 3.400%, 12/06/2027 200,139
800,000   Alibaba Group Holding Ltd., Sr. Unsecd. Note, 3.600%, 11/28/2024 830,445
200,000   Baidu, Inc., Sr. Unsecd. Note, 3.625%, 07/06/2027 198,180
200,000   Lenovo Group Ltd., Sr. Unsecd. Note, Series EMTN, 3.875%, 03/16/2022 199,750
500,000   Tencent Holdings Ltd., Sr. Unsecd. Note, Series 144A, 3.800%, 02/11/2025 519,319
    TOTAL 1,947,833
    Telecommunications & Cellular—0.4%  
200,000   America Movil S.A.B. de C.V., Company Guarantee, 5.000%, 03/30/2020 210,994
200,000   Bharti Airtel Ltd., Sr. Unsecd. Note, Series REGS, 4.375%, 06/10/2025 203,777
200,000   Digicel Ltd., Sr. Unsecd. Note, Series 144A, 6.000%, 04/15/2021 197,598
200,000   GTH Finance B.V., Sr. Unsecd. Note, Series 144A, 7.250%, 04/26/2023 225,276
300,000   HTA Group Ltd., Sr. Unsecd. Note, Series 144A, 9.125%, 03/08/2022 322,500
200,000   IHS Netherlands Holdco BV, Sr. Unsecd. Note, Series REGS, 9.500%, 10/27/2021 215,873
200,000   Liquid Telecommunications, Sec. Fac. Bond, Series 144A, 8.500%, 07/13/2022 211,358
300,000   Proven Honour Capital, Sr. Unsecd. Note, 4.125%, 05/19/2025 309,424
200,000   Veon Holdings BV, Sr. Unsecd. Note, Series REGS, 5.950%, 02/13/2023 215,500
200,000   Vimpelcom, Sr. Unsecd. Note, Series 144A, 4.950%, 06/16/2024 203,300
    TOTAL 2,315,600
    Transportation—0.1%  
200,000   Adani Ports and Special, Sr. Unsecd. Note, Series 144A, 3.950%, 01/19/2022 204,378
200,000   Empresa De Transporte ME, Sr. Unsecd. Note, Series 144A, 5.000%, 01/25/2047 220,050
200,000   Lima Metro Line 2 Finance Ltd., Series 144A, 5.875%, 07/05/2034 216,850
    TOTAL 641,278
    Transportation - Railroads—0.1%  
175,000   Burlington Northern Santa Fe Corp., Sr. Unsecd. Note, 3.000%, 04/01/2025 176,472
Annual Shareholder Report
20

Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    CORPORATE BONDS—continued  
    Transportation - Railroads—continued  
$350,000   Kansas City Southern Industries, Inc., Sr. Unsecd. Note, 3.125%, 06/01/2026 $339,507
    TOTAL 515,979
    Transportation - Services—0.1%  
280,000   Enterprise Rent-A-Car USA Finance Co., Sr. Unsecd. Note, Series 144A, 4.500%, 02/15/2045 288,508
250,000   Penske Truck Leasing Co. LP & PTL Finance Corp., Sr. Unsecd. Note, Series 144A, 3.375%, 02/01/2022 254,884
250,000   Ryder System, Inc., Sr. Unsecd. Note, Series MTN, 3.450%, 11/15/2021 256,567
    TOTAL 799,959
    Utilities—1.1%  
200,000   Abu Dhabi National Energy, Sr. Unsecd. Note, Series REGS, 4.375%, 06/22/2026 206,330
200,000   Atmos Energy Corp., Sr. Unsecd. Note, 3.000%, 06/15/2027 199,183
200,000   Azure Power Energy Ltd., 1st lien Note, Series 144A, 5.500%, 11/03/2022 204,000
300,000   Berkshire Hathaway Energy Co., Sr. Unsecd. Note, 3.750%, 11/15/2023 312,743
100,000   Centrais Eletricas Brasileiras S.A., Sr. Unsecd. Note, Series REGS, 6.875%, 07/30/2019 105,100
200,000   EDP Finance BV, Sr. Unsecured Note, Series 144A, 3.625%, 07/15/2024 201,583
375,000   Electricite de France S.A., Jr. Sub. Note, Series 144A, 5.625%, 07/22/2066 388,594
200,000   Enel Finance International S.A., Company Guarantee, Series 144A, 6.000%, 10/07/2039 249,487
65,000   Enersis Americas S.A., Sr. Unsecd. Note, 4.000%, 10/25/2026 66,317
400,000   Eskom Holdings Ltd., Sr. Unsecd. Note, Series REGS, 5.750%, 01/26/2021 396,360
250,000   Exelon Corp., Sr. Unsecd. Note, 3.400%, 04/15/2026 250,466
150,000   Fortis, Inc., Sr. Unsecd. Note, 3.055%, 10/04/2026 145,066
200,000   Indo Energy Finance II, Series REGS, 6.375%, 01/24/2023 206,032
200,000   Infraestructura Energetic, Series 144A, 3.750%, 01/14/2028 197,800
490,000   Israel Electric Corp. Ltd., Series REGS, 7.250%, 01/15/2019 511,624
200,000   Majapahit Holding BV, Series REGS, 7.875%, 06/29/2037 270,760
200,000   Mazoon Assets Co. SAO, Sr. Unsecd. Note, Series 144A, 5.200%, 11/08/2027 200,500
200,000   Minejesa Capital BV, Sec. Fac. Bond, Series 144A, 5.625%, 08/10/2037 213,619
110,000   National Rural Utilities, Sr. Unsecd. Note, 2.950%, 02/07/2024 110,892
400,000   NextEra Energy Capital Holdings, Inc., Sr. Unsecd. Note, 3.625%, 06/15/2023 411,679
65,000   NiSource Finance Corp., Sr. Unsecd. Note, 4.375%, 05/15/2047 71,480
100,000   Pan American Energy LLC, Sr. Unsecd. Note, Series REGS, 7.875%, 05/07/2021 108,301
300,000   PPL Capital Funding, Inc., Sr. Unsecd. Note, 3.100%, 05/15/2026 294,078
200,000   State Grid Overseas Investment 2016 Ltd., Series 144A, 3.500%, 05/04/2027 201,125
250,000   Southern Co., Sr. Unsecd. Note, 3.250%, 07/01/2026 245,565
120,000   Southern Natural Gas, Sr. Unsecd. Note, Series 144A, 4.800%, 03/15/2047 132,381
140,000   Virginia Electric & Power, Sr. Unsecd. Note, Series A, 3.500%, 03/15/2027 144,982
    TOTAL 6,046,047
    TOTAL CORPORATE BONDS
(IDENTIFIED COST $90,011,628)
92,633,882
    FOREIGN GOVERNMENTS/AGENCIES—4.5%  
    Sovereign—4.5%  
100,000   Argentina, Government of, Sr. Unsecd. Note, 5.625%, 01/26/2022 105,500
750,000   Argentina, Government of, Sr. Unsecd. Note, 6.875%, 01/26/2027 819,375
700,000   Argentina, Government of, Sr. Unsecd. Note, 7.500%, 04/22/2026 791,805
200,000   Argentina, Government of, Sr. Unsecd. Note, 8.000%, 10/08/2020 224,500
200,000   Bahrain, Government of, Series REGS, 5.500%, 03/31/2020 204,604
200,000   Bahrain, Government of, Sr. Unsecd. Note, Series 144A, 7.000%, 10/12/2028 203,052
200,000   Bahrain, Government of, Sr. Unsecd. Note, Series REGS, 7.000%, 10/12/2028 203,052
200,000   Belarus, Government of, Sr. Unsecd. Note, Series 144A, 7.625%, 06/29/2027 223,000
30,000   Belize, Government of, Sr. Unsecd. Note, Series 144A, 4.938%, 02/20/2034 17,813
Annual Shareholder Report
21

Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    FOREIGN GOVERNMENTS/AGENCIES—continued  
    Sovereign—continued  
$200,000   Bermuda, Government of, Sr. Unsecd. Note, Series 144A, 4.138%, 01/03/2023 $209,724
200,000   Bolivia, Government of, Sr. Unsecd. Note, Series 144A, 4.500%, 03/20/2028 194,000
200,000   Brazil, Government of, Sr. Unsecd. Note, 4.625%, 01/13/2028 200,900
800,000   Brazil, Government of, Sr. Unsecd. Note, 6.000%, 04/07/2026 894,000
330,000   Cameroon, Government of, Sr. Unsecd. Note, Series 144A, 9.500%, 11/19/2025 396,000
200,000   Colombia, Government of, Sr. Unsecd. Note, 3.875%, 04/25/2027 203,600
400,000   Colombia, Government of, Sr. Unsecd. Note, 4.375%, 07/12/2021 421,800
200,000   Colombia, Government of, Sr. Unsecd. Note, 5.000%, 06/15/2045 211,500
300,000   Colombia, Government of, Sr. Unsecd. Note, 5.625%, 02/26/2044 343,500
300,000   Costa Rica, Government of, Series REGS, 4.375%, 04/30/2025 289,500
200,000   Costa Rica, Government of, Sr. Unsecd. Note, Series 144A, 7.158%, 03/12/2045 210,000
300,000   Croatia, Government of, Sr. Unsecd. Note, Series REGS, 5.500%, 04/04/2023 330,750
250,000   Dominican Republic, Government of, Series 144A, 5.875%, 04/18/2024 269,122
200,000   Dominican Republic, Government of, Sr. Unsecd. Note, Series 144A, 5.500%, 01/27/2025 211,750
200,000   Dominican Republic, Government of, Sr. Unsecd. Note, Series 144A, 6.850%, 01/27/2045 224,502
150,000   Dominican Republic, Government of, Sr. Unsecd. Note, Series REGS, 7.450%, 04/30/2044 178,875
200,000   Dubai, Government of, Series EMTN, 5.250%, 01/30/2043 202,000
200,000   Ecuador, Government of, Series 144A, 7.950%, 06/20/2024 212,500
200,000   Ecuador, Government of, Series REGS, 7.950%, 06/20/2024 212,500
200,000   Ecuador, Government of, Sr. Unsecd. Note, Series 144A, 9.650%, 12/13/2026 229,500
400,000   Egypt, Government of, Sr. Unsecd. Note, Series 144A, 8.500%, 01/31/2047 459,240
50,000   El Salvador, Government of, Bond, Series 144A, 7.750%, 01/24/2023 54,844
150,000   El Salvador, Government of, Series 144A, 6.375%, 01/18/2027 152,625
150,000   El Salvador, Government of, Series REGS, 7.625%, 02/01/2041 162,750
50,000   El Salvador, Government of, Sr. Unsecd. Note, Series 144A, 8.625%, 02/28/2029 58,500
200,000   Ethiopia, Government of, Sr. Unsecd. Note, Series REGS, 6.625%, 12/11/2024 209,500
200,000   Gabon, Government of, Series REGS, 6.375%, 12/12/2024 202,718
200,000   Ghana, Government of, Series REGS, 7.875%, 08/07/2023 219,620
200,000   Ghana, Government of, Sr. Unsecd. Note, Series REGS, 9.250%, 09/15/2022 226,560
200,000   Honduras, Government of, Sr. Unsecd. Note, Series 144A, 6.250%, 01/19/2027 213,420
780,000   Indonesia, Government of, Series 144A, 3.375%, 04/15/2023 786,993
600,000   Indonesia, Government of, Series REGS, 5.375%, 10/17/2023 668,514
200,000   Indonesia, Government of, Sr. Unsecd. Note, Series 144A, 3.850%, 07/18/2027 205,134
400,000   Indonesia, Government of, Sr. Unsecd. Note, Series 144A, 4.550%, 03/29/2026 422,416
200,000   Indonesia, Government of, Sr. Unsecd. Note, Series REGS, 4.750%, 01/08/2026 217,268
200,000   Indonesia, Government of, Sr. Unsecd. Note, Series REGS, 5.125%, 01/15/2045 221,061
200,000   Indonesia, Government of, Sr. Unsecd. Note, Series REGS, 5.250%, 01/17/2042 223,874
400,000   Indonesia, Government of, Unsecd. Note, Series 144A, 4.350%, 09/10/2024 421,960
250,000   Iraq, Government of, Unsecd. Note, Series REGS, 5.800%, 01/15/2028 241,135
400,000   Israel, Government of, Sr. Unsecd. Note, 2.875%, 03/16/2026 398,965
374,220   Ivory Coast, Government of, Sr. Unsecd. Note, Series REGS, 5.750%, 12/31/2032 373,440
400,000   Jamaica, Government of, Sr. Unsecd. Note, 6.750%, 04/28/2028 453,000
300,000   Jordan, Government of, Sr. Unsecd. Note, Series 144A, 7.375%, 10/10/2047 312,559
200,000   Kazakhstan, Government of, Series REGS, 4.875%, 10/14/2044 215,021
200,000   Kenya, Government of, Series REGS, 6.875%, 06/24/2024 212,792
200,000   Kuwait, Government of, Sr. Unsecd. Note, Series 144A, 3.500%, 03/20/2027 203,122
450,000   Lebanon, Government of, Sr. Secd. Note, Series EMTN, 6.100%, 10/04/2022 437,316
100,000   Lebanon, Government of, Sr. Unsecd. Note, 6.750%, 11/29/2027 95,292
450,000   Lebanon, Government of, Sr. Unsecd. Note, Series GMTN, 5.450%, 11/28/2019 446,445
Annual Shareholder Report
22

Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    FOREIGN GOVERNMENTS/AGENCIES—continued  
    Sovereign—continued  
$200,000   Lebanon, Government of, Sr. Unsecd. Note, Series GMTN, 6.250%, 11/04/2024 $192,074
700,000   Mexico, Government of, Series MTN, 4.750%, 03/08/2044 707,700
600,000   Mexico, Government of, Sr. Secd. Note, 4.350%, 01/15/2047 573,000
300,000   Mexico, Government of, Sr. Unsecd. Note, 4.150%, 03/28/2027 311,100
200,000   Mexico, Government of, Sr. Unsecd. Note, 4.600%, 01/23/2046 197,200
200,000   Mongolia, Government of, Series 144A, 5.625%, 05/01/2023 201,787
200,000   Nigeria, Government of, Sr. Unsecd. Note, Series 144A, 6.500%, 11/28/2027 208,405
200,000   Pakistan, Government of, Sr. Unsecd. Note, Series 144A, 6.875%, 12/05/2027 200,525
300,000   Panama, Government of, Sr. Unsecd. Note, 4.300%, 04/29/2053 313,200
400,000   Panama, Government of, Sr. Unsecd. Note, 4.500%, 05/15/2047 430,600
200,000   Paraguay, Government of, Series 144A, 6.100%, 08/11/2044 228,000
200,000   Paraguay, Government of, Sr. Unsecd. Note, Series 144A, 4.700%, 03/27/2027 209,500
100,000   Peru, Government of, Bond, 8.750%, 11/21/2033 157,500
200,000   Peru, Government of, Sr. Unsecd. Note, 5.625%, 11/18/2050 256,600
700,000   Philippines, Government of, Sr. Unsecd. Note, 3.950%, 01/20/2040 720,581
200,000   Qatar, Government of, Sr. Unsecd. Note, Series REGS, 4.625%, 06/02/2046 207,208
400,000   Romania, Government of, Series REGS, 4.375%, 08/22/2023 428,400
200,000   Russia, Government of, Sr. Unsecd. Note, Series 144A, 4.750%, 05/27/2026 212,098
400,000   Russia, Government of, Sr. Unsecd. Note, Series 144A, 5.250%, 06/23/2047 418,520
300,000   Saudi Arabia, Government of, Sr. Unsecd. Note, Series 144A, 3.625%, 03/04/2028 297,300
200,000   Saudi Arabia, Government of, Sr Unsecured Note, Series REGS, 4.500%, 10/26/2046 199,600
200,000   South Africa, Government of, 5.875%, 05/30/2022 218,400
200,000   South Africa, Government of, Sr. Unsecd. Note, 5.650%, 09/27/2047 204,100
200,000   Sri Lanka, Government of, Series REGS, 6.850%, 11/03/2025 220,649
300,000   Sri Lanka, Government of, Sr. Unsecd. Note, Series REGS, 5.875%, 07/25/2022 316,266
400,000   Turkey, Government of, Sr. Unsecd. Note, 4.250%, 04/14/2026 381,277
600,000   Turkey, Government of, Sr. Unsecd. Note, 4.875%, 04/16/2043 526,314
160,000   Ukraine, Government of, Sr. Unsecd. Note, Series REGS, 7.750%, 09/01/2020 169,427
400,000   Ukraine, Government of, Sr. Unsecd. Note, Series REGS, 7.750%, 09/01/2022 425,292
100,000   Ukraine, Government of, Sr. Unsecd. Note, Series REGS, 7.750%, 09/01/2024 105,230
140,000   Ukraine, Government of, Unsecd. Note, Series 144A, 7.750%, 09/01/2020 148,249
110,000   Ukraine, Government of, Unsecd. Note, Series 144A, 7.750%, 09/01/2024 115,753
110,000 1 Ukraine, Government of, Unsecd. Note, Series GDP., 0.00% 05/31/2040 60,522
100,000   Ukraine, Government of, Unsecd. Note, Series REGS, 7.750%, 09/01/2019 105,000
500,000   Uruguay, Government of, Sr. Unsecd. Note, 5.100%, 06/18/2050 555,000
750,000   Venezuela, Government of, 7.000%, 03/31/2038 153,750
200,000   Vietnam, Government of, Sr. Unsecd. Note, Series REGS, 4.800%, 11/19/2024 213,311
300,000   Zambia, Government of, Series 144A, 8.970%, 07/30/2027 337,145
400,000   Zambia, Government of, Series REGS, 5.375%, 09/20/2022 390,224
    TOTAL FOREIGN GOVERNMENTS/AGENCIES
(IDENTIFIED COST $27,290,490)
28,271,615
    MORTGAGE-BACKED SECURITIES—15.9%  
    Federal Home Loan Mortgage Corporation—5.4%  
2,715,087   Federal Home Loan Mortgage Corp. Pool A88745, 4.500%, 30 Year, 10/01/2037 2,909,583
878,250   Federal Home Loan Mortgage Corp. Pool G08563, 4.000%, 30 Year, 01/01/2044 923,417
690,200   Federal Home Loan Mortgage Corp. Pool G08567, 4.000%, 30 Year, 01/01/2044 725,695
1,434,536   Federal Home Loan Mortgage Corp. Pool G08608, 3.000%, 30 Year, 09/01/2044 1,440,257
4,338,046   Federal Home Loan Mortgage Corp. Pool G08705, 3.000%, 30 Year, 05/01/2046 4,344,502
2,570,790   Federal Home Loan Mortgage Corp. Pool G08710, 3.000%, 30 Year, 06/01/2046 2,574,615
Annual Shareholder Report
23

Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    MORTGAGE-BACKED SECURITIES—continued  
    Federal Home Loan Mortgage Corporation—continued  
$1,995,015   Federal Home Loan Mortgage Corp. Pool G08793, 4.000%, 30 Year, 12/01/2047 $2,090,755
1,379,664   Federal Home Loan Mortgage Corp. Pool G18579, 3.500%, 15 Year, 12/01/2030 1,427,241
2,478,269   Federal Home Loan Mortgage Corp. Pool G67700, 3.500%, 30 Year, 08/01/2046 2,560,777
7,026   Federal Home Loan Mortgage Corp. Pool J07260, 4.500%, 15 Year, 03/01/2023 7,324
4,953,918   Federal Home Loan Mortgage Corp. Pool J14246, 3.500%, 15 Year, 02/01/2026 5,123,202
860,488   Federal Home Loan Mortgage Corp. Pool Q19607, 4.000%, 30 Year, 07/01/2043 905,817
220,831   Federal Home Loan Mortgage Corp. Pool Q21934, 4.000%, 30 Year, 09/01/2043 232,463
3,123,608   Federal Home Loan Mortgage Corp. Pool Q39440, 4.000%, 30 Year, 03/01/2046 3,273,022
2,411,862   Federal Home Loan Mortgage Corp. Pool V82514, 3.500%, 30 Year, 07/01/2046 2,483,492
2,663,453   Federal Home Loan Mortgage Corp. Pool V82653, 3.500%, 30 Year, 10/01/2046 2,742,556
    TOTAL 33,764,718
    Government National Mortgage Association—0.4%  
9,584   Government National Mortgage Association Pool 2796, 7.000%, 30 Year, 08/20/2029 11,085
5,138   Government National Mortgage Association Pool 3040, 7.000%, 30 Year, 02/20/2031 5,972
14,548   Government National Mortgage Association Pool 3188, 6.500%, 30 Year, 01/20/2032 16,769
18,554   Government National Mortgage Association Pool 3239, 6.500%, 30 Year, 05/20/2032 21,359
2,564,027   Government National Mortgage Association Pool AS7206, 3.500%, 30 Year, 04/20/2046 2,653,534
    TOTAL 2,708,719
    Federal National Mortgage Association—10.1%  
1,946,055   Federal National Mortgage Association Pool 890803, 3.500%, 15 Year, 01/01/2032 2,012,099
1,268,964   Federal National Mortgage Association Pool AH2899, 4.500%, 30 Year, 01/01/2041 1,366,923
1,084,857   Federal National Mortgage Association Pool AL4168, 2.500%, 15 Year, 09/01/2028 1,090,203
2,114,081   Federal National Mortgage Association Pool AO7977, 3.000%, 15 Year, 06/01/2027 2,159,874
44,866   Federal National Mortgage Association Pool AO8829, 3.500%, 30 Year, 07/01/2042 46,335
1,094,772   Federal National Mortgage Association Pool AS2979, 3.000%, 15 Year, 08/01/2029 1,117,460
1,456,682   Federal National Mortgage Association Pool AS4314, 2.500%, 15 Year, 01/01/2030 1,459,764
2,247,292   Federal National Mortgage Association Pool AS5102, 3.000%, 15 Year, 06/01/2030 2,293,162
2,984,515   Federal National Mortgage Association Pool AS5693, 3.000%, 30 Year, 08/01/2045 2,991,638
3,492,441   Federal National Mortgage Association Pool AS6222, 4.000%, 30 Year, 11/01/2045 3,663,863
2,213,531   Federal National Mortgage Association Pool AS7375, 3.000%, 30 Year, 06/01/2046 2,216,738
2,597,457   Federal National Mortgage Association Pool AS7492, 4.000%, 30 Year, 07/01/2046 2,719,674
1,303,136   Federal National Mortgage Association Pool AS7510, 4.000%, 30 Year, 07/01/2046 1,364,451
1,793,203   Federal National Mortgage Association Pool AS7582, 3.000%, 30 Year, 07/01/2046 1,795,802
1,724,135   Federal National Mortgage Association Pool AS7698, 2.500%, 15 Year, 08/01/2031 1,722,935
1,808,444   Federal National Mortgage Association Pool AS7796, 3.000%, 30 Year, 08/01/2046 1,811,064
1,311,090   Federal National Mortgage Association Pool AX0833, 3.500%, 30 Year, 09/01/2044 1,354,433
3,109,393   Federal National Mortgage Association Pool AZ9565, 3.500%, 30 Year, 12/01/2045 3,196,152
3,774,435   Federal National Mortgage Association Pool BA3989, 3.500%, 30 Year, 02/01/2046 3,879,751
1,699,089   Federal National Mortgage Association Pool BC5622, 3.500%, 30 Year, 05/01/2046 1,745,701
2,404,346   Federal National Mortgage Association Pool BC5660, 3.500%, 30 Year, 07/01/2046 2,470,305
1,314,525   Federal National Mortgage Association Pool BC6063, 2.500%, 15 Year, 06/01/2031 1,313,610
1,753,813   Federal National Mortgage Association Pool BC8059, 3.500%, 30 Year, 05/01/2046 1,801,927
2,901,255   Federal National Mortgage Association Pool BC9762, 3.000%, 30 Year, 06/01/2046 2,905,459
1,607,321   Federal National Mortgage Association Pool BC9803, 2.500%, 15 Year, 06/01/2031 1,606,202
1,652,277   Federal National Mortgage Association Pool BD1880, 2.500%, 15 Year, 06/01/2031 1,651,127
3,698,777   Federal National Mortgage Association Pool BE2909, 3.500%, 30 Year, 12/01/2046 3,800,248
3,668,600   Federal National Mortgage Association Pool CA0110, 3.500%, 30 Year, 08/01/2047 3,774,974
1,625,162   Federal National Mortgage Association Pool MA2644, 2.500%, 15 Year, 06/01/2031 1,624,030
Annual Shareholder Report
24

Table of Contents
Shares,
Principal
Amount or
Contracts
    Value
    MORTGAGE-BACKED SECURITIES—continued  
    Federal National Mortgage Association—continued  
$1,602,247   Federal National Mortgage Association Pool MA2684, 3.000%, 15 Year, 07/01/2031 $1,632,948
    TOTAL 62,588,852
    TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $100,610,914)
99,062,289
    PURCHASED CALL OPTION—0.1%  
9,000   CBOE SPX Volatility Index, Notional Amount $9,936,000, Exercise Price $16.00, Expiration Date 1/17/2018
(IDENTIFIED COST $652,500)
337,500
    PURCHASED PUT OPTIONS—0.2%  
2,750   SPDR S&P 500 ETF Trust, Notional Amount $73,386,500, Exercise Price $250.00, Expiration Date 1/19/2018 78,375
3,450   SPDR S&P 500 ETF Trust, Notional Amount $92,066,700, Exercise Price $240.00, Expiration Date 6/15/2018 1,059,150
    TOTAL PURCHASED PUT OPTIONS
(IDENTIFIED COST $2,153,900)
1,137,525
    U.S. TREASURY—0.9%  
$5,500,000   United States Treasury Note, 0.750%, 02/28/2018
(IDENTIFIED COST $5,491,578)
5,494,844
    INVESTMENT COMPANY—14.8%  
13,497,668 3 Federated High Income Bond Fund II, Class P
(IDENTIFIED COST $87,653,943)
92,054,094
    REPURCHASE AGREEMENT—3.5%  
21,652,000   Interest in $950,000,000 joint repurchase agreement 1.42%, dated 12/29/2017 under which Bank of America, N.A. will repurchase securities provided as collateral for $950,149,889 on 1/2/2018. The securities provided as collateral at the end of the period held with BNY Mellon as tri-party agent, were U.S. Government Agency securities maturing on 7/20/2046 and the market value of those underlying securities was $969,152,887.
(IDENTIFIED COST $21,652,000)
21,652,000
    TOTAL INVESTMENT IN SECURITIES—98.1%
(IDENTIFIED COST $575,651,207)4
609,765,034
    OTHER ASSETS AND LIABILITIES - NET—1.9%5 12,039,160
    TOTAL NET ASSETS—100% $621,804,194
At December 31, 2017, the Fund had the following outstanding futures contracts:
Description Number of
Contracts
Notional
Value
Expiration
Date
Value and
Unrealized
Appreciation
(Depreciation)
1S&P 500 Index Long Futures 539 $360,591,000 March 2018 $3,515,212
1United States Treasury Notes 2-Year Long Futures 100 $21,410,937 March 2018 $(42,403)
1United States Treasury Notes 5-Year Long Futures 60 $6,969,844 March 2018 $(32,479)
1United States Treasury Long Bond Short Futures 3 $459,000 March 2018 $392
1United States Treasury Notes 10-Year Short 90 $11,164,219 March 2018 $70,231
1United States Treasury Ultra Bond Short Futures 65 $10,897,656 March 2018 $(48,707)
NET UNREALIZED APPRECIATION ON FUTURES CONTRACTS $3,462,246
Annual Shareholder Report
25

Table of Contents
At December 31, 2017, the Fund had the following open swap contracts:
Credit Default Swaps
Counterparty Reference
Entity
Buy/
Sell
Pay/
Receive
Fixed
Rate
Expiration
Date
Implied
Credit
Spread at
12/31/20176
Notional
Amount
Market
Value
Upfront
Premiums
Paid
(Received)
Unrealized
Appreciation
(Depreciation)
OTC Swaps:
Barclays Capital, Inc. CDX Index EM Series 28 Buy 1.00% 12/20/2022 1.28% $4,365,000 $38,848 $169,792 $(130,944)
Barclays Capital, Inc. Government of
South Korea Bond
Sell 1.00% 12/20/2022 0.54% $400,000 $(8,590) $(5,601) $(2,989)
Barclays Capital, Inc. Government of
Turkey Bond
Buy 1.00% 12/20/2022 1.66% $200,000 $5,923 $7,762 $(1,839)
Barclays Capital, Inc. Republic of South Africa Buy 1.00% 12/20/2022 1.59% $400,000 $10,549 $15,698 $(5,149)
TOTAL SWAPS CONTRACTS $46,730 $187,651 $(140,921)
At December 31, 2017, the Fund had the following outstanding written options contracts:
Description Contracts Notional
Amount
Expiration
Date
Exercise
Price
Value
1CBOE SPX Volatility Index (Call Option) 9,000 $9,936,000 1/17/2018 $20.00 $(202,500)
1SPDR S&P 500 ETF Trust (Put Option) 3,450 $92,066,700 6/15/2018 $210.00 $(374,325)
(PREMIUMS RECEIVED $1,045,639) $(576,825)
Net Unrealized Appreciation (Depreciation) on Futures Contracts, and the value of Swap Contracts and Written Option Contracts is included in “Other Assets and Liabilities—Net.”
1 Non-income-producing security.
2 Floating/adjustable note with current rate and current maturity or next reset date shown. Adjustable rate mortgage security coupons are based on the weighted average note rates of the underlying mortgages less the guarantee and servicing fees. These securities do not indicate an index and spread in their description above.
3 Affiliated holding.
Affiliated fund holdings are investment companies which are managed by Federated Global Investment Management Corp., Federated Investment Management Company and Federated Equity Management Company of Pennsylvania (collectively, the “Co-Advisers”) or an affiliate of the Co-Advisers. Transactions with affiliated fund holdings during the year ended December 31, 2017, were as follows:
  Federated High Income
Bond Fund II
Balance of Shares Held 12/31/2016 13,177,127
Purchases/Additions 1,755,042
Sales/Reductions (1,434,501)
Balance of Shares Held 12/31/2017 13,497,668
Value $92,054,094
Change in Unrealized Appreciation/Depreciation $48,352
Net Realized Gain/(Loss) $(81,093)
Dividend Income $6,155,289
4 The cost of investments for federal tax purposes amounts to $577,732,838.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
6 Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity's credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced entity or obligation.
Note: The categories of investments are shown as a percentage of total net assets at December 31, 2017.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1—quoted prices in active markets for identical securities.
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Also includes securities valued at amortized cost.
Level 3—significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
Annual Shareholder Report
26

Table of Contents
The following is a summary of the inputs used, as of December 31, 2017, in valuing the Fund's assets carried at fair value:
Valuation Inputs        
  Level 1—
Quoted
Prices
Level 2—
Other
Significant
Observable
Inputs
Level 3—
Significant
Unobservable
Inputs
Total
Equity Securities:        
Common Stocks        
 Domestic $238,978,361 $$— $238,978,361
 International 11,946,454 11,946,454
Debt Securities:        
Adjustable Rate Mortgages 11,379 11,379
Collateralized Mortgage Obligations 15,575,078 15,575,078
Commercial Mortgage-Backed Securities 2,610,013 2,610,013
Corporate Bonds 92,633,882 92,633,882
Foreign Governments/Agencies 28,271,615 28,271,615
Mortgage-Backed Securities 99,062,289 99,062,289
U.S. Treasury 5,494,844 5,494,844
Purchased Call Option 337,500 337,500
Purchased Put Options 1,137,525 1,137,525
Investment Company 92,054,094 92,054,094
Repurchase Agreement 21,652,000 21,652,000
TOTAL SECURITIES $344,453,934 $265,311,100 $— $609,765,034
Other Financial Instruments        
Assets        
Futures Contracts $3,585,835 $$— $3,585,835
Swaps Contracts 55,320 55,320
Written Options Contracts
Liabilities        
Futures Contracts (123,589) (123,589)
Swaps Contracts (8,590) (8,590)
Written Options Contracts (576,825) (576,825)
TOTAL OTHER FINANCIAL INSTRUMENTS $2,885,421 $46,730 $— $2,932,151
The following acronyms are used throughout this portfolio:
BKNT —Bank Notes
EMTN —Euro Medium Term Note
ETF —Exchange-Traded Fund
FREMF —Freddie Mac Multifamily K-Deals
GDP —Gross Domestic Product
GMTN —Global Medium Term Note
LIBOR —London Interbank Offered Rate
MTN —Medium Term Note
REIT —Real Estate Investment Trust
REMIC —Real Estate Mortgage Investment Conduit
SPDR —Standard & Poor's Depositary Receipt
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
27

Table of Contents
Financial Highlights
(For a Share Outstanding Throughout Each Period)
Year Ended December 31 2017 2016 2015 2014 2013
Net Asset Value, Beginning of Period $9.52 $9.29 $10.54 $11.30 $9.56
Income From Investment Operations:          
Net investment income1 0.29 0.34 0.44 0.54 0.50
Net realized and unrealized gain (loss) on investments, futures contracts, written options, swap contracts and foreign currency transactions 1.39 0.34 (1.20) (0.12) 1.54
TOTAL FROM INVESTMENT OPERATIONS 1.68 0.68 (0.76) 0.42 2.04
Less Distributions:          
Distributions from net investment income (0.40) (0.45) (0.44) (0.38) (0.30)
Distributions from net realized gain on investments, futures contracts, written options, swap contracts and foreign currency transactions (0.05) (0.80)
TOTAL DISTRIBUTIONS (0.40) (0.45) (0.49) (1.18) (0.30)
Net Asset Value, End of Period $10.80 $9.52 $9.29 $10.54 $11.30
Total Return2 18.11% 7.69% (7.64)% 4.01% 21.74%
Ratios to Average Net Assets:          
Net expenses 0.83% 0.79%3 0.75%3 0.76% 0.82%
Net investment income 2.91% 3.72% 4.38% 4.99% 4.80%
Expense waiver/reimbursement4 0.09% 0.14% 0.16% 0.15% 0.16%
Supplemental Data:          
Net assets, end of period (000 omitted) $621,804 $563,745 $631,701 $652,011 $451,067
Portfolio turnover 71% 90% 97% 54% 52%
Portfolio turnover (excluding purchases and sales from dollar-roll transactions) 71% 90% 97% 54% 52%
1 Per share numbers have been calculated using the average shares method.
2 Based on net asset value. Total returns do not reflect any additional fees or expenses that may be imposed by separate accounts of insurance companies or in connection with any variable annuity or variable life insurance contract.
3 The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratios are 0.79% and 0.75% for the years ended December 31, 2016 and 2015, respectively, after taking into account these expense reductions.
4 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
28

Table of Contents
Statement of Assets and Liabilities
Assets:    
Investment in securities, at value including $92,054,094 of investment in an affiliated holding (identified cost $575,651,207)   $609,765,034
Cash   408,495
Cash denominated in foreign currencies (identified cost $38,939)   40,558
Restricted cash (Note 2)   12,419,745
Income receivable   2,146,157
Swaps, at value (premium paid $193,252)   55,320
Receivable for investments sold   2,610
Receivable for shares sold   36,827
TOTAL ASSETS   624,874,746
Liabilities:    
Payable for investments purchased $461,995  
Payable for shares redeemed 455,496  
Written options outstanding (premium $1,045,639), at value 576,825  
Payable for daily variation margin on futures contracts 1,337,760  
Swaps, at value (premium received $5,601) 8,590  
Payable for periodic payments to swap contracts 1,788  
Payable to adviser (Note 5) 33,962  
Payable for administrative fees (Note 5) 5,143  
Payable for portfolio accounting fees 122,881  
Accrued expenses (Note 5) 66,112  
TOTAL LIABILITIES   3,070,552
Net assets for 57,585,175 shares outstanding   $621,804,194
Net Assets Consist of:    
Paid-in capital   $577,523,136
Net unrealized appreciation of investments, futures contracts, written options, swap contracts and translation of assets and liabilities in foreign currency   37,905,585
Accumulated net realized loss on investments, futures contracts, written options, swap contracts and foreign currency transactions   (11,073,824)
Undistributed net investment income   17,449,297
TOTAL NET ASSETS   $621,804,194
Net Asset Value, Offering Price and Redemption Proceeds Per Share:    
$621,804,194 ÷ 57,585,175 shares outstanding, no par value, unlimited shares authorized   $10.80
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
29

Table of Contents
Statement of Operations
Investment Income:      
Dividends (including $6,155,289 received from an affiliated holding, see footnotes to Portfolio of Investments and net of foreign taxes withheld of $20,526)     $12,646,740
Interest     9,340,282
TOTAL INCOME     21,987,022
Expenses:      
Investment adviser fee (Note 5)   $4,410,235  
Administrative fee (Note 5)   590,598  
Custodian fees   58,045  
Transfer agent fee   44,266  
Directors'/Trustees' fees (Note 5)   6,148  
Auditing fees   33,399  
Legal fees   10,393  
Portfolio accounting fees   180,401  
Printing and postage   86,241  
Miscellaneous (Note 5)   35,396  
TOTAL EXPENSES   5,455,122  
Reimbursements:      
Reimbursement of investment adviser fee (Note 5) $(551,807)    
Reimbursement of other operating expenses (Note 2) (5,952)    
TOTAL REIMBURSEMENTS   (557,759)  
Net expenses     4,897,363
Net investment income     17,089,659
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts, Written Options, Swap Contracts and Foreign Currency Transactions:      
Net realized gain on investments (including net realized gain (loss) of $(81,093) on sales of investments in an affiliated holding)     3,729,443
Net realized gain on foreign currency transactions     84
Net realized gain on futures contracts     58,632,852
Net realized gain on written options     4,307,657
Net realized gain (loss) on swap contracts     (170,766)
Net change in unrealized appreciation of investments (including net change in unrealized appreciation of $48,352 on investments in an affiliated holding)     11,538,823
Net change in unrealized appreciation/depreciation of translation of assets and liabilities in foreign currency     2,877
Net change in unrealized appreciation of futures contracts     2,544,065
Net change in unrealized appreciation of written options     384,781
Net change in unrealized appreciation of swap contracts     (145,563)
Net realized and unrealized gain on investments, futures contracts, written options, swap contracts and foreign currency transactions     80,824,253
Change in net assets resulting from operations     $97,913,912
See Notes which are an integral part of the Financial Statements
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Statement of Changes in Net Assets
Year Ended December 31 2017 2016
Increase (Decrease) in Net Assets    
Operations:    
Net investment income $17,089,659 $22,133,165
Net realized gain (loss) on investments, futures contracts, written options, swap contracts, foreign exchange contracts and foreign currency transactions 66,499,270 (19,131,364)
Net change in unrealized appreciation/depreciation of investments, futures contracts, written options, swap contracts, foreign exchange contracts and translation of assets and liabilities in foreign currency 14,324,983 39,613,681
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 97,913,912 42,615,482
Distributions to Shareholders:    
Distributions from net investment income (22,796,040) (29,859,782)
Share Transactions:    
Proceeds from sale of shares 61,126,884 65,300,190
Net asset value of shares issued to shareholders in payment of distributions declared 22,796,040 29,859,782
Cost of shares redeemed (100,981,610) (175,871,264)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (17,058,686) (80,711,292)
Change in net assets 58,059,186 (67,955,592)
Net Assets:    
Beginning of period 563,745,008 631,700,600
End of period (including undistributed net investment income of $17,449,297 and $22,776,038, respectively) $621,804,194 $563,745,008
See Notes which are an integral part of the Financial Statements
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Notes to Financial Statements
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 seven portfolios. The financial statements included herein are only those of Federated Managed Volatility 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. Each portfolio pays its own expenses. Fund shares are available exclusively as a funding vehicle for life insurance companies writing variable life insurance policies and variable annuity contracts. The investment objective of the Fund is to achieve high current income and moderate capital appreciation. The Co-Advisers each are registered as a “commodity pool operator” with respect to operation of the Fund.
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 U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
Fixed-income securities are fair valued using price evaluations provided by a pricing service approved by the Fund's Board of Trustees (the “Trustees”).
Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs.
Derivative contracts listed on exchanges are valued at their reported settlement or closing price, except that options are valued at the mean of closing bid and asked quotations.
Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
For securities that are fair valued in accordance with procedures established by and under the general supervision of the Trustees, certain factors may be considered such as: the last traded or purchase price of the security, information obtained by contacting the issuer or dealers, analysis of the issuer's financial statements or other available documents, fundamental analytical data, the nature and duration of restrictions on disposition, the movement of the market in which the security is normally traded, public trading in similar securities or derivative contracts of the issuer or comparable issuers, movement of a relevant index, or other factors including but not limited to industry changes and relevant government actions.
If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, if the Fund cannot obtain price evaluations from a pricing service or from more than one dealer for an investment within a reasonable period of time as set forth in the Fund's valuation policies and procedures, or if information furnished by a pricing service, in the opinion of the valuation committee (“Valuation Committee”), is deemed not representative of the fair value of such security, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could obtain the fair value assigned to an investment if it sold the investment at approximately the time at which the Fund determines its NAV per share.
Fair Valuation and Significant Events Procedures
The Trustees have ultimate responsibility for determining the fair value of investments for which market quotations are not readily available. The Trustees have appointed a Valuation Committee comprised of officers of the Fund, the Co-Advisers and certain of the Co-Advisers' affiliated companies to assist in determining fair value and in overseeing the calculation of the NAV. The Trustees have also authorized the use of pricing services recommended by the Valuation Committee to provide fair value evaluations of the current value of certain investments for purposes of calculating the NAV. The Valuation Committee employs various methods for reviewing third-party pricing-service evaluations including periodic reviews of third-party pricing services' policies, procedures and valuation methods (including key inputs, methods, models and assumptions), transactional back-testing, comparisons of evaluations of different pricing services, and review of price challenges by the Co-Advisers based on recent market activity. In the event that market quotations and price evaluations are not available for an investment, the Valuation Committee determines the fair value of the investment in accordance with procedures adopted by the Trustees. The Trustees periodically review and approve the fair valuations made by the Valuation Committee and any changes made to the procedures.
Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a “bid” evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a “mid” evaluation). The Fund normally uses bid evaluations for any U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for any other types of fixed-income securities and any OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
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The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Co-Advisers determine that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
With respect to securities traded principally in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures contracts;
Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded;
Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, or a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have adopted procedures whereby the Valuation Committee uses a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Co-Advisers determine that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment in accordance with the fair valuation procedures approved by the Trustees. The Trustees have ultimate responsibility for any fair valuations made in response to a significant event.
Repurchase Agreements
The Fund may invest in repurchase agreements for short-term liquidity purposes. It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a “securities entitlement” and exercises “control” as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
The insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Co-Advisers and their affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Repurchase agreements are subject to Master Netting Agreements (MNA) which are agreements between the Fund and its counterparties that provide for the net settlement of all transactions and collateral with the Fund, through a single payment, in the event of default or termination. Amounts presented on the Portfolio of Investments and Statement of Assets and Liabilities are not net settlement amounts but gross. As indicated above, the cash or securities to be repurchased, as shown on the Portfolio of Investments, exceeds the repurchase price to be paid under the agreement reducing the net settlement amount to zero.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Positive or negative inflation adjustments on Treasury Inflation-Protected Securities (TIPS) are included in interest income. Distributions of net investment income, if any, are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Amortization/accretion of premium and discount is included in investment income. Gains and losses realized on principal payment of mortgage-backed securities (paydown gains and losses) are classified as part of investment income. The detail of the total fund expense reimbursements of $557,759 is disclosed in various locations in this Note 2 and Note 5. For the year ended December 31, 2017, the portfolio accountant reimbursed $5,952 of their fees.
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. As of and during the year ended December 31, 2017, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of December 31, 2017, tax years 2014 through 2017 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
The Fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The Fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or gains are earned.
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.
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The Fund may transact in To Be Announced Securities (TBAs). As with other delayed-delivery transactions, a seller agrees to issue TBAs 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 TBAs 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.
Dollar-Roll Transactions
The Fund engages in dollar-roll transactions in which the Fund sells mortgage-backed securities with a commitment to buy similar (same type, coupon and maturity), but not identical mortgage-backed securities on a future date. Both securities involved are TBA mortgage-backed securities. The Fund treats dollar-roll transactions as purchases and sales. Dollar-rolls are subject to interest rate risks and credit risks.
Swap contracts involve two parties that agree to exchange the returns (or the differential in rates of return) earned or realized on particular predetermined investments, instruments, indices or other measures. The gross returns to be exchanged or “swapped” between parties are generally calculated with respect to a “notional amount” for a predetermined period of time. The Fund may enter into interest rate, total return, credit default, currency and other swap agreements. Risks may arise upon entering into swap agreements from the potential inability of the counterparties to meet the terms of their contract from unanticipated changes in the value of the swap agreement.
The Fund uses credit default swaps to seek to increase income and to manage country, currency, duration, individual security, market, sector/asset class and yield curve risks. The “buyer” in a credit default swap is obligated to pay the “seller” a periodic stream of payments over the term of the contract provided that no event of default on an underlying reference obligation has occurred. If an event of default occurs, the seller must pay the buyer the full notional value, or the “par value”, of the reference obligation in exchange for the reference obligation. In connection with these agreements, securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default or bankruptcy/insolvency. Recovery values are assumed by market makers considering either industry standard recovery rates or entity specific factors and considerations until a credit event occurs. If a credit event has occurred, the recovery value is typically determined by a facilitated auction whereby a minimum number of allowable broker bids, together with a specific valuation method, are used to calculate the settlement value. The maximum amount of the payment that may occur, as a result of a credit event payable by the protection seller, is equal to the notional amount of the underlying index or security. The Fund's maximum exposure to loss of the notional value of credit default swaps outstanding at December 31, 2017, is $400,000. The Fund's maximum risk of loss from counterparty credit risk, either as the protection buyer or as the protection seller, is the fair value of the contract. This risk is mitigated by having a master netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund's exposure to the counterparty.
Upfront payments received or paid by the Fund will be reflected as an asset or liability on the Statement of Assets and Liabilities. Changes in the value of swap contracts are included in Swaps, at value on the Statement of Assets and Liabilities, and periodic payments are reported as “Net realized gain (loss) on swap contracts in the Statement of Operations.
Certain swap contracts are subject to MNA. Amounts presented on the Portfolio of Investments and Statement of Assets and Liabilities are not net settlement amounts but gross. The cash or securities deposited in a segregated account, offsets the amount due to the broker reducing the net settlement amount to zero.
Certain swap contracts may be centrally cleared (“centrally cleared swaps”), whereby all payments made or received by the Fund pursuant to the contract are with a central clearing party (CCP) rather than the counterparty. The CCP guarantees the performance of the parties to the contract. Upon entering into centrally cleared swaps, the Fund is required to deposit with the CCP, either in cash or securities, an amount of initial margin determined by the CCP, which is subject to adjustment. For centrally cleared swaps, the daily change in valuation is recorded as a receivable or payable for variation margin and settled in cash with the CCP daily. In the case of centrally cleared swaps, counterparty risk is minimal due to protections provided by the CCP.
Swap, at value at period end, including net unrealized appreciation/depreciation, are listed after the Fund's Portfolio of Investments.
The average notional amount of swap contracts held by the Fund throughout the period was $5,273,462. This is based on amounts held as of each month-end throughout the fiscal period.
Futures Contracts
The Fund purchases and sells financial futures contracts to manage duration, market and yield curve risks. Upon entering into a financial futures contract with a broker, the Fund is required to deposit in a segregated account, either U.S. government securities or a specified amount of Restricted cash, which is shown in the Statement of Assets and Liabilities. 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. There is minimal counterparty risk to the Fund since futures contracts are exchange traded and the exchange's clearing house, as counterparty to all exchange traded futures contracts, guarantees the futures contracts against default.
Futures contracts outstanding at period end are listed after the Fund's Portfolio of Investments.
The average notional value of long and short futures contracts held by the Fund throughout the period was $365,907,759 and $31,466,474, respectively. This is based on amounts held as of each month-end throughout the fiscal period.
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Foreign Exchange Contracts
The Fund enters into foreign exchange contracts to manage currency risk. Purchased contracts are used to acquire exposure to foreign currencies, whereas, contracts to sell are used to hedge the Fund's securities against currency fluctuations. Risks may arise upon entering into these transactions from the potential inability of counterparties to meet the terms of their commitments and from unanticipated movements in security prices or foreign exchange rates. The foreign exchange contracts 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, 2017, the Fund had no outstanding 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 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 foreign currencies, 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.
Option Contracts
The Fund buys or sells put and call options to manage market risk. The seller (“writer”) of an option receives a payment or premium, from the buyer, which the writer keeps regardless of whether the buyer exercises the option. When the Fund writes a put or call option, an amount equal to the premium received is recorded as a liability and subsequently marked to market to reflect the current value of the option written. Premiums received from writing options which expire are treated as realized gains. The Fund, as a writer of an option, bears the market risk of an unfavorable change in the price of the underlying reference instrument. When the Fund purchases a put or call option, an amount equal to the premium paid is recorded as an increase to the cost of the investment and subsequently marked to market to reflect the current value of the option purchased. Premiums paid for purchasing options which expire are treated as realized losses. Premiums received/paid for writing/purchasing options which are exercised or closed are added to the proceeds or offset against amounts paid on the underlying reference instrument to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Options can trade on securities or commodities exchanges. In this case, the exchange sets all the terms of the contract except for the price. Most exchanges require investors to maintain margin accounts through their brokers to cover their potential obligations to the exchange. This protects investors against potential defaults by the counterparty.
Purchased option contracts outstanding at period-end are listed in the Fund's Portfolio of Investments and written option contracts outstanding at period end are listed after the Fund's Portfolio of Investments.
The average market value of purchased call and put options held by the Fund throughout the period was $246,356 and $1,835,175, respectively. This is based on amounts held as of each month-end throughout the fiscal period.
The average market value of written call and put options held by the Fund throughout the period was $75,865 and $734,331, respectively. This is based on amounts held as of each month-end throughout the fiscal period.
Restricted Securities
The Fund may purchase securities which are considered restricted. Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security 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 such restricted securities may be resold in the secondary market in transactions exempt from registration. 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, like other securities, are priced in accordance with procedures established by and under the general supervision of the Trustees.
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Additional Disclosure Related to Derivative Instruments
Fair Value of Derivative Instruments
  Asset Liability
  Statement of
Assets and
Liabilities
Location
Fair
Value
Statement of
Assets and
Liabilities
Location
Fair
Value
Derivatives not accounted for as hedging
instruments under ASC Topic 815
       
Interest rate contracts   $— Payable for daily variation margin
on futures contracts
$52,966*
Equity contracts   $— Written option contracts
outstanding, at value
$576,825
  Total investments in
securities at value-options
$1,475,025   $—
    $— Payable for daily variation margin
on futures contracts
$(3,515,212)*
Credit contracts Swaps, at value $55,320 Swaps, at value $8,590
Total derivatives not accounted for as hedging
instruments under ASC Topic 815
  $1,530,345   $(2,876,831)
* Includes cumulative appreciation/depreciation of futures contracts as reported in the footnotes to the Portfolio of Investments. Only the current day's variation margin is reported within the Statement of Assets and Liabilities.
The Effect of Derivative Instruments on the Statement of Operations for the Year Ended December 31, 2017
Amount of Realized Gain or (Loss) on Derivatives Recognized in Income
  Credit
Default
Swaps
Futures
Contracts
Purchased
Option
Contracts1
Written
Option
Contracts
Total
Interest rate contracts $$(762,158) $$$(762,158)
Credit contracts $(170,766) $$$$(170,766)
Equity contracts $$59,395,010 $(14,746,246) $4,307,657 $48,956,421
TOTAL $(170,766) $58,632,852 $(14,746,246) $4,307,657 $48,023,497
    
Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized in Income
  Credit
Default
Swaps
Futures
Contracts
Purchased
Option
Contracts2
Written
Option
Contracts
Total
Interest rate contracts $$(285,673) $$$(285,673)
Credit contracts $(145,563) $$$$(145,563)
Equity contracts $$2,829,738 $(1,112,391) $384,781 $2,102,128
TOTAL $(145,563) $2,544,065 $(1,112,391) $384,781 $1,670,892
1 The net realized gain (loss) on Purchased Option Contracts is found within the Net realized gain on investments on the Statement of Operations.
2 The net change in unrealized appreciation/depreciation of Purchased Option Contracts is found within the Net change in unrealized appreciation of investments on the Statement of Operations.
Other
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. The Fund applies investment company accounting and reporting guidance.
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3. SHARES OF BENEFICIAL INTEREST
The following table summarizes share activity:
Year Ended December 31 2017 2016
Shares sold 6,093,908 7,258,508
Shares issued to shareholders in payment of distributions declared 2,357,398 3,404,764
Shares redeemed (10,085,603) (19,435,105)
NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS (1,634,297) (8,771,833)
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 primarily due to differing treatments for defaulted securities, discount accretion/premium amortization on debt securities, partnership income, return of capital adjustments, expiration of capital loss carryforwards and credit default swap contracts.
For the year ended December 31, 2017, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease)
Paid-In
Capital
Undistributed
Net Investment
Income (Loss)
Accumulated
Net Realized
Gain (Loss)
$(1,181,382) $379,640 $801,742
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, 2017 and 2016, was as follows:
  2017 2016
Ordinary income $22,796,040 $29,859,782
As of December 31, 2017, the components of distributable earnings on a tax-basis were as follows:
Undistributed ordinary income $17,241,037
Capital loss carryforwards $(5,604,437)
Net unrealized appreciation $32,644,458
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for defaulted securities, deferral of losses on wash sales, discount accretion/premium amortization on debt securities, non-taxable dividends, straddle loss deferrals, mark to market of derivative instruments and partnership basis adjustments.
At December 31, 2017, the cost of investments for federal tax purposes was $577,732,838. The net unrealized appreciation of investments for federal tax purposes was $32,642,839. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $40,277,764 and net unrealized depreciation from investments for those securities having an excess of cost over value of $7,634,925. The amounts presented are inclusive of derivative contracts.
At December 31, 2017, the Fund had a capital loss carryforward of $5,604,437 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, thereby reducing the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, a net capital loss incurred in taxable years beginning after December 22, 2010, retains its character as either short-term or long-term and does not expire. All of the Fund's capital loss carryforwards were incurred in taxable years beginning after December 22, 2010.
The following schedule summarizes the Fund's capital loss carryforwards:
Short-Term Long-Term Total
$5,604,437 $— $5,604,437
Capital loss carryforwards of $1,181,382 expired during the year ended December 31, 2017.
The Fund used capital loss carryforwards of $68,250,299 to offset capital gains realized during the year ended December 31, 2017.
At December 31, 2017, for federal income tax purposes, the Fund had $2,180 in straddle loss deferrals.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The co-advisory agreement between the Fund and the Co-Advisers provides for an annual fee equal to 0.75% of the Fund's average daily net assets. Subject to the terms described in the Expense Limitation note, the Co-Advisers may voluntarily choose to waive any portion of their fee. The Co-Advisers have agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated investment companies. For the year ended December 31, 2017, the Co-Advisers reimbursed $551,807.
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Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below:
Administrative Fee Average Daily Net Assets
of the Investment Complex
0.100% on assets up to $50 billion
0.075% on assets over $50 billion
In addition to the fees described above, the Fund agrees to pay FAS an annual Administrative Service Charge of $125,000 for administrative and compliance services related to Commodities Futures Trading Commission Rule 4.5. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the year ended December 31, 2017, the annualized fee paid to FAS was 0.100% of average daily net assets of the Fund.
Prior to September 1, 2017, the breakpoints of the Administrative Fee paid to FAS, described above, were:
Administrative Fee Average Daily Net Assets
of the Investment Complex
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
In addition, FAS may charge certain out-of-pocket expenses to the Fund.
Expense Limitation
The Co-Advisers and certain of their affiliates (which may include FAS) on their own initiative have agreed to waive certain amounts of their respective fees and/or reimburse expenses. Effective May 1, 2017, total annual fund operating expenses (as shown in the financial highlights, excluding interest expense, extraordinary expenses, line of credit expenses and proxy related expenses paid by the Fund, if any) paid by the Fund (after the voluntary waivers and/or reimbursements) will not exceed 0.89% (the “Fee Limit”) up to but not including the later of (the “Termination Date”): (a) May 1, 2018; or (b) the date of the Fund's next effective Prospectus. While the Co-Advisers and their applicable affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Trustees.
Interfund Transactions
During the year ended December 31, 2017, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees and/or common Officers. These purchase and sale transactions complied with Rule 17a-7 under the Act and amounted to $2,550,188 and $719,222, respectively.
Directors'/Trustees' and Miscellaneous Fees
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Directors'/Trustees' fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Co-Advisers which in due course are reimbursed by the Fund. These expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended December 31, 2017, were as follows:
Purchases $391,345,347
Sales $363,787,711
7. CONCENTRATION OF RISK
The Fund invests in securities of non-U.S. issuers. Political or economic developments may have an effect on the liquidity and volatility of portfolio securities and currency holdings.
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At December 31, 2017, the diversification of countries was as follows:
Country Percentage of
Net Assets
United States 81.6%
Mexico 1.4%
China 1.3%
Other1 13.8%
1 Countries representing less than 1.0% have been aggregated under the designation “Other.”
8. LINE OF CREDIT
The Fund participates with certain other Federated Funds, on a several basis, in an up to $500,000,000 unsecured, 364-day, committed, revolving line of credit (LOC) agreement. The LOC was made available to finance temporarily the repurchase or redemption of shares of the Fund, failed trades, payment of dividends, settlement of trades and for other short-term, temporary or emergency general business purposes. The Fund cannot borrow under the LOC if an inter-fund loan is outstanding. The Fund's ability to borrow under the LOC also is subject to the limitations of the Act and various conditions precedent that must be satisfied before the Fund can borrow. Loans under the LOC are charged interest at a fluctuating rate per annum equal to the highest, on any day, of (a) (i) the federal funds effective rate, (ii) the one month London Interbank Offered Rate (LIBOR), and (iii) 0.0%, plus (b) a margin. The LOC also requires the Fund to pay, quarterly in arrears and at maturity, its pro rata share of a commitment fee based on the amount of the lenders' commitment that has not been utilized. As of December 31, 2017, the Fund had no outstanding loans. During the year ended December 31, 2017, the Fund did not utilize the LOC.
9. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the Fund to borrow from other participating affiliated funds. As of December 31, 2017, there were no outstanding loans. During the year ended December 31, 2017, the program was not utilized.
10. subsequent events
The Trustees have approved a proposed Agreement and Plan of Reorganization (Reorganization) pursuant to which the Fund will acquire all or substantially all of the assets of Federated Managed Tail Risk Fund II, another fund of the Trust, in complete liquidation and termination of Federated Managed Tail Risk Fund II. Pending submission of proxy materials to shareholders of Federated Managed Tail Risk Fund II, a special meeting of the shareholders is proposed to be held in the third quarter of 2018 to approve or disapprove the proposed Reorganization.
In addition, in order to facilitate the Reorganization, the Trustees have approved the designation of the existing shares of the Fund as Primary Shares and the addition of a new share class of Service Shares, to be effective the second quarter of 2018.
11. FEDERAL TAX INFORMATION (UNAUDITED)
Of the ordinary income distributions made by the Fund during the year ended December 31, 2017, 23.87% qualify for the dividend received deduction available to corporate shareholders.
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Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF The FEDERATED INSURANCE SERIES AND SHAREHOLDERS OF FEDERATED MANAGED VOLATILITY FUND II:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Federated Managed Volatility Fund II (the “Fund”), a portfolio of Federated Insurance Series, as of December 31, 2017, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. 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, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor for one or more of Federated Investors'- investment companies since 2006.
Boston, Massachusetts
February 14, 2018
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Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or other service 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 funds used as 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, 2017 to December 31, 2017.
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 required to be provided to enable you to compare the ongoing costs of investing in the Fund with 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
7/1/2017
Ending
Account Value
12/31/2017
Expenses Paid
During Period1
Actual $1,000 $1,092.00 $4.38
Hypothetical (assuming a 5% return before expenses) $1,000 $1,021.00 $4.23
1 Expenses are equal to the Fund's annualized net expense ratio of 0.83%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). The expenses shown in the table do not include the charges and expenses imposed by the insurance company under the variable insurance product contract. Please refer to the variable insurance product prospectus for a complete listing of these expenses.
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In Memoriam
With profound sadness, Federated announces the passing of John F. (“Jack”) Donahue and John W. (“John”) McGonigle. They will be greatly missed.
Jack Donahue
(Former Chairman and President, and Emeritus Director/Trustee, of the Federated Funds, and Founder, Former Chairman, President and Chief Executive Officer, and Chairman Emeritus, of Federated Investors, Inc.)
Jack Donahue, along with Richard B. Fisher, founded Federated in 1955 and served as a leader and member of the Boards of Directors/Trustees of the Federated Funds and the Board of Directors of Federated Investors, Inc. Mr. Donahue was a family man of deep faith with exemplary character and fealty, who served his religion, family, community, and the Federated Funds and Federated, as well as their shareholders, officers and employees, with distinction. His integrity, intelligence, and keen sense of fiduciary duty, coupled with his faith, family and background as a West Point graduate and Strategic Air Command B-29 pilot, served as a foundation for his strong business acumen and leadership. Among his many achievements, Mr. Donahue's steadfast and innovative leadership of the Federated Funds and Federated, as well as within the investment management industry, led to the birth of money market funds in the 1970s and their growth as an innovative, efficient and effective cash management vehicle throughout the 1980s, 1990s, 2000s and beyond. Federated expresses deep gratitude to Mr. Donahue for his inspiring leadership, distinguished service and contributions as a husband, father, founder, Board member and officer, colleague and friend.
John McGonigle
(Former Secretary of the Federated Funds, Former Director, Secretary and Chief Legal Officer of Federated Investors, Inc.)
John McGonigle served the Federated Funds and their respective Boards with distinction for more than 50 years as Fund Secretary and also served as Director for several closed-end funds. Mr. McGonigle was a gifted lawyer and wise counselor with a genial presence, keen intellect and convivial demeanor. A man of deep faith, he was a devoted husband, father and grandfather. A graduate of Duquesne University School of Law, Mr. McGonigle served as an officer in the U.S. Army for two years, achieving the rank of Captain. He also served on the staff of the Securities and Exchange Commission before joining Federated in 1966. Among many professional accomplishments, Mr. McGonigle helped fashion the regulatory foundation for money market funds, established Federated's first offshore funds in Ireland, and represented Federated on the Board of Governors of the Investment Company Institute where he was a member of the Executive Committee. Federated expresses deep gratitude for Mr. McGonigle and his impact on his family, friends, the community, and the mutual fund industry.
Board of Trustees and Trust Officers
The Board of Trustees 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 Trustee and the senior officers of the Fund. Where required, the tables separately list Trustees who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Trustees listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2017, the Trust comprised seven portfolio(s), and the Federated Fund Family consisted of 40 investment companies (comprising 108 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Trustee oversees all portfolios in the Federated Fund Family and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
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Interested Trustees Background
Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
J. Christopher Donahue*
Birth Date: April 11, 1949
Trustee
Indefinite Term
Began serving: September 1993
Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of the Funds in the Federated Fund Family; 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 and Trustee, Federated Equity Management Company of Pennsylvania; 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; Chairman, Passport Research, Ltd.
Thomas R. Donahue*
Birth Date: October 20, 1958
Trustee
Indefinite Term
Began serving: May 2016
Principal Occupations: Director or Trustee of certain of the funds in the Federated Fund Family; Chief Financial Officer, Treasurer, Vice President and Assistant Secretary, Federated Investors, Inc.; Chairman and Trustee, Federated Administrative Services; Chairman and Director, Federated Administrative Services, Inc.; Trustee and Treasurer, Federated Advisory Services Company; Director or Trustee and Treasurer, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, and Federated Investment Management Company; Director, MDTA LLC; Director, Executive Vice President and Assistant Secretary, Federated Securities Corp.; Director or Trustee and Chairman, Federated Services Company and Federated Shareholder Services Company; and Director and President, FII Holdings, Inc.
Previous Positions: Director, Federated Investors, Inc.; Assistant Secretary, Federated Investment Management Company, Federated Global Investment Management Company and Passport Research, LTD; Treasurer, Passport Research, LTD; Executive Vice President, Federated Securities Corp.; and Treasurer, FII Holdings, Inc.
* Family relationships and reasons for “interested” status: J. Christopher Donahue and Thomas R. Donahue are brothers. Both are “interested” due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT Trustees Background
Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
John T. Collins
Birth Date: January 24, 1947
Trustee
Indefinite Term
Began serving: October 2013
Principal Occupations: Director or Trustee of the Federated Fund Family; formerly, Chairman and CEO, The Collins Group, Inc. (a private equity firm) (Retired).
Other Directorships Held: Director, Current Chair of the Compensation Committee, KLX Corp.
Qualifications: Mr. Collins has served in several business and financial management roles and directorship positions throughout his career. Mr. Collins previously served as Chairman and CEO, The Collins Group, Inc. (a private equity firm). Mr. Collins serves as Chairman Emeriti, Bentley University. Mr. Collins previously served as Director and Audit Committee Member, Bank of America Corp.; Director, FleetBoston Financial Corp.; and Director, Beth Israel Deaconess Medical Center (Harvard University Affiliate Hospital).
G. Thomas Hough
Birth Date: February 28, 1955
Trustee
Indefinite Term
Began serving: August 2015
Principal Occupations: Director or Trustee of the Federated Fund Family; formerly, Vice Chair, Ernst & Young LLP (public accounting firm) (Retired).
Other Directorships Held: Director, Chair of the Audit Committee, Governance Committee, Publix Super Markets, Inc.; Director, Member of the Audit Committee and Technology Committee of Equifax, Inc.
Qualifications: Mr. Hough has served in accounting, business management and directorship positions throughout his career. Mr. Hough most recently held the position of Americas Vice Chair of Assurance with Ernst & Young LLP (public accounting firm). Mr. Hough is an Executive Committee member of the United States Golf Association, he serves on the President's Cabinet and Business School Board of Visitors for the University of Alabama and is on the Business School Board of Visitors for Wake Forest University.
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Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
Maureen Lally-Green
Birth Date: July 5, 1949
Trustee
Indefinite Term
Began serving: August 2009
Principal Occupations: Director or Trustee of the Federated Fund Family; Dean of the Duquesne University School of Law; Professor and Adjunct Professor of Law, Duquesne University School of Law; formerly, Interim Dean of the Duquesne University School of Law; Associate General Secretary and Director, Office of Church Relations, Diocese of Pittsburgh.
Other Directorships Held: Director, CNX Resources Corporation (formerly known as CONSOL Energy Inc.).
Qualifications: Judge Lally-Green has served in various legal and business roles and directorship positions throughout her career. Judge Lally-Green previously served as: Associate General Secretary, Diocese of Pittsburgh; a member of the Superior Court of Pennsylvania; and as a Professor of Law, Duquesne University School of Law. Judge Lally-Green also currently holds the positions on either a public or not for profit Board of Directors as follows: Director and Chair, UPMC Mercy Hospital; Director and Vice Chair, Our Campaign for the Church Alive!, Inc.; Director, Saint Vincent College; Member, Pennsylvania State Board of Education (public); and Director CNX Resources Corporation (formerly known as CONSOL Energy Inc.), where she currently serves as a member of the Compensation, Nominating and Corporate Governance Committee (Chair) and the Health, Safety and Environmental Committee. Judge Lally-Green has held the positions of: Director, Auberle; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Ireland Institute of Pittsburgh; Director, Saint Thomas More Society; Director and Chair, Catholic High Schools of the Diocese of Pittsburgh, Inc.; Director, Pennsylvania Bar Institute; Regent, St. Vincent Seminary; and Director and Chair, Cardinal Wuerl North Catholic High School, Inc.
Charles F. Mansfield, Jr.
Birth Date: April 10, 1945
Trustee

Indefinite Term
Began serving: September 1999
Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant.
Other Directorships Held: None.
Qualifications: Mr. Mansfield has served as a Marine Corps officer and in several banking, business management, educational roles and directorship positions throughout his long career. He remains active as a Management Consultant.
Thomas M. O'Neill
Birth Date: June 14, 1951
Trustee

Indefinite Term
Began serving: August 2006
Principal Occupations: Director or Trustee, Chair of the Audit Committee of the Federated Fund Family; Sole Proprietor, Navigator Management Company (investment and strategic consulting).
Other Directorships Held: None.
Qualifications: Mr. O'Neill has served in several business, mutual fund and financial management roles and directorship positions throughout his career. Mr. O'Neill serves as Director, Medicines for Humanity and Director, The Golisano Children's Museum of Naples, Florida. Mr. O'Neill previously served as Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); and Director, Midway Pacific (lumber).
P. Jerome Richey
Birth Date: February 23, 1949
Trustee
Indefinite Term
Began serving: October 2013
Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant; formerly, Senior Vice Chancellor and Chief Legal Officer, University of Pittsburgh and Executive Vice President and Chief Legal Officer, CNX Resources Corporation (formerly known as CONSOL Energy Inc.)
Other Directorships Held: None.
Qualifications: Mr. Richey has served in several business and legal management roles and directorship positions throughout his career. Mr. Richey most recently held the positions of Senior Vice Chancellor and Chief Legal Officer, University of Pittsburgh. Mr. Richey previously served as Chairman of the Board, Epilepsy Foundation of Western Pennsylvania and Chairman of the Board, World Affairs Council of Pittsburgh. Mr. Richey previously served as Chief Legal Officer and Executive Vice President, CNX Resources Corporation (formerly known as CONSOL Energy Inc.); and Board Member, Ethics Counsel and Shareholder, Buchanan Ingersoll & Rooney PC (a law firm).
John S. Walsh
Birth Date: November 28, 1957
Trustee

Indefinite Term
Began serving: January 1999
Principal Occupations: Director or Trustee, and Chair of the Board of Directors or Trustees, of the Federated Fund Family; 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.
Other Directorships Held: None.
Qualifications: Mr. Walsh has served in several business management roles and directorship positions throughout his career. Mr. Walsh previously served as Vice President, Walsh & Kelly, Inc. (paving contractors).
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OFFICERS
Name
Birth Date
Address
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years
and Previous Position(s)
Lori A. Hensler
Birth Date: January 6, 1967
TREASURER
Officer since: April 2013
Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Family; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp. and Edgewood Services, Inc.; and Assistant Treasurer, Federated Investors Trust Company. Ms. Hensler has received the Certified Public Accountant designation.
Previous Positions: Controller of Federated Investors, Inc.; Senior Vice President and Assistant Treasurer, Federated Investors Management Company; Treasurer, Federated Investors Trust Company; Assistant Treasurer, Federated Administrative Services, Federated Administrative Services, Inc., Federated Securities Corp., Edgewood Services, Inc., Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company, Passport Research, Ltd., and Federated MDTA, LLC; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc.
Peter J. Germain
Birth Date: September 3, 1959
CHIEF LEGAL OFFICER, SECRETARY and EXECUTIVE VICE PRESIDENT
Officer since: January 2005
Principal Occupations: Mr. Germain is Chief Legal Officer, Secretary and Executive Vice President of the Federated Fund Family. He is General Counsel, Chief Legal Officer, Secretary and Executive Vice President, Federated Investors, Inc.; Trustee and Senior Vice President, Federated Investors Management Company; Trustee and President, Federated Administrative Services; Director and President, Federated Administrative Services, Inc.; Director and Vice President, Federated Securities Corp.; Director and Secretary, Federated Private Asset Management, Inc.; Secretary, Federated Shareholder Services Company; and Secretary, Retirement Plan Service Company of America. Mr. Germain joined Federated in 1984 and is a member of the Pennsylvania Bar Association.
Previous Positions: Deputy General Counsel, Special Counsel, Managing Director of Mutual Fund Services, Federated Investors, Inc.; Senior Vice President, Federated Services Company; and Senior Corporate Counsel, Federated Investors, Inc.
Richard B. Fisher
Birth Date: May 17, 1923
Vice President
Officer since: September 1993
Principal Occupations: Vice Chairman or Vice President of some of the Funds in the Federated Fund Family; 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 Family; Executive Vice President, Federated Investors, Inc.; Director and Chief Executive Officer, Federated Securities Corp.
John B. Fisher
Birth Date: May 16, 1956
President
Officer since: November 2004
Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of certain of the Funds in the Federated Fund Family; Vice President, Federated Investors, Inc.; President, Director/Trustee and CEO, Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company; President and CEO of Passport Research, Ltd.; President of some of the Funds in the Federated Fund Complex and Director, Federated Investors Trust Company.
Previous Positions: President and Director of the Institutional Sales Division of Federated Securities Corp.; President and Director of Federated Investment Counseling; Director, Edgewood Securities Corp.; Director, Federated Services Company; Director, Federated Investors, Inc.; Chairman and Director, Southpointe Distribution Services, Inc. and President, Technology, Federated Services Company.
Stephen Van Meter
Birth Date: June 5, 1975
CHIEF COMPLIANCE OFFICER AND SENIOR VICE PRESIDENT
Officer since: July 2015
Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Family; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of certain of its subsidiaries. Mr. Van Meter joined Federated in October 2011. He holds FINRA licenses under Series 3, 7, 24 and 66.
Previous Positions: Mr. Van Meter previously held the position of Compliance Operating Officer, Federated Investors, Inc. Prior to joining Federated, Mr. Van Meter served at the United States Securities and Exchange Commission in the positions of Senior Counsel, Office of Chief Counsel, Division of Investment Management and Senior Counsel, Division of Enforcement.
Stephen F. Auth
Birth Date: September 13, 1956
101 Park Avenue
41st Floor
New York, NY 10178
CHIEF INVESTMENT OFFICER
Officer since: November 2002
Principal Occupations: Stephen F. Auth is Chief Investment Officer of various Funds in the Federated Fund Family; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp. and Federated Equity Management Company of Pennsylvania.
Previous Positions: Executive Vice President, Federated Investment Management Company and Passport Research, Ltd. (investment advisory subsidiary of Federated); 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
Officer since: May 2004
Principal Occupations: Robert J. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of Federated's taxable fixed-income products in 2004 and also serves as a Senior Portfolio Manager. Mr. Ostrowski became an Executive Vice President of the Fund's Adviser in 2009 and served as a Senior Vice President of the Fund's Adviser from 1997 to 2009. Mr. Ostrowski has received the Chartered Financial Analyst designation. He received his M.S. in Industrial Administration from Carnegie Mellon University.
Deborah A. Cunningham
Birth Date: September 15, 1959
Chief Investment Officer
Officer since: June 2012
Principal Occupations: Deborah A. Cunningham was named Chief Investment Officer of Federated's money market products in 2004. She joined Federated in 1981 and has been a Senior Portfolio Manager since 1997 and an Executive Vice President of the Fund's Adviser since 2009. Ms. Cunningham has received the Chartered Financial Analyst designation and holds an M.S.B.A. in Finance from Robert Morris College.
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Evaluation and Approval of Advisory ContractMay 2017
Federated Managed Volatility Fund II (the “Fund”)
Following a review and recommendation of approval by the Fund's independent trustees, the Fund's Board of Trustees (the “Board”) reviewed and unanimously approved the continuation of the Fund's investment advisory contract, under which Federated Global Investment Management Corp., Federated Equity Management Company of Pennsylvania and Federated Investment Management Company will serve as co-advisers to the Fund (“Co-Advisers”) for an additional one-year term at its May 2017 meetings. The Board's decision regarding the contract reflects the exercise of its business judgment after considering all of the information received on whether to continue the existing arrangements.
The Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below (the “Senior Officer's Evaluation”). The Board considered the Senior Officer's Evaluation, along with other information, in deciding to approve the investment advisory contract.
The Board also considered judicial decisions concerning allegedly excessive investment advisory fees in its decision. Using these judicial decisions as a guide, the Board has indicated that the following factors may be relevant to an adviser's fiduciary duty with respect to its receipt of compensation from a fund: (1) the nature and quality of the services provided by an adviser to a fund and its shareholders (including the performance of the Fund and of comparable funds); (2) an adviser's cost of providing the services (including the profitability to an adviser of providing advisory services to a fund); (3) the extent to which an adviser may realize “economies of scale” as a fund grows larger and, if such economies of scale exist, whether they have been shared with a fund and its shareholders or the family of funds; (4) any “fall-out financial benefits” that accrue to an adviser because of its relationship with a fund (including research services received from brokers that execute fund trades and any fees paid to affiliates of an adviser for services rendered to a fund); (5) comparative fee and expense structures (including a comparison of fees paid to an adviser with those paid by similar funds); and (6) the extent of care, conscientiousness and independence with which the Fund's board members perform their duties and their expertise (including whether they are fully informed about all facts the Board deems relevant to its consideration of an adviser's services and fees). The Board noted that the Securities and Exchange Commission (“SEC”) disclosure requirements regarding the basis for the Board's approval of the Fund's investment advisory contract generally align with the factors listed above. Consistent with the judicial decisions and SEC disclosure requirements, the Board also considered management fees charged to institutional and other clients of each Co-Adviser and their advisory affiliates for what might be viewed as like services. The Board was aware of these factors and was guided by them in its review of the Fund's investment advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below. Also, in weighing these factors, the Board considered the aggregate advisory fee paid by the Fund for the services of all Co-Advisers in addition to considering the allocation of that aggregate fee among the Co-Advisers and the rationale for that allocation.
The Board considered and weighed these factors in light of its substantial accumulated experience in governing the Fund and working with Federated Investors, Inc. and its affiliates (“Federated”) on matters relating to the Federated funds. The Board was assisted in its deliberations by independent legal counsel. In addition to the extensive materials that comprise and accompany the Senior Officer's Evaluation, the Board received detailed information about the Fund and the Federated organization throughout the year, and in connection with its May meetings. Federated provided much of this information at each regular meeting of the Board, and furnished additional information in connection with the May meetings, at which the Board's formal approval of the investment advisory contract occurred. At the May meetings, in addition to meeting in separate sessions of the independent trustees without management present, senior management of the Co-Advisers also met with the independent trustees and their counsel to discuss the materials presented and any other matters thought relevant by the Co-Advisers or the trustees. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. The Board's consideration of the investment advisory contract included review of the Senior Officer's Evaluation, accompanying data and additional information covering such matters as: the Co-Advisers' investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in terms relative to its particular investment program and certain competitor or “peer group” funds and/or other benchmarks, as appropriate) and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses, including the advisory fee and the overall expense structure of the Fund (both in absolute terms and relative to similar and/or competing funds), with due regard for contractual or voluntary expense limitations; the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Co-Advisers and their affiliates. The Board also considered the preferences and expectations of Fund shareholders; the entrepreneurial risk assumed by the Co-Advisers in sponsoring the Fund; the continuing state of
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competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are generally available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
While mindful that courts have cautioned against giving such comparisons too much weight, the Board has found the use of comparisons of the Fund's fees and expenses to other mutual funds with comparable investment programs to be relevant to its deliberations. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, total expense ratios and each element of the Fund's total expense ratio (i.e., gross and net advisory fees, custody fees, portfolio accounting fees and transfer agency fees) relative to the Fund's peers. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, in that they are readily available to Fund shareholders as alternative investment vehicles. Also, they are the type of investment vehicle, in fact, chosen and maintained by the Fund's investors. The range of their fees and expenses, therefore, appears to be a relevant indicator of what consumers have found to be reasonable in the marketplace in which the Fund competes.
The investment advisory contract between the Fund and the Co-Advisers provides for payment of a single advisory fee by the Fund for all services provided by the Co-Advisers. The investment advisory contract permits the Co-Advisers to allocate the advisory fee in a manner commensurate with the services they provide to the Fund. Throughout the year, as well as in connection with its May meetings, the Board considered the fee allocation and analyzed whether the allocation of fees among the Co-Advisers continued to be a reasonable proxy for and measurement of the level of resources and services provided by each Co-Adviser toward the management of the Fund.
The Board reviewed the contractual advisory fee rate, net advisory fee rate where partially waived and other expenses of the Fund and noted the position of the Fund's contractual advisory fee rate and other expenses relative to its peers. In this regard, the Board noted that the contractual advisory fee rate was below the median of the relevant peer group and the Board was satisfied with that the overall expense structure of the Fund remained competitive.
For comparison, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated funds (e.g., institutional and separate accounts and sub-adviser services). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes and portfolio management techniques made necessary by different cash flows and different associated costs; and the time spent by portfolio managers and their teams, funds financial services, legal, compliance and risk management in reviewing securities pricing, addressing different administrative responsibilities, addressing different degrees of risk associated with management and a variety of different costs. The Senior Officer did not consider the fees for providing advisory services to these outside products to be determinative in judging the appropriateness of mutual fund advisory fees.
Following such evaluation, and full deliberations, the Board concluded that the expenses of the Fund are reasonable and supported renewal of the Fund's investment advisory contract.
The Board considered the nature, extent and quality of the services provided to the Fund by the Co-Advisers and the resources of the Co-Advisers and their affiliates dedicated to the Fund. In particular, the Board considered the services provided by the Co-Advisers in the aggregate, to the extent that the Co-Advisers collaborate in the implementation of the Fund's strategy, as well as separately, to the extent to which specific services provided by a Co-Adviser are distinguishable and subject to meaningful assessment. In this regard, the Board evaluated, among other things, the Co-Advisers' personnel, experience, track record, overall reputation and willingness to invest in personnel and infrastructure that benefit the Fund. In addition, the Board reviewed the qualifications, backgrounds and responsibilities of the portfolio management team primarily responsible for the day-to-day management of the Fund. The Board noted the compliance programs of, and the compliance-related resources provided to, the Fund by the Co-Advisers. The Fund's ability to deliver competitive performance when compared to its peer group was also deemed to be relevant by the Board as a useful indicator of how the Co-Advisers are executing the Fund's investment program. The Co-Advisers' ability to execute this program was one of the Board's considerations in reaching a conclusion that the nature, extent, and quality of the Co-Advisers' investment management services warrant the continuation of the investment advisory contract.
In evaluating the Fund's investment performance, the Board considered performance results in light of the Fund's investment objective, strategies and risks, as disclosed in the Fund's prospectus. The Board particularly considered detailed investment reports on the Fund's performance that were provided to the Board throughout the year and in connection with the May meetings. The Senior Officer also reviewed information compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his
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view that comparisons to fund peer groups may be helpful, though not conclusive, in judging the reasonableness of the proposed fees. The Board considered, in evaluating such comparisons, that in some cases individual funds may exhibit significant and unique differences in their objectives and management techniques when compared to other funds within an industry peer group.
For the periods covered by the Senior Officer's Evaluation, the Fund's performance for the one-year and five-year periods was above the median of the relevant peer group, and the Fund's performance fell below the median of the relevant peer group for the three-year period. The Board discussed the Fund's performance with the Co-Advisers and recognized the efforts being taken by the Co-Advisers in the context of the other factors considered relevant by the Board.
Following such evaluation, and full deliberations, the Board concluded that the expenses of the Fund are reasonable and supported renewal of the investment advisory contract.
The Board also received financial information about Federated, including information regarding the compensation and ancillary (or “fall-out”) benefits Federated derived from its relationships with the Federated funds. This information covered not only the fees under the investment advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The information also detailed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to Fund investors and/or indicated to the Board their intention to do so in the future. Moreover, the Board receives regular reporting as to the institution, adjustment or elimination of these voluntary waivers.
The Board considered Federated's previous reductions in contractual management fees to certain funds in response to the Senior Officer's recommendations.
Federated furnished information, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in allocating costs continues to cause the Senior Officer to question the precision of the process and to conclude that such reports may be unreliable, since a single change in an allocation estimate may dramatically alter the resulting estimate of cost and/or profitability of a fund and may produce unintended consequences. The allocation information, including the Senior Officer's view that fund-by-fund estimations may be unreliable, was considered in the analysis by the Board.
The Board and the Senior Officer also reviewed information compiled by Federated comparing its profitability information to other publicly held fund management companies. In this regard, the Senior Officer concluded that Federated's profit margins did not appear to be excessive. The Senior Officer also noted that Federated appeared financially sound, with the resources to fulfill its obligations under its contracts with the Fund.
The Senior Officer's Evaluation also discussed the notion of possible realization of “economies of scale” as a fund grows larger. In this regard, the Board considered that the Co-Advisers have made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, shareholder services, compliance, internal audit and risk management functions, as well as systems technology (including technology relating to cybersecurity) and that the benefits of these efforts (as well as any economies of scale, should they exist) were likely to be enjoyed by the fund family as a whole. The Board noted that the Co-Advisers' investments in these areas are extensive. In addition, the Board considered that Federated and its affiliates have frequently waived fees and/or reimbursed expenses and that this has allowed fund shareholders to share potential economies of scale from a fund's inception. Federated, as it does throughout the year, and in connection with the Board's review, furnished information relative to revenue sharing or adviser paid fees. Federated and the Senior Officer noted that this information should be viewed to determine if there was an incentive to either not apply breakpoints or to apply breakpoints, at higher levels. It should not be viewed to determine the appropriateness of advisory fees because it would represent marketing and distribution expenses. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's Evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with “breakpoints” that serve to reduce the fee as a fund attains a certain size.
While the Senior Officer noted certain items for follow-up reporting to the Board and further consideration by management, he stated that his observations and information accompanying the Senior Officer's Evaluation supported a finding by the Board that the management fee for the Fund was reasonable. Under these circumstances, no changes were recommended to, and no objection was raised to the continuation of, the Fund's investment advisory contract.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an investment advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Co-Advisers' industry standing and reputation and with the expectation that the Co-Advisers will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the
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investment advisory contract reflected the fact that it is the shareholders who have effectively selected the Co-Advisers by virtue of having invested in the Fund. The Board concluded that, in light of the factors discussed above, including the nature, quality and scope of the services provided to the Fund by the Co-Advisers and their affiliates, continuation of the investment advisory contract was appropriate.
The Board based its decision to approve the investment advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the continuation of the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
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Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, 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 via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at www.FederatedInvestors.com/FundInformation. Form N-PX filings are also available at the SEC's website at 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 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 via the link to the Fund and share class name at www.FederatedInvestors.com/FundInformation.
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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 Managed Volatility Fund II

Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313916108
G00845-01 (2/18)
Federated is a registered trademark of Federated Investors, Inc.
2018 ©Federated Investors, Inc.
Annual Shareholder Report
Share Class Primary Service            

Federated High Income Bond Fund II

A Portfolio of Federated Insurance Series
Dear Valued Shareholder,
I am pleased to present the Annual Shareholder Report for your fund covering the period from January 1, 2017 through December 31, 2017. This report includes Management's Discussion of Fund Performance, a complete listing of your fund's holdings, performance information and financial statements along with other important fund information.
In addition, our website, FederatedInvestors.com, offers easy access to Federated resources that include timely fund updates, economic and market insights from our investment strategists, and financial planning tools. We invite you to register to take full advantage of its capabilities.
Thank you for investing with Federated. I hope you find this information useful and look forward to keeping you informed.
Sincerely,
John B. Fisher, President

Not FDIC Insured ■ May Lose Value ■ No Bank Guarantee

CONTENTS

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Management's Discussion of Fund Performance (unaudited)
The total return of Federated High Income Bond Fund II (the “Fund”), based on net asset value for the 12-month reporting period ended December 31, 2017, was 6.94% for the Primary Shares and 6.56% for the Service Shares. The total return of the Fund's Primary Shares consisted of 7.23% current income and -0.29% of depreciation in the net asset value of the Fund's shares. The total return of the Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index (BBHY2%ICI),1 a broad-based securities market index, was 7.50% during the same period. The total return of the Lipper Variable Underlying High Yield Funds Average (LVHYFA),2 a peer group for the Fund, was 6.49% during the same period. The Fund's and LVHYFA's total returns 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 BBHY2%ICI.
During the reporting period, the most significant factors affecting the Fund's performance relative to the BBHY2%ICI were: (1) the allocation among industry sectors and (2) the selection of individual securities. The following discussion will focus on the performance of the Fund's Primary Shares.
MARKET OVERVIEW
The total return for the high-yield3 market for the reporting period was attractive on both an absolute as well as a relative basis. For example, the BBHY2%ICI, which returned 7.50% for the period, substantially outperformed the Bloomberg Barclays U.S. Aggregate Bond Index,4 a measure of high-quality bond5 performance, which returned 3.54% for the period. The high-yield market benefited from a global, synchronized economic expansion that appeared to be strengthening as 2017 came to a close. This was driven by a business-friendly administration in Washington, accommodative central bank policy outside the U.S., high levels of employment as well as strong levels of business and consumer confidence. These factors led to strong corporate earnings, high levels of cash generation by high-yield companies and declining default rates which supported high-yield bonds. These positive drivers also led to surging equity markets increasing the overall enterprise value for corporations. From a macro standpoint, the December 2017 passage of tax reform legislation would seem to be another factor to add to the long list of items positively impacting U.S. economic growth and corporate earnings. The impact of these factors can be seen in the spread between high-yield bonds and U.S. Treasury securities with comparable maturities which, according to the Credit Suisse High Yield Bond Index,6 began the reporting period at 472 basis points and ended the reporting period at 394 basis points.
Within the high-yield market, major industry sectors that substantially outperformed the overall BBHY2%ICI during the reporting period included: Pharmaceuticals, Transportation Services, Banking, Electric Utilities and Diversified Manufacturing. Major industry sectors that substantially underperformed the overall BBHY2%ICI during the reporting period included: Wireline Telecommunications, Retail, Consumer Products, Wireless Telecommunications and Media & Entertainment. From a credit quality perspective, the “CCC”-rated sector returned 10.38% while the “BB”-rated and “B”-rated sectors returned 7.32% and 6.48%, respectively during the reporting period.
Sector Allocation
The Fund was positively affected by its sector allocation during the reporting period. This was mainly a result of its substantial underweight position in the poor-performing Wireline Telecommunications industry sector. This was partially offset by the Fund's cash holdings and its underweight position in the strong-performing Banking sector. An overweight position in the strong-performing Pharmaceutical sector and an underweight position in the poor-performing Retail sector helped to offset some of the poor security selection in these two sectors during the reporting period.
Security Selection
The Fund was negatively affected by its security selection during the period. This was especially true in the Retail, Consumer Products, Pharmaceutical, Midstream and Chemicals industry sectors. Specific high-yield issuers held by the Fund that negatively impacted performance relative to the BBHY2%ICI included: FGI Operating Co., PetSmart, Mallinckrodt, Team Health and Jaguar Holdings.
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The Fund was positively impacted by security selection in the Healthcare, Cable & Satellite, Automotive, Wireless Telecommunications, Packaging, Metals and the Media & Entertainment industry sectors during the reporting period. Specific high-yield issuers held by the Fund that positively impacted performance relative to the BBHY2%ICI included: Intelsat, Ortho-Clinical Diagnostics, Valeant Pharmaceutical, Tenet Healthcare and Freeport-McMoRan.
1 Please see the footnotes to the line graphs below for definitions of, and further information about, the BBHY2%ICI.
2 Please see the footnotes to the line graphs below for definitions of, and further information about, the LVHYFA.
3 High-yield, lower-rated securities generally entail greater market, credit and liquidity risks than investment-grade securities and may include higher volatility and a higher risk of default.
4 The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based index that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market.*
5 Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.
6 Credit Suisse High Yield Bond Index serves as a benchmark to evaluate the performance of low-quality bonds. Low-quality is defined as those bonds in the range from “BB” to “CCC” and defaults.*
* The index is unmanaged, and it is not possible to invest directly in an index.
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FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,0001 in the Federated High Income Bond Fund II from December 31, 2007 to December 31, 2017, compared to the Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index (BBHY2%ICI)2 and the Lipper Variable Underlying High Yield Funds Average (LVHYFA).3 The Average Annual Total Return table below shows returns for each class averaged over the stated periods.
Growth of a $10,000 Investment
Growth of $10,000 as of December 31, 2017
Average Annual Total Returns for the Period Ended 12/31/2017
  1 Year 5 Years 10 Years
Primary Shares 6.94% 5.62% 7.48%
Service Shares 6.56% 5.35% 7.21%
BBHY2%ICI 7.50% 5.78% 8.09%
LVHYFA 6.49% 4.74% 6.46%
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. 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 BBHY2%ICI and the LVHYFA have been adjusted to reflect reinvestment of dividends on securities in the index and average.
2 The BBHY2%ICI is an issuer-constrained version of the Bloomberg Barclays U.S. Corporate High Yield Index that measures the market of USD-denominated, noninvestment-grade, fixed-rate, taxable corporate bonds. The index follows the same rules as the uncapped index but limits the exposure of each issuer to 2% of the total market value and redistributes any excess market value index-wide on a pro-rata basis. The BBHY2%ICI 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 cash flows. It is not possible to invest directly in an index.
3 Lipper figures represent the average of the total returns reported by all funds designated by Lipper, Inc., as falling into the respective category and is not adjusted to reflect any sales charges. The Lipper figures in the Growth of $10,000 line graph are based on historical return information published by Lipper and reflect the return of the funds comprising the category in the year of publication. Because the funds designated by Lipper as falling into the category can change over time, the Lipper figures in the line graph may not match the Lipper figures in the Average Annual Total Returns table, which reflect the return of the funds that currently comprise the category.
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Portfolio of Investments Summary Table (unaudited)
At December 31, 2017, the Fund's index classification1 was as follows:
Index Classification Percentage of
Total Net Assets
Health Care 10.5%
Technology 9.5%
Cable Satellite 7.8%
Packaging 6.3%
Independent Energy 5.8%
Midstream 5.7%
Media Entertainment 5.6%
Wireless Communications 4.2%
Gaming 4.1%
Pharmaceuticals 3.9%
Other2 32.2%
Cash Equivalents3 2.9%
Other Assets and Liabilities—Net4 1.5%
TOTAL 100.0%
1 Index classifications are based upon, and individual portfolio securities are assigned to, the classifications and sub-classifications of the Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index (BBHY2%ICI). Individual portfolio securities that are not included in the BBHY2%ICI are assigned to an index classification by the Fund's Adviser.
2 For purposes of this table, index classifications which constitute less than 3.5% of the Fund's total net assets have been aggregated under the designation “Other.”
3 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
4 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
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Portfolio of Investments
Principal
Amount
    Value
    CORPORATE BONDS—95.6%  
    Aerospace/Defense—1.1%  
$450,000   Engility Corp., Sr. Unsecd. Note, 8.875%, 9/1/2024 $482,625
825,000   TransDigm, Inc., Sr. Sub. Note, 6.00%, 7/15/2022 845,625
675,000   TransDigm, Inc., Sr. Sub. Note, 6.50%, 7/15/2024 693,563
450,000   TransDigm, Inc., Sr. Sub. Note, 6.50%, 5/15/2025 461,250
200,000   TransDigm, Inc., Sr. Sub., 6.375%, 6/15/2026 203,250
    TOTAL 2,686,313
    Automotive—2.2%  
600,000   Adient Global Holdings Ltd., Sr. Unsecd. Note, Series 144A, 4.875%, 8/15/2026 619,500
225,000   Allison Transmission, Inc., Sr. Unsecd. Note, Series 144A, 5.00%, 10/1/2024 232,594
725,000   American Axle & Manufacturing, Inc., Sr. Unsecd. Note, Series 144A, 6.50%, 4/1/2027 769,406
525,000   BCD Acquisition, Inc., Series 144A, 9.625%, 9/15/2023 578,812
725,000   Dana Financing Lux Sarl, Series 144A, 6.50%, 6/1/2026 787,531
450,000   Goodyear Tire & Rubber Co., Sr. Unsecd. Note, 4.875%, 3/15/2027 461,813
200,000   Goodyear Tire & Rubber Co., Sr. Unsecd. Note, 5.00%, 5/31/2026 206,970
180,000   J.B. Poindexter & Co., Inc., Sr. Unsecd. Note, Series 144A, 9.00%, 4/1/2022 187,200
200,000   Schaeffler Verwaltung Zw, Series 144A, 4.50%, 9/15/2023 204,376
1,025,000   Schaeffler Verwaltung Zw, Series 144A, 4.75%, 9/15/2026 1,042,937
281,000   TI Group Auto Systems LLC, Sr. Unsecd. Note, Series 144A, 8.75%, 7/15/2023 302,778
    TOTAL 5,393,917
    Banking—0.8%  
1,475,000   Ally Financial, Inc., Sr. Sub. Note, 5.75%, 11/20/2025 1,613,281
200,000   Ally Financial, Inc., Sr. Unsecd. Note, 4.625%, 5/19/2022 208,500
    TOTAL 1,821,781
    Building Materials—2.1%  
180,000   American Builders & Contractors Supply Co., Inc., Series 144A, 5.625%, 4/15/2021 184,050
75,000   American Builders & Contractors Supply Co., Inc., Sr. Unsecd. Note, Series 144A, 5.75%, 12/15/2023 79,125
250,000   Beacon Roofing Supply, Inc., Sr. Unsecd. Note, Series 144A, 4.875%, 11/1/2025 252,188
375,000   Building Materials Corp. of America, Sr. Unsecd. Note, Series 144A, 6.00%, 10/15/2025 402,187
250,000   CD&R Waterworks Merger Sub LLC, Sr. Unsecd. Note, Series 144A, 6.125%, 8/15/2025 254,375
300,000   HD Supply, Inc., Sr. Unsecd. Note, Series 144A, 5.75%, 4/15/2024 319,500
75,000   Jeld-Wen, Inc., Sr. Unsecd. Note, Series 144A, 4.625%, 12/15/2025 75,750
75,000   Jeld-Wen, Inc., Sr. Unsecd. Note, Series 144A, 4.875%, 12/15/2027 75,938
475,000   Masonite International Corp., Sr. Unsecd. Note, Series 144A, 5.625%, 3/15/2023 498,892
275,000   NCI Building System, Inc., Sr. Unsecd. Note, Series 144A, 8.25%, 1/15/2023 291,844
325,000   Ply Gem Industries, Inc., 6.50%, 2/1/2022 337,188
825,000   RSI Home Products, Inc., Series 144A, 6.50%, 3/15/2023 868,312
1,000,000   Standard Industries, Inc., Sr. Unsecd. Note, Series 144A, 5.00%, 2/15/2027 1,025,000
350,000   USG Corp., Sr. Unsecd. Note, Series 144A, 4.875%, 6/1/2027 363,667
    TOTAL 5,028,016
    Cable Satellite—7.8%  
375,000   Altice US Finance I Corp., Series 144A, 5.375%, 7/15/2023 385,313
225,000   Altice US Finance I Corp., Series 144A, 5.50%, 5/15/2026 229,781
225,000   Altice US Finance I Corp., Sr. Unsecd. Note, Series 144A, 7.75%, 7/15/2025 241,875
175,000   CCO Holdings LLC/Cap Corp., 5.25%, 9/30/2022 179,703
775,000   CCO Holdings LLC/Cap Corp., 5.75%, 9/1/2023 796,313
175,000   CCO Holdings LLC/Cap Corp., Series 144A, 5.375%, 5/1/2025 180,744
500,000   CCO Holdings LLC/Cap Corp., Series 144A, 5.75%, 2/15/2026 520,625
Annual Shareholder Report
5

Table of Contents
Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Cable Satellite—continued  
$650,000   CCO Holdings LLC/Cap Corp., Sr. Unsecd. Note, Series 144A, 5.00%, 2/1/2028 $635,375
500,000   CCO Holdings LLC/Cap Corp., Sr. Unsecd. Note, Series 144A, 5.125%, 5/1/2027 493,750
400,000   CCO Holdings LLC/Cap Corp., Sr. Unsecd. Note, Series 144A, 5.875%, 5/1/2027 412,000
450,000   CSC Holdings, Inc., Sr. Unsecd. Note, 5.25%, 6/1/2024 442,125
600,000   CSC Holdings, Inc., Sr. Unsecd. Note, Series 144A, 5.50%, 4/15/2027 613,500
625,000   Cablevision Systems Corp., Sr. Unsecd. Note, 5.875%, 9/15/2022 617,188
1,225,000   Cequel Communications Holdings, Sr. Unsecd. Note, Series 144A, 5.125%, 12/15/2021 1,231,125
650,000   Charter Communications Holdings II, 5.75%, 1/15/2024 671,125
100,000   DISH DBS Corp., 5.00%, 3/15/2023 95,375
775,000   DISH DBS Corp., 5.875%, 7/15/2022 781,781
950,000   DISH DBS Corp., Sr. Unsecd. Note, 5.875%, 11/15/2024 927,437
50,000   DISH DBS Corp., Sr. Unsecd. Note, 7.75%, 7/1/2026 52,750
300,000   Intelsat Jackson Holdings S.A., Series 144A, 8.00%, 2/15/2024 316,500
1,025,000   Intelsat Jackson Holdings S.A., Sr. Unsecd. Note, 5.50%, 8/1/2023 840,500
925,000   Intelsat Jackson Holdings S.A., Sr. Unsecd. Note, 7.50%, 4/1/2021 846,375
300,000   Intelsat Jackson Holdings S.A., Sr. Unsecd. Note, Series 144A, 9.75%, 7/15/2025 289,500
275,000   Neptune Finco Corp., Sr. Unsecd. Note, Series 144A, 10.125%, 1/15/2023 310,406
450,000   Neptune Finco Corp., Sr. Unsecd. Note, Series 144A, 6.625%, 10/15/2025 488,241
125,000   Sirius XM Radio, Inc., Series 144A, 4.625%, 5/15/2023 127,969
400,000   Sirius XM Radio, Inc., Series 144A, 6.00%, 7/15/2024 424,000
100,000   Sirius XM Radio, Inc., Sr. Unsecd. Note, Series 144A, 5.00%, 8/1/2027 100,750
675,000   Sirius XM Radio, Inc., Sr. Unsecd. Note, Series 144A, 5.375%, 4/15/2025 704,531
675,000   Sirius XM Radio, Inc., Sr. Unsecd. Note, Series 144A, 5.375%, 7/15/2026 701,156
1,200,000   Telenet Finance Luxembourg, Sec. Fac. Bond, Series 144A, 5.50%, 3/1/2028 1,200,000
275,000   Unitymedia KabelBW GmbH, Series 144A, 6.125%, 1/15/2025 291,500
375,000   Virgin Media Secured Finance PLC, Series 144A, 5.25%, 1/15/2026 380,156
200,000   Virgin Media Secured Finance PLC, Series 144A, 5.50%, 8/15/2026 205,500
700,000   Virgin Media Secured Finance PLC, Series 144A, 6.375%, 4/15/2023 725,375
275,000   Virgin Media, Inc., Sr. Unsecd. Note, Series 144A, 5.75%, 1/15/2025 281,531
775,000   Ziggo Finance BV, Sec. Fac. Bond, Series 144A, 5.50%, 1/15/2027 775,969
300,000   Ziggo Finance BV, Sr. Unsecd. Note, Series 144A, 5.875%, 1/15/2025 297,000
200,000   Ziggo Finance BV, Sr. Unsecd. Note, Series 144A, 6.00%, 1/15/2027 195,500
    TOTAL 19,010,344
    Chemicals—2.0%  
625,000   Alpha 3 BV, Sr. Unsecd. Note, Series 144A, 6.25%, 2/1/2025 643,750
675,000   Compass Minerals International, Inc., Series 144A, 4.875%, 7/15/2024 668,250
875,000   Hexion U.S. Finance Corp., 6.625%, 4/15/2020 789,688
300,000   Koppers, Inc., Sr. Unsecd. Note, Series 144A, 6.00%, 2/15/2025 318,750
200,000   PQ Corp., Series 144A, 6.75%, 11/15/2022 214,250
100,000   PQ Corp., Sr. Unsecd. Note, Series 144A, 5.75%, 12/15/2025 102,000
100,000   Platform Specialty Products Corp., Sr. Unsecd. Note, Series 144A, 5.875%, 12/1/2025 99,375
1,850,000   Platform Specialty Products Corp., Sr. Unsecd. Note, Series 144A, 6.50%, 2/1/2022 1,914,750
150,000   Versum Materials, Inc., Sr. Unsecd. Note, Series 144A, 5.50%, 9/30/2024 160,875
    TOTAL 4,911,688
    Construction Machinery—0.7%  
175,000   Ritchie Bros. Auctioneers, Inc., Sr. Unsecd. Note, Series 144A, 5.375%, 1/15/2025 181,125
550,000   United Rentals North America, Inc., Sr. Unsecd. Note, 4.875%, 1/15/2028 554,125
525,000   United Rentals, Inc., Sr. Unsecd. Note, 5.50%, 5/15/2027 553,875
450,000   United Rentals, Inc., Sr. Unsecd. Note, 5.875%, 9/15/2026 483,188
    TOTAL 1,772,313
Annual Shareholder Report
6

Table of Contents
Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Consumer Cyclical Services—0.6%  
$525,000   GW Honos Security Corp., Sr. Unsecd. Note, Series 144A, 8.75%, 5/15/2025 $565,688
250,000   Matthews International Corp., Sr. Unsecd. Note, Series 144A, 5.25%, 12/1/2025 253,125
250,000   ServiceMaster Co. LLC, Sr. Unsecd. Note, 7.45%, 8/15/2027 271,875
400,000   ServiceMaster Co. LLC, Sr. Unsecd. Note, Series 144A, 5.125%, 11/15/2024 406,000
    TOTAL 1,496,688
    Consumer Products—1.7%  
375,000   FGI Operating Co. LLC/FGI Finance, Inc., 7.875%, 5/1/2020 85,313
1,150,000   First Quality Finance Co., Inc., Series 144A, 4.625%, 5/15/2021 1,164,375
75,000   First Quality Finance Co., Inc., Sr. Unsecd. Note, Series 144A, 5.00%, 7/1/2025 76,688
1,225,000   Prestige Brands Holdings, Inc., Series 144A, 5.375%, 12/15/2021 1,251,031
450,000   Prestige Brands, Inc., Sr. Unsecd. Note, Series 144A, 6.375%, 3/1/2024 468,562
50,000   Scotts Miracle-Gro Co., Sr. Unsecd. Note, 5.25%, 12/15/2026 52,500
550,000   Spectrum Brands, Inc., 5.75%, 7/15/2025 581,625
125,000   Spectrum Brands, Inc., 6.125%, 12/15/2024 132,969
215,000   Springs Industries, Inc., 6.25%, 6/1/2021 219,837
    TOTAL 4,032,900
    Diversified Manufacturing—1.5%  
700,000   Entegris, Inc., Sr. Unsecd. Note, Series 144A, 4.625%, 2/10/2026 714,000
1,225,000   Gates Global LLC, Series 144A, 6.00%, 7/15/2022 1,258,687
350,000   JPW Industries Holding Corp., Sr. Secd. Note, Series 144A, 9.00%, 10/1/2024 366,625
1,225,000   WESCO Distribution, Inc., Sr. Unsecd. Note, 5.375%, 12/15/2021 1,260,219
    TOTAL 3,599,531
    Environmental—0.4%  
550,000   Tervita Escrow Corp., Series 144A, 7.625%, 12/1/2021 554,125
325,000   Wrangler Buyer Corp., Sr. Unsecd. Note, Series 144A, 6.00%, 10/1/2025 336,375
    TOTAL 890,500
    Finance Companies—2.1%  
150,000   Navient Corp., Sr. Unsecd. Note, 5.50%, 1/25/2023 150,188
1,225,000   Navient Corp., Sr. Unsecd. Note, 5.875%, 10/25/2024 1,221,937
100,000   Navient Corp., Sr. Unsecd. Note, 6.75%, 6/25/2025 103,000
225,000   Navient Corp., Sr. Unsecd. Note, 7.25%, 9/25/2023 240,750
125,000   Navient Corp., Sr. Unsecd. Note, Series MTN, 6.125%, 3/25/2024 127,188
150,000   Park Aerospace Holdings Ltd., Sr. Unsecd. Note, Series 144A, 4.50%, 3/15/2023 143,625
125,000   Park Aerospace Holdings Ltd., Sr. Unsecd. Note, Series 144A, 5.25%, 8/15/2022 124,688
1,525,000   Park Aerospace Holdings Ltd., Sr. Unsecd. Note, Series 144A, 5.50%, 2/15/2024 1,517,375
1,250,000   Quicken Loans, Inc., Series 144A, 5.75%, 5/1/2025 1,300,012
225,000   Quicken Loans, Inc., Sr. Unsecd. Note, Series 144A, 5.25%, 1/15/2028 222,682
    TOTAL 5,151,445
    Food & Beverage—2.4%  
800,000   Anna Merger Sub, Inc., Series 144A, 7.75%, 10/1/2022 588,000
525,000   Aramark Services, Inc., Sr. Unsecd. Note, 5.125%, 1/15/2024 552,300
425,000   Aramark Services, Inc., Sr. Unsecd. Note, Series 144A, 5.00%, 4/1/2025 449,990
625,000   Hearthside Group Holdings LLC, Series 144A, 6.50%, 5/1/2022 641,406
375,000   Lamb Weston Holdings, Inc., Sr. Unsub., Series 144A, 4.875%, 11/1/2026 392,813
750,000   Post Holdings, Inc., Sr. Unsecd. Note, Series 144A, 5.00%, 8/15/2026 739,687
400,000   Post Holdings, Inc., Sr. Unsecd. Note, Series 144A, 5.50%, 3/1/2025 415,000
200,000   Post Holdings, Inc., Sr. Unsecd. Note, Series 144A, 5.625%, 1/15/2028 201,000
900,000   Post Holdings, Inc., Sr. Unsecd. Note, Series 144A, 5.75%, 3/1/2027 918,000
775,000   U.S. Foodservice, Inc., Sr. Unsecd. Note, Series 144A, 5.875%, 6/15/2024 817,625
    TOTAL 5,715,821
Annual Shareholder Report
7

Table of Contents
Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Gaming—4.1%  
$200,000   Boyd Gaming Corp., Sr. Unsecd. Note, 6.375%, 4/1/2026 $216,000
800,000   Boyd Gaming Corp., Sr. Unsecd. Note, 6.875%, 5/15/2023 851,000
1,275,000   Crc Escrow Issuer LLC, Sr. Unsecd. Note, Series 144A, 5.25%, 10/15/2025 1,291,320
550,000   Eldorado Resorts, Inc., Sr. Unsecd. Note, 6.00%, 4/1/2025 577,500
175,000   GLP Capital LP/GLP Financing II, Inc., Sr. Unsecd. Note, 5.375%, 4/15/2026 188,125
100,000   MGM Growth Properties LLC, Sr. Unsecd. Note, 5.625%, 5/1/2024 107,000
400,000   MGM Mirage, Inc., 7.75%, 3/15/2022 457,000
675,000   MGM Resorts International, 6.00%, 3/15/2023 730,687
150,000   MGM Resorts International, Sr. Unsecd. Note, 4.625%, 9/1/2026 152,250
725,000   Mohegan Tribal Gaming Authority, Sr. Unsecd. Note, Series 144A, 7.875%, 10/15/2024 745,844
350,000   Penn National Gaming, Inc., Sr. Unsecd. Note, Series 144A, 5.625%, 1/15/2027 364,000
700,000   Pinnacle Entertainment, Inc., Sr. Unsecd. Note, 5.625%, 5/1/2024 752,500
575,000   Rivers Pittsburgh LP, Series 144A, 6.125%, 8/15/2021 572,125
1,225,000   Seminole Hard Rock Entertainment, Inc./Seminole Hard Rock International LLC, Series 144A, 5.875%, 5/15/2021 1,249,500
310,000   Seminole Tribe of Florida, Inc., Bond, Series 144A, 7.804%, 10/1/2020 314,650
475,000   Station Casinos, Inc., Sr. Unsecd. Note, Series 144A, 5.00%, 10/1/2025 478,562
425,000   Sugarhouse HSP Gaming Finance Corp., Sec. Fac. Bond, Series 144A, 5.875%, 5/15/2025 404,813
375,000   Wynn Las Vegas LLC, Sr. Unsecd. Note, Series 144A, 5.25%, 5/15/2027 380,625
    TOTAL 9,833,501
    Health Care—10.5%  
350,000   Acadia Healthcare Co., Inc., Sr. Unsecd. Note, 5.625%, 2/15/2023 357,000
625,000   Acadia Healthcare Co., Inc., Sr. Unsecd. Note, 6.50%, 3/1/2024 653,125
1,025,000   Air Medical Group Holdings, Inc., Sr. Unsecd. Note, Series 144A, 6.375%, 5/15/2023 989,125
350,000   Amsurg Corp., Sr. Unsecd. Note, 5.625%, 7/15/2022 355,250
250,000   Avantor, Inc., Series 144A, 6.00%, 10/1/2024 249,688
575,000   Avantor, Inc., Sr. Unsecd. Note, Series 144A, 9.00%, 10/1/2025 567,813
250,000   CHS/Community Health Systems, Inc., 5.125%, 8/1/2021 226,250
500,000   CHS/Community Health Systems, Inc., 6.25%, 3/31/2023 452,500
925,000   CHS/Community Health Systems, Inc., Sr. Unsecd. Note, 6.875%, 2/1/2022 536,500
725,000   Envision Healthcare Holdings, Inc., Series 144A, 5.125%, 7/1/2022 706,875
1,350,000   HCA, Inc., 5.00%, 3/15/2024 1,407,375
200,000   HCA, Inc., 5.875%, 5/1/2023 214,000
525,000   HCA, Inc., 5.875%, 2/15/2026 556,500
725,000   HCA, Inc., Sr. Secd. Note, 5.25%, 4/15/2025 768,500
2,025,000   HCA, Inc., Sr. Unsecd. Note, 5.375%, 2/1/2025 2,100,937
75,000   Hologic, Inc., Sr. Unsecd. Note, Series 144A, 4.375%, 10/15/2025 76,313
400,000   IMS Health, Inc., Sr. Unsecd. Note, Series 144A, 5.00%, 10/15/2026 411,500
200,000   LifePoint Health, Inc., 5.875%, 12/1/2023 202,750
225,000   LifePoint Health, Inc., Sr. Unsecd. Note, 5.50%, 12/1/2021 230,344
200,000   MEDNAX, Inc., Sr. Unsecd. Note, Series 144A, 5.25%, 12/1/2023 204,000
1,725,000   MPH Acquisition Holdings LLC, Series 144A, 7.125%, 6/1/2024 1,841,437
575,000   New Amethyst Corp., Sr. Unsecd. Note, Series 144A, 6.25%, 12/1/2024 595,125
2,250,000   Ortho-Clinical Diagnostics, Inc., Series 144A, 6.625%, 5/15/2022 2,272,500
500,000   Polaris Intermediate Corp., Sr. Unsecd. Note, Series 144A, 8.50%, 12/1/2022 520,000
1,350,000   SteriGenics—Nordion Holdings LLC, Sr. Unsecd. Note, Series 144A, 6.50%, 5/15/2023 1,410,750
575,000   SteriGenics Nordion Topc, Sr. Unsecd. Note, Series 144A, 8.125%, 11/1/2021 582,187
825,000   Surgery Center Holdings, Inc., Sr. Unsecd. Note, Series 144A, 6.75%, 7/1/2025 783,750
1,500,000   Team Health Holdings, Inc., Sr. Unsecd. Note, Series 144A, 6.375%, 2/1/2025 1,346,250
50,000   Teleflex, Inc., Sr. Unsecd. Note, 4.625%, 11/15/2027 50,615
675,000   Teleflex, Inc., Sr. Unsecd. Note, 5.25%, 6/15/2024 707,062
Annual Shareholder Report
8

Table of Contents
Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Health Care—continued  
$250,000   Tenet Healthcare Corp., 8.125%, 4/1/2022 $255,313
300,000   Tenet Healthcare Corp., Note, 4.375%, 10/1/2021 300,750
675,000   Tenet Healthcare Corp., Series 144A, 5.125%, 5/1/2025 660,656
125,000   Tenet Healthcare Corp., Series 144A, 7.50%, 1/1/2022 131,719
275,000   Tenet Healthcare Corp., Sr. Secd. Note, Series 144A, 4.625%, 7/15/2024 269,156
925,000   Tenet Healthcare Corp., Sr. Unsecd. Note, 6.75%, 6/15/2023 900,719
175,000   Tenet Healthcare Corp., Sr. Unsecd. Note, Series 144A, 7.00%, 8/1/2025 165,156
875,000   Vizient, Inc., Sr. Unsecd. Note, Series 144A, 10.375%, 3/1/2024 986,562
450,000   West Street Merger Sub, Inc., Sr. Unsecd. Note, Series 144A, 6.375%, 9/1/2025 453,375
    TOTAL 25,499,427
    Independent Energy—5.8%  
750,000   Antero Resources Corp., Sr. Unsecd. Note, 5.00%, 3/1/2025 768,750
50,000   Antero Resources Finance Corp., 5.375%, 11/1/2021 51,438
600,000   Ascent Resources Utica Holdings LLC/ARU Finance Corp., Sr. Unsecd. Note, Series 144A, 10.00%, 4/1/2022 646,500
469,000   Callon Petroleum Corp., Sr. Unsecd. Note, 6.125%, 10/1/2024 485,415
300,000   Carrizo Oil & Gas, Inc., Sr. Unsecd. Note, 7.50%, 9/15/2020 306,000
400,000   Carrizo Oil & Gas, Inc., Sr. Unsecd. Note, 8.25%, 7/15/2025 441,500
254,000   Chesapeake Energy Corp., Series 144A, 8.00%, 12/15/2022 274,955
125,000   Chesapeake Energy Corp., Sr. Unsecd. Note, Series 144A, 8.00%, 1/15/2025 126,406
725,000   Chesapeake Energy Corp., Sr. Unsecd. Note, Series 144A, 8.00%, 6/15/2027 697,812
375,000   Continental Resources, Inc., 4.50%, 4/15/2023 383,437
775,000   Crownrock LP/Crownrock F, Series 144A, 5.625%, 10/15/2025 780,812
125,000   Diamondback Energy, Inc., Sr. Unsecd. Note, 4.75%, 11/1/2024 126,094
375,000   EP Energy LLC/Everest Acquisition Finance, Inc., Sec. Fac. Bond, Series 144A, 8.00%, 11/29/2024 389,062
250,000   Endeavor Energy Resources LP, Sr. Unsecd. Note, Series 144A, 5.75%, 1/30/2028 257,688
350,000   Gulfport Energy Corp., Sr. Unsecd. Note, 6.00%, 10/15/2024 351,750
325,000   Gulfport Energy Corp., Sr. Unsecd. Note, 6.375%, 5/15/2025 327,844
75,000   Gulfport Energy Corp., Sr. Unsecd. Note, 6.625%, 5/1/2023 76,875
125,000   Gulfport Energy Corp., Sr. Unsecd. Note, Series 144A, 6.375%, 1/15/2026 126,250
75,000   Laredo Petroleum, 5.625%, 1/15/2022 76,125
225,000   Laredo Petroleum, Sr. Unsecd. Note, 6.25%, 3/15/2023 234,068
225,000   Oasis Petroleum, Inc., 6.875%, 1/15/2023 230,906
475,000   Oasis Petroleum, Inc., Company Guarantee, 6.50%, 11/1/2021 486,281
175,000   PDC Energy, Inc., Sr. Unsecd. Note, 6.125%, 9/15/2024 182,000
225,000   PDC Energy, Inc., Sr. Unsecd. Note, Series 144A, 5.75%, 5/15/2026 230,906
100,000   Parsley Energy LLC/Parsley Finance Corp., Series 144A, 6.25%, 6/1/2024 105,750
125,000   Parsley Energy LLC/Parsley Finance Corp., Sr. Unsecd. Note, Series 144A, 5.25%, 8/15/2025 125,938
125,000   Parsley Energy LLC/Parsley Finance Corp., Sr. Unsecd. Note, Series 144A, 5.375%, 1/15/2025 126,875
375,000   Parsley Energy LLC/Parsley Finance Corp., Sr. Unsecd. Note, Series 144A, 5.625%, 10/15/2027 384,375
200,000   QEP Resources, Inc., Sr. Unsecd. Note, 5.25%, 5/1/2023 203,372
200,000   QEP Resources, Inc., Sr. Unsecd. Note, 5.625%, 3/1/2026 203,500
250,000   RSP Permian, Inc., Sr. Unsecd. Note, 5.25%, 1/15/2025 257,500
200,000   RSP Permian, Inc., Sr. Unsecd. Note, 6.625%, 10/1/2022 210,250
425,000   Range Resources Corp., Sr. Unsecd. Note, 4.875%, 5/15/2025 412,250
150,000   Range Resources Corp., Sr. Unsecd. Note, 5.00%, 8/15/2022 150,000
50,000   Range Resources Corp., Sr. Unsecd. Note, 5.00%, 3/15/2023 50,000
250,000   SM Energy Co., Sr. Unsecd. Note, 5.00%, 1/15/2024 242,344
150,000   SM Energy Co., Sr. Unsecd. Note, 5.625%, 6/1/2025 146,250
50,000   SM Energy Co., Sr. Unsecd. Note, 6.50%, 1/1/2023 51,250
175,000   SM Energy Co., Sr. Unsecd. Note, 6.75%, 9/15/2026 181,125
Annual Shareholder Report
9

Table of Contents
Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Independent Energy—continued  
$425,000   SRC Energy, Inc., Sr. Unsecd. Note, Series 144A, 6.25%, 12/1/2025 $436,687
325,000   Southwestern Energy Co., Sr. Unsecd. Note, 4.10%, 3/15/2022 320,938
100,000   Southwestern Energy Co., Sr. Unsecd. Note, 7.50%, 4/1/2026 106,375
525,000   Southwestern Energy Co., Sr. Unsecd. Note, 7.75%, 10/1/2027 561,094
125,000   Ultra Resources, Inc., Sr. Unsecd. Note, Series 144A, 6.875%, 4/15/2022 125,781
375,000   Ultra Resources, Inc., Sr. Unsecd. Note, Series 144A, 7.125%, 4/15/2025 375,469
375,000   WPX Energy, Inc., Sr. Unsecd. Note, 5.25%, 9/15/2024 375,581
125,000   WPX Energy, Inc., Sr. Unsecd. Note, 6.00%, 1/15/2022 131,250
150,000   WPX Energy, Inc., Sr. Unsecd. Note, 8.25%, 8/1/2023 171,000
475,000   Whiting Petroleum Corp., Sr. Unsecd. Note, 6.25%, 4/1/2023 488,062
150,000   Whiting Petroleum Corp., Sr. Unsecd. Note, Series 144A, 6.625%, 1/15/2026 153,188
    TOTAL 14,155,078
    Industrial - Other—1.2%  
275,000   Anixter, Inc., 5.50%, 3/1/2023 297,083
900,000   Belden, Inc., Sr. Sub., Series 144A, 5.25%, 7/15/2024 931,500
1,125,000   Hillman Group, Inc., Unsecd. Note, Series 144A, 6.375%, 7/15/2022 1,127,812
450,000   KAR Auction Services, Inc., Sr. Unsecd. Note, Series 144A, 5.125%, 6/1/2025 462,375
    TOTAL 2,818,770
    Insurance - P&C—2.4%  
575,000   Acrisure LLC, Sr. Unsecd. Note, Series 144A, 7.00%, 11/15/2025 555,600
725,000   AssuredPartners, Inc., Sr. Unsecd. Note, Series 144A, 7.00%, 8/15/2025 723,188
400,000   Hub Holdings LLC/Hub Hol, Sr. Unsecd. Note, Series 144A, 8.125%, 7/15/2019 401,000
1,725,000   Hub International Ltd., Sr. Unsecd. Note, Series 144A, 7.875%, 10/1/2021 1,798,312
650,000   Kirs Midco 3 PLC, Sec. Fac. Bond, Series 144A, 8.625%, 7/15/2023 676,000
750,000   NFP Corp., Sr. Unsecd. Note, Series 144A, 6.875%, 7/15/2025 757,500
825,000   USIS Merger Sub, Inc., Sr. Unsecd. Note, Series 144A, 6.875%, 5/1/2025 835,312
    TOTAL 5,746,912
    Leisure—1.0%  
275,000   AMC Entertainment Holdings, Inc., Sr. Sub. Note, 5.875%, 11/15/2026 272,250
50,000   AMC Entertainment Holdings, Inc., Sr. Sub. Note, 6.125%, 5/15/2027 49,875
250,000   Cedar Fair LP/Canada's Wonderland Co./Magnum Management Corp./Millennium Op, Sr. Unsecd. Note, Series 144A, 5.375%, 4/15/2027 263,125
175,000   Live Nation Entertainment, Inc., Sr. Unsecd. Note, Series 144A, 4.875%, 11/1/2024 179,813
350,000   Regal Cinemas, Inc., 5.75%, 2/1/2025 360,500
275,000   Six Flags Entertainment Corp., Sr. Unsecd. Note, Series 144A, 4.875%, 7/31/2024 279,813
1,025,000   Six Flags Entertainment Corp., Sr. Unsecd. Note, Series 144A, 5.50%, 4/15/2027 1,063,437
    TOTAL 2,468,813
    Lodging—0.2%  
375,000   Hilton Worldwide Finance LLC, Sr. Unsecd. Note, 4.625%, 4/1/2025 386,250
150,000   RHP Hotel Property/RHP Finance Corp., Sr. Unsecd. Note, 5.00%, 4/15/2023 154,125
    TOTAL 540,375
    Media Entertainment—5.6%  
275,000   AMC Networks, Inc., Sr. Unsecd. Note, 4.75%, 8/1/2025 273,281
700,000   AMC Networks, Inc., Sr. Unsecd. Note, 5.00%, 4/1/2024 710,500
475,000   CBS Radio, Inc., Sr. Unsecd. Note, Series 144A, 7.25%, 11/1/2024 503,203
750,000   Clear Channel Communications, Inc., Company Guarantee, 9.00%, 3/1/2021 540,000
275,000   Clear Channel Worldwide, Series A, 6.50%, 11/15/2022 279,125
600,000   Clear Channel Worldwide, Series B, 6.50%, 11/15/2022 612,750
125,000   E.W. Scripps Co., Sr. Unsecd. Note, Series 144A, 5.125%, 5/15/2025 124,688
650,000   EMI Music Publishing Group North America Holdings, Inc., Series 144A, 7.625%, 6/15/2024 716,625
Annual Shareholder Report
10

Table of Contents
Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Media Entertainment—continued  
$600,000   Gannett Co., Inc., 6.375%, 10/15/2023 $630,750
100,000   Gannett Co., Inc., Sr. Unsecd. Note, Series 144A, 5.50%, 9/15/2024 105,250
375,000   Gray Television, Inc., Sr. Unsecd. Note, Series 144A, 5.125%, 10/15/2024 375,000
500,000   Gray Television, Inc., Sr. Unsecd. Note, Series 144A, 5.875%, 7/15/2026 513,750
1,050,000   Lin Television Corp., Sr. Unsecd. Note, 5.875%, 11/15/2022 1,097,250
200,000   Match Group, Inc., Sr. Unsecd. Note, 6.375%, 6/1/2024 217,500
325,000   Match Group, Inc., Sr. Unsecd. Note, Series 144A, 5.00%, 12/15/2027 330,688
650,000   Nexstar Escrow Corp., Sr. Unsecd. Note, Series 144A, 5.625%, 8/1/2024 672,750
900,000   Nielsen Finance LLC/Nielsen Finance Co., Series 144A, 5.00%, 4/15/2022 928,125
625,000   Nielsen Finance LLC/Nielsen Finance Co., Sr. Unsecd. Note, Series 144A, 5.00%, 2/1/2025 650,000
150,000   Outfront Americas Capital LLC/Outfront Media Capital Corp., Sr. Unsecd. Note, 5.625%, 2/15/2024 159,188
275,000   Outfront Americas Capital LLC/Outfront Media Capital Corp., Sr. Unsecd. Note, 5.875%, 3/15/2025 291,844
775,000   Sinclair Television Group, Series 144A, 5.625%, 8/1/2024 801,156
75,000   Sinclair Television Group, Sr. Unsecd. Note, Series 144A, 5.125%, 2/15/2027 74,719
675,000   Sinclair Television Group, Sr. Unsecd. Note, Series 144A, 5.875%, 3/15/2026 704,531
975,000   Tribune Media Co., Sr. Unsecd. Note, 5.875%, 7/15/2022 1,006,687
500,000   Urban One, Inc., Series 144A, 7.375%, 4/15/2022 501,250
550,000   Urban One, Inc., Series 144A, 9.25%, 2/15/2020 519,750
150,000   WMG Acquisition Corp., Sec. Fac. Bond, Series 144A, 4.875%, 11/1/2024 155,250
75,000   WMG Acquisition Corp., Series 144A, 5.00%, 8/1/2023 77,906
    TOTAL 13,573,516
    Metals & Mining—2.6%  
475,000   Alliance Resource Operating Partners LP/Alliance Resource Finance Corp., Sr. Unsecd. Note, Series 144A, 7.50%, 5/1/2025 506,469
550,000   Coeur Mining, Inc., Sr. Unsecd. Note, 5.875%, 6/1/2024 545,187
775,000   Freeport-McMoRan, Inc., Sr. Unsecd. Note, 3.875%, 3/15/2023 775,000
1,150,000   Freeport-McMoRan, Inc., Sr. Unsecd. Note, 5.40%, 11/14/2034 1,175,875
175,000   HudBay Minerals, Inc., Sr. Unsecd. Note, Series 144A, 7.25%, 1/15/2023 186,375
325,000   HudBay Minerals, Inc., Sr. Unsecd. Note, Series 144A, 7.625%, 1/15/2025 357,500
100,000   Peabody Securities Finance Corp., Sec. Fac. Bond, Series 144A, 6.00%, 3/31/2022 104,125
450,000   Peabody Securities Finance Corp., Sec. Fac. Bond, Series 144A, 6.375%, 3/31/2025 469,687
100,000   Steel Dynamics, Inc., Sr. Unsecd. Note, 5.25%, 4/15/2023 103,500
875,000   Steel Dynamics, Inc., Sr. Unsecd. Note, 5.50%, 10/1/2024 931,875
275,000   Teck Resources Ltd., Sr. Unsecd. Note, 6.00%, 8/15/2040 307,313
450,000   Teck Resources Ltd., Sr. Unsecd. Note, 6.125%, 10/1/2035 506,250
50,000   Teck Resources Ltd., Sr. Unsecd. Note, 6.25%, 7/15/2041 57,500
300,000   Teck Resources Ltd., Sr. Unsecd. Note, Series 144A, 8.50%, 6/1/2024 339,750
    TOTAL 6,366,406
    Midstream—5.7%  
100,000   Access Midstream Partners LP, Sr. Unsecd. Note, 4.875%, 3/15/2024 104,750
350,000   AmeriGas Partners LP, Sr. Unsecd. Note, 5.50%, 5/20/2025 355,250
125,000   AmeriGas Partners LP, Sr. Unsecd. Note, 5.625%, 5/20/2024 130,625
525,000   AmeriGas Partners LP, Sr. Unsecd. Note, 5.75%, 5/20/2027 532,875
550,000   AmeriGas Partners LP, Sr. Unsecd. Note, 5.875%, 8/20/2026 569,250
550,000   Antero Midstream Partners LP, Sr. Unsecd. Note, 5.375%, 9/15/2024 569,250
500,000   Atlas Pipeline Partners LP, 5.875%, 8/1/2023 503,750
150,000   Cheniere Corpus Christi Holdings LLC, 5.125%, 6/30/2027 155,535
600,000   Cheniere Corpus Christi Holdings LLC, Sr. Secd. Note, 5.875%, 3/31/2025 651,375
375,000   Cheniere Corpus Christi Holdings LLC, Sr. Secd. Note, 7.00%, 6/30/2024 427,500
875,000   Cheniere Energy Partners, LP, Sr. Unsecd. Note, Series 144A, 5.25%, 10/1/2025 892,500
1,075,000   Energy Transfer Equity LP, 5.875%, 1/15/2024 1,134,125
Annual Shareholder Report
11

Table of Contents
Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Midstream—continued  
$300,000   Ferrellgas LP/Ferrellgas Finance Corp., Sr. Unsecd. Note, 6.75%, 6/15/2023 $276,750
500,000   Ferrellgas, L.P., Sr. Unsecd. Note, 6.50%, 5/1/2021 470,625
825,000   Ferrellgas, L.P., Sr. Unsecd. Note, 6.75%, 1/15/2022 767,250
750,000   Holly Energy Partners LP, Series 144A, 6.00%, 8/1/2024 785,625
75,000   NGPL PipeCo LLC, Sr. Unsecd. Note, Series 144A, 4.875%, 8/15/2027 78,094
650,000   NuStar Logistics, L.P., Sr. Unsecd. Note, 5.625%, 4/28/2027 663,000
550,000   Suburban Propane Partners LP, 5.50%, 6/1/2024 547,250
275,000   Suburban Propane Partners LP, Sr. Unsecd. Note, 5.75%, 3/1/2025 272,938
550,000   Suburban Propane Partners LP, Sr. Unsecd. Note, 5.875%, 3/1/2027 540,375
925,000   Summit Midstream Holdings LLC, 5.50%, 8/15/2022 929,625
475,000   Summit Midstream Holdings LLC, Sr. Unsecd. Note, 5.75%, 4/15/2025 481,360
350,000   Targa Resources Partners LP/Targa Resources Partners Finance Corp., Sr. Unsecd. Note, Series 144A, 5.00%, 1/15/2028 350,437
125,000   Targa Resources Partners LP/Targa Resources Partners Finance Corp., Sr. Unsecd. Note, Series 144A, 5.125%, 2/1/2025 128,438
375,000   Targa Resources Partners LP/Targa Resources Partners Finance Corp., Sr. Unsecd. Note, Series 144A, 5.375%, 2/1/2027 386,250
175,000   Tesoro Logistics LP, Sr. Unsecd. Note, 5.25%, 1/15/2025 184,266
177,000   Tesoro Logistics LP, Sr. Unsecd. Note, 6.25%, 10/15/2022 188,013
325,000   Tesoro Logistics LP, Sr. Unsecd. Note, 6.375%, 5/1/2024 353,031
275,000   Williams Cos., Inc., Sr. Unsecd. Note, 4.55%, 6/24/2024 286,687
    TOTAL 13,716,799
    Oil Field Services—0.9%  
136,000   Precision Drilling Corp., Sr. Unsecd. Note, 6.50%, 12/15/2021 139,230
250,000   Precision Drilling Corp., Sr. Unsecd. Note, 7.75%, 12/15/2023 263,750
200,000   Precision Drilling Corp., Sr. Unsecd. Note, Series 144A, 7.125%, 1/15/2026 204,500
75,000   Sesi LLC, 7.125%, 12/15/2021 76,969
650,000   Sesi LLC, Sr. Unsecd. Note, Series 144A, 7.75%, 9/15/2024 692,250
350,000   Weatherford International Ltd., 7.00%, 3/15/2038 295,750
475,000   Weatherford International Ltd., Sr. Unsecd. Note, 8.25%, 6/15/2023 480,937
150,000   Weatherford International, Inc., Sr. Unsecd. Note, 6.80%, 6/15/2037 125,250
    TOTAL 2,278,636
    Packaging—6.3%  
475,000   ARD Finance SA, Sec. Fac. Bond, 7.125%, 9/15/2023 497,563
300,000   Ardagh Packaging Finance PLC/Ardagh Holdings, Sr. Unsecd. Note, Series 144A, 6.00%, 6/30/2021 309,000
750,000   Ardagh Packaging Finance PLC/Ardagh Holdings, Sr. Unsecd. Note, Series 144A, 6.00%, 2/15/2025 791,250
1,350,000   Ardagh Packaging Finance PLC/Ardagh Holdings, Sr. Unsecd. Note, Series 144A, 7.25%, 5/15/2024 1,474,875
850,000   Berry Plastics Corp., 5.125%, 7/15/2023 887,187
750,000   Berry Plastics Corp., 5.50%, 5/15/2022 773,438
150,000   Berry Plastics Corp., 6.00%, 10/15/2022 157,688
675,000   Bway Holding Co., Sec. Fac. Bond, Series 144A, 5.50%, 4/15/2024 703,688
1,475,000   Bway Holding Co., Sr. Unsecd. Note, Series 144A, 7.25%, 4/15/2025 1,526,625
1,425,000   Flex Acquisition Co., Inc., Sr. Unsecd. Note, Series 144A, 6.875%, 1/15/2025 1,478,402
950,000   Multi-Color Corp., Series 144A, 6.125%, 12/1/2022 996,312
125,000   Multi-Color Corp., Sr. Unsecd. Note, Series 144A, 4.875%, 11/1/2025 125,781
750,000   Owens-Brockway Glass Container, Inc., Series 144A, 5.375%, 1/15/2025 794,062
200,000   Owens-Brockway Glass Container, Inc., Series 144A, 6.375%, 8/15/2025 223,875
823,742   Reynolds Group Issuer, Inc./LLC/LU, 5.75%, 10/15/2020 837,127
625,000   Reynolds Group Issuer, Inc./LLC/LU, Series 144A, 7.00%, 7/15/2024 670,547
300,000   Reynolds Group, Sr. Unsecd. Note, 7.95%, 12/15/2025 341,250
525,000   Sealed Air Corp., Series 144A, 5.25%, 4/1/2023 561,750
250,000   Sealed Air Corp., Sr. Unsecd. Note, Series 144A, 5.125%, 12/1/2024 268,750
1,250,000   Signode Industrial Group, Series 144A, 6.375%, 5/1/2022 1,310,937
Annual Shareholder Report
12

Table of Contents
Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Packaging—continued  
$500,000   Trident Merger Sub, Inc., Sr. Unsecd. Note, Series 144A, 6.625%, 11/1/2025 $500,000
    TOTAL 15,230,107
    Paper—0.5%  
250,000   Clearwater Paper Corp., Sr. Note, 4.50%, 2/1/2023 248,438
825,000   Clearwater Paper Corp., Sr. Unsecd. Note, Series 144A, 5.375%, 2/1/2025 833,250
    TOTAL 1,081,688
    Pharmaceuticals—3.9%  
325,000   Eagle Holding Co., Sr. Unsecd. Note, Series 144A, 7.625%, 5/15/2022 331,500
875,000   Endo Dac/Endo Finance LLC/Endo Finco, Inc., Sr. Unsecd. Note, Series 144A, 6.00%, 7/15/2023 691,250
600,000   Endo Finance LLC/Endo Finco, Inc., Sr. Unsecd. Note, Series 144A, 6.00%, 2/1/2025 468,000
1,825,000   Jaguar Holding Co. II/Pharmaceutical Product Development LLC, Sr. Unsecd. Note, Series 144A, 6.375%, 8/1/2023 1,847,812
1,125,000   Mallinckrodt International Finance SA/Mallinckrodt CB LLC, Sr. Unsecd. Note, 4.75%, 4/15/2023 888,750
675,000   Mallinckrodt International Finance SA/Mallinckrodt CB LLC, Sr. Unsecd. Note, Series 144A, 5.50%, 4/15/2025 553,500
225,000   Mallinckrodt International Finance SA/Mallinckrodt CB LLC, Sr. Unsecd. Note, Series 144A, 5.625%, 10/15/2023 192,375
200,000   Valeant Pharmaceuticals International, Inc., Sec. Fac. Bond, Series 144A, 5.50%, 11/1/2025 204,500
300,000   Valeant Pharmaceuticals International, Inc., Series 144A, 5.625%, 12/1/2021 294,375
375,000   Valeant Pharmaceuticals International, Inc., Series 144A, 7.50%, 7/15/2021 382,969
100,000   Valeant Pharmaceuticals International, Inc., Sr. Secd. Note, Series 144A, 6.50%, 3/15/2022 105,250
275,000   Valeant Pharmaceuticals International, Inc., Sr. Secd. Note, Series 144A, 7.00%, 3/15/2024 294,938
425,000   Valeant Pharmaceuticals International, Inc., Sr. Unsecd. Note, Series 144A, 5.50%, 3/1/2023 391,000
1,425,000   Valeant Pharmaceuticals International, Inc., Sr. Unsecd. Note, Series 144A, 6.125%, 4/15/2025 1,309,219
375,000   Valeant Pharmaceuticals International, Inc., Sr. Unsecd. Note, Series 144A, 9.00%, 12/15/2025 391,762
1,150,000   Vrx Escrow Corp., Series 144A, 5.875%, 5/15/2023 1,068,062
    TOTAL 9,415,262
    Refining—0.4%  
975,000   CVR Refining LLC/Coffeyville Finance, Inc., 6.50%, 11/1/2022 1,009,125
    Restaurants—0.9%  
1,050,000   1011778 BC Unltd. Liability Co./New Red Finance, Inc., Series 144A, 5.00%, 10/15/2025 1,063,125
125,000   1011778 BC Unltd. Liability Co./New Red Finance, Inc., Sr. Secd. Note, Series 144A, 4.25%, 5/15/2024 125,000
150,000   KFC Holding Co./Pizza Hut Holdings LLC/Taco Bell of America LLC, Sr. Unsecd. Note, Series 144A, 4.75%, 6/1/2027 153,750
125,000   Performance Food Group, Inc., Series 144A, 5.50%, 6/1/2024 129,375
250,000   Yum! Brands, Inc., Sr. Unsecd. Note, Series 144A, 5.00%, 6/1/2024 258,438
500,000   Yum! Brands, Inc., Sr. Unsecd. Note, Series 144A, 5.25%, 6/1/2026 527,500
    TOTAL 2,257,188
    Retailers—1.3%  
1,250,000   Argos Merger Sub, Inc., Sr. Unsecd. Note, Series 144A, 7.125%, 3/15/2023 746,875
350,000   Hanesbrands, Inc., Sr. Unsecd. Note, Series 144A, 4.875%, 5/15/2026 360,500
725,000   Party City Holdings, Inc., Sr. Unsecd. Note, Series 144A, 6.125%, 8/15/2023 752,187
275,000   PetSmart, Inc., Sr. Unsecd. Note, Series 144A, 8.875%, 6/1/2025 167,063
625,000   Rite Aid Corp., Sr. Unsecd. Note, Series 144A, 6.125%, 4/1/2023 566,406
625,000   Sally Holdings LLC/Sally Capital, Inc., 5.625%, 12/1/2025 625,000
    TOTAL 3,218,031
    Supermarkets—0.5%  
550,000   Albertsons Cos. LLC/SAFEW, Sr. Unsecd. Note, 5.75%, 3/15/2025 499,125
625,000   Albertsons Cos. LLC/SAFEW, Sr. Unsecd. Note, 6.625%, 6/15/2024 600,000
    TOTAL 1,099,125
    Technology—9.5%  
1,150,000   BMC Software, Inc., Series 144A, 8.125%, 7/15/2021 1,162,937
50,000   CDW LLC/CDW Finance, Sr. Unsecd. Note, 5.00%, 9/1/2025 52,000
800,000   CDW LLC/CDW Finance, Sr. Unsecd. Note, 5.50%, 12/1/2024 874,000
Annual Shareholder Report
13

Table of Contents
Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Technology—continued  
$725,000   CommScope Technologies Finance LLC, Series 144A, 6.00%, 6/15/2025 $773,937
175,000   Diamond 1 Finance Corp./Diamond 2 Finance Corp., Sr. Secd. Note, Series 144A, 5.875%, 6/15/2021 182,000
800,000   Diamond 1 Finance Corp./Diamond 2 Finance Corp., Sr. Unsecd. Note, Series 144A, 7.125%, 6/15/2024 876,194
1,050,000   Ensemble S Merger Sub, Inc., Sr. Unsecd. Note, Series 144A, 9.00%, 9/30/2023 1,115,625
100,000   First Data Corp., Series 144A, 5.00%, 1/15/2024 103,250
550,000   First Data Corp., Series 144A, 5.375%, 8/15/2023 573,870
1,850,000   First Data Corp., Series 144A, 5.75%, 1/15/2024 1,928,162
475,000   First Data Corp., Sr. Unsecd. Note, Series 144A, 7.00%, 12/1/2023 503,500
250,000   Gartner, Inc., Sr. Unsecd. Note, Series 144A, 5.125%, 4/1/2025 261,875
1,175,000   Inception Merger Sub, Inc., Sr. Unsecd. Note, Series 144A, 8.625%, 11/15/2024 1,257,250
1,300,000   Infor Software Parent, Inc., Series 144A, 7.125%, 5/1/2021 1,335,750
1,300,000   Infor US, Inc., 6.50%, 5/15/2022 1,352,000
825,000   Italics Merger Sub, Inc., Sr. Unsecd. Note, Series 144A, 7.125%, 7/15/2023 847,687
850,000   JDA Escrow LLC/JDA Bond Finance, Inc., Series 144A, 7.375%, 10/15/2024 892,500
450,000   MSCI, Inc., Series 144A, 5.75%, 8/15/2025 485,438
50,000   Micron Technology, Inc., Sr. Unsecd. Note, Series 144A, 5.25%, 1/15/2024 52,188
475,000   NCR Corp., 6.375%, 12/15/2023 498,750
475,000   NCR Corp., Sr. Unsecd. Note, 5.00%, 7/15/2022 485,687
175,000   NCR Corp., Sr. Unsecd. Note, 5.875%, 12/15/2021 180,031
375,000   Nuance Communications, Inc., Series 144A, 5.375%, 8/15/2020 381,094
825,000   Nuance Communications, Inc., Sr. Unsecd. Note, 5.625%, 12/15/2026 863,156
150,000   Qorvo, Inc., Sr. Unsecd. Note, 7.00%, 12/1/2025 168,188
850,000   Riverbed Technology, Inc., Sr. Unsecd. Note, Series 144A, 8.875%, 3/1/2023 805,375
450,000   SS&C Technologies Holdings, Inc., 5.875%, 7/15/2023 477,000
375,000   Sabre GLBL, Inc., Series 144A, 5.375%, 4/15/2023 388,125
225,000   Sensata Technologies B.V., Series 144A, 5.625%, 11/1/2024 248,063
225,000   Sensata Technologies UK Financing Co. PLC, Sr. Unsecd. Note, Series 144A, 6.25%, 2/15/2026 245,813
1,125,000   Solera LLC/Solera Finance, Inc., Series 144A, 10.50%, 3/1/2024 1,271,227
225,000   Symantec Corp., Sr. Unsecd. Note, Series 144A, 5.00%, 4/15/2025 234,563
500,000   TTM Technologies, Sr. Unsecd. Note, Series 144A, 5.625%, 10/1/2025 513,750
1,100,000   Tempo Acquisition LLC, Sr. Unsecd. Note, Series 144A, 6.75%, 6/1/2025 1,122,000
200,000   Vantiv LLC, Sr. Unsecd. Note, Series 144A, 4.375%, 11/15/2025 203,036
350,000   Verisign, Inc., Sr. Unsecd. Note, 4.75%, 7/15/2027 359,625
    TOTAL 23,075,646
    Transportation Services—0.6%  
75,000   Avis Budget Group, Inc., Sr. Unsecd. Note, Series 144A, 5.25%, 3/15/2025 74,531
675,000   Avis Budget Group, Inc., Sr. Unsecd. Note, Series 144A, 6.375%, 4/1/2024 705,578
300,000   HDTFS, Inc., 6.25%, 10/15/2022 291,000
350,000   Hertz Corp., Series 144A, 7.625%, 6/1/2022 367,500
100,000   Hertz Corp., Sr. Unsecd. Note, Series 144A, 5.50%, 10/15/2024 90,750
    TOTAL 1,529,359
    Utility - Electric—2.1%  
1,450,000   Calpine Corp., 5.75%, 1/15/2025 1,382,937
150,000   Calpine Corp., Series 144A, 5.25%, 6/1/2026 147,564
825,000   Enviva Partners LP/Enviva Partners Finance Corp., Sr. Unsecd. Note, 8.50%, 11/1/2021 881,719
650,000   NRG Energy, Inc., 6.25%, 5/1/2024 684,125
525,000   NRG Energy, Inc., Sr. Unsecd. Note, 6.625%, 1/15/2027 557,812
375,000   NRG Energy, Inc., Sr. Unsecd. Note, 7.25%, 5/15/2026 410,153
50,000   NRG Energy, Inc., Sr. Unsecd. Note, Series 144A, 5.75%, 1/15/2028 50,625
50,000   TerraForm Power Operating LLC, Sr. Unsecd. Note, Series 144A, 4.25%, 1/31/2023 49,688
Annual Shareholder Report
14

Table of Contents
Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Utility - Electric—continued  
$775,000   TerraForm Power Operating LLC, Sr. Unsecd. Note, Series 144A, 5.00%, 1/31/2028 $768,219
200,000   TerraForm Power Operating LLC, Sr. Unsecd. Note, Series 144A, 6.625%, 6/15/2025 218,750
    TOTAL 5,151,592
    Wireless Communications—4.2%  
225,000   Altice Luxembourg SA, Series 144A, 7.75%, 5/15/2022 220,781
975,000   Altice Luxembourg SA, Sr. Unsecd. Note, Series 144A, 7.625%, 2/15/2025 937,219
275,000   Digicel Ltd., Sr. Unsecd. Note, Series 144A, 8.25%, 9/30/2020 271,233
225,000   MetroPCS Wireless, Inc., 6.125%, 1/15/2022 232,650
825,000   MetroPCS Wireless, Inc., Sr. Note, 6.836%, 4/28/2023 866,250
1,875,000   Numericable-SFR SAS, Series 144A, 7.375%, 5/1/2026 1,938,281
525,000   Sprint Capital Corp., Company Guarantee, 6.875%, 11/15/2028 529,594
925,000   Sprint Corp., 7.125%, 6/15/2024 943,500
1,350,000   Sprint Corp., 7.875%, 9/15/2023 1,441,125
475,000   Sprint Corp., Sr. Unsecd. Note, 7.625%, 2/15/2025 498,750
725,000   Sprint Nextel Corp., Sr. Unsecd. Note, 6.00%, 11/15/2022 726,812
375,000   T-Mobile USA, Inc., 6.625%, 4/1/2023 391,875
275,000   T-Mobile USA, Inc., Sr. Unsecd. Note, 6.00%, 3/1/2023 288,612
225,000   T-Mobile USA, Inc., Sr. Unsecd. Note, 6.375%, 3/1/2025 241,313
375,000   T-Mobile USA, Inc., Sr. Unsecd. Note, 6.50%, 1/15/2024 398,437
325,000   T-Mobile USA, Inc., Sr. Unsecd. Note, 6.50%, 1/15/2026 355,469
    TOTAL 10,281,901
    TOTAL CORPORATE BONDS
(IDENTIFIED COST $228,349,278)
231,858,514
    REPURCHASE AGREEMENT—2.9%  
    Finance - Banking—2.9%  
7,045,000   Interest in $950,000,000 joint repurchase agreement 1.42%, dated 12/29/2017 under which Bank of America, N.A. will repurchase securities provided as collateral for $950,149,889 on 1/2/2018. The securities provided as collateral at the end of the period held with BNY Mellon as tri-party agent, were U.S. Government Agency securities maturing on 7/20/2046 and the market value of those underlying securities was $969,152,887.
(IDENTIFIED COST $7,045,000)
7,045,000
    TOTAL INVESTMENT IN SECURITIES—98.5%
(IDENTIFIED COST $235,394,278)1
238,903,514
    OTHER ASSETS AND LIABILITIES - NET—1.5%2 3,574,932
    TOTAL NET ASSETS—100% $242,478,446
1 The cost of investments for federal tax purposes amounts to $235,607,473.
2 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at December 31, 2017.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1—quoted prices in active markets for identical securities.
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Also includes securities valued at amortized cost.
Level 3—significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
As of December 31, 2017, all investments of the Fund utilized Level 2 inputs in valuing the Fund's assets carried at fair value.
The following acronym is used throughout this portfolio:
MTN —Medium Term Note
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
15

Table of Contents
Financial HighlightsPrimary Shares
(For a Share Outstanding Throughout Each Period)
Year Ended December 31 2017 2016 2015 2014 2013
Net Asset Value, Beginning of Period $6.84 $6.36 $6.91 $7.15 $7.17
Income From Investment Operations:          
Net investment income1 0.36 0.37 0.37 0.39 0.44
Net realized and unrealized gain (loss) on investments 0.09 0.53 (0.53) (0.20) 0.04
TOTAL FROM INVESTMENT OPERATIONS 0.45 0.90 (0.16) 0.19 0.48
Less Distributions:          
Distributions from net investment income (0.47) (0.42) (0.39) (0.43) (0.50)
Net Asset Value, End of Period $6.82 $6.84 $6.36 $6.91 $7.15
Total Return2 6.94% 14.82% (2.57)% 2.69% 6.99%
Ratios to Average Net Assets:          
Net expenses 0.78% 0.72% 0.77% 0.77% 0.79%
Net investment income 5.26% 5.74% 5.55% 5.60% 6.21%
Expense waiver/reimbursement3 0.00%4 0.06% —% —% —%
Supplemental Data:          
Net assets, end of period (000 omitted) $192,194 $190,070 $267,448 $287,649 $246,994
Portfolio turnover 32% 26% 33% 33% 32%
1 Per share numbers have been calculated using the average shares method.
2 Based on net asset value. Total returns do not reflect any additional fees or expenses that may be imposed by separate accounts of insurance companies or in connection with any variable annuity or variable life insurance contract.
3 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
4 Represents less than 0.01%.
See Notes which are an integral part of the Financial Statements
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Financial HighlightsService Shares
(For a Share Outstanding Throughout Each Period)
Year Ended December 31 2017 2016 2015 2014 2013
Net Asset Value, Beginning of Period $6.81 $6.33 $6.87 $7.11 $7.13
Income From Investment Operations:          
Net investment income1 0.34 0.35 0.35 0.38 0.42
Net realized and unrealized gain (loss) on investments 0.09 0.53 (0.52) (0.21) 0.04
TOTAL FROM INVESTMENT OPERATIONS 0.43 0.88 (0.17) 0.17 0.46
Less Distributions:          
Distributions from net investment income (0.46) (0.40) (0.37) (0.41) (0.48)
Net Asset Value, End of Period $6.78 $6.81 $6.33 $6.87 $7.11
Total Return2 6.56% 14.53% (2.72)% 2.42% 6.73%
Ratios to Average Net Assets:          
Net expenses 1.03% 0.96% 1.01% 1.02% 1.04%
Net investment income 5.01% 5.48% 5.29% 5.35% 5.97%
Expense waiver/reimbursement3 0.00%4 0.08% —% —% —%
Supplemental Data:          
Net assets, end of period (000 omitted) $50,284 $49,183 $44,179 $57,999 $64,085
Portfolio turnover 32% 26% 33% 33% 32%
1 Per share numbers have been calculated using the average shares method.
2 Based on net asset value. Total returns do not reflect any additional fees or expenses that may be imposed by separate accounts of insurance companies or in connection with any variable annuity or variable life insurance contract.
3 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
4 Represents less than 0.01%.
See Notes which are an integral part of the Financial Statements
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Statement of Assets and Liabilities
Assets:    
Investment in securities, at value (identified cost $235,394,278)   $238,903,514
Cash   635
Income receivable   3,749,874
Receivable for shares sold   1,952
TOTAL ASSETS   242,655,975
Liabilities:    
Payable for shares redeemed $56,566  
Payable to adviser (Note 5) 11,955  
Payable for administrative fees (Note 5) 1,598  
Payable for custodian fees 6,232  
Payable for transfer agent fee 4,294  
Payable for portfolio accounting fees 69,919  
Payable for distribution services fee (Note 5) 10,779  
Payable for printing and postage 10,779  
Accrued expenses (Note 5) 5,407  
TOTAL LIABILITIES   177,529
Net assets for 35,606,172 shares outstanding   $242,478,446
Net Assets Consist of:    
Paid-in capital   $247,335,092
Net unrealized appreciation of investments   3,509,236
Accumulated net realized loss on investments   (21,272,970)
Undistributed net investment income   12,907,088
TOTAL NET ASSETS   $242,478,446
Net Asset Value, Offering Price and Redemption Proceeds Per Share    
Primary Shares:    
Net asset value per share ($192,194,098 ÷ 28,192,824 shares outstanding), no par value, unlimited shares authorized   $6.82
Service Shares:    
Net asset value per share ($50,284,348 ÷ 7,413,348 shares outstanding), no par value, unlimited shares authorized   $6.78
See Notes which are an integral part of the Financial Statements
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Statement of Operations
Investment Income:      
Interest     $14,766,039
Expenses:      
Investment adviser fee (Note 5)   $1,467,962  
Administrative fee (Note 5)   193,681  
Custodian fees   15,474  
Transfer agent fee   22,835  
Directors'/Trustees' fees (Note 5)   3,251  
Auditing fees   31,740  
Legal fees   8,583  
Portfolio accounting fees   82,642  
Distribution services fee (Note 5)   130,729  
Printing and postage   57,301  
Miscellaneous (Note 5)   25,152  
TOTAL EXPENSES   2,039,350  
Reimbursement of other operating expenses (Note 2)   (8,594)  
Net expenses     2,030,756
Net investment income     12,735,283
Realized and Unrealized Gain (Loss) on Investments:      
Net realized gain on investments     489,655
Net change in unrealized appreciation of investments     2,785,595
Net realized and unrealized gain on investments     3,275,250
Change in net assets resulting from operations     $16,010,533
See Notes which are an integral part of the Financial Statements
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Statement of Changes in Net Assets
Year Ended December 31 2017 2016
Increase (Decrease) in Net Assets    
Operations:    
Net investment income $12,735,283 $15,607,561
Net realized gain (loss) on investments 489,655 (8,204,574)
Net change in unrealized appreciation/depreciation of investments 2,785,595 31,500,381
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 16,010,533 38,903,368
Distributions to Shareholders:    
Distributions from net investment income    
Primary Shares (12,712,214) (17,147,041)
Service Shares (3,340,067) (2,684,113)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (16,052,281) (19,831,154)
Share Transactions:    
Proceeds from sale of shares 50,852,267 49,995,887
Net asset value of shares issued to shareholders in payment of distributions declared 16,052,274 19,831,154
Cost of shares redeemed (63,637,069) (161,273,539)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 3,267,472 (91,446,498)
Change in net assets 3,225,724 (72,374,284)
Net Assets:    
Beginning of period 239,252,722 311,627,006
End of period (including undistributed net investment income of $12,907,088 and $16,043,567, respectively) $242,478,446 $239,252,722
See Notes which are an integral part of the Financial Statements
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Notes to Financial Statements
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 seven portfolios. The financial statements included herein are only those of Federated High Income 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. Each portfolio pays its own expenses. The Fund offers two classes of shares: Primary Shares and Service Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. Fund shares are available exclusively as a funding vehicle for life insurance companies writing variable life insurance policies and variable annuity contracts. The investment objective of the Fund is to seek high current 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 U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
Fixed-income securities are fair valued using price evaluations provided by a pricing service approved by the Fund's Board of Trustees (the “Trustees”).
Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs.
Derivative contracts listed on exchanges are valued at their reported settlement or closing price, except that options are valued at the mean of closing bid and asked quotations.
Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
For securities that are fair valued in accordance with procedures established by and under the general supervision of the Trustees, certain factors may be considered, such as: the last traded or purchase price of the security, information obtained by contacting the issuer or dealers, analysis of the issuer's financial statements or other available documents, fundamental analytical data, the nature and duration of restrictions on disposition, the movement of the market in which the security is normally traded, public trading in similar securities or derivative contracts of the issuer or comparable issuers, movement of a relevant index, or other factors including but not limited to industry changes and relevant government actions.
If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, if the Fund cannot obtain price evaluations from a pricing service or from more than one dealer for an investment within a reasonable period of time as set forth in the Fund's valuation policies and procedures, or if information furnished by a pricing service, in the opinion of the valuation committee (“Valuation Committee”), is deemed not representative of the fair value of such security, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could obtain the fair value assigned to an investment if it sold the investment at approximately the time at which the Fund determines its NAV per share.
Fair Valuation and Significant Events Procedures
The Trustees have ultimate responsibility for determining the fair value of investments for which market quotations are not readily available. The Trustees have appointed a Valuation Committee comprised of officers of the Fund, Federated Investment Management Company (“Adviser”) and certain of the Adviser's affiliated companies to assist in determining fair value and in overseeing the calculation of the NAV. The Trustees have also authorized the use of pricing services recommended by the Valuation Committee to provide fair value evaluations of the current value of certain investments for purposes of calculating the NAV. The Valuation Committee employs various methods for reviewing third-party pricing-service evaluations including periodic reviews of third-party pricing services' policies, procedures and valuation methods (including key inputs, methods, models and assumptions), transactional back-testing, comparisons of evaluations of different pricing services, and review of price challenges by the Adviser based on recent market activity. In the event that market quotations and price evaluations are not available for an investment, the Valuation Committee determines the fair value of the investment in accordance with procedures adopted by the Trustees. The Trustees periodically review and approve the fair valuations made by the Valuation Committee and any changes made to the procedures.
Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a “bid” evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a “mid” evaluation). The Fund normally uses bid evaluations for any U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for any other types of fixed-income securities and any OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
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The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
With respect to securities traded principally in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures contracts;
Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded;
Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, or a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have adopted procedures whereby the Valuation Committee uses a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment in accordance with the fair valuation procedures approved by the Trustees. The Trustees have ultimate responsibility for any fair valuations made in response to a significant event.
Repurchase Agreements
The Fund may invest in repurchase agreements for short-term liquidity purposes. It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a “securities entitlement” and exercises “control” as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
The insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Repurchase agreements are subject to Master Netting Agreements (MNA) which are agreements between the Fund and its counterparties that provide for the net settlement of all transactions and collateral with the Fund, through a single payment, in the event of default or termination. Amounts presented on the Portfolio of Investments and Statement of Assets and Liabilities are not net settlement amounts but gross. As indicated above, the cash or securities to be repurchased, as shown on the Portfolio of Investments, exceeds the repurchase price to be paid under the agreement reducing the net settlement amount to zero.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income, if any, are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Amortization/accretion of premium and discount is included in investment income. 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 Service Shares may bear distribution services fees unique to that class. The detail of the total fund expense reimbursement of $8,594 is disclosed in this Note 2.
For the year ended December 31, 2017, the portfolio accountant reimbursed $8,594 of their 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.
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. As of and during the year ended December 31, 2017, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of December 31, 2017, tax years 2014 through 2017 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
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.
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Restricted Securities
The Fund may purchase securities which are considered restricted. Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security 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 such restricted securities may be resold in the secondary market in transactions exempt from registration. 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, like other securities, are priced in accordance with procedures established by and under the general supervision of the Trustees.
Other
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. The Fund applies investment company accounting and reporting guidance.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
Year Ended December 31 2017 2016
Primary Shares: Shares Amount Shares Amount
Shares sold 6,176,728 $41,996,711 5,623,772 $36,762,619
Shares issued to shareholders in payment of distributions declared 1,958,739 12,712,214 2,770,120 17,147,041
Shares redeemed (7,715,309) (52,592,213) (22,695,504) (146,842,193)
NET CHANGE RESULTING FROM PRIMARY SHARE TRANSACTIONS 420,158 $2,116,712 (14,301,612) $(92,932,533)
    
Year Ended December 31 2017 2016
Service Shares: Shares Amount Shares Amount
Shares sold 1,313,486 $8,855,556 2,046,961 $13,233,268
Shares issued to shareholders in payment of distributions declared 516,238 3,340,060 435,026 2,684,113
Shares redeemed (1,636,129) (11,044,856) (2,247,018) (14,431,346)
NET CHANGE RESULTING FROM SERVICE SHARE TRANSACTIONS 193,595 $1,150,760 234,969 $1,486,035
NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS 613,753 $3,267,472 (14,066,643) $(91,446,498)
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 expiration of capital loss carryforwards, regulatory settlement proceeds and discount accretion/premium amortization on debt securities.
For the year ended December 31, 2017, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease)
Paid-In Capital Undistributed Net
Investment Income (Loss)
Accumulated Net
Realized Gain (Loss)
$(9,764,712) $180,519 $9,584,193
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, 2017 and 2016, was as follows:
  2017 2016
Ordinary income $16,052,281 $19,831,154
As of December 31, 2017, the components of distributable earnings on a tax-basis were as follows:
Undistributed ordinary income $12,952,328
Net unrealized appreciation $3,296,041
Capital loss carryforwards $(21,105,015)
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for discount accretion/premium amortization on debt securities.
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At December 31, 2017, the cost of investments for federal tax purposes was $235,607,473. The net unrealized appreciation of investments for federal tax purposes was $3,296,041. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $7,692,459 and net unrealized depreciation from investments for those securities having an excess of cost over value of $4,396,418.
At December 31, 2017, the Fund had a capital loss carryforward of $21,105,015 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, thereby reducing the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, a net capital loss incurred in taxable years beginning on or before December 22, 2010, is characterized as short-term and may be carried forward for a maximum of eight tax years (“Carryforward Limit”), whereas a net capital loss incurred in taxable years beginning after December 22, 2010, retains its character as either short-term or long-term, does not expire and is required to be utilized prior to the losses which have a Carryforward Limit.
The following schedule summarizes the Fund's capital loss carryforwards and expiration years:
Expiration Year Short-Term Long-Term Total
No Expiration $$12,171,611 $12,171,611
2018 $8,933,404 NA $8,933,404
The Fund used capital loss carryforwards of $79,472 to offset capital gains realized during the year ended December 31, 2017.
Capital loss carryforwards of $9,764,569 expired during the year ended December 31, 2017.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.60% of the Fund's average daily net assets.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below:
Administrative Fee Average Daily Net Assets
of the Investment Complex
0.100% on assets up to $50 billion
0.075% on assets over $50 billion
For the year ended December 31, 2017, the annualized fee paid to FAS was 0.079% of average daily net assets of the Fund.
Prior to September 1, 2017, the breakpoints of the Administrative Fee paid to FAS, described above, were:
Administrative Fee Average Daily Net Assets
of the Investment Complex
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
In addition, FAS may charge certain out-of-pocket expenses to the Fund.
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 at 0.25% of average daily net assets, annually, to compensate FSC. For the year ended December 31, 2017, distribution services fees for the Fund were as follows:
  Distribution Services
Fees Incurred
Service Shares $130,729
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended December 31, 2017, FSC retained $250 of fees paid by the Fund.
Interfund Transactions
During the year ended December 31, 2017, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees and/or common Officers. These purchase and sale transactions complied with Rule 17a-7 under the Act and amounted to $479,891 and $223,109, respectively.
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Directors'/Trustees' and Miscellaneous Fees
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Directors'/Trustees' fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Adviser which in due course are reimbursed by the Fund. These expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
Affiliated Shares of Beneficial Interest
As of December 31, 2017, 38% of the shares of beneficial interest outstanding are owned by other affiliated investment companies.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended December 31, 2017, were as follows:
Purchases $74,837,843
Sales $77,253,882
7. LINE OF CREDIT
The Fund participates with certain other Federated Funds, on a several basis, in an up to $500,000,000 unsecured, 364-day, committed, revolving line of credit (LOC) agreement. The LOC was made available to finance temporarily the repurchase or redemption of shares of the Fund, failed trades, payment of dividends, settlement of trades and for other short-term, temporary or emergency general business purposes. The Fund cannot borrow under the LOC if an inter-fund loan is outstanding. The Fund's ability to borrow under the LOC also is subject to the limitations of the Act and various conditions precedent that must be satisfied before the Fund can borrow. Loans under the LOC are charged interest at a fluctuating rate per annum equal to the highest, on any day, of (a) (i) the federal funds effective rate, (ii) the one month London Interbank Offered Rate (LIBOR), and (iii) 0.0%, plus (b) a margin. The LOC also requires the Fund to pay, quarterly in arrears and at maturity, its pro rata share of a commitment fee based on the amount of the lenders' commitment that has not been utilized. As of December 31, 2017, the Fund had no outstanding loans. During the year ended December 31, 2017, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the Fund to borrow from other participating affiliated funds. As of December 31, 2017, there were no outstanding loans. During the year ended December 31, 2017, the program was not utilized.
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Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF The FEDERATED INSURANCE SERIES AND SHAREHOLDERS OF FEDERATED HIGH INCOME BOND FUND II:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Federated High Income Bond Fund II (the “Fund”), a portfolio of Federated Insurance Series, as of December 31, 2017, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. 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, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor for one or more of Federated Investors'- investment companies since 2006.
Boston, Massachusetts
February 14, 2018
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Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or other service 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, 2017 to December 31, 2017.
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 required to be provided to enable you to compare the ongoing costs of investing in the Fund with 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
7/1/2017
Ending
Account Value
12/31/2017
Expenses Paid
During Period1
Actual:      
Primary Shares $1,000 $1,017.90 $3.87
Service Shares $1,000 $1,016.50 $5.13
Hypothetical (assuming a 5% return before expenses):      
Primary Shares $1,000 $1,021.40 $3.87
Service Shares $1,000 $1,020.10 $5.14
1 Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). The expenses shown in the table do not include the charges and expenses imposed by the insurance company under the variable insurance product contract. Please refer to the variable insurance product prospectus for a complete listing of these expenses. The annualized net expense ratios are as follows:
   
Primary Shares 0.76%
Service Shares 1.01%
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In Memoriam
With profound sadness, Federated announces the passing of John F. (“Jack”) Donahue and John W. (“John”) McGonigle. They will be greatly missed.
Jack Donahue
(Former Chairman and President, and Emeritus Director/Trustee, of the Federated Funds, and Founder, Former Chairman, President and Chief Executive Officer, and Chairman Emeritus, of Federated Investors, Inc.)
Jack Donahue, along with Richard B. Fisher, founded Federated in 1955 and served as a leader and member of the Boards of Directors/Trustees of the Federated Funds and the Board of Directors of Federated Investors, Inc. Mr. Donahue was a family man of deep faith with exemplary character and fealty, who served his religion, family, community, and the Federated Funds and Federated, as well as their shareholders, officers and employees, with distinction. His integrity, intelligence, and keen sense of fiduciary duty, coupled with his faith, family and background as a West Point graduate and Strategic Air Command B-29 pilot, served as a foundation for his strong business acumen and leadership. Among his many achievements, Mr. Donahue's steadfast and innovative leadership of the Federated Funds and Federated, as well as within the investment management industry, led to the birth of money market funds in the 1970s and their growth as an innovative, efficient and effective cash management vehicle throughout the 1980s, 1990s, 2000s and beyond. Federated expresses deep gratitude to Mr. Donahue for his inspiring leadership, distinguished service and contributions as a husband, father, founder, Board member and officer, colleague and friend.
John McGonigle
(Former Secretary of the Federated Funds, Former Director, Secretary and Chief Legal Officer of Federated Investors, Inc.)
John McGonigle served the Federated Funds and their respective Boards with distinction for more than 50 years as Fund Secretary and also served as Director for several closed-end funds. Mr. McGonigle was a gifted lawyer and wise counselor with a genial presence, keen intellect and convivial demeanor. A man of deep faith, he was a devoted husband, father and grandfather. A graduate of Duquesne University School of Law, Mr. McGonigle served as an officer in the U.S. Army for two years, achieving the rank of Captain. He also served on the staff of the Securities and Exchange Commission before joining Federated in 1966. Among many professional accomplishments, Mr. McGonigle helped fashion the regulatory foundation for money market funds, established Federated's first offshore funds in Ireland, and represented Federated on the Board of Governors of the Investment Company Institute where he was a member of the Executive Committee. Federated expresses deep gratitude for Mr. McGonigle and his impact on his family, friends, the community, and the mutual fund industry.
Board of Trustees and Trust Officers
The Board of Trustees 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 Trustee and the senior officers of the Fund. Where required, the tables separately list Trustees who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Trustees listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2017, the Trust comprised seven portfolio(s), and the Federated Fund Family consisted of 40 investment companies (comprising 108 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Trustee oversees all portfolios in the Federated Fund Family and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
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Interested Trustees Background
Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
J. Christopher Donahue*
Birth Date: April 11, 1949
Trustee
Indefinite Term
Began serving: September 1993
Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of the Funds in the Federated Fund Family; 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 and Trustee, Federated Equity Management Company of Pennsylvania; 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; Chairman, Passport Research, Ltd.
Thomas R. Donahue*
Birth Date: October 20, 1958
Trustee
Indefinite Term
Began serving: May 2016
Principal Occupations: Director or Trustee of certain of the funds in the Federated Fund Family; Chief Financial Officer, Treasurer, Vice President and Assistant Secretary, Federated Investors, Inc.; Chairman and Trustee, Federated Administrative Services; Chairman and Director, Federated Administrative Services, Inc.; Trustee and Treasurer, Federated Advisory Services Company; Director or Trustee and Treasurer, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, and Federated Investment Management Company; Director, MDTA LLC; Director, Executive Vice President and Assistant Secretary, Federated Securities Corp.; Director or Trustee and Chairman, Federated Services Company and Federated Shareholder Services Company; and Director and President, FII Holdings, Inc.
Previous Positions: Director, Federated Investors, Inc.; Assistant Secretary, Federated Investment Management Company, Federated Global Investment Management Company and Passport Research, LTD; Treasurer, Passport Research, LTD; Executive Vice President, Federated Securities Corp.; and Treasurer, FII Holdings, Inc.
* Family relationships and reasons for “interested” status: J. Christopher Donahue and Thomas R. Donahue are brothers. Both are “interested” due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT Trustees Background
Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
John T. Collins
Birth Date: January 24, 1947
Trustee
Indefinite Term
Began serving: October 2013
Principal Occupations: Director or Trustee of the Federated Fund Family; formerly, Chairman and CEO, The Collins Group, Inc. (a private equity firm) (Retired).
Other Directorships Held: Director, Current Chair of the Compensation Committee, KLX Corp.
Qualifications: Mr. Collins has served in several business and financial management roles and directorship positions throughout his career. Mr. Collins previously served as Chairman and CEO, The Collins Group, Inc. (a private equity firm). Mr. Collins serves as Chairman Emeriti, Bentley University. Mr. Collins previously served as Director and Audit Committee Member, Bank of America Corp.; Director, FleetBoston Financial Corp.; and Director, Beth Israel Deaconess Medical Center (Harvard University Affiliate Hospital).
G. Thomas Hough
Birth Date: February 28, 1955
Trustee
Indefinite Term
Began serving: August 2015
Principal Occupations: Director or Trustee of the Federated Fund Family; formerly, Vice Chair, Ernst & Young LLP (public accounting firm) (Retired).
Other Directorships Held: Director, Chair of the Audit Committee, Governance Committee, Publix Super Markets, Inc.; Director, Member of the Audit Committee and Technology Committee of Equifax, Inc.
Qualifications: Mr. Hough has served in accounting, business management and directorship positions throughout his career. Mr. Hough most recently held the position of Americas Vice Chair of Assurance with Ernst & Young LLP (public accounting firm). Mr. Hough is an Executive Committee member of the United States Golf Association, he serves on the President's Cabinet and Business School Board of Visitors for the University of Alabama and is on the Business School Board of Visitors for Wake Forest University.
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Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
Maureen Lally-Green
Birth Date: July 5, 1949
Trustee
Indefinite Term
Began serving: August 2009
Principal Occupations: Director or Trustee of the Federated Fund Family; Dean of the Duquesne University School of Law; Professor and Adjunct Professor of Law, Duquesne University School of Law; formerly, Interim Dean of the Duquesne University School of Law; Associate General Secretary and Director, Office of Church Relations, Diocese of Pittsburgh.
Other Directorships Held: Director, CNX Resources Corporation (formerly known as CONSOL Energy Inc.).
Qualifications: Judge Lally-Green has served in various legal and business roles and directorship positions throughout her career. Judge Lally-Green previously served as: Associate General Secretary, Diocese of Pittsburgh; a member of the Superior Court of Pennsylvania; and as a Professor of Law, Duquesne University School of Law. Judge Lally-Green also currently holds the positions on either a public or not for profit Board of Directors as follows: Director and Chair, UPMC Mercy Hospital; Director and Vice Chair, Our Campaign for the Church Alive!, Inc.; Director, Saint Vincent College; Member, Pennsylvania State Board of Education (public); and Director CNX Resources Corporation (formerly known as CONSOL Energy Inc.), where she currently serves as a member of the Compensation, Nominating and Corporate Governance Committee (Chair) and the Health, Safety and Environmental Committee. Judge Lally-Green has held the positions of: Director, Auberle; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Ireland Institute of Pittsburgh; Director, Saint Thomas More Society; Director and Chair, Catholic High Schools of the Diocese of Pittsburgh, Inc.; Director, Pennsylvania Bar Institute; Regent, St. Vincent Seminary; and Director and Chair, Cardinal Wuerl North Catholic High School, Inc.
Charles F. Mansfield, Jr.
Birth Date: April 10, 1945
Trustee

Indefinite Term
Began serving: September 1999
Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant.
Other Directorships Held: None.
Qualifications: Mr. Mansfield has served as a Marine Corps officer and in several banking, business management, educational roles and directorship positions throughout his long career. He remains active as a Management Consultant.
Thomas M. O'Neill
Birth Date: June 14, 1951
Trustee

Indefinite Term
Began serving: August 2006
Principal Occupations: Director or Trustee, Chair of the Audit Committee of the Federated Fund Family; Sole Proprietor, Navigator Management Company (investment and strategic consulting).
Other Directorships Held: None.
Qualifications: Mr. O'Neill has served in several business, mutual fund and financial management roles and directorship positions throughout his career. Mr. O'Neill serves as Director, Medicines for Humanity and Director, The Golisano Children's Museum of Naples, Florida. Mr. O'Neill previously served as Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); and Director, Midway Pacific (lumber).
P. Jerome Richey
Birth Date: February 23, 1949
Trustee
Indefinite Term
Began serving: October 2013
Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant; formerly, Senior Vice Chancellor and Chief Legal Officer, University of Pittsburgh and Executive Vice President and Chief Legal Officer, CNX Resources Corporation (formerly known as CONSOL Energy Inc.)
Other Directorships Held: None.
Qualifications: Mr. Richey has served in several business and legal management roles and directorship positions throughout his career. Mr. Richey most recently held the positions of Senior Vice Chancellor and Chief Legal Officer, University of Pittsburgh. Mr. Richey previously served as Chairman of the Board, Epilepsy Foundation of Western Pennsylvania and Chairman of the Board, World Affairs Council of Pittsburgh. Mr. Richey previously served as Chief Legal Officer and Executive Vice President, CNX Resources Corporation (formerly known as CONSOL Energy Inc.); and Board Member, Ethics Counsel and Shareholder, Buchanan Ingersoll & Rooney PC (a law firm).
John S. Walsh
Birth Date: November 28, 1957
Trustee

Indefinite Term
Began serving: January 1999
Principal Occupations: Director or Trustee, and Chair of the Board of Directors or Trustees, of the Federated Fund Family; 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.
Other Directorships Held: None.
Qualifications: Mr. Walsh has served in several business management roles and directorship positions throughout his career. Mr. Walsh previously served as Vice President, Walsh & Kelly, Inc. (paving contractors).
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OFFICERS
Name
Birth Date
Address
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years
and Previous Position(s)
Lori A. Hensler
Birth Date: January 6, 1967
TREASURER
Officer since: April 2013
Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Family; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp. and Edgewood Services, Inc.; and Assistant Treasurer, Federated Investors Trust Company. Ms. Hensler has received the Certified Public Accountant designation.
Previous Positions: Controller of Federated Investors, Inc.; Senior Vice President and Assistant Treasurer, Federated Investors Management Company; Treasurer, Federated Investors Trust Company; Assistant Treasurer, Federated Administrative Services, Federated Administrative Services, Inc., Federated Securities Corp., Edgewood Services, Inc., Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company, Passport Research, Ltd., and Federated MDTA, LLC; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc.
Peter J. Germain
Birth Date: September 3, 1959
CHIEF LEGAL OFFICER, SECRETARY and EXECUTIVE VICE PRESIDENT
Officer since: January 2005
Principal Occupations: Mr. Germain is Chief Legal Officer, Secretary and Executive Vice President of the Federated Fund Family. He is General Counsel, Chief Legal Officer, Secretary and Executive Vice President, Federated Investors, Inc.; Trustee and Senior Vice President, Federated Investors Management Company; Trustee and President, Federated Administrative Services; Director and President, Federated Administrative Services, Inc.; Director and Vice President, Federated Securities Corp.; Director and Secretary, Federated Private Asset Management, Inc.; Secretary, Federated Shareholder Services Company; and Secretary, Retirement Plan Service Company of America. Mr. Germain joined Federated in 1984 and is a member of the Pennsylvania Bar Association.
Previous Positions: Deputy General Counsel, Special Counsel, Managing Director of Mutual Fund Services, Federated Investors, Inc.; Senior Vice President, Federated Services Company; and Senior Corporate Counsel, Federated Investors, Inc.
Richard B. Fisher
Birth Date: May 17, 1923
VICE PRESIDENT
Officer since: September 1993
Principal Occupations: Vice Chairman or Vice President of some of the Funds in the Federated Fund Family; 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 Family; Executive Vice President, Federated Investors, Inc.; Director and Chief Executive Officer, Federated Securities Corp.
John B. Fisher
Birth Date: May 16, 1956
PRESIDENT
Officer since: November 2004
Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of certain of the Funds in the Federated Fund Family; Vice President, Federated Investors, Inc.; President, Director/Trustee and CEO, Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company; President and CEO of Passport Research, Ltd.; President of some of the Funds in the Federated Fund Complex and Director, Federated Investors Trust Company.
Previous Positions: President and Director of the Institutional Sales Division of Federated Securities Corp.; President and Director of Federated Investment Counseling; Director, Edgewood Securities Corp.; Director, Federated Services Company; Director, Federated Investors, Inc.; Chairman and Director, Southpointe Distribution Services, Inc. and President, Technology, Federated Services Company.
Stephen Van Meter
Birth Date: June 5, 1975
CHIEF COMPLIANCE OFFICER AND SENIOR VICE PRESIDENT
Officer since: July 2015
Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Family; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of certain of its subsidiaries. Mr. Van Meter joined Federated in October 2011. He holds FINRA licenses under Series 3, 7, 24 and 66.
Previous Positions: Mr. Van Meter previously held the position of Compliance Operating Officer, Federated Investors, Inc. Prior to joining Federated, Mr. Van Meter served at the United States Securities and Exchange Commission in the positions of Senior Counsel, Office of Chief Counsel, Division of Investment Management and Senior Counsel, Division of Enforcement.
Stephen F. Auth
Birth Date: September 13, 1956
101 Park Avenue
41st Floor
New York, NY 10178
CHIEF INVESTMENT OFFICER
Officer since: November 2002
Principal Occupations: Stephen F. Auth is Chief Investment Officer of various Funds in the Federated Fund Family; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp. and Federated Equity Management Company of Pennsylvania.
Previous Positions: Executive Vice President, Federated Investment Management Company and Passport Research, Ltd. (investment advisory subsidiary of Federated); 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
Officer since: May 2004
Principal Occupations: Robert J. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of Federated's taxable fixed-income products in 2004 and also serves as a Senior Portfolio Manager. Mr. Ostrowski became an Executive Vice President of the Fund's Adviser in 2009 and served as a Senior Vice President of the Fund's Adviser from 1997 to 2009. Mr. Ostrowski has received the Chartered Financial Analyst designation. He received his M.S. in Industrial Administration from Carnegie Mellon University.
Deborah A. Cunningham
Birth Date: September 15, 1959
Chief Investment Officer
Officer since: June 2012
Principal Occupations: Deborah A. Cunningham was named Chief Investment Officer of Federated's money market products in 2004. She joined Federated in 1981 and has been a Senior Portfolio Manager since 1997 and an Executive Vice President of the Fund's Adviser since 2009. Ms. Cunningham has received the Chartered Financial Analyst designation and holds an M.S.B.A. in Finance from Robert Morris College.
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Evaluation and Approval of Advisory ContractMay 2017
Federated High Income Bond Fund II (the “Fund”)
Following a review and recommendation of approval by the Fund's independent trustees, the Fund's Board of Trustees (the “Board”) reviewed and unanimously approved the continuation of the Fund's investment advisory contract for an additional one-year term at its May 2017 meetings. The Board's decision regarding the contract reflects the exercise of its business judgment after considering all of the information received on whether to continue the existing arrangements.
The Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below (the “Senior Officer's Evaluation”). The Board considered the Senior Officer's Evaluation, along with other information, in deciding to approve the investment advisory contract.
The Board also considered judicial decisions concerning allegedly excessive investment advisory fees in its decision. Using these judicial decisions as a guide, the Board has indicated that the following factors may be relevant to an adviser's fiduciary duty with respect to its receipt of compensation from a fund: (1) the nature and quality of the services provided by an adviser to a fund and its shareholders (including the performance of the Fund and of comparable funds); (2) an adviser's cost of providing the services (including the profitability to an adviser of providing advisory services to a fund); (3) the extent to which an adviser may realize “economies of scale” as a fund grows larger and, if such economies of scale exist, whether they have been shared with a fund and its shareholders or the family of funds; (4) any “fall-out financial benefits” that accrue to an adviser because of its relationship with a fund (including research services received from brokers that execute fund trades and any fees paid to affiliates of an adviser for services rendered to a fund); (5) comparative fee and expense structures (including a comparison of fees paid to an adviser with those paid by similar funds); and (6) the extent of care, conscientiousness and independence with which the Fund's board members perform their duties and their expertise (including whether they are fully informed about all facts the Board deems relevant to its consideration of an adviser's services and fees). The Board noted that the Securities and Exchange Commission (“SEC”) disclosure requirements regarding the basis for the Board's approval of the Fund's investment advisory contract generally align with the factors listed above. Consistent with the judicial decisions and SEC disclosure requirements, the Board also considered management fees charged to institutional and other clients of Federated Investment Management Company (the “Adviser”) and its advisory affiliates for what might be viewed as like services. The Board was aware of these factors and was guided by them in its review of the Fund's investment advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these factors in light of its substantial accumulated experience in governing the Fund and working with Federated Investors, Inc. and its affiliates (“Federated”) on matters relating to the Federated funds. The Board was assisted in its deliberations by independent legal counsel. In addition to the extensive materials that comprise and accompany the Senior Officer's Evaluation, the Board received detailed information about the Fund and the Federated organization throughout the year, and in connection with its May meetings. Federated provided much of this information at each regular meeting of the Board, and furnished additional information in connection with the May meetings at which the Board's formal approval of the investment advisory contract occurred. At the May meetings in addition to meeting in separate sessions of the independent trustees without management present, senior management of the Adviser also met with the independent trustees and their counsel to discuss the materials presented and any other matters thought relevant by the Adviser or the trustees. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. The Board's consideration of the investment advisory contract included review of the Senior Officer's Evaluation, accompanying data and additional information covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short-term and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in terms relative to its particular investment program and certain competitor or “peer group” funds and/or other benchmarks, as appropriate) and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses, including the advisory fee and the overall expense structure of the Fund (both in absolute terms and relative to similar and/or competing funds), with due regard for contractual or voluntary expense limitations; the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders; the entrepreneurial risk assumed by the Adviser in sponsoring the Fund; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are generally available for exchange without the incurrence of additional sales
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charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
While mindful that courts have cautioned against giving such comparisons too much weight, the Board has found the use of comparisons of the Fund's fees and expenses to other mutual funds with comparable investment programs to be relevant to its deliberations. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, total expense ratios and each element of the Fund's total expense ratio (i.e., gross and net advisory fees, custody fees, portfolio accounting fees and transfer agency fees) relative to the Fund's peers. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, in that they are readily available to Fund shareholders as alternative investment vehicles. Also, they are the type of investment vehicle, in fact, chosen and maintained by the Fund's investors. The range of their fees and expenses, therefore, appears to be a relevant indicator of what consumers have found to be reasonable in the marketplace in which the Fund competes.
The Board reviewed the contractual advisory fee rate, and other expenses of the Fund and noted the position of the Fund's contractual advisory fee rate and other expenses relative to its peers. In this regard, the Board noted that the contractual advisory fee rate was below the median of the relevant peer group and the Board was satisfied that the overall expense structure of the Fund remained competitive.
For comparison, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated funds (e.g., institutional and separate accounts and sub-adviser services). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes and portfolio management techniques made necessary by different cash flows and different associated costs; and the time spent by portfolio managers and their teams, funds financial services, legal, compliance and risk management in reviewing securities pricing, addressing different administrative responsibilities, addressing different degrees of risk associated with management and a variety of different costs. The Senior Officer did not consider the fees for providing advisory services to these outside products to be determinative in judging the appropriateness of mutual fund advisory fees.
The Senior Officer noted that the services, administrative responsibilities and risks associated with such relationships are quite different than serving as a primary adviser to a fund.
Following such evaluation, and full deliberations, the Board concluded that the expenses of the Fund are reasonable and supported renewal of the Fund's investment advisory contract.
The Board considered the nature, extent and quality of the services provided to the Fund by the Adviser and the resources of the Adviser and its affiliates dedicated to the Fund. In this regard, the Board evaluated, among other things, the Adviser's personnel, experience, track record, overall reputation and willingness to invest in personnel and infrastructure that benefit the Fund. In addition, the Board reviewed the qualifications, backgrounds and responsibilities of the portfolio management team primarily responsible for the day-to-day management of the Fund. The Board noted the compliance programs of, and the compliance-related resources provided to, the Fund by the Adviser. The Fund's ability to deliver competitive performance when compared to its peer group was also deemed to be relevant by the Board as a useful indicator of how the Adviser is executing the Fund's investment program. The Adviser's ability to execute this program was one of the Board's considerations in reaching a conclusion that the nature, extent and quality of the Adviser's investment management services warrant the continuation of the investment advisory contract.
In evaluating the Fund's investment performance, the Board considered performance results in light of the Fund's investment objective, strategies and risks, as disclosed in the Fund's prospectus. The Board particularly considered detailed investment reports on the Fund's performance that were provided to the Board throughout the year and in connection with the May meetings. The Senior Officer also reviewed information compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups may be helpful, though not conclusive, in judging the reasonableness of the proposed fees. The Board considered, in evaluating such comparisons, that in some cases individual funds may exhibit significant and unique differences in their objectives and management techniques when compared to other funds within an industry peer group.
For the one-year, three-year and five-year periods covered by the Senior Officer's Evaluation, the Fund's performance was above the median of the relevant peer group.
Following such evaluation, and full deliberations, the Board concluded that the performance of the Fund supported renewal of the Fund's investment advisory contract.
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The Board also received financial information about Federated, including information regarding the compensation and ancillary (or “fall-out”) benefits Federated derived from its relationships with the Federated funds. This information covered not only the fees under the investment advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The information also detailed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to Fund investors and/or indicated to the Board their intention to do so in the future. Moreover, the Board receives regular reporting as to the institution, adjustment or elimination of these voluntary waivers. The Board considered Federated's previous reductions in contractual management fees to certain funds in response to the Senior Officer's recommendations.
Federated furnished information, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in allocating costs continues to cause the Senior Officer to question the precision of the process and to conclude that such reports may be unreliable, since a single change in an allocation estimate may dramatically alter the resulting estimate of cost and/or profitability of a fund and may produce unintended consequences. The allocation information, including the Senior Officer's view that fund-by-fund estimations may be unreliable, was considered in the analysis by the Board.
The Board and the Senior Officer also reviewed information compiled by Federated comparing its profitability information to other publicly held fund management companies. In this regard, the Senior Officer concluded that Federated's profit margins did not appear to be excessive. The Senior Officer also noted that Federated appeared financially sound, with the resources to fulfill its obligations under its contracts with the Fund.
The Senior Officer's Evaluation also discussed the notion of possible realization of “economies of scale” as a fund grows larger. In this regard, the Board considered that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, shareholder services, compliance, internal audit and risk management functions, as well as systems technology (including technology relating to cybersecurity) and that the benefits of these efforts (as well as any economies of scale, should they exist) were likely to be enjoyed by the fund family as a whole. The Board noted that the Adviser's investments in these areas are extensive. In addition, the Board considered that Federated and its affiliates have frequently waived fees and/or reimbursed expenses and that this has allowed fund shareholders to share potential economies of scale from a fund's inception. Federated, as it does throughout the year, and in connection with the Board's review, furnished information relative to revenue sharing or adviser paid fees. Federated and the Senior Officer noted that this information should be viewed to determine if there was an incentive to either not apply breakpoints, or to apply breakpoints at higher levels. It should not be viewed to determine the appropriateness of advisory fees because it would represent marketing and distribution expenses. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's Evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with “breakpoints” that serve to reduce the fee as a fund attains a certain size.
While the Senior Officer noted certain items for follow-up reporting to the Board and further consideration by management, he stated that his observations and information accompanying the Senior Officer's Evaluation supported a finding by the Board that the management fee for the Fund was reasonable. Under these circumstances, no changes were recommended to, and no objection was raised to the continuation of the Fund's investment advisory contract.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an investment advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the investment advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund. The Board concluded that, in light of the factors discussed above, including the nature, quality and scope of the services provided to the Fund by the Adviser and its affiliates, continuation of the investment advisory contract was appropriate.
The Board based its decision to approve the investment advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the continuation of the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangement.
Annual Shareholder Report
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Table of Contents
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, 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 via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at www.FederatedInvestors.com/FundInformation. Form N-PX filings are also available at the SEC's website at 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 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 via the link to the Fund and share class name at www.FederatedInvestors.com/FundInformation.
Annual Shareholder Report
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Table of Contents
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 High Income Bond Fund II

Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313916306
CUSIP 313916843
G00844-01 (2/18)
Federated is a registered trademark of Federated Investors, Inc.
2018 ©Federated Investors, Inc.
Annual Shareholder Report
Share Class Primary Service            

Federated Kaufmann Fund II

A Portfolio of Federated Insurance Series
Dear Valued Shareholder,
I am pleased to present the Annual Shareholder Report for your fund covering the period from January 1, 2017 through December 31, 2017. This report includes Management's Discussion of Fund Performance, a complete listing of your fund's holdings, performance information and financial statements along with other important fund information.
In addition, our website, FederatedInvestors.com, offers easy access to Federated resources that include timely fund updates, economic and market insights from our investment strategists, and financial planning tools. We invite you to register to take full advantage of its capabilities.
Thank you for investing with Federated. I hope you find this information useful and look forward to keeping you informed.
Sincerely,
John B. Fisher, President

Not FDIC Insured ■ May Lose Value ■ No Bank Guarantee

CONTENTS

Table of Contents
Management's Discussion of Fund Performance (unaudited)
The total return of Federated Kaufmann Fund II (the “Fund”), based on net asset value for the 12-month reporting period ended December 31, 2017, was 28.33% for the Primary Shares and 27.97% for the Service Shares. The Fund's benchmark, the Russell Midcap® Growth Index (the RMCGI),1 a broad-based securities market index, had a total return of 25.27% for the period. The total return of the Morningstar Insurance Mid-Cap Growth Funds Average (MIMCGFA)2 peer group average for the Fund, was 25.81%. The Fund's and MIMCGFA's total returns 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 RMCGI.
During the reporting period, the Fund's investment strategy focused on stock selection, sector exposure and country allocation. These were the most significant factors affecting the Fund's performance relative to the RMCGI.
The following discussion will focus on the Fund's Primary Shares.
MARKET OVERVIEW
As the U.S. economy enters 2018, the positive momentum in output has accelerated from its tepid pace in the previous few years as global growth has picked up, U.S. business confidence reached new highs and the U.S. passage of historic corporate tax reform all may help sustain the recent GDP acceleration in 2017. Earnings growth drove 2017's equity market rally helped by stable global growth and a weaker dollar as well as accommodative central bank policies around the world. Global markets have looked past most of the political discourse as the focus returned to company earnings and investment growth in the coming years.
Large-cap companies significantly outperformed both mid- and small-cap companies during the reporting period. The U.S. equity markets were led by the S&P 500 Index3 which was up 21.83%. Large-cap stocks, as measured by the Russell 1000® Index,4 returned 21.69%. The Russell Midcap® Index,5 representing mid-cap, returned 18.52%, and the Russell 2000® Index,6 representing small-cap stocks, returned 14.65%. Mid-cap growth stocks, as measured by the RMCGI (25.27%), also outperformed mid-cap value stocks, as measured by the Russell Midcap® Value Index7 (13.34%), throughout the reporting period.
The best-performing RMCGI sectors were: Utilities (64.17%), Information Technology (37.49%) and Financials (33.03%). The weakest-performing sectors during the quarter were: Energy (-5.63%), Consumer Staples (7.49%) and Consumer Discretionary (15.29%).
STOCK SELECTION
The five stocks that contributed the most to the Fund's performance versus the RMCGI were: Corcept Therapeutics, arGEN-X, ServiceNow, Veeva Systems and Mobileye.
The five stocks that most negatively affected Fund performance were: NVIDIA, Minerva Neurosciences, Progenics Pharmaceuticals, Illumina and U.S. Silica Holdings.
SECTOR EXPOSURE
At the end of the reporting period, approximately 72% of the portfolio was invested in four large sectors: Health Care, Information Technology, Industrials and Consumer Discretionary. These sectors have historically provided good opportunities for bottom-up growth investors. In 2017, stock selection in Health Care and Information Technology had a positive impact on performance. The Fund maintained higher-than-benchmark exposure to cash which hurt Fund performance. The cash position of the Fund was approximately 14.02% on average throughout the reporting period.
COUNTRY ALLOCATION
The reporting period ended with approximately 17% of the Fund invested in non-U.S. holdings. During the reporting period, stock selection in foreign companies8 was a positive contributor to Fund performance. However, the allocation outside the U.S. hurt Fund performance relative to the RMCGI.
1 Please see the footnotes to the line graphs below for definitions of, and further information about, the RMCGI.
2 Please see the footnotes to the line graphs below for definitions of, and further information about, the MIMCGFA.
3 The 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.*
4 The Russell 1000® Index measures the performance of the small-cap segment of the U.S. equity universe. It includes approximately 1000 of the smallest securities based on a combination of their market cap and current index membership.*
5 The Russell Midcap® Index measures the performance of the mid-cap segment of the U.S. equity universe. The Russell Midcap® Index is a subset of the Russell 1000® Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership.*
6 The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.*
7 The Russell Midcap® Value Index measures the performance of the mid-cap value segment of the U.S. equity universe. It includes those Russell Midcap Index companies with lower price-to-book ratios and lower forecasted growth values.*
8 International investing involves special risks including currency risk, increased volatility, political risks and differences in auditing and other financial standards.
* The index is unmanaged, and it is not possible to invest directly in an index.
Annual Shareholder Report
1

Table of Contents
FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,0001 in the Federated Kaufmann Fund II from December 31, 2007 to December 31, 2017, compared to the Russell Midcap® Growth Index (RMCGI)2 and the Morningstar Insurance Mid-Cap Growth Funds Average (MIMCGFA).3 The Average Annual Total Return table below shows returns for each class averaged over the stated periods.
Growth of a $10,000 Investment
Growth of $10,000 as of December 31, 2017
The Fund offers multiple share classes whose performance may be greater or less than its other share class(es) due to differences in sales charges and expenses.
Average Annual Total Returns for the Period Ended 12/31/2017
  1 Year 5 Years 10 Years
Primary Shares 28.33% 16.82% 7.00%
Service Shares 27.97% 16.51% 6.74%
RMCGI 25.27% 15.30% 9.10%
MIMCGFA 25.81% 13.89% 7.46%
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. 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 RMCGI and MIMCGFA have been adjusted to reflect reinvestment of dividends on securities in the index and average.
2 The RMCGI measures the performance of the mid-cap growth segment of the U.S. equity universe. It includes those Russell Midcap® Index companies with higher price-to-book ratios and higher forecasted growth values. The RMCGI is constructed to provide a comprehensive and unbiased barometer of the mid-cap growth market. The RMCGI is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true mid-cap growth market. The RMCGI 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 cash flows. It is not possible to invest directly in an index.
3 Morningstar figures represent the average of the total returns reported by all the funds designated by Morningstar as falling into the respective category indicated. They do not reflect sales charges. The Morningstar figures in the Growth of $10,000 line graph are based on historical return information published by Morningstar and reflect the return of the funds comprising the category in the year of publication. Because the funds designated by Morningstar as falling into the category can change over time, the Morningstar figures in the line graph may not match the Morningstar figures in the Average Annual Total Returns table, which reflect the return of the funds that currently comprise the category.
Annual Shareholder Report
2

Table of Contents
Portfolio of Investments Summary Table (unaudited)
At December 31, 2017, the Fund's sector composition1 was as follows:
Sector Composition Percentage of
Total Net Assets
Health Care 30.2%
Information Technology 24.0%
Industrials 9.3%
Consumer Discretionary 8.9%
Financials 6.4%
Materials 4.9%
Real Estate 1.8%
Consumer Staples 0.8%
Energy 0.7%
Derivative Contracts2,3 0.0%
Securities Lending Collateral4 1.7%
Cash Equivalents5 12.9%
Other Assets and Liabilities—Net6 (1.6)%
TOTAL 100.0%
1 Except for Securities Lending Collateral, Cash Equivalents and Other Assets and Liabilities, 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 a 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 Represents less than 0.1%.
3 Based upon net unrealized appreciation (depreciation) or value of the derivative contracts as applicable. Derivative contracts may consist of futures, forwards, options and swaps. The impact of a derivative contract on the Fund's performance may be larger than its unrealized appreciation (depreciation) or value may indicate. In many cases, the notional value or amount of a derivative contract may provide a better indication of the contract's significance to the portfolio. More complete information regarding the Fund's direct investments in derivative contracts, including unrealized appreciation (depreciation), value and notional values or amounts of such contracts, can be found in the table at the end of the Portfolio of Investments included in this Report.
4 Cash collateral received from lending portfolio securities which is invested in short-term investments such as repurchase agreements or money market mutual funds.
5 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements other than those representing securities lending collateral.
6 Assets, other than investments in securities and derivative contracts, less liabilities. See Statement of Assets and Liabilities.
Annual Shareholder Report
3

Table of Contents
Portfolio of Investments
Principal
Amount
or Shares
    Value
    COMMON STOCKS—87.0%  
    Consumer Discretionary—8.9%  
1,395 1 Amazon.com, Inc. $1,631,411
5,530   Ctrip.com International Ltd., ADR 243,873
34,900 1 Floor & Decor Holdings, Inc. 1,698,932
10,445   Hilton Worldwide Holdings, Inc. 834,138
10,900 1 JD.com, Inc., ADR 451,478
18,880   Las Vegas Sands Corp. 1,311,971
3,600 1 Mohawk Industries, Inc. 993,240
11,000   Moncler S.p.A 343,668
1,024,477   NagaCorp Limited 791,170
253 1 Priceline.com, Inc. 439,648
100,000   Samsonite International SA 459,348
12,700   Six Flags Entertainment Corp. 845,439
15,895   Starbucks Corp. 912,850
3,255   Vail Resorts, Inc. 691,590
15,100 2 Wingstop, Inc. 588,598
16,000 1,2 Yoox Net-A-Porter Group 558,457
    TOTAL 12,795,811
    Consumer Staples—0.8%  
8,800 1 Blue Buffalo Pet Products, Inc. 288,552
3,500   Constellation Brands, Inc., Class A 799,995
    TOTAL 1,088,547
    Energy—0.7%  
33,050   US Silica Holdings, Inc. 1,076,108
    Financials—6.4%  
5,570   Affiliated Managers Group 1,143,243
6,470   BlackRock, Inc. 3,323,704
16,500   CIT Group Holdings, Inc. 812,295
28,900   Chimera Investment Corp. 534,072
152,600   FinecoBank Banca Fineco SPA 1,559,749
21,900 3 Hamilton Lane, Inc. 775,041
68,300   Mediobanca Spa 773,536
20,200 1,2 Qudian, Inc., ADR 253,308
    TOTAL 9,174,948
    Health Care—30.2%  
7,500   Agilent Technologies, Inc. 502,275
4,800 1 Align Technology, Inc. 1,066,512
5,900 1 Alnylam Pharmaceuticals, Inc. 749,595
21,100 1 Amphastar Pharmaceuticals, Inc. 405,964
6,685 1 AnaptysBio, Inc. 673,313
45,023 1,3 arGEN-x N.V. 2,833,434
17,450 1 Argenx SE, ADR 1,101,793
142,420 1,4 BioNano Genomics, Inc. 0
23,800 1 Boston Scientific Corp. 590,002
3,721 1 CRISPR Therapeutics AG 87,369
13,800 1 Clementia Pharmaceuticals, Inc. 261,924
130,000 1,3 ContraFect Corp. 131,300
Annual Shareholder Report
4

Table of Contents
Principal
Amount
or Shares
    Value
    COMMON STOCKS—continued  
    Health Care—continued  
3,000   Cooper Cos., Inc. $653,640
296,737 1,3 Corcept Therapeutics, Inc. 5,359,070
22,100   Danaher Corp. 2,051,322
220,470 1,3,4 Dyax Corp. 531,333
47,400 1 Dynavax Technologies Corp. 886,380
6,500 1 Edwards Lifesciences Corp. 732,615
6,400 1 GW Pharmaceuticals PLC, ADR 844,864
12,700 1 Galapagos NV 1,203,108
21,500 1 Galapagos NV, ADR 2,015,840
10,300 1 Genmab A/S 1,707,987
9,278 1 Glaukos Corp. 237,981
120,194 1 Horizon Discovery Group PLC 388,570
3,600 1 IDEXX Laboratories, Inc. 562,968
4,500 1 Insulet Corp. 310,500
8,550 1 Intellia Therapeutics, Inc. 164,331
23,200 1 Intersect ENT, Inc. 751,680
155,287 1,3 Minerva Neurosciences, Inc. 939,486
3,775 1 Myokardia, Inc. 158,927
25,400 1 Nektar Therapeutics 1,516,888
5,900 1 Nevro Corp. 407,336
7,960 1 PRA Health Sciences, Inc. 724,917
10,200 1 Penumbra, Inc. 959,820
22,220 1,2 Poxel SA 174,509
247,662 1,3 Progenics Pharmaceuticals, Inc. 1,473,589
3,321 1,2 Protalix Biotherapeutics, Inc. 2,196
17,700 1 Repligen Corp. 642,156
83,400 1,2,3 SCYNEXIS, Inc. 193,488
28,340 1,2 Seres Therapeutics, Inc. 287,367
39,800 1,2 Spark Therapeutics, Inc. 2,046,516
28,534 1,3,5 SteadyMed Ltd. 105,576
2,945 1,3,5 SteadyMed Ltd. 9,218
59,406 1,3 SteadyMed Ltd. 221,481
4,400   Stryker Corp. 681,296
4,584 1 Tesaro, Inc. 379,876
22,800 1 Ultragenyx Pharmaceutical, Inc. 1,057,464
63,500 1 Veeva Systems, Inc. 3,510,280
30,933 1 Zogenix, Inc. 1,238,867
    TOTAL 43,536,923
    Industrials—9.3%  
42,600   Air Lease Corp. 2,048,634
9,500   Alaska Air Group, Inc. 698,345
25,200 1 Azul S.A., ADR 600,516
5,800   Fortive Corp. 419,630
10,300   Heico Corp. 971,805
13,124   KAR Auction Services, Inc. 662,893
10,500   Osram Licht AG 940,101
25,000   REV Group, Inc. 813,250
3,800   Raytheon Co. 713,830
8,400   Roper Technologies, Inc. 2,175,600
Annual Shareholder Report
5

Table of Contents
Principal
Amount
or Shares
    Value
    COMMON STOCKS—continued  
    Industrials—continued  
8,800 1 Verisk Analytics, Inc. $844,800
5,733 1 WageWorks, Inc. 355,446
22,910 1 XPO Logistics, Inc. 2,098,327
    TOTAL 13,343,177
    Technology—24.0%  
3,000 1 Adobe Systems, Inc. 525,720
95,000 1 Advanced Micro Devices, Inc. 976,600
8,745 1 Alibaba Group Holding Ltd., ADR 1,507,900
15,700   Amadeus IT Group S.A. 1,130,034
6,100   Broadcom Ltd. 1,567,090
11,150   Cognex Corp. 681,934
6,145 1 CoStar Group, Inc. 1,824,758
30,000 1 Coupa Software, Inc. 936,600
195,235   Evry AS 773,222
82,600 1 GDS Holdings Ltd., ADR 1,860,978
27,200 1 GoDaddy, Inc. 1,367,616
18,770 1 GrubHub, Inc. 1,347,686
37,100   Marvell Technology Group Ltd. 796,537
33,100 1 Microsemi Corp. 1,709,615
10,970 1 MindBody, Inc. 334,036
16,545 1 Q2 Holdings, Inc. 609,683
35,550 1 RADWARE Ltd. 689,670
13,880 1 RealPage, Inc. 614,884
4,500 1 Red Hat, Inc. 540,450
16,914   STMicroelectronics N.V., ADR 369,402
11,400 1 Salesforce.com, Inc. 1,165,422
25,410 1 ServiceNow, Inc. 3,313,210
9,000 1 Shopify, Inc. 909,000
34,920 1 Splunk, Inc. 2,892,773
10,500 1 Tyler Technologies, Inc. 1,859,025
16,825 1 Vantiv, Inc. 1,237,479
23,715 1 Workday, Inc. 2,412,764
14,995 1,2 Zillow Group, Inc. 613,595
    TOTAL 34,567,683
    Materials—4.9%  
7,840   Albemarle Corp. 1,002,657
3,900   Eagle Materials, Inc. 441,870
10,200 1 Ingevity Corp. 718,794
5,000   Martin Marietta Materials 1,105,200
6,370   Sherwin-Williams Co. 2,611,955
11,700   Westlake Chemical Corp. 1,246,401
    TOTAL 7,126,877
    Real Estate—1.8%  
7,300 1 CBRE Group, Inc. 316,163
9,470   Crown Castle International Corp. 1,051,265
10,935   MGM Growth Properties LLC 318,755
13,900   Ryman Hospitality Properties 959,378
    TOTAL 2,645,561
    TOTAL COMMON STOCKS
(IDENTIFIED COST $74,164,336)
125,355,635
Annual Shareholder Report
6

Table of Contents
Principal
Amount
or Shares
    Value
    WARRANTS—0.0%  
    Health Care—0.0%  
42,500 1,3 ContraFect Corp., Warrants $14,684
87,500 1,3 ContraFect Corp., Warrants 24,649
21,060 1,3 SCYNEXIS, Inc., Warrants 23,922
    TOTAL WARRANTS
(IDENTIFIED COST $1,300)
63,255
    REPURCHASE AGREEMENT—14.6%  
$18,584,000   Interest in $950,000,000 joint repurchase agreement 1.42%, dated 12/29/2017 under which Bank of America, N.A. will repurchase securities provided as collateral for $950,149,889 on 1/2/2018. The securities provided as collateral at the end of the period held with BNY Mellon as tri-party agent, were U.S. Government Agency securities maturing on 7/20/2046 and the market value of those underlying securities was $969,152,887. 18,584,000
2,377,411   Interest in $950,000,000 joint repurchase agreement 1.42%, dated 12/29/2017 under which Bank of America, N.A. will repurchase securities provided as collateral for $950,149,889 on 1/2/2018. The securities provided as collateral at the end of the period held with BNY Mellon as tri-party agent, were U.S. Government Agency securities maturing on 7/20/2046 and the market value of those underlying securities was $969,152,887. (purchased with proceeds from securities lending collateral). 2,377,411
    TOTAL REPURCHASE AGREEMENTS
(AT COST)
20,961,411
    TOTAL INVESTMENT IN SECURITIES—101.6%
(IDENTIFIED COST $95,127,047)6
146,380,301
    OTHER ASSETS AND LIABILITIES-NET—(1.6)%7 (2,358,248)
    TOTAL NET ASSETS—100% $144,022,053
At December 31, 2017, the Fund had the following outstanding futures contracts:
Description Number of
Contracts
Notional
Value
Expiration
Date
Value and
Unrealized
Depreciation
1S&P 500 E-Mini Index Short Futures 16 $2,140,800 March 2018 $(14,872)
1 Non-income-producing security.
2 All or a portion of these securities are temporarily on loan to unaffiliated broker/dealers.
Annual Shareholder Report
7

Table of Contents
3 Affiliated companies.
An affiliated company is a company in which the Fund has ownership of at least 5% of the voting shares. Transactions with affiliated companies during the year ended December 31, 2017, were as follows:
  Balance of
Shares
Held
12/31/2016
Purchases/
Additions
Sales/
Reductions
Balance of
Shares
Held
12/31/2017
Value Change in
Unrealized
Appreciation/
Depreciation
Net
Realized
Gain/(Loss)
Dividend
Income
arGEN-x 34,394 10,629 (—) 45,023 $2,833,434 $2,081,400 $$
ContraFect Corp. 42,500 87,500 (—) 130,000 $131,300 $(51,575) $$
ContraFect Corp., Warrants 42,500 (—) 42,500 $14,684 $(24,306) $$
ContraFect Corp., Warrants 87,500 (—) 87,500 $24,649 $23,774 $$
Corcept Therapeutics, Inc. 303,000 54,082 (60,345) 296,737 $5,359,070 $2,817,885 $412,089 $
Dyax Corp. 220,470 (—) 220,470 $531,333 $286,611 $$
*Dynavax Technologies Corp. 56,654 (9,254) 47,400 $886,380 $913,005 $(143,514) $
Hamilton Lane, Inc. 21,900 (—) 21,900 $775,041 $372,223 $$11,167
Minerva Neurosciences, Inc. 122,882 32,405 (—) 155,287 $939,486 $(753,227) $$
Progenics Pharmaceuticals, Inc. 275,600 10,567 (38,505) 247,662 $1,473,589 $(657,787) $(35,471) $
*Protalix Biotherapeutics, Inc. 38,203 (34,882) 3,321 $2,196 $11,218 $(4,046) $
SCYNEXIS, Inc. 66,360 17,040 (—) 83,400 $193,488 $(48,084) $$
SCYNEXIS, Inc. Warrants 21,060 (—) 21,060 $23,922 $(14,805) $$
SteadyMed Ltd. 28,534 (—) 28,534 $105,576 $29,961 $$
SteadyMed Ltd. 2,945 (—) 2,945 $9,218 $6,967 $$
SteadyMed Ltd. 27,200 32,206 (—) 59,406 $221,481 $29,164 $$
*Zogenix, Inc. 31,400 7,133 (7,600) 30,933 $1,238,867 $711,474 $(59,189) $
Affiliated issuers no longer in the portfolio at period end 316,184 (316,184) $$49,535 $(836,521) $
TOTAL OF AFFILIATED TRANSACTIONS 1,629,886 360,962 (466,770) 1,524,078 $14,763,714 $5,783,433 $(666,652) $11,167
* At December 31, 2017, the Fund no longer has ownership of at least 5% of the voting shares.
4 Market quotations and price evaluations are not available. Fair value determined using significant unobservable inputs in accordance with procedures established by and under the general supervision of the Fund's Board of Trustees (the “Trustees”).
5 Denotes a restricted security that either: (a) cannot be offered for public sale without first being registered, or availing of an exemption from registration, under the Securities Act of 1933; or (b) is subject to a contractual restriction on public sales. At December 31, 2017, these restricted securities amounted to $114,794, which represented 0.1% of total net assets.
6 The cost of investments for federal tax purposes amounts to $95,470,944.
7 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at December 31, 2017.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1—quoted prices in active markets for identical securities.
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Also includes securities valued at amortized cost.
Level 3—significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
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The following is a summary of the inputs used, as of December 31, 2017, in valuing the Fund's assets carried at fair value:
Valuation Inputs        
  Level 1—
Quoted
Prices
Level 2—
Other
Significant
Observable
Inputs
Level 3—
Significant
Unobservable
Inputs
Total
Equity Securities:        
Common Stocks        
 Domestic $97,289,592 $$531,333 $97,820,925
 International 13,897,817 13,636,893 27,534,710
Debt Securities:        
Warrants 63,255 63,255
Repurchase Agreements 20,961,411 20,961,411
TOTAL SECURITIES $111,187,409 $34,661,559 $531,333 $146,380,301
Other Financial Instruments1        
Liabilities $(14,872) $$$(14,872)
TOTAL OTHER FINANCIAL INSTRUMENTS $(14,872) $$$(14,872)
1 Other financial instruments include futures contracts.
The following acronym is used throughout this portfolio:
ADR —American Depositary Receipt
See Notes which are an integral part of the Financial Statements
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Financial HighlightsPrimary Shares
(For a Share Outstanding Throughout Each Period)
Year Ended December 31 2017 2016 2015 2014 2013
Net Asset Value, Beginning of Period $16.70 $17.42 $18.92 $19.22 $15.06
Income From Investment Operations:          
Net investment income (loss) (0.14)1 (0.11)1 (0.15)1 (0.15)1 (0.12)1
Net realized and unrealized gain on investments, futures contracts and foreign currency transactions 4.54 0.56 1.44 1.91 5.76
TOTAL FROM INVESTMENT OPERATIONS 4.40 0.45 1.29 1.76 5.64
Less Distributions:          
Distributions from net realized gain on investments, futures contracts and foreign currency transactions (1.94) (1.17) (2.79) (2.06) (1.48)
Net Asset Value, End of Period $19.16 $16.70 $17.42 $18.92 $19.22
Total Return2 28.33% 3.66% 6.37% 9.71% 40.12%
Ratios to Average Net Assets:          
Net expenses 1.54% 1.54%3 1.53%3 1.53%3 1.53%3
Net investment income (loss) (0.77)% (0.67)% (0.84)% (0.83)% (0.75)%
Expense waiver/reimbursement4 —% 0.03% 0.00%5 0.09% 0.25%
Supplemental Data:          
Net assets, end of period (000 omitted) $47,985 $42,122 $46,450 $49,425 $53,392
Portfolio turnover 44% 59% 60% 51% 71%
1 Per share numbers have been calculated using the average shares method.
2 Based on net asset value. Total returns do not reflect any additional fees or expenses that may be imposed by separate accounts of insurance companies or in connection with any variable annuity or variable life insurance contract.
3 The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratios are 1.54%, 1.53%, 1.53% and 1.53% for the years ended December 31, 2016, 2015, 2014 and 2013, respectively, after taking into account these expense reductions.
4 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
5 Represents less than 0.01%.
See Notes which are an integral part of the Financial Statements
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Financial HighlightsService Shares
(For a Share Outstanding Throughout Each Period)
Year Ended December 31 2017 2016 2015 2014 2013
Net Asset Value, Beginning of Period $16.04 $16.82 $18.39 $18.78 $14.79
Income From Investment Operations:          
Net investment income (loss) (0.17)1 (0.14)1 (0.19)1 (0.19)1 (0.16)1
Net realized and unrealized gain on investments, futures contracts and foreign currency transactions 4.33 0.53 1.41 1.86 5.63
TOTAL FROM INVESTMENT OPERATIONS 4.16 0.39 1.22 1.67 5.47
Less Distributions:          
Distributions from net realized gain on investments, futures contracts and foreign currency transactions (1.94) (1.17) (2.79) (2.06) (1.48)
Net Asset Value, End of Period $18.26 $16.04 $16.82 $18.39 $18.78
Total Return2 27.97% 3.42% 6.15% 9.43% 39.67%
Ratios to Average Net Assets:          
Net expenses 1.79% 1.79%3 1.78%3 1.78%3 1.78%3
Net investment income (loss) (1.02)% (0.92)% (1.07)% (1.08)% (1.00)%
Expense waiver/reimbursement4 —% 0.03% 0.00%5 0.09% 0.25%
Supplemental Data:          
Net assets, end of period (000 omitted) $96,037 $78,870 $91,458 $69,369 $70,159
Portfolio turnover 44% 59% 60% 51% 71%
1 Per share numbers have been calculated using the average shares method.
2 Based on net asset value. Total returns do not reflect any additional fees or expenses that may be imposed by separate accounts of insurance companies or in connection with any variable annuity or variable life insurance contract.
3 The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratios are 1.79%, 1.78%, 1.78% and 1.78% for the years ended December 31, 2016, 2015, 2014 and 2013, respectively, after taking into account these expense reductions.
4 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
5 Represents less than 0.01%.
See Notes which are an integral part of the Financial Statements
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Statement of Assets and Liabilities
Assets:    
Investment in repurchase agreements $20,961,411  
Investment in securities 125,418,890  
Investment in securities, at value including $2,267,520 of securities loaned (Note 2) and including $12,636,271 of investment in affiliated companies (identified cost $95,127,047)   $146,380,301
Cash   595
Restricted cash (Note 2)   72,000
Income receivable   63,000
Receivable for investments sold   4,199
Receivable for shares sold   300,227
TOTAL ASSETS   146,820,322
Liabilities:    
Payable for investments purchased 99,980  
Payable for shares redeemed 175,342  
Payable for daily variation margin on futures contracts 28,953  
Payable for collateral due to broker for securities lending 2,377,411  
Payable to adviser (Note 5) 15,454  
Payable for administrative fees (Note 5) 953  
Payable for distribution services fee (Note 5) 20,083  
Accrued expenses (Note 5) 80,093  
TOTAL LIABILITIES   2,798,269
Net assets for 7,764,138 shares outstanding   $144,022,053
Net Assets Consist of:    
Paid-in capital   $81,756,415
Net unrealized appreciation of investments, futures contracts and translation of assets and liabilities in foreign currency   51,238,375
Accumulated net realized gain on investments, futures contracts and foreign currency transactions   11,228,009
Accumulated net investment income (loss)   (200,746)
TOTAL NET ASSETS   $144,022,053
Net Asset Value, Offering Price and Redemption Proceeds Per Share    
Primary Shares:    
Net asset value per share ($47,984,567 ÷ 2,504,671 shares outstanding), no par value, unlimited shares authorized   $19.16
Service Shares:    
Net asset value per share ($96,037,486 ÷ 5,259,467 shares outstanding), no par value, unlimited shares authorized   $18.26
See Notes which are an integral part of the Financial Statements
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Statement of Operations
Investment Income:    
Dividends (including $11,167 received from affiliated companies, see footnotes to Portfolio of Investments and net of foreign taxes withheld of $15,376)   $802,671
Interest   168,288
Net income on securities loaned   52,110
TOTAL INCOME   1,023,069
Expenses:    
Investment adviser fee (Note 5) $1,730,320  
Administrative fee (Note 5) 105,404  
Custodian fees 27,199  
Transfer agent fee 14,050  
Directors'/Trustees' fees (Note 5) 2,244  
Auditing fees 33,400  
Legal fees 5,630  
Portfolio accounting fees 65,958  
Distribution services fee (Note 5) 219,414  
Printing and postage 37,325  
Miscellaneous (Note 5) 29,108  
TOTAL EXPENSES 2,270,052  
Net investment income (loss)   (1,246,983)
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts and Foreign Currency Transactions:    
Net realized gain on investments (including net realized loss of $666,652 on sales of investments in affiliated companies)   12,563,097
Net realized gain on foreign currency transactions   824
Net realized loss on futures contracts   (149,899)
Net change in unrealized appreciation of investments (including net change in unrealized appreciation of $5,783,433 on investments in affiliated companies)   21,581,778
Net change in unrealized appreciation/depreciation of translation of assets and liabilities in foreign currency   (274)
Net change in unrealized appreciation of futures contracts   (21,823)
Net realized and unrealized gain on investments, futures contracts and foreign currency transactions   33,973,703
Change in net assets resulting from operations   $32,726,720
See Notes which are an integral part of the Financial Statements
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Statement of Changes in Net Assets
Year Ended December 31 2017 2016
Increase (Decrease) in Net Assets    
Operations:    
Net investment income (loss) $(1,246,983) $(1,035,272)
Net realized gain on investments, futures contracts and foreign currency transactions 12,414,022 14,317,142
Net change in unrealized appreciation/depreciation of investments, futures contracts and translation of assets and liabilities in foreign currency 21,559,681 (9,799,042)
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 32,726,720 3,482,828
Distributions to Shareholders:    
Distributions from net realized gain on investments, futures contracts and foreign currency transactions    
Primary Shares (4,734,296) (3,022,416)
Service Shares (9,289,863) (6,304,411)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (14,024,159) (9,326,827)
Share Transactions:    
Proceeds from sale of shares 18,372,467 16,376,937
Net asset value of shares issued to shareholders in payment of distributions declared 14,024,145 9,326,827
Cost of shares redeemed (28,069,059) (36,775,523)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 4,327,553 (11,071,759)
Change in net assets 23,030,114 (16,915,758)
Net Assets:    
Beginning of period 120,991,939 137,907,697
End of period (including accumulated net investment income (loss) of $(200,746) and $(192,101), respectively) $144,022,053 $120,991,939
See Notes which are an integral part of the Financial Statements
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Notes to Financial Statements
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 seven 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. Each portfolio pays its own expenses. The Fund offers two classes of shares: Primary Shares and Service Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. Fund shares are available exclusively as a funding vehicle for life insurance companies writing variable life insurance policies and variable annuity contracts. The investment objective of the Fund is capital appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
Fixed-income securities are fair valued using price evaluations provided by a pricing service approved by the Trustees.
Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs.
Derivative contracts listed on exchanges are valued at their reported settlement or closing price, except that options are valued at the mean of closing bid and asked quotations.
Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
For securities that are fair valued in accordance with procedures established by and under the general supervision of the Trustees, certain factors may be considered such as: the last traded or purchase price of the security, information obtained by contacting the issuer or dealers, analysis of the issuer's financial statements or other available documents, fundamental analytical data, the nature and duration of restrictions on disposition, the movement of the market in which the security is normally traded, public trading in similar securities or derivative contracts of the issuer or comparable issuers, movement of a relevant index, or other factors including but not limited to industry changes and relevant government actions.
If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, if the Fund cannot obtain price evaluations from a pricing service or from more than one dealer for an investment within a reasonable period of time as set forth in the Fund's valuation policies and procedures, or if information furnished by a pricing service, in the opinion of the valuation committee (“Valuation Committee”), is deemed not representative of the fair value of such security, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could obtain the fair value assigned to an investment if it sold the investment at approximately the time at which the Fund determines its NAV per share.
Fair Valuation and Significant Events Procedures
The Trustees have ultimate responsibility for determining the fair value of investments for which market quotations are not readily available. The Trustees have appointed a Valuation Committee comprised of officers of the Fund, Federated Equity Management Company of Pennsylvania (“Adviser”) and certain of the Adviser's affiliated companies to assist in determining fair value and in overseeing the calculation of the NAV. The Trustees have also authorized the use of pricing services recommended by the Valuation Committee to provide fair value evaluations of the current value of certain investments for purposes of calculating the NAV. The Valuation Committee employs various methods for reviewing third-party pricing-service evaluations including periodic reviews of third-party pricing services' policies, procedures and valuation methods (including key inputs, methods, models and assumptions), transactional back-testing, comparisons of evaluations of different pricing services, and review of price challenges by the Adviser based on recent market activity. In the event that market quotations and price evaluations are not available for an investment, the Valuation Committee determines the fair value of the investment in accordance with procedures adopted by the Trustees. The Trustees periodically review and approve the fair valuations made by the Valuation Committee and any changes made to the procedures.
Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a “bid” evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a “mid” evaluation). The Fund normally uses bid evaluations for any U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for any other types of fixed-income securities and any OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
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The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
With respect to securities traded principally in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures contracts;
Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded;
Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, or a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have adopted procedures whereby the Valuation Committee uses a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment in accordance with the fair valuation procedures approved by the Trustees. The Trustees have ultimate responsibility for any fair valuations made in response to a significant event.
Repurchase Agreements
The Fund may invest in repurchase agreements for short-term liquidity purposes. It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a “securities entitlement” and exercises “control” as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
The insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Repurchase agreements are subject to Master Netting Agreements (MNA) which are agreements between the Fund and its counterparties that provide for the net settlement of all transactions and collateral with the Fund, through a single payment, in the event of default or termination. Amounts presented on the Portfolio of Investments and Statement of Assets and Liabilities are not net settlement amounts but gross. As indicated above, the cash or securities to be repurchased, as shown on the Portfolio of Investments, exceeds the repurchase price to be paid under the agreement reducing the net settlement amount to zero.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Amortization/accretion of premium and discount is included in investment income. Distributions of net investment income, if any, are declared and paid annually. 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 Primary Shares and Service Shares may bear distribution services fees unique to those classes.
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.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. As of and during the year ended December 31, 2017, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of December 31, 2017, tax years 2014 through 2017 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
The Fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The Fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or gains are earned.
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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.
Futures Contracts
The Fund purchases and sells financial futures contracts to manage currency risk and market risks. Upon entering into a financial futures contract with a broker, the Fund is required to deposit in a segregated account, either U.S. government securities or a specified amount of Restricted cash, which is shown in the Statement of Assets and Liabilities. 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. There is minimal counterparty risk to the Fund since futures contracts are exchange traded and the exchange's clearing house, as counterparty to all exchange traded futures contracts, guarantees the futures contracts against default.
Futures contracts outstanding at period end are listed after the Fund's Portfolio of Investments.
The average notional value of short futures contracts held by the Fund throughout the period was $1,043,475. This is based on amounts held as of each month-end throughout the fiscal period.
Foreign Exchange Contracts
The Fund enters into foreign exchange contracts for the delayed-delivery of securities or foreign currency exchange transactions. The Fund enters into foreign exchange contracts 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 into 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 exchange contracts 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, 2017, the Fund had no outstanding 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 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 foreign currencies, 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.
Securities Lending
The Fund participates in a securities lending program providing for the lending of equity securities to qualified brokers. The Fund normally receives cash collateral for securities loaned that is invested in an affiliated money market fund or in short-term securities including repurchase agreements. Collateral is maintained at a minimum level of 100% of the market value of investments loaned, plus interest, if applicable. In accordance with the Fund's securities lending agreement, the market value of securities on loan is determined each day at the close of business and any additional collateral required to cover the value of securities on loan is delivered to the Fund on the next business day. Earnings on collateral are allocated between the borrower of the security, the securities lending agent, as a fee for its services under the program and the Fund, according to agreed-upon rates.
Securities lending transactions are subject to MNA which are agreements between the Fund and its counterparties that provide for the net settlement of all transactions and collateral with the Fund, through a single payment, in the event of default or termination. Amounts presented on the Portfolio of Investments and Statement of Assets and Liabilities are not net settlement amount but gross. As indicated below, the cash collateral received by the Fund exceeds the market value of the securities loaned reducing the net settlement amount to zero. The chart below identifies the amount of collateral received as well as the market value of securities on loan. Additionally, the securities lending agreement executed by the Fund includes an indemnification clause. This clause stipulates that the borrower will reimburse the Fund for any losses as a result of any failure of the borrower to return equivalent securities to the Fund.
As of December 31, 2017, securities subject to this type of arrangement and related collateral were as follows:
Market Value of
Securities Loaned
Market Value
of Collateral
$2,267,520 $2,377,411
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Restricted Securities
The Fund may purchase securities which are considered restricted. Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security 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 such restricted securities may be resold in the secondary market in transactions exempt from registration. 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, like other securities, are priced in accordance with procedures established by and under the general supervision of the Trustees.
Additional information on restricted securities, excluding securities purchased under Rule 144A that have been deemed liquid by the Trustees, if applicable, held at December 31, 2017, is as follows:
Security Acquisition
Date
Cost Market
Value
SteadyMed Ltd. 7/29/2016 $89,311 $105,576
SteadyMed Ltd. 1/26/2015 $17,008 $9,218
Additional Disclosure Related to Derivative Instruments
Fair Value of Derivative Instruments
  Liability
  Statement of
Assets and
Liabilities
Location
Fair
Value
Derivatives not accounted for as hedging instruments under ASC Topic 815    
Equity contracts Payable for daily variation
margin on futures contracts
$14,872*
* Includes cumulative depreciation of futures contracts as reported in the footnotes to the Portfolio of Investments. Only the current day's variation margin is reported within the Statement of Assets and Liabilities.
The Effect of Derivative Instruments on the Statement of Operations for the Year Ended December 31, 2017
Amount of Realized Gain or (Loss) on Derivatives Recognized in Income
  Futures
Equity contracts $(149,899)
    
Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized in Income
  Futures
Equity contracts $(21,823)
Other
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. The Fund applies investment company accounting and reporting guidance.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
Year Ended December 31 2017 2016
Primary Shares: Shares Amount Shares Amount
Shares sold 195,640 $3,425,347 172,747 $2,727,161
Shares issued to shareholders in payment of distributions declared 289,029 4,734,294 209,164 3,022,416
Shares redeemed (502,213) (8,803,914) (526,403) (8,309,116)
NET CHANGE RESULTING FROM PRIMARY SHARE TRANSACTIONS (17,544) $(644,273) (144,492) $(2,559,539)
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Year Ended December 31 2017 2016
Service Shares: Shares Amount Shares Amount
Shares sold 890,081 $14,947,120 894,648 $13,649,776
Shares issued to shareholders in payment of distributions declared 593,980 9,289,851 453,229 6,304,411
Shares redeemed (1,142,552) (19,265,145) (1,868,028) (28,466,407)
NET CHANGE RESULTING FROM SERVICE SHARE TRANSACTIONS 341,509 $4,971,826 (520,151) $(8,512,220)
NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS 323,965 $4,327,553 (664,643) $(11,071,759)
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 foreign currency reclassifications, net operating loss utilized to offset short-term capital gains, net operating losses, passive foreign investment company gains and losses and discount accretion/premium amortization on debt securities.
For the year ended December 31, 2017, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease)
Paid-In
Capital
Undistributed
Net Investment
Income (Loss)
Accumulated
Net Realized
Gain (Loss)
$(302,141) $1,238,338 $(936,197)
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, 2017 and 2016, was as follows:
  2017 2016
Long-term capital gains $14,024,159 $9,326,827
As of December 31, 2017, the components of distributable earnings on a tax-basis were as follows:
Net unrealized appreciation $50,909,350
Undistributed long-term capital gains $11,356,288
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for deferral of losses on wash sales, mark to market of futures contracts and passive foreign investment company adjustments.
At December 31, 2017, the cost of investments for federal tax purposes was $95,470,944. The net unrealized appreciation of investments for federal tax purposes was $50,909,357. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $52,187,458 and net unrealized depreciation from investments for those securities having an excess of cost over value of $1,278,101. The amounts presented are inclusive of derivative contracts.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 1.30% of the Fund's average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee.
Certain of the Fund's assets are managed by Federated Global Investment Management Corp. (the “Sub-Adviser”). Under the terms of a sub-advisory 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, 2017, the Sub-Adviser earned a fee of $1,418,862.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below:
Administrative Fee Average Daily Net Assets
of the Investment Complex
0.100% on assets up to $50 billion
0.075% on assets over $50 billion
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the year ended December 31, 2017, the annualized fee paid to FAS was 0.079% of average daily net assets of the Fund.
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Prior to September 1, 2017, the breakpoints of the Administrative Fee paid to FAS, described above, were:
Administrative Fee Average Daily Net Assets
of the Investment Complex
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
In addition, FAS may charge certain out-of-pocket expenses to the Fund.
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 Primary Shares and Service Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name Percentage of Average
Daily Net Assets of Class
Primary Shares 0.25%
Service Shares 0.25%
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. For the year ended December 31, 2017, distribution services fees for the Fund were as follows:
  Distribution Services
Fees Incurred
Service Shares $219,414
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended December 31, 2017, FSC did not retain any fees paid by the Fund. For the year ended December 31, 2017, the Fund's Primary Shares did not incur a distribution services fee; however, it may begin to incur this fee upon approval of the Trustees.
Expense Limitation
The Adviser and certain of its affiliates (which may include FSC and FAS) on their own initiative have agreed to waive certain amounts of their respective fees and/or reimburse expenses. Total annual fund operating expenses (as shown in the financial highlights, excluding interest expense, extraordinary expenses, line of credit expenses and proxy-related expenses paid by the Fund, if any) paid by the Fund's Primary Shares and Service Shares (after the voluntary waivers and/or reimbursements) will not exceed 1.53% and 1.78% (the “Fee Limit”), respectively, up to but not including the later of (the “Termination Date”): (a) May 1, 2018; or (b) the date of the Fund's next effective Prospectus. While the Adviser and its applicable affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Trustees.
Interfund Transactions
During the year ended December 31, 2017, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees and/or common Officers. These purchase and sale transactions complied with Rule 17a-7 under the Act and amounted to $245,028 and $113,595, respectively.
Directors'/Trustees' and Miscellaneous Fees
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Directors'/Trustees' fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Adviser which in due course are reimbursed by the Fund. These expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended December 31, 2017, were as follows:
Purchases $50,367,602
Sales $59,805,236
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7. CONCENTRATION OF RISK
The Fund invests in securities of non-U.S. issuers. Political or economic developments may have an effect on the liquidity and volatility of portfolio securities and currency holdings. At December 31, 2017, the diversification of countries was as follows:
Country Percentage of
Net Assets
United States 82.5%
China 3.0%
Netherland 2.7%
Italy 2.3%
Belgium 2.2%
Denmark 1.2%
Singapore 1.1%
Other1 6.6%
1 Countries representing less than 1.0% have been aggregated under the designation “Other.”
8. LINE OF CREDIT
The Fund participates with certain other Federated Funds, on a several basis, in an up to $500,000,000 unsecured, 364-day, committed, revolving line of credit (LOC) agreement. The LOC was made available to finance temporarily the repurchase or redemption of shares of the Fund, failed trades, payment of dividends, settlement of trades and for other short-term, temporary or emergency general business purposes. The Fund cannot borrow under the LOC if an inter-fund loan is outstanding. The Fund's ability to borrow under the LOC also is subject to the limitations of the Act and various conditions precedent that must be satisfied before the Fund can borrow. Loans under the LOC are charged interest at a fluctuating rate per annum equal to the highest, on any day, of (a) (i) the federal funds effective rate, (ii) the one month London Interbank Offered Rate (LIBOR), and (iii) 0.0%, plus (b) a margin. The LOC also requires the Fund to pay, quarterly in arrears and at maturity, its pro rata share of a commitment fee based on the amount of the lenders' commitment that has not been utilized. As of December 31, 2017, the Fund had no outstanding loans. During the year ended December 31, 2017, the Fund did not utilize the LOC.
9. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the Fund to borrow from other participating affiliated funds. As of December 31, 2017, there were no outstanding loans. During the year ended December 31, 2017, the program was not utilized.
10. FEDERAL TAX INFORMATION (UNAUDITED)
For the year ended December 31, 2017, the amount of long-term capital gains designated by the Fund was $14,024,159.
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Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF the FEDERATED INSURANCE SERIES AND SHAREHOLDERS OF FEDERATED KAUFMANN FUND II:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Federated Kaufmann Fund II (the “Fund”), a portfolio of Federated Insurance Series, as of December 31, 2017, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. 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, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor for one or more of Federated Investors' - investment companies since 2006.
Boston, Massachusetts
February 14, 2018
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Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or other service 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 funds used as 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, 2017 to December 31, 2017.
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 required to be provided to enable you to compare the ongoing costs of investing in the Fund with 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
7/1/2017
Ending
Account Value
12/31/2017
Expenses Paid
During Period1
Actual:      
Primary Shares $1,000 $1,117.90 $8.22
Service Shares $1,000 $1,116.10 $9.55
Hypothetical (assuming a 5% return before expenses):      
Primary Shares $1,000 $1,017.40 $7.83
Service Shares $1,000 $1,016.20 $9.10
1 Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows:
   
Primary Shares 1.54%
Service Shares 1.79%
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In Memoriam
With profound sadness, Federated announces the passing of John F. (“Jack”) Donahue and John W. (“John”) McGonigle. They will be greatly missed.
Jack Donahue
(Former Chairman and President, and Emeritus Director/Trustee, of the Federated Funds, and Founder, Former Chairman, President and Chief Executive Officer, and Chairman Emeritus, of Federated Investors, Inc.)
Jack Donahue, along with Richard B. Fisher, founded Federated in 1955 and served as a leader and member of the Boards of Directors/Trustees of the Federated Funds and the Board of Directors of Federated Investors, Inc. Mr. Donahue was a family man of deep faith with exemplary character and fealty, who served his religion, family, community, and the Federated Funds and Federated, as well as their shareholders, officers and employees, with distinction. His integrity, intelligence, and keen sense of fiduciary duty, coupled with his faith, family and background as a West Point graduate and Strategic Air Command B-29 pilot, served as a foundation for his strong business acumen and leadership. Among his many achievements, Mr. Donahue's steadfast and innovative leadership of the Federated Funds and Federated, as well as within the investment management industry, led to the birth of money market funds in the 1970s and their growth as an innovative, efficient and effective cash management vehicle throughout the 1980s, 1990s, 2000s and beyond. Federated expresses deep gratitude to Mr. Donahue for his inspiring leadership, distinguished service and contributions as a husband, father, founder, Board member and officer, colleague and friend.
John McGonigle
(Former Secretary of the Federated Funds, Former Director, Secretary and Chief Legal Officer of Federated Investors, Inc.)
John McGonigle served the Federated Funds and their respective Boards with distinction for more than 50 years as Fund Secretary and also served as Director for several closed-end funds. Mr. McGonigle was a gifted lawyer and wise counselor with a genial presence, keen intellect and convivial demeanor. A man of deep faith, he was a devoted husband, father and grandfather. A graduate of Duquesne University School of Law, Mr. McGonigle served as an officer in the U.S. Army for two years, achieving the rank of Captain. He also served on the staff of the Securities and Exchange Commission before joining Federated in 1966. Among many professional accomplishments, Mr. McGonigle helped fashion the regulatory foundation for money market funds, established Federated's first offshore funds in Ireland, and represented Federated on the Board of Governors of the Investment Company Institute where he was a member of the Executive Committee. Federated expresses deep gratitude for Mr. McGonigle and his impact on his family, friends, the community, and the mutual fund industry.
Board of Trustees and Trust Officers
The Board of Trustees 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 Trustee and the senior officers of the Fund. Where required, the tables separately list Trustees who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Trustees listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2017, the Trust comprised seven portfolio(s), and the Federated Fund Family consisted of 40 investment companies (comprising 108 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Trustee oversees all portfolios in the Federated Fund Family and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
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Interested Trustees Background
Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
J. Christopher Donahue*
Birth Date: April 11, 1949
Trustee
Indefinite Term
Began serving: September 1993
Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of the Funds in the Federated Fund Family; 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 and Trustee, Federated Equity Management Company of Pennsylvania; 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; Chairman, Passport Research, Ltd.
Thomas R. Donahue*
Birth Date: October 20, 1958
Trustee
Indefinite Term
Began serving: May 2016
Principal Occupations: Director or Trustee of certain of the funds in the Federated Fund Family; Chief Financial Officer, Treasurer, Vice President and Assistant Secretary, Federated Investors, Inc.; Chairman and Trustee, Federated Administrative Services; Chairman and Director, Federated Administrative Services, Inc.; Trustee and Treasurer, Federated Advisory Services Company; Director or Trustee and Treasurer, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, and Federated Investment Management Company; Director, MDTA LLC; Director, Executive Vice President and Assistant Secretary, Federated Securities Corp.; Director or Trustee and Chairman, Federated Services Company and Federated Shareholder Services Company; and Director and President, FII Holdings, Inc.
Previous Positions: Director, Federated Investors, Inc.; Assistant Secretary, Federated Investment Management Company, Federated Global Investment Management Company and Passport Research, LTD; Treasurer, Passport Research, LTD; Executive Vice President, Federated Securities Corp.; and Treasurer, FII Holdings, Inc.
* Family relationships and reasons for “interested” status: J. Christopher Donahue and Thomas R. Donahue are brothers. Both are “interested” due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT Trustees Background
Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
John T. Collins
Birth Date: January 24, 1947
Trustee
Indefinite Term
Began serving: October 2013
Principal Occupations: Director or Trustee of the Federated Fund Family; formerly, Chairman and CEO, The Collins Group, Inc. (a private equity firm) (Retired).
Other Directorships Held: Director, Current Chair of the Compensation Committee, KLX Corp.
Qualifications: Mr. Collins has served in several business and financial management roles and directorship positions throughout his career. Mr. Collins previously served as Chairman and CEO, The Collins Group, Inc. (a private equity firm). Mr. Collins serves as Chairman Emeriti, Bentley University. Mr. Collins previously served as Director and Audit Committee Member, Bank of America Corp.; Director, FleetBoston Financial Corp.; and Director, Beth Israel Deaconess Medical Center (Harvard University Affiliate Hospital).
G. Thomas Hough
Birth Date: February 28, 1955
Trustee
Indefinite Term
Began serving: August 2015
Principal Occupations: Director or Trustee of the Federated Fund Family; formerly, Vice Chair, Ernst & Young LLP (public accounting firm) (Retired).
Other Directorships Held: Director, Chair of the Audit Committee, Governance Committee, Publix Super Markets, Inc.; Director, Member of the Audit Committee and Technology Committee of Equifax, Inc.
Qualifications: Mr. Hough has served in accounting, business management and directorship positions throughout his career. Mr. Hough most recently held the position of Americas Vice Chair of Assurance with Ernst & Young LLP (public accounting firm). Mr. Hough is an Executive Committee member of the United States Golf Association, he serves on the President's Cabinet and Business School Board of Visitors for the University of Alabama and is on the Business School Board of Visitors for Wake Forest University.
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Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
Maureen Lally-Green
Birth Date: July 5, 1949
Trustee
Indefinite Term
Began serving: August 2009
Principal Occupations: Director or Trustee of the Federated Fund Family; Dean of the Duquesne University School of Law; Professor and Adjunct Professor of Law, Duquesne University School of Law; formerly, Interim Dean of the Duquesne University School of Law; Associate General Secretary and Director, Office of Church Relations, Diocese of Pittsburgh.
Other Directorships Held: Director, CNX Resources Corporation (formerly known as CONSOL Energy Inc.).
Qualifications: Judge Lally-Green has served in various legal and business roles and directorship positions throughout her career. Judge Lally-Green previously served as: Associate General Secretary, Diocese of Pittsburgh; a member of the Superior Court of Pennsylvania; and as a Professor of Law, Duquesne University School of Law. Judge Lally-Green also currently holds the positions on either a public or not for profit Board of Directors as follows: Director and Chair, UPMC Mercy Hospital; Director and Vice Chair, Our Campaign for the Church Alive!, Inc.; Director, Saint Vincent College; Member, Pennsylvania State Board of Education (public); and Director CNX Resources Corporation (formerly known as CONSOL Energy Inc.), where she currently serves as a member of the Compensation, Nominating and Corporate Governance Committee (Chair) and the Health, Safety and Environmental Committee. Judge Lally-Green has held the positions of: Director, Auberle; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Ireland Institute of Pittsburgh; Director, Saint Thomas More Society; Director and Chair, Catholic High Schools of the Diocese of Pittsburgh, Inc.; Director, Pennsylvania Bar Institute; Regent, St. Vincent Seminary; and Director and Chair, Cardinal Wuerl North Catholic High School, Inc.
Charles F. Mansfield, Jr.
Birth Date: April 10, 1945
Trustee

Indefinite Term
Began serving: September 1999
Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant.
Other Directorships Held: None.
Qualifications: Mr. Mansfield has served as a Marine Corps officer and in several banking, business management, educational roles and directorship positions throughout his long career. He remains active as a Management Consultant.
Thomas M. O'Neill
Birth Date: June 14, 1951
Trustee

Indefinite Term
Began serving: August 2006
Principal Occupations: Director or Trustee, Chair of the Audit Committee of the Federated Fund Family; Sole Proprietor, Navigator Management Company (investment and strategic consulting).
Other Directorships Held: None.
Qualifications: Mr. O'Neill has served in several business, mutual fund and financial management roles and directorship positions throughout his career. Mr. O'Neill serves as Director, Medicines for Humanity and Director, The Golisano Children's Museum of Naples, Florida. Mr. O'Neill previously served as Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); and Director, Midway Pacific (lumber).
P. Jerome Richey
Birth Date: February 23, 1949
Trustee
Indefinite Term
Began serving: October 2013
Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant; formerly, Senior Vice Chancellor and Chief Legal Officer, University of Pittsburgh and Executive Vice President and Chief Legal Officer, CNX Resources Corporation (formerly known as CONSOL Energy Inc.)
Other Directorships Held: None.
Qualifications: Mr. Richey has served in several business and legal management roles and directorship positions throughout his career. Mr. Richey most recently held the positions of Senior Vice Chancellor and Chief Legal Officer, University of Pittsburgh. Mr. Richey previously served as Chairman of the Board, Epilepsy Foundation of Western Pennsylvania and Chairman of the Board, World Affairs Council of Pittsburgh. Mr. Richey previously served as Chief Legal Officer and Executive Vice President, CNX Resources Corporation (formerly known as CONSOL Energy Inc.); and Board Member, Ethics Counsel and Shareholder, Buchanan Ingersoll & Rooney PC (a law firm).
John S. Walsh
Birth Date: November 28, 1957
Trustee

Indefinite Term
Began serving: January 1999
Principal Occupations: Director or Trustee, and Chair of the Board of Directors or Trustees, of the Federated Fund Family; 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.
Other Directorships Held: None.
Qualifications: Mr. Walsh has served in several business management roles and directorship positions throughout his career. Mr. Walsh previously served as Vice President, Walsh & Kelly, Inc. (paving contractors).
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OFFICERS
Name
Birth Date
Address
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years
and Previous Position(s)
Lori A. Hensler
Birth Date: January 6, 1967
TREASURER
Officer since: April 2013
Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Family; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp. and Edgewood Services, Inc.; and Assistant Treasurer, Federated Investors Trust Company. Ms. Hensler has received the Certified Public Accountant designation.
Previous Positions: Controller of Federated Investors, Inc.; Senior Vice President and Assistant Treasurer, Federated Investors Management Company; Treasurer, Federated Investors Trust Company; Assistant Treasurer, Federated Administrative Services, Federated Administrative Services, Inc., Federated Securities Corp., Edgewood Services, Inc., Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company, Passport Research, Ltd., and Federated MDTA, LLC; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc.
Peter J. Germain
Birth Date: September 3, 1959
CHIEF LEGAL OFFICER, SECRETARY and EXECUTIVE VICE PRESIDENT
Officer since: January 2005
Principal Occupations: Mr. Germain is Chief Legal Officer, Secretary and Executive Vice President of the Federated Fund Family. He is General Counsel, Chief Legal Officer, Secretary and Executive Vice President, Federated Investors, Inc.; Trustee and Senior Vice President, Federated Investors Management Company; Trustee and President, Federated Administrative Services; Director and President, Federated Administrative Services, Inc.; Director and Vice President, Federated Securities Corp.; Director and Secretary, Federated Private Asset Management, Inc.; Secretary, Federated Shareholder Services Company; and Secretary, Retirement Plan Service Company of America. Mr. Germain joined Federated in 1984 and is a member of the Pennsylvania Bar Association.
Previous Positions: Deputy General Counsel, Special Counsel, Managing Director of Mutual Fund Services, Federated Investors, Inc.; Senior Vice President, Federated Services Company; and Senior Corporate Counsel, Federated Investors, Inc.
Richard B. Fisher
Birth Date: May 17, 1923
VICE PRESIDENT
Officer since: September 1993
Principal Occupations: Vice Chairman or Vice President of some of the Funds in the Federated Fund Family; 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 Family; Executive Vice President, Federated Investors, Inc.; Director and Chief Executive Officer, Federated Securities Corp.
John B. Fisher
Birth Date: May 16, 1956
PRESIDENT
Officer since: November 2004
Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of certain of the Funds in the Federated Fund Family; Vice President, Federated Investors, Inc.; President, Director/Trustee and CEO, Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company; President and CEO of Passport Research, Ltd.; President of some of the Funds in the Federated Fund Complex and Director, Federated Investors Trust Company.
Previous Positions: President and Director of the Institutional Sales Division of Federated Securities Corp.; President and Director of Federated Investment Counseling; Director, Edgewood Securities Corp.; Director, Federated Services Company; Director, Federated Investors, Inc.; Chairman and Director, Southpointe Distribution Services, Inc. and President, Technology, Federated Services Company.
Stephen Van Meter
Birth Date: June 5, 1975
CHIEF COMPLIANCE OFFICER AND SENIOR VICE PRESIDENT
Officer since: July 2015
Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Family; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of certain of its subsidiaries. Mr. Van Meter joined Federated in October 2011. He holds FINRA licenses under Series 3, 7, 24 and 66.
Previous Positions: Mr. Van Meter previously held the position of Compliance Operating Officer, Federated Investors, Inc. Prior to joining Federated, Mr. Van Meter served at the United States Securities and Exchange Commission in the positions of Senior Counsel, Office of Chief Counsel, Division of Investment Management and Senior Counsel, Division of Enforcement.
Stephen F. Auth
Birth Date: September 13, 1956
101 Park Avenue
41st Floor
New York, NY 10178
CHIEF INVESTMENT OFFICER
Officer since: November 2002
Principal Occupations: Stephen F. Auth is Chief Investment Officer of various Funds in the Federated Fund Family; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp. and Federated Equity Management Company of Pennsylvania.
Previous Positions: Executive Vice President, Federated Investment Management Company and Passport Research, Ltd. (investment advisory subsidiary of Federated); 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
Officer since: May 2004
Principal Occupations: Robert J. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of Federated's taxable fixed-income products in 2004 and also serves as a Senior Portfolio Manager. Mr. Ostrowski became an Executive Vice President of the Fund's Adviser in 2009 and served as a Senior Vice President of the Fund's Adviser from 1997 to 2009. Mr. Ostrowski has received the Chartered Financial Analyst designation. He received his M.S. in Industrial Administration from Carnegie Mellon University.
Deborah A. Cunningham
Birth Date: September 15, 1959
Chief Investment Officer
Officer since: June 2012
Principal Occupations: Deborah A. Cunningham was named Chief Investment Officer of Federated's money market products in 2004. She joined Federated in 1981 and has been a Senior Portfolio Manager since 1997 and an Executive Vice President of the Fund's Adviser since 2009. Ms. Cunningham has received the Chartered Financial Analyst designation and holds an M.S.B.A. in Finance from Robert Morris College.
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Evaluation and Approval of Advisory ContractMay 2017
Federated Kaufmann Fund II (the “Fund”)
Following a review and recommendation of approval by the Fund's independent trustees, the Fund's Board of Trustees (the “Board”) reviewed and unanimously approved the continuation of the Fund's investment advisory and subadvisory contracts for an additional one-year term at its May 2017 meetings. The Board's decision regarding these contracts reflects the exercise of its business judgment after considering all of the information received on whether to continue the existing arrangements.
The Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below (the “Senior Officer's Evaluation”). The Board considered the Senior Officer's Evaluation, along with other information, in deciding to approve the investment advisory and subadvisory contracts.
The Board also considered judicial decisions concerning allegedly excessive investment advisory fees in its decision. Using these judicial decisions as a guide, the Board has indicated that the following factors may be relevant to an adviser's fiduciary duty with respect to its receipt of compensation from a fund: (1) the nature and quality of the services provided by an adviser to a fund and its shareholders (including the performance of the Fund and of comparable funds); (2) an adviser's cost of providing the services (including the profitability to an adviser of providing advisory services to a fund); (3) the extent to which an adviser may realize “economies of scale” as a fund grows larger and, if such economies of scale exist, whether they have been shared with a fund and its shareholders or the family of funds; (4) any “fall-out financial benefits” that accrue to an adviser because of its relationship with a fund (including research services received from brokers that execute fund trades and any fees paid to affiliates of an adviser for services rendered to a fund); (5) comparative fee and expense structures (including a comparison of fees paid to an adviser with those paid by similar funds); and (6) the extent of care, conscientiousness and independence with which the Fund's board members perform their duties and their expertise (including whether they are fully informed about all facts the Board deems relevant to its consideration of an adviser's services and fees). The Board noted that the Securities and Exchange Commission (“SEC”) disclosure requirements regarding the basis for the Board's approval of the Fund's investment advisory and subadvisory contracts generally align with the factors listed above. Consistent with the judicial decisions and SEC disclosure requirements, the Board also considered management fees charged to institutional and other clients of Federated Equity Management Company of Pennsylvania (the “Adviser”) and any subadviser and their advisory affiliates, for what might be viewed as like services. The Board was aware of these factors and was guided by them in its review of the Fund's investment advisory and subadvisory contracts to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these factors in light of its substantial accumulated experience in governing the Fund and working with Federated Investors, Inc. and its affiliates (“Federated”) on matters relating to the Federated funds. The Board was assisted in its deliberations by independent legal counsel. In addition to the extensive materials that comprise and accompany the Senior Officer's Evaluation, the Board received detailed information about the Fund and the Federated organization throughout the year, and in connection with its May meetings. Federated provided much of this information at each regular meeting of the Board, and furnished additional information in connection with the May meetings at which the Board's formal approval of the investment advisory and subadvisory contracts occurred. At the May meetings, in addition to meeting in separate sessions of the independent trustees without management present, senior management of the Adviser also met with the independent trustees and their counsel to discuss the materials presented and any other matters thought relevant by the Adviser or the trustees. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. The Board's consideration of the investment advisory and subadvisory contracts included review of the Senior Officer's Evaluation, accompanying data and additional information covering such matters as: the Adviser's and subadviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short-term and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in terms relative to its particular investment program and certain competitor or “peer group” funds and/or other benchmarks, as appropriate) and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses, including the advisory fee and the overall expense structure of the Fund (both in absolute terms and relative to similar and/or competing funds), with due regard for contractual or voluntary expense limitations; the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders; the entrepreneurial risk assumed by the Adviser in sponsoring the Fund; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated funds which include a comprehensive array of
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funds with different investment objectives, policies and strategies which are generally available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board also considered that the longevity and experience of the Fund's portfolio management team and their unique approach to investing may limit the utility of comparisons to other equity mutual funds. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
While mindful that courts have cautioned against giving such comparisons too much weight, the Board has found the use of comparisons of the Fund's fees and expenses to other mutual funds with comparable investment programs to be relevant to its deliberations. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, total expense ratios and each element of the Fund's total expense ratio (i.e., gross and net advisory fees, custody fees, portfolio accounting fees and transfer agency fees) relative to the Fund's peers. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, in that they are readily available to Fund shareholders as alternative investment vehicles. Also, they are the type of investment vehicle, in fact, chosen and maintained by the Fund's investors. The range of their fees and expenses, therefore, appears to be a relevant indicator of what consumers have found to be reasonable in the marketplace in which the Fund competes.
The Board reviewed the contractual advisory fee rate, net advisory fee rate where partially waived and other expenses of the Fund and noted the position of the Fund's contractual advisory fee rate and other expenses relative to its peers. In this regard, the Board noted that the contractual advisory fee rate was above the median of the relevant peer group, but the Board noted the applicable waivers and reimbursements, and that the overall expense structure of the Fund remained competitive in the context of other factors considered by the Board.
For comparison, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated funds (e.g., institutional and separate accounts and sub-adviser services). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes and portfolio management techniques made necessary by different cash flows and different associated costs; and the time spent by portfolio managers and their teams, funds financial services, legal, compliance and risk management in reviewing securities pricing, addressing different administrative responsibilities, addressing different degrees of risk associated with management and a variety of different costs. The Senior Officer did not consider the fees for providing advisory services to these outside products to be determinative in judging the appropriateness of mutual fund advisory fees.
Following such evaluation, and full deliberations, the Board concluded that the expenses of the Fund are reasonable and supported renewal of the Fund's investment advisory and subadvisory contracts.
The Board considered the nature, extent and quality of the services provided to the Fund by the Adviser and the resources of the Adviser and its affiliates dedicated to the Fund. In this regard, the Board evaluated, among other things, the Adviser's personnel, experience, track record, overall reputation and willingness to invest in personnel and infrastructure that benefit the Fund. In addition, the Board reviewed the qualifications, backgrounds and responsibilities of the portfolio management team primarily responsible for the day-to-day management of the Fund. The Board noted the compliance programs of and the compliance-related resources provided to the Fund by the Adviser. The Fund's ability to deliver competitive performance when compared to its peer group was also deemed to be relevant by the Board as a useful indicator of how the Adviser is executing the Fund's investment program. The Adviser's ability to execute this program was one of the Board's considerations in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services warrant the continuation of the investment advisory and subadvisory contracts.
In evaluating the Fund's investment performance, the Board considered performance results in light of the Fund's investment objective, strategies and risks, as disclosed in the Fund's prospectus. The Board particularly considered detailed investment reports on the Fund's performance that were provided to the Board throughout the year and in connection with the May meetings. The Senior Officer also reviewed information compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups may be helpful, though not conclusive, in judging the reasonableness of the proposed fees. The Board considered, in evaluating such comparisons, that in some cases individual funds may exhibit significant and unique differences in their objectives and management techniques when compared to other funds within an industry peer group.
For the periods covered by the Senior Officer's Evaluation, the Fund's performance for the three-year and five-year period was above the median of the relevant peer group, and the Fund's performance fell below the median of the relevant peer group for the one-year period. The Board discussed the Fund's performance with the Adviser and recognized the efforts being taken by the Adviser in the context of other factors considered relevant by the Board.
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Following such evaluation and full deliberations, the Board concluded that the performance of the Fund supported renewal of the Fund's investment advisory and subadvisory contracts.
The Board also received financial information about Federated, including information regarding the compensation and ancillary (or “fall-out”) benefits Federated derived from its relationships with the Federated funds. This information covered not only the fees under the investment advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The information also detailed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to Fund investors and/or indicated to the Board their intention to do so in the future. Moreover, the Board receives regular reporting as to the institution, adjustment or elimination of these voluntary waivers. The Board considered Federated's previous reductions in contractual management fees to certain funds in response to the Senior Officer's recommendations.
Federated furnished information, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in allocating costs continues to cause the Senior Officer to question the precision of the process and to conclude that such reports may be unreliable, since a single change in an allocation estimate may dramatically alter the resulting estimate of cost and/or profitability of a fund and may produce unintended consequences. The allocation information, including the Senior Officer's view that fund-by-fund estimations may be unreliable, was considered in the analysis by the Board.
The Board and the Senior Officer also reviewed information compiled by Federated comparing its profitability information to other publicly held fund management companies. In this regard, the Senior Officer concluded that Federated's profit margins did not appear to be excessive. The Senior Officer also noted that Federated appeared financially sound, with the resources to fulfill its obligations under its contracts with the Fund.
The Senior Officer's Evaluation also discussed the notion of possible realization of “economies of scale” as a fund grows larger. In this regard, the Board considered that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, shareholder services, compliance, internal audit and risk management functions, as well as systems technology (including technology relating to cybersecurity,) and that the benefits of these efforts (as well as any economies of scale, should they exist) were likely to be enjoyed by the fund family as a whole. The Board noted that the Adviser's investments in these areas are extensive. In addition, the Board considered that Federated and its affiliates have frequently waived fees and/or reimbursed expenses and that this has allowed fund shareholders to share potential economies of scale from a fund's inception. Federated, as it does throughout the year, and in connection with the Board's review, furnished information relative to revenue sharing or adviser paid fees. Federated and the Senior Officer noted that this information should be viewed to determine if there was an incentive to either not apply breakpoints or to apply breakpoints at higher levels. It should not be viewed to determine the appropriateness of advisory fees, because it would represent marketing and distribution expenses. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's Evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with “breakpoints” that serve to reduce the fee as a fund attains a certain size.
While the Senior Officer noted certain items for follow-up reporting to the Board and further consideration by management, he stated that his observations and information accompanying the Senior Officer's Evaluation supported a finding by the Board that the management fee the Fund was reasonable. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's investment advisory and subadvisory contracts.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an investment advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the advisory and subadvisory contracts reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund. The Board concluded that, in light of the factors discussed above, including the nature, quality and scope of the services provided to the Fund by the Adviser and its affiliates, continuation of the investment advisory contract was appropriate.
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The Board based its decision to approve the investment advisory and subadvisory contracts on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the continuation of the contracts reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
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Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, 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 via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at www.FederatedInvestors.com/FundInformation. Form N-PX filings are also available at the SEC's website at 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 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 via the link to the Fund and share class name at www.FederatedInvestors.com/FundInformation.
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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 Kaufmann Fund II

Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313916827
CUSIP 313916777
28136 (2/18)
Federated is a registered trademark of Federated Investors, Inc.
2018 ©Federated Investors, Inc.
Annual Shareholder Report
Share Class Primary Service            

Federated Government Money Fund II

A Portfolio of Federated Insurance Series
Dear Valued Shareholder,
I am pleased to present the Annual Shareholder Report for your fund covering the period from January 1, 2017 through December 31, 2017. This report includes a complete listing of your fund's holdings, performance information and financial statements along with other important fund information.
In addition, our website, FederatedInvestors.com, offers easy access to Federated resources that include timely fund updates, economic and market insights from our investment strategists, and financial planning tools. We invite you to register to take full advantage of its capabilities.
Thank you for investing with Federated. I hope you find this information useful and look forward to keeping you informed.
Sincerely,
John B. Fisher, President

Not FDIC Insured ■ May Lose Value ■ No Bank Guarantee

CONTENTS

Table of Contents
Portfolio of Investments Summary Tables (unaudited)
At December 31, 2017, the Fund's portfolio composition1 was follows:
Security Type Percentage of
Total Net Assets
U.S. Government Agency Securities 42.7%
U.S. Treasury Securities 0.3%
Repurchase Agreements 55.5%
Other Assets and Liabilities—Net2 1.5%
TOTAL 100.0%
At December 31, 2017, the Fund's effective maturity schedule3 was follows:
Securities With an Effective Maturity of: Percentage of
Total Net Assets
1-7 Days 60.0%
8-30 Days 20.1%
31-90 Days 8.6%
91-180 Days 2.9%
181 Days or more 6.9%
Other Assets and Liabilities—Net2 1.5%
TOTAL 100.0%
1 See the Fund's Prospectus and Statement of Additional Information for a description of the types of securities in which the Fund invests.
2 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
3 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.
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Table of Contents
Portfolio of Investments
Principal
Amount
    Value
    GOVERNMENT AGENCIES—42.7%  
$750,000 1 Federal Farm Credit System Discount Notes, 1.190% - 1.240%, 4/11/2018 - 8/15/2018 $745,875
500,000 2 Federal Farm Credit System Floating Rate Notes, 1.276% (1-month USLIBOR -0.085%), 1/1/2018 499,980
300,000 2 Federal Farm Credit System Floating Rate Notes, 1.312% (1-month USLIBOR -0.060%), 1/4/2018 299,985
200,000 2 Federal Farm Credit System Floating Rate Notes, 1.351% (1-month USLIBOR -0.041%), 1/6/2018 200,000
500,000 2 Federal Farm Credit System Floating Rate Notes, 1.379% - 1.504% (1-month USLIBOR -0.065%), 1/12/2018 - 1/29/2018 499,984
250,000 2 Federal Farm Credit System Floating Rate Notes, 1.380% (1-month USLIBOR -0.080%), 1/13/2018 249,977
250,000 2 Federal Farm Credit System Floating Rate Notes, 1.417% (1-month USLIBOR -0.135%), 1/25/2018 250,000
750,000 2 Federal Farm Credit System Floating Rate Notes, 1.420% (1-month USLIBOR -0.040%), 1/13/2018 749,982
250,000 2 Federal Farm Credit System Floating Rate Notes, 1.466% (1-month USLIBOR -0.045%), 1/21/2018 249,995
500,000 2 Federal Farm Credit System Floating Rate Notes, 1.511% (1-month USLIBOR +0.150%), 1/1/2018 501,124
1,000,000 2 Federal Farm Credit System Floating Rate Notes, 1.570% (1-month USLIBOR +0.059%), 1/21/2018 1,000,000
200,000 2 Federal Farm Credit System Floating Rate Notes, 1.705% (3-month USLIBOR +0.170%), 1/22/2018 200,612
1,635,000   Federal Farm Credit System, 0.950% - 4.670%, 2/27/2018 - 9/15/2018 1,641,004
2,250,000 1 Federal Home Loan Bank System Discount Notes, 1.250% - 1.800%, 1/24/2018 - 1/2/2019 2,240,101
250,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.007% (3-month USLIBOR -0.360%), 1/25/2018 250,000
750,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.013% (3-month USLIBOR -0.340%), 1/17/2018 750,000
500,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.065% (3-month USLIBOR -0.300%), 1/24/2018 500,000
500,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.152% (3-month USLIBOR -0.245%), 2/8/2018 500,000
250,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.225% (3-month USLIBOR -0.185%), 2/10/2018 250,000
500,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.249% (3-month USLIBOR -0.205%), 2/23/2018 500,000
1,000,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.294% - 1.308% (3-month USLIBOR -0.160%), 2/24/2018 - 2/28/2018 999,915
1,000,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.306% - 1.313% (3-month USLIBOR -0.030%), 1/4/2018 - 1/5/2018 1,000,000
1,500,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.316% - 1.507% (1-month USLIBOR -0.045%), 1/1/2018 - 1/25/2018 1,499,944
250,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.317% (1-month USLIBOR -0.155%), 1/12/2018 250,000
2,000,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.327% - 1.402% (1-month USLIBOR -0.150%), 1/15/2018 - 1/23/2018 2,000,000
250,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.329% (1-month USLIBOR -0.050%), 1/5/2018 250,000
250,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.342% (1-month USLIBOR -0.090%), 1/9/2018 250,000
500,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.348% (1-month USLIBOR -0.143%), 1/18/2018 500,000
1,100,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.351% (1-month USLIBOR -0.140%), 1/16/2018 1,100,000
1,500,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.371% (1-month USLIBOR -0.120%), 1/16/2018 - 1/17/2018 1,500,000
750,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.372% - 1.431% (1-month USLIBOR -0.060%), 1/11/2018 - 1/18/2018 750,000
1,000,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.376% - 1.386% (1-month USLIBOR -0.125%), 1/20/2018 - 1/21/2018 1,000,000
1,750,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.392% - 1.404% (1-month USLIBOR -0.160%), 1/25/2018 - 1/28/2018 1,750,000
750,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.415% - 1.421% (1-month USLIBOR -0.080%), 1/19/2018 - 1/20/2018 750,042
700,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.420% (1-month USLIBOR -0.115%), 1/22/2018 700,000
200,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.421% (1-month USLIBOR -0.070%), 1/18/2018 200,000
500,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.436% (3-month USLIBOR -0.250%), 3/28/2018 500,000
250,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.446% (1-month USLIBOR -0.055%), 1/20/2018 250,000
250,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.473% (3-month USLIBOR -0.140%), 3/19/2018 250,000
250,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.495% (1-month USLIBOR -0.040%), 1/22/2018 250,000
250,000 2 Federal Home Loan Bank System Floating Rate Notes, 1.517% (1-month USLIBOR -0.035%), 1/23/2018 250,051
3,525,000   Federal Home Loan Bank System, 0.625% - 2.750%, 6/8/2018 - 9/17/2018 3,525,103
500,000 2 Federal Home Loan Mortgage Corp. Floating Rate Notes, 1.117% (3-month USLIBOR -0.250%), 1/25/2018 500,000
1,000,000 2 Federal Home Loan Mortgage Corp. Floating Rate Notes, 1.241% (1-month USLIBOR -0.120%), 1/1/2018 1,000,000
2,000,000 2 Federal Home Loan Mortgage Corp. Floating Rate Notes, 1.543% (3-month USLIBOR +0.020%), 3/8/2018 2,000,000
3,693,000   Federal Home Loan Mortgage Corp., 0.875% - 1.250%, 2/26/2018 - 12/14/2018 3,687,616
700,000 2 Federal National Mortgage Association Floating Rate Notes, 1.326% (3-month USLIBOR -0.030%), 1/11/2018 700,000
170,000   Federal National Mortgage Association, 0.750%, 7/27/2018 169,501
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Principal
Amount
    Value
    GOVERNMENT AGENCIES—continued  
$388,000   Tennessee Valley Authority, 1.750%, 10/15/2018 $389,201
    TOTAL GOVERNMENT AGENCIES 40,049,992
    U.S. TREASURY—0.3%  
    U.S. Treasury Notes—0.3%  
250,000   United States Treasury Notes, 2.625%, 1/31/2018 250,355
    REPURCHASE AGREEMENTS—55.5%  
20,000,000   Interest in $250,000,000 joint repurchase agreement 1.41%, dated 12/29/2017 under which ABN Amro Bank N.V., Netherlands will repurchase securities provided as collateral for $250,039,167 on 1/2/2018. The securities provided as collateral at the end of the period held with BNY Mellon as tri-party agent, were U.S. Government Agency and U.S. Treasury securities with various maturities to 7/1/2047 and the market value of those underlying securities was $255,535,791. 20,000,000
10,000,000   Interest in $750,000,000 joint repurchase agreement 1.40%, dated 12/29/2017 under which BNP Paribas S.A. will repurchase securities provided as collateral for $750,116,667 on 1/2/2018. The securities provided as collateral at the end of the period were U.S. Treasury securities with various maturities to 4/15/2018 and the market value of those underlying securities was $764,535,793. 10,000,000
2,000,000   Interest in $4,000,000,000 joint repurchase agreement 1.36%, dated 12/29/2017 under which Barclays Bank PLC will repurchase securities provided as collateral for $4,000,604,444 on 1/2/2018. The securities provided as collateral at the end of the period held with BNY Mellon as tri-party agent, were U.S. Treasury securities with various maturities to 8/15/2047 and the market value of those underlying securities was $4,080,616,607. 2,000,000
20,000,000   Interest in $450,000,000 joint repurchase agreement 1.44%, dated 12/29/2017 under which J.P. Morgan Securities LLC will repurchase securities provided as collateral for $450,072,000 on 1/2/2018. The securities provided as collateral at the end of the period held with JPMorgan Chase as tri-party agent, were U.S. Government Agency securities with various maturities to 1/15/2054 and the market value of those underlying securities was $463,500,419. 20,000,000
    TOTAL REPURCHASE AGREEMENTS 52,000,000
    TOTAL INVESTMENT IN SECURITIES—98.5%
(AT AMORTIZED COST)3
92,300,347
    OTHER ASSETS AND LIABILITIES - NET—1.5%4 1,418,719
    TOTAL NET ASSETS—100% $93,719,066
1 Discount rate(s) at time of purchase.
2 Floating/variable note with current rate and current maturity or next reset date shown.
3 Also represents cost for federal tax purposes.
4 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at December 31, 2017.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1—quoted prices in active markets for identical securities.
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Also includes securities valued at amortized cost.
Level 3—significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
In valuing the Fund's assets as of December 31, 2017, all investments of the Fund are valued using amortized cost, which is a methodology utilizing Level 2 inputs.
The following acronym is used throughout this portfolio:
LIBOR —London Interbank Offered Rate
See Notes which are an integral part of the Financial Statements
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Financial HighlightsPrimary Shares
(For a Share Outstanding Throughout Each Period)
  Year Ended
12/31/2017
Period
Ended
12/31/20161
Net Asset Value, Beginning of Period $1.00 $1.00
Income From Investment Operations:    
Net investment income 0.002 0.0002
Net realized gain on investments 0.004
TOTAL FROM INVESTMENT OPERATIONS 0.006 0.0002
Less Distributions:    
Distributions from net investment income (0.006) (0.000)2
TOTAL DISTRIBUTIONS (0.006) (0.000)2
Net Asset Value, End of Period $1.00 $1.00
Total Return3 0.56% 0.06%
Ratios to Average Net Assets:    
Net expenses 0.38% —%
Net investment income 0.17% 0.02%4
Expense waiver/reimbursement —% —%
Supplemental Data:    
Net assets, end of period (000 omitted) $05 $05
1 Reflects operations for the period from April 29, 2016 (date of initial investment) to December 31, 2016.
2 Represents less than $0.001.
3 Based on net asset value. Total returns do not reflect any additional fees or expenses that may be imposed by separate accounts of insurance companies or in connection with any variable annuity or variable life insurance contract.
4 Computed on an annualized basis.
5 Represents less than $1,000.
See Notes which are an integral part of the Financial Statements
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Financial HighlightsService Shares
(For a Share Outstanding Throughout Each Period)
Year Ended December 31 2017 2016 2015 2014 2013
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
Income From Investment Operations:          
Net investment income 0.003 0.0001
Net realized gain (loss) on investments 0.0001 (0.000)1 0.0001 0.0001 0.0001
TOTAL FROM INVESTMENT OPERATIONS 0.003 (0.000)1 0.0001 0.0001 0.0001
Less Distributions:          
Distributions from net investment income (0.003) (0.000)1
Distributions from net realized gain on investments (0.000)1
TOTAL DISTRIBUTIONS (0.003) (0.000)1 (0.000)1
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00
Total Return2 0.31% 0.00% 0.00% 0.00% 0.00%
Ratios to Average Net Assets:          
Net expenses 0.63% 0.49% 0.34% 0.26% 0.27%
Net investment income 0.30% 0.00%3 0.00% 0.00% 0.00%
Expense waiver/reimbursement4 0.07% 0.19% 0.40% 0.42% 0.41%
Supplemental Data:          
Net assets, end of period (000 omitted) $93,719 $112,214 $139,170 $132,678 $154,973
1 Represents less than $0.001.
2 Based on net asset value. Total returns do not reflect any additional fees or expenses that may be imposed by separate accounts of insurance companies or in connection with any variable annuity or variable life insurance contract. Total returns for periods of less than one year are not annualized.
3 Represents less than 0.01%.
4 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
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Statement of Assets and Liabilities
Assets:    
Investment in repurchase agreements $52,000,000  
Investment in securities 40,300,347  
Investment in securities, at amortized cost and fair value   $92,300,347
Cash   813,589
Receivable for investments sold   1,000,000
Income receivable   88,580
Receivable for shares sold   3,557
TOTAL ASSETS   94,206,073
Liabilities:    
Payable for investments purchased $294,540  
Payable for shares redeemed 110,652  
Payable to adviser (Note 5) 857  
Payable for administrative fees (Note 5) 618  
Payable for portfolio accounting fees 31,808  
Payable for other service fees (Notes 2 and 5) 20,287  
Payable for printing and postage 19,425  
Accrued expenses (Note 5) 8,820  
TOTAL LIABILITIES   487,007
Net assets for 93,720,432 shares outstanding   $93,719,066
Net Assets Consist of:    
Paid-in capital   $93,719,981
Accumulated net realized loss on investments   (942)
Undistributed net investment income   27
TOTAL NET ASSETS   $93,719,066
Net Asset Value, Offering Price and Redemption Proceeds Per Share    
Primary Shares:    
$100 ÷ 100 shares outstanding, no par value, unlimited shares authorized   $1.00
Service Shares:    
$93,718,966 ÷ 93,720,332 shares outstanding, no par value, unlimited shares authorized   $1.00
See Notes which are an integral part of the Financial Statements
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Statement of Operations
Investment Income:      
Interest     $933,177
Expenses:      
Investment adviser fee (Note 5)   $199,518  
Administrative fee (Note 5)   78,947  
Custodian fees   9,366  
Transfer agent fee   5,183  
Directors'/Trustees' fees (Note 5)   2,057  
Auditing fees   23,429  
Legal fees   8,834  
Portfolio accounting fees   77,555  
Other service fees (Notes 2 and 5)   246,524  
Printing and postage   48,016  
Miscellaneous (Note 5)   5,276  
TOTAL EXPENSES   704,705  
Waiver and Reimbursement:      
Waiver of investment adviser fee (Note 5) $(74,208)    
Reimbursement of other operating expenses (Notes 2 and 5) (144)    
TOTAL WAIVER AND REIMBURSEMENT   (74,352)  
Net expenses     630,353
Net investment income     302,824
Net realized gain on investments     7
Change in net assets resulting from operations     $302,831
See Notes which are an integral part of the Financial Statements
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Statement of Changes in Net Assets
Year Ended December 31 2017 2016
Increase (Decrease) in Net Assets    
Operations:    
Net investment income $302,824 $105
Net realized gain (loss) on investments 7 (949)
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 302,831 (844)
Distributions to Shareholders:    
Distributions from net investment income    
Service Shares (302,805) (96)
Primary Shares (1) (0)1
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (302,806) (96)
Share Transactions:    
Proceeds from sale of shares 40,826,268 65,231,701
Net asset value of shares issued to shareholders in payment of distributions declared 302,806 96
Cost of shares redeemed (59,624,139) (92,186,339)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (18,495,065) (26,954,542)
Change in net assets (18,495,040) (26,955,482)
Net Assets:    
Beginning of period 112,214,106 139,169,588
End of period (including undistributed net investment income of $27 and $9, respectively) $93,719,066 $112,214,106
1 Represents less than $1.
See Notes which are an integral part of the Financial Statements
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Notes to Financial Statements
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 seven portfolios. The financial statements included herein are only those of Federated Government 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. Each portfolio pays its own expenses. The Fund offers two classes of shares: Primary Shares and Service Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. Fund shares are available exclusively as a funding vehicle for life insurance companies writing variable life insurance policies and variable annuity contracts. The investment objective of the Fund is to provide current income consistent with stability of principal and liquidity.
The Fund operates as a government money market fund. As a government money market fund, the Fund: (1) invests at least 99.5% of its total assets in: (i) cash; (ii) securities issued or guaranteed by the United States or certain U.S. government agencies or instrumentalities; and/or (iii) repurchase agreements that are collateralized fully; (2) generally continues to use amortized cost to value its portfolio securities and transact at a stable $1.00 net asset value (NAV); and (3) has elected not to be subject to the liquidity fees and gates requirement at this time as permitted by Rule 2a-7 under the Act.
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 U.S. generally accepted accounting principles (GAAP).
Investment Valuation
Securities are valued at amortized cost. Under the amortized cost valuation method, an investment is valued initially at its cost as determined in accordance with GAAP. The Fund then adjusts the amount of interest income accrued each day over the term of the investment to account for any difference between the initial cost of the investment and the amount payable at its maturity. If amortized cost is determined not to approximate fair value, the value of the portfolio securities will be determined in accordance with the procedures described below. There can be no assurance that the Fund could obtain the fair value assigned to an investment if it sold the investment at approximately the time at which the Fund determines its NAV per share.
The Fund's Board of Trustees (the “Trustees”) have ultimate responsibility for determining the fair value of investments. The Trustees have appointed a valuation committee (“Valuation Committee”) comprised of officers of the Fund, Federated Investment Management Company (“Adviser”) and certain of the Adviser's affiliated companies to assist in determining fair value of securities and in overseeing the comparison of amortized cost to market-based value. The Trustees have also authorized the use of pricing services recommended by the Valuation Committee to provide fair value evaluations of the current value of certain investments for purposes of monitoring the relationship of market-based value and amortized cost. The Valuation Committee employs various methods for reviewing third-party pricing-service evaluations including periodic reviews of third-party pricing services' policies, procedures and valuation methods (including key inputs and assumptions), and review of price challenges by the Adviser based on recent market activity. In the event that market quotations and price evaluations are not available for an investment, the Valuation Committee determines the fair value of the investment in accordance with procedures adopted by the Trustees. The Trustees periodically review and approve the fair valuations made by the Valuation Committee and any changes made to the procedures.
Repurchase Agreements
The Fund may invest in repurchase agreements for short-term liquidity purposes. It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a “securities entitlement” and exercises “control” as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
The insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Repurchase agreements are subject to Master Netting Agreements which are agreements between the Fund and its counterparties that provide for the net settlement of all transactions and collateral with the Fund, through a single payment, in the event of default or termination. Amounts presented on the Portfolio of Investments and Statement of Assets and Liabilities are not net settlement amounts but gross. As indicated above, the cash or securities to be repurchased, as shown on the Portfolio of Investments, exceeds the repurchase price to be paid under the agreement reducing the net settlement amount to zero.
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Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Distributions to shareholders are recorded on the ex-dividend date. Distributions of net investment income are declared daily and paid monthly. Amortization/accretion of premium and discount is included in investment income. 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 Primary Shares and Service Shares may bear distribution services fees and other service fees unique to those classes. The detail of the total fund expense waiver and reimbursement of $74,352 is disclosed in various locations in this Note 2 and Note 5.
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.
Other Service Fees
The Fund may pay other service fees up to 0.25% of the average daily net assets of the Fund's Primary Shares and Service Shares to unaffiliated financial intermediaries for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily reimburse the Fund for other service fees. In addition, unaffiliated third-party financial intermediaries may waive other service fees. This waiver can be modified or terminated at any time.
For the year ended December 31, 2017, other service fees for the Fund were as follows:
  Other Service
Fees Incurred
Other Service
Fees Reimbursed
Service Shares $246,524 $(144)
For the year ended December 31, 2017, the Fund's Primary Shares did not incur other service fees.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. As of and during the year ended December 31, 2017, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of December 31, 2017, tax years 2014 through 2017 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
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.
Other
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. The Fund applies investment company accounting and reporting guidance.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
  Year Ended
12/31/2017
Period Ended
12/31/20161
Primary Shares: Shares Amount Shares Amount
Shares sold $— 100 $100
NET CHANGE RESULTING FROM PRIMARY SHARE TRANSACTIONS $— 100 $100
    
Year Ended December 31 2017 2016
Service Shares:2 Shares Amount Shares Amount
Shares sold 40,826,268 $40,826,268 65,231,601 $65,231,601
Shares issued to shareholders in payment of distributions declared 302,806 302,806 96 96
Shares redeemed (59,624,139) (59,624,139) (92,186,339) (92,186,339)
NET CHANGE RESULTING FROM SERVICE SHARE TRANSACTIONS (18,495,065) $(18,495,065) (26,954,642) $(26,954,642)
NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS (18,495,065) $(18,495,065) (26,954,542) $(26,954,542)
1 Reflects operations for the period from April 29, 2016 (date of initial investment) to December 31, 2016.
2 Effective April 29, 2016, the Fund's original shares were redesignated as Service Shares.
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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, 2017 and 2016, was as follows:
  2017 2016
Ordinary income $302,806 $96
As of December 31, 2017, the components of distributable earnings on a tax-basis were as follows:
Undistributed ordinary income $27
Capital loss carryforwards $(942)
At December 31, 2017, the Fund had a capital loss carryforward of $942 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, thereby reducing the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, a net capital loss incurred in taxable years beginning after December 22, 2010, retains its character as either short-term or long-term and does not expire. All of the Fund's capital loss carryforwards were incurred in taxable years after December 22, 2010.
The following schedule summarizes the Fund's capital loss carryforwards:
Short-Term Long-Term Total
$444 $498 $942
The Fund used capital loss carryforwards of $7 to offset capital gains realized during the year ended December 31, 2017.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.20% of the Fund's average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee. For the year ended December 31, 2017, the Adviser voluntarily waived $74,208 of its fee.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below:
Administrative Fee Average Daily Net Assets
of the Investment Complex
0.100% on assets up to $50 billion
0.075% on assets over $50 billion
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the year ended December 31, 2017, the annualized fee paid to FAS was 0.079% of average daily net assets of the Fund.
Prior to September 1, 2017, the breakpoints of the Administrative Fee paid to FAS, described above, were:
Administrative Fee Average Daily Net Assets
of the Investment Complex
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
In addition, FAS may charge certain out-of-pocket expenses to the Fund.
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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 Primary Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name Percentage of Average
Daily Net Assets of Class
Primary Shares 0.25%
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee.
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended December 31, 2017, the Fund's Primary Shares did not incur a distribution services fee; however, it may begin to incur this fee upon approval of the Trustees.
Other Service Fees
For the year ended December 31, 2017, the Adviser reimbursed $144 of the other service fees disclosed in Note 2.
Expense Limitation
Due to the possibility of changes in market conditions and other factors, there can be no assurance that the level of waivers/reimbursement/reduction of Fund expenses reflected in the financial highlights will be maintained in the future. However, the Adviser and certain of its affiliates (which may include FAS and FSC) on their own initiative have agreed to waive certain amounts of their respective fees and/or reimburse expenses. Total annual fund operating expenses (as shown in the financial highlights, excluding interest expense, extraordinary expenses and proxy-related expenses paid by the Fund, if any) paid by the Fund's Primary Shares and Service Shares (after the voluntary waivers and/or reimbursements) will not exceed 0.38% and 0.63% (the “Fee Limit”), respectively, up to but not including the later of (the “Termination Date”): (a) May 1, 2018; or (b) the date of the Fund's next effective Prospectus. While the Adviser and its applicable affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Trustees.
Directors'/Trustees' and Miscellaneous Fees
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Directors'/Trustees' fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Adviser which in due course are reimbursed by the Fund. These expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
6. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the Fund to borrow from other participating affiliated funds. As of December 31, 2017, there were no outstanding loans. During the year ended December 31, 2017, the program was not utilized.
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Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF the FEDERATED INSURANCE SERIES AND SHAREHOLDERS OF FEDERATED Government MONEY FUND II:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Federated Government Money Fund II (the “Fund”), a portfolio of Federated Insurance Series, as of December 31, 2017, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. 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, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor for one or more of Federated Investors'- investment companies since 2006.
Boston, Massachusetts
February 14, 2018
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Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or other service 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, 2017 to December 31, 2017.
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 required to be provided to enable you to compare the ongoing costs of investing in the Fund with 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 each 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
7/1/2017
Ending
Account Value
12/31/2017
Expenses Paid
During Period1
Actual:      
Primary Shares $1,000 $1,003.70 $1.92
Service Shares $1,000 $1,002.40 $3.18
Hypothetical (assuming a 5% return before expenses):      
Primary Shares $1,000 $1,023.30 $1.94
Service Shares $1,000 $1,022.00 $3.21
1 Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). The expenses shown in the table do not include the charges and expenses imposed by the insurance company under the variable insurance product contract. Please refer to the variable insurance product prospectus for a complete listing of these expenses. The annualized net expense ratios are as follows:
   
Primary Shares 0.38%
Service Shares 0.63%
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In Memoriam
With profound sadness, Federated announces the passing of John F. (“Jack”) Donahue and John W. (“John”) McGonigle. They will be greatly missed.
Jack Donahue
(Former Chairman and President, and Emeritus Director/Trustee, of the Federated Funds, and Founder, Former Chairman, President and Chief Executive Officer, and Chairman Emeritus, of Federated Investors, Inc.)
Jack Donahue, along with Richard B. Fisher, founded Federated in 1955 and served as a leader and member of the Boards of Directors/Trustees of the Federated Funds and the Board of Directors of Federated Investors, Inc. Mr. Donahue was a family man of deep faith with exemplary character and fealty, who served his religion, family, community, and the Federated Funds and Federated, as well as their shareholders, officers and employees, with distinction. His integrity, intelligence, and keen sense of fiduciary duty, coupled with his faith, family and background as a West Point graduate and Strategic Air Command B-29 pilot, served as a foundation for his strong business acumen and leadership. Among his many achievements, Mr. Donahue's steadfast and innovative leadership of the Federated Funds and Federated, as well as within the investment management industry, led to the birth of money market funds in the 1970s and their growth as an innovative, efficient and effective cash management vehicle throughout the 1980s, 1990s, 2000s and beyond. Federated expresses deep gratitude to Mr. Donahue for his inspiring leadership, distinguished service and contributions as a husband, father, founder, Board member and officer, colleague and friend.
John McGonigle
(Former Secretary of the Federated Funds, Former Director, Secretary and Chief Legal Officer of Federated Investors, Inc.)
John McGonigle served the Federated Funds and their respective Boards with distinction for more than 50 years as Fund Secretary and also served as Director for several closed-end funds. Mr. McGonigle was a gifted lawyer and wise counselor with a genial presence, keen intellect and convivial demeanor. A man of deep faith, he was a devoted husband, father and grandfather. A graduate of Duquesne University School of Law, Mr. McGonigle served as an officer in the U.S. Army for two years, achieving the rank of Captain. He also served on the staff of the Securities and Exchange Commission before joining Federated in 1966. Among many professional accomplishments, Mr. McGonigle helped fashion the regulatory foundation for money market funds, established Federated's first offshore funds in Ireland, and represented Federated on the Board of Governors of the Investment Company Institute where he was a member of the Executive Committee. Federated expresses deep gratitude for Mr. McGonigle and his impact on his family, friends, the community, and the mutual fund industry.
Board of Trustees and Trust Officers
The Board of Trustees 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 Trustee and the senior officers of the Fund. Where required, the tables separately list Trustees who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Trustees listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2017, the Trust comprised seven portfolio(s), and the Federated Fund Family consisted of 40 investment companies (comprising 108 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Trustee oversees all portfolios in the Federated Fund Family and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
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Interested Trustees Background
Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
J. Christopher Donahue*
Birth Date: April 11, 1949
Trustee
Indefinite Term
Began serving: September 1993
Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of the Funds in the Federated Fund Family; 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 and Trustee, Federated Equity Management Company of Pennsylvania; 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; Chairman, Passport Research, Ltd.
Thomas R. Donahue*
Birth Date: October 20, 1958
Trustee
Indefinite Term
Began serving: May 2016
Principal Occupations: Director or Trustee of certain of the funds in the Federated Fund Family; Chief Financial Officer, Treasurer, Vice President and Assistant Secretary, Federated Investors, Inc.; Chairman and Trustee, Federated Administrative Services; Chairman and Director, Federated Administrative Services, Inc.; Trustee and Treasurer, Federated Advisory Services Company; Director or Trustee and Treasurer, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, and Federated Investment Management Company; Director, MDTA LLC; Director, Executive Vice President and Assistant Secretary, Federated Securities Corp.; Director or Trustee and Chairman, Federated Services Company and Federated Shareholder Services Company; and Director and President, FII Holdings, Inc.
Previous Positions: Director, Federated Investors, Inc.; Assistant Secretary, Federated Investment Management Company, Federated Global Investment Management Company and Passport Research, LTD; Treasurer, Passport Research, LTD; Executive Vice President, Federated Securities Corp.; and Treasurer, FII Holdings, Inc.
* Family relationships and reasons for “interested” status: J. Christopher Donahue and Thomas R. Donahue are brothers. Both are “interested” due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT Trustees Background
Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
John T. Collins
Birth Date: January 24, 1947
Trustee
Indefinite Term
Began serving: October 2013
Principal Occupations: Director or Trustee of the Federated Fund Family; formerly, Chairman and CEO, The Collins Group, Inc. (a private equity firm) (Retired).
Other Directorships Held: Director, Current Chair of the Compensation Committee, KLX Corp.
Qualifications: Mr. Collins has served in several business and financial management roles and directorship positions throughout his career. Mr. Collins previously served as Chairman and CEO, The Collins Group, Inc. (a private equity firm). Mr. Collins serves as Chairman Emeriti, Bentley University. Mr. Collins previously served as Director and Audit Committee Member, Bank of America Corp.; Director, FleetBoston Financial Corp.; and Director, Beth Israel Deaconess Medical Center (Harvard University Affiliate Hospital).
G. Thomas Hough
Birth Date: February 28, 1955
Trustee
Indefinite Term
Began serving: August 2015
Principal Occupations: Director or Trustee of the Federated Fund Family; formerly, Vice Chair, Ernst & Young LLP (public accounting firm) (Retired).
Other Directorships Held: Director, Chair of the Audit Committee, Governance Committee, Publix Super Markets, Inc.; Director, Member of the Audit Committee and Technology Committee of Equifax, Inc.
Qualifications: Mr. Hough has served in accounting, business management and directorship positions throughout his career. Mr. Hough most recently held the position of Americas Vice Chair of Assurance with Ernst & Young LLP (public accounting firm). Mr. Hough is an Executive Committee member of the United States Golf Association, he serves on the President's Cabinet and Business School Board of Visitors for the University of Alabama and is on the Business School Board of Visitors for Wake Forest University.
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Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
Maureen Lally-Green
Birth Date: July 5, 1949
Trustee
Indefinite Term
Began serving: August 2009
Principal Occupations: Director or Trustee of the Federated Fund Family; Dean of the Duquesne University School of Law; Professor and Adjunct Professor of Law, Duquesne University School of Law; formerly, Interim Dean of the Duquesne University School of Law; Associate General Secretary and Director, Office of Church Relations, Diocese of Pittsburgh.
Other Directorships Held: Director, CNX Resources Corporation (formerly known as CONSOL Energy Inc.).
Qualifications: Judge Lally-Green has served in various legal and business roles and directorship positions throughout her career. Judge Lally-Green previously served as: Associate General Secretary, Diocese of Pittsburgh; a member of the Superior Court of Pennsylvania; and as a Professor of Law, Duquesne University School of Law. Judge Lally-Green also currently holds the positions on either a public or not for profit Board of Directors as follows: Director and Chair, UPMC Mercy Hospital; Director and Vice Chair, Our Campaign for the Church Alive!, Inc.; Director, Saint Vincent College; Member, Pennsylvania State Board of Education (public); and Director CNX Resources Corporation (formerly known as CONSOL Energy Inc.), where she currently serves as a member of the Compensation, Nominating and Corporate Governance Committee (Chair) and the Health, Safety and Environmental Committee. Judge Lally-Green has held the positions of: Director, Auberle; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Ireland Institute of Pittsburgh; Director, Saint Thomas More Society; Director and Chair, Catholic High Schools of the Diocese of Pittsburgh, Inc.; Director, Pennsylvania Bar Institute; Regent, St. Vincent Seminary; and Director and Chair, Cardinal Wuerl North Catholic High School, Inc.
Charles F. Mansfield, Jr.
Birth Date: April 10, 1945
Trustee

Indefinite Term
Began serving: September 1999
Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant.
Other Directorships Held: None.
Qualifications: Mr. Mansfield has served as a Marine Corps officer and in several banking, business management, educational roles and directorship positions throughout his long career. He remains active as a Management Consultant.
Thomas M. O'Neill
Birth Date: June 14, 1951
Trustee

Indefinite Term
Began serving: August 2006
Principal Occupations: Director or Trustee, Chair of the Audit Committee of the Federated Fund Family; Sole Proprietor, Navigator Management Company (investment and strategic consulting).
Other Directorships Held: None.
Qualifications: Mr. O'Neill has served in several business, mutual fund and financial management roles and directorship positions throughout his career. Mr. O'Neill serves as Director, Medicines for Humanity and Director, The Golisano Children's Museum of Naples, Florida. Mr. O'Neill previously served as Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); and Director, Midway Pacific (lumber).
P. Jerome Richey
Birth Date: February 23, 1949
Trustee
Indefinite Term
Began serving: October 2013
Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant; formerly, Senior Vice Chancellor and Chief Legal Officer, University of Pittsburgh and Executive Vice President and Chief Legal Officer, CNX Resources Corporation (formerly known as CONSOL Energy Inc.)
Other Directorships Held: None.
Qualifications: Mr. Richey has served in several business and legal management roles and directorship positions throughout his career. Mr. Richey most recently held the positions of Senior Vice Chancellor and Chief Legal Officer, University of Pittsburgh. Mr. Richey previously served as Chairman of the Board, Epilepsy Foundation of Western Pennsylvania and Chairman of the Board, World Affairs Council of Pittsburgh. Mr. Richey previously served as Chief Legal Officer and Executive Vice President, CNX Resources Corporation (formerly known as CONSOL Energy Inc.); and Board Member, Ethics Counsel and Shareholder, Buchanan Ingersoll & Rooney PC (a law firm).
John S. Walsh
Birth Date: November 28, 1957
Trustee

Indefinite Term
Began serving: January 1999
Principal Occupations: Director or Trustee, and Chair of the Board of Directors or Trustees, of the Federated Fund Family; 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.
Other Directorships Held: None.
Qualifications: Mr. Walsh has served in several business management roles and directorship positions throughout his career. Mr. Walsh previously served as Vice President, Walsh & Kelly, Inc. (paving contractors).
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OFFICERS
Name
Birth Date
Address
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years
and Previous Position(s)
Lori A. Hensler
Birth Date: January 6, 1967
TREASURER
Officer since: April 2013
Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Family; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp. and Edgewood Services, Inc.; and Assistant Treasurer, Federated Investors Trust Company. Ms. Hensler has received the Certified Public Accountant designation.
Previous Positions: Controller of Federated Investors, Inc.; Senior Vice President and Assistant Treasurer, Federated Investors Management Company; Treasurer, Federated Investors Trust Company; Assistant Treasurer, Federated Administrative Services, Federated Administrative Services, Inc., Federated Securities Corp., Edgewood Services, Inc., Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company, Passport Research, Ltd., and Federated MDTA, LLC; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc.
Peter J. Germain
Birth Date: September 3, 1959
CHIEF LEGAL OFFICER, SECRETARY and EXECUTIVE VICE PRESIDENT
Officer since: January 2005
Principal Occupations: Mr. Germain is Chief Legal Officer, Secretary and Executive Vice President of the Federated Fund Family. He is General Counsel, Chief Legal Officer, Secretary and Executive Vice President, Federated Investors, Inc.; Trustee and Senior Vice President, Federated Investors Management Company; Trustee and President, Federated Administrative Services; Director and President, Federated Administrative Services, Inc.; Director and Vice President, Federated Securities Corp.; Director and Secretary, Federated Private Asset Management, Inc.; Secretary, Federated Shareholder Services Company; and Secretary, Retirement Plan Service Company of America. Mr. Germain joined Federated in 1984 and is a member of the Pennsylvania Bar Association.
Previous Positions: Deputy General Counsel, Special Counsel, Managing Director of Mutual Fund Services, Federated Investors, Inc.; Senior Vice President, Federated Services Company; and Senior Corporate Counsel, Federated Investors, Inc.
Richard B. Fisher
Birth Date: May 17, 1923
VICE PRESIDENT
Officer since: September 1993
Principal Occupations: Vice Chairman or Vice President of some of the Funds in the Federated Fund Family; 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 Family; Executive Vice President, Federated Investors, Inc.; Director and Chief Executive Officer, Federated Securities Corp.
John B. Fisher
Birth Date: May 16, 1956
PRESIDENT
Officer since: November 2004
Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of certain of the Funds in the Federated Fund Family; Vice President, Federated Investors, Inc.; President, Director/Trustee and CEO, Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company; President and CEO of Passport Research, Ltd.; President of some of the Funds in the Federated Fund Complex and Director, Federated Investors Trust Company.
Previous Positions: President and Director of the Institutional Sales Division of Federated Securities Corp.; President and Director of Federated Investment Counseling; Director, Edgewood Securities Corp.; Director, Federated Services Company; Director, Federated Investors, Inc.; Chairman and Director, Southpointe Distribution Services, Inc. and President, Technology, Federated Services Company.
Stephen Van Meter
Birth Date: June 5, 1975
CHIEF COMPLIANCE OFFICER AND SENIOR VICE PRESIDENT
Officer since: July 2015
Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Family; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of certain of its subsidiaries. Mr. Van Meter joined Federated in October 2011. He holds FINRA licenses under Series 3, 7, 24 and 66.
Previous Positions: Mr. Van Meter previously held the position of Compliance Operating Officer, Federated Investors, Inc. Prior to joining Federated, Mr. Van Meter served at the United States Securities and Exchange Commission in the positions of Senior Counsel, Office of Chief Counsel, Division of Investment Management and Senior Counsel, Division of Enforcement.
Stephen F. Auth
Birth Date: September 13, 1956
101 Park Avenue
41st Floor
New York, NY 10178
CHIEF INVESTMENT OFFICER
Officer since: November 2002
Principal Occupations: Stephen F. Auth is Chief Investment Officer of various Funds in the Federated Fund Family; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp. and Federated Equity Management Company of Pennsylvania.
Previous Positions: Executive Vice President, Federated Investment Management Company and Passport Research, Ltd. (investment advisory subsidiary of Federated); 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
Officer since: May 2004
Principal Occupations: Robert J. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of Federated's taxable fixed-income products in 2004 and also serves as a Senior Portfolio Manager. Mr. Ostrowski became an Executive Vice President of the Fund's Adviser in 2009 and served as a Senior Vice President of the Fund's Adviser from 1997 to 2009. Mr. Ostrowski has received the Chartered Financial Analyst designation. He received his M.S. in Industrial Administration from Carnegie Mellon University.
Deborah A. Cunningham
Birth Date: September 15, 1959
Chief Investment Officer
Officer since: June 2012
Principal Occupations: Deborah A. Cunningham was named Chief Investment Officer of Federated's money market products in 2004. She joined Federated in 1981 and has been a Senior Portfolio Manager since 1997 and an Executive Vice President of the Fund's Adviser since 2009. Ms. Cunningham has received the Chartered Financial Analyst designation and holds an M.S.B.A. in Finance from Robert Morris College.
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Evaluation and Approval of Advisory ContractMay 2017
Federated Government Money Fund II (the “Fund”)
(formerly, Federated Prime Money Fund II)
Following a review and recommendation of approval by the Fund's independent trustees, the Fund's Board of Trustees (the “Board”) reviewed and unanimously approved the continuation of the Fund's investment advisory contract for an additional one-year term at its May 2017 meetings. The Board's decision regarding the contract reflects the exercise of its business judgment after considering all of the information received on whether to continue the existing arrangements.
The Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below (the “Senior Officer's Evaluation”). The Board considered the Senior Officer's Evaluation, along with other information, in deciding to approve the investment advisory contract.
The Board also considered judicial decisions concerning allegedly excessive investment advisory fees in its decision. Using these judicial decisions as a guide, the Board has indicated that the following factors may be relevant to an adviser's fiduciary duty with respect to its receipt of compensation from a fund: (1) the nature and quality of the services provided by an adviser to a fund and its shareholders (including the performance of the Fund and of comparable funds); (2) an adviser's cost of providing the services (including the profitability to an adviser of providing advisory services to a fund); (3) the extent to which an adviser may realize “economies of scale” as a fund grows larger and, if such economies of scale exist, whether they have been shared with a fund and its shareholders or the family of funds; (4) any “fall-out financial benefits” that accrue to an adviser because of its relationship with a fund (including research services received from brokers that execute fund trades and any fees paid to affiliates of an adviser for services rendered to a fund); (5) comparative fee and expense structures (including a comparison of fees paid to an adviser with those paid by similar funds); and (6) the extent of care, conscientiousness and independence with which the Fund's board members perform their duties and their expertise (including whether they are fully informed about all facts the Board deems relevant to its consideration of an adviser's services and fees). The Board noted that the Securities and Exchange Commission (“SEC”) disclosure requirements regarding the basis for the Board's approval of the Fund's investment advisory contract generally align with the factors listed above. Consistent with the judicial decisions and SEC disclosure requirements, the Board also considered management fees charged to institutional and other clients of Federated Investment Management Company (the “Adviser”) and its advisory affiliates for what might be viewed as like services. The Board was aware of these factors and was guided by them in its review of the Fund's investment advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these factors in light of its substantial accumulated experience in governing the Fund and working with Federated Investors, Inc. and its affiliates (“Federated”) on matters relating to the Federated funds. The Board was assisted in its deliberations by independent legal counsel. In addition to the extensive materials that comprise and accompany the Senior Officer's Evaluation, the Board received detailed information about the Fund and the Federated organization throughout the year, and in connection with its May meetings. Federated provided much of this information at each regular meeting of the Board, and furnished additional information in connection with the May meetings, at which the Board's formal approval of the investment advisory contract occurred. At the May meetings, in addition to meeting in separate sessions of the independent trustees without management present, senior management of the Adviser also met with the independent trustees and their counsel to discuss the materials presented and any other matters thought relevant by the Adviser or the trustees. Between regularly scheduled meetings, the Board also received information on matters as the need arose. The Board's consideration of the investment advisory contract included review of the Senior Officer's Evaluation, accompanying data and additional information covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short-term and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in terms relative to its particular investment program and certain competitor or “peer group” funds and/or other benchmarks, as appropriate) and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses, including the advisory fee and the overall expense structure of the Fund (both in absolute terms and relative to similar and/or competing funds), with due regard for contractual or voluntary expense limitations; the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders; the entrepreneurial risk assumed by the Adviser in sponsoring the Fund; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's
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relationship to the Federated funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are generally available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
While mindful that courts have cautioned against giving such comparisons too much weight, the Board has found the use of comparisons of the Fund's fees and expenses to other mutual funds with comparable investment programs to be relevant to its deliberations. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, total expense ratios and each element of the Fund's total expense ratio (i.e., gross and net advisory fees, custody fees, portfolio accounting fees and transfer agency fees) relative to the Fund's peers. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, in that they are readily available to Fund shareholders as alternative investment vehicles. Also, they are the type of investment vehicle, in fact, chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a relevant indicator of what consumers have found to be reasonable in the marketplace in which the Fund competes.
The Board reviewed the contractual advisory fee rate, net advisory fee rate where partially waived and other expenses of the Fund and noted the position of the Fund's contractual advisory fee rate and other expenses relative to its peers. In this regard, the Board noted that the contractual advisory fee rate was below the median of the relevant peer group and the Board was satisfied that the overall expense structure of the Fund remained competitive.
For comparison, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated funds (e.g., institutional and separate accounts and sub-adviser services). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes and portfolio management techniques made necessary by different cash flows and different associated costs; and the time spent by portfolio managers and their teams, funds financial services, legal, compliance and risk management in reviewing securities pricing, addressing different administrative responsibilities, addressing different degrees of risk associated with management and a variety of different costs. The Senior Officer did not consider the fees for providing advisory services to these outside products to be determinative in judging the appropriateness of mutual fund advisory fees. The Senior Officer noted that the services, administrative responsibilities and risks associated with such relationships are quite different than serving as a primary adviser to a fund.
Following such evaluation, and full deliberations, the Board concluded that the expenses of the Fund are reasonable and supported renewal of the Fund's investment advisory contract.
The Board considered the nature, extent and quality of the services provided to the Fund by the Adviser and the resources of the Adviser and its affiliates dedicated to the Fund. In this regard, the Board evaluated, among other things, the Adviser's personnel, experience, track record, overall reputation and willingness to invest in personnel and infrastructure that benefit the Fund. In addition, the Board reviewed the qualifications, backgrounds and responsibilities of the portfolio management team primarily responsible for the day-to-day management of the Fund. The Board noted the compliance programs of, and the compliance-related resources provided to, the Fund by the Adviser. The Fund's ability to deliver competitive performance when compared to its peer group was also deemed to be relevant by the Board as a useful indicator of how the Adviser is executing the Fund's investment program. The Adviser's ability to execute this program was one of the Board's considerations in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services warrant the continuation of the investment advisory contract.
In evaluating the Fund's investment performance, the Board considered performance results in light of the Fund's investment objective, strategies and risks, as disclosed in the Fund's prospectus. The Board particularly considered detailed investment reports on the Fund's performance that were provided to the Board throughout the year and in connection with the May meetings. The Senior Officer also reviewed information compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups may be helpful, though not conclusive, in judging the reasonableness of the proposed fees. The Board considered, in evaluating such comparisons, that in some cases individual funds may exhibit significant and unique differences in their objectives and management techniques when compared to other funds within an industry peer group.
The Fund's performance was above the median of the relevant peer group for the one-year period covered by the Senior Officer's Evaluation. The Board also considered the relatively tight dispersion of performance data with respect to the Fund and its peers.
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Following such evaluation, and full deliberations, the Board concluded that the performance of the Fund supported renewal of the Fund's investment advisory contract.
The Board also received financial information about Federated, including information regarding the compensation and ancillary (or “fall-out”) benefits Federated derived from its relationships with the Federated funds. This information covered not only the fees under the investment advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The information also detailed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to Fund investors and/or indicated to the Board their intention to do so in the future. Moreover, the Board receives regular reporting as to the institution, adjustment or elimination of these voluntary waivers.
Federated furnished information, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in allocating costs continues to cause the Senior Officer to question the precision of the process and to conclude that such reports may be unreliable, since a single change in an allocation estimate may dramatically alter the resulting estimate of cost and/or profitability of a fund and may produce unintended consequences. The allocation information, including the Senior Officer's view that fund-by-fund estimations may be unreliable, was considered in the analysis by the Board.
The Board and the Senior Officer also reviewed information compiled by Federated comparing its profitability information to other publicly held fund management companies. In this regard, the Senior Officer concluded that Federated's profit margins did not appear to be excessive. The Senior Officer also noted that Federated appeared financially sound, with the resources to fulfill its obligations under its contracts with the Fund.
The Senior Officer's Evaluation also discussed the notion of possible realization of “economies of scale” as a fund grows larger. In this regard, the Board considered that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, shareholder services, compliance, internal audit and risk management functions, as well as systems technology (including technology relating to cybersecurity,) and that the benefits of these efforts (as well as any economies of scale, should they exist) were likely to be enjoyed by the fund family as a whole. The Board noted that the Adviser's investments in these areas are extensive. In addition, the Board considered that Federated and its affiliates have frequently waived fees and/or reimbursed expenses and that this has allowed fund shareholders to share potential economies of scale from a fund's inception. Federated, as it does throughout the year, and in connection with the Board's review, furnished information relative to revenue sharing or adviser paid fees. Federated and the Senior Officer noted that this information should be viewed to determine if there was an incentive to either not apply breakpoints, or to apply breakpoints at higher levels. It should not be viewed to determine the appropriateness of advisory fees because it would represent marketing and distribution expenses. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's Evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with “breakpoints” that serve to reduce the fee as a fund attains a certain size.
While the Senior Officer noted certain items for follow-up reporting to the Board and further consideration by management, he stated that his observations and information accompanying the Senior Officer's Evaluation supported a finding by the Board that the management fee for the Fund was reasonable. Under these circumstances, no objection was raised to the continuation of, the Fund's investment advisory contract.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an investment advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the investment advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund. The Board concluded that, in light of the factors discussed above, including the nature, quality and scope of the services provided to the Fund by the Adviser and its affiliates, continuation of the investment advisory contract was appropriate.
The Board based its decision to approve the investment advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the continuation of the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangement.
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Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, 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 via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at www.FederatedInvestors.com/FundInformation. Form N-PX filings are also available at the SEC's website at 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 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 via the link to the Fund and share class name at www.FederatedInvestors.com/FundInformation.
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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.
You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund's sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
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 Government Money Fund II

Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313916751
CUSIP 313916504
G00842-01 (2/18)
Federated is a registered trademark of Federated Investors, Inc.
2018 ©Federated Investors, Inc.
Annual Shareholder Report
Share Class Primary Service            

Federated Quality Bond Fund II

A Portfolio of Federated Insurance Series
Dear Valued Shareholder,
I am pleased to present the Annual Shareholder Report for your fund covering the period from January 1, 2017 through December 31, 2017. This report includes Management's Discussion of Fund Performance, a complete listing of your fund's holdings, performance information and financial statements along with other important fund information.
In addition, our website, FederatedInvestors.com, offers easy access to Federated resources that include timely fund updates, economic and market insights from our investment strategists, and financial planning tools. We invite you to register to take full advantage of its capabilities.
Thank you for investing with Federated. I hope you find this information useful and look forward to keeping you informed.
Sincerely,
John B. Fisher, President

Not FDIC Insured ■ May Lose Value ■ No Bank Guarantee

CONTENTS

Table of Contents
Management's Discussion of Fund Performance (unaudited)
The total return of Federated Quality Bond Fund II (the “Fund”), based on net asset value for the 12-month reporting period ended December 31, 2017, was 4.04% for the Primary Shares and 3.75% for the Service Shares. The total return of the Fund's broad-based benchmark, the Bloomberg Barclays U.S. Intermediate Credit Index (“BBICI”),1 was 3.67% during the same period. The 4.04% total return of the Fund's Primary Shares consisted of 3.40% of taxable income and 0.64% of appreciation in the net asset value of shares. 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 BBICI.
During the reporting period, the most significant factors affecting the Fund's performance relative to the BBICI were: (a) individual security selection; (b) the selection of various industries and sectors of the corporate bond market; and interest rate sensitivity of the portfolio, as measured by the effective duration2 of the Fund.
The following discussion will focus on the performance of the Fund's Primary Shares.
market overview
The reporting period continued the strong risk-on rally that began after the surprise election of Donald Trump as U.S. president and a Republican sweep of both houses of Congress. Markets were focused on the pro-growth aspects of the incoming administration's agenda which included tax reform, regulatory relief and fiscal stimulus, prompting a broad run-up in equities and interest rates. But as the new administration settled in, expectations fueled by campaign promises gave way to the realities of governing in Washington, D.C. Efforts to repeal and replace the Affordable Care Act repeatedly failed, a Justice Department investigation into potential Russian meddling in the 2016 elections cast a cloud over the White House, and escalating North Korean missile launches led a list of increasing geopolitical tensions. As optimism faded, longer rates began to fall back again, with the 10-year Treasury yield threatening to break below 2% in late summer amid the unsettled situation in the nation's capital and concerns about the impact of devastating hurricanes in Texas and Florida. All the while, global economic growth appeared to remain on a steady, if not accelerating trajectory. The yield on the 10-year Treasury started the period at 2.45% and ended it at 2.41%, with rate volatility interspersed throughout the period, reaching a peak of 2.63% and trough of 2.04%. Despite the volatility on longer rates, the Federal Reserve (the “Fed”) continued on its path to normalize short-term rates, raising the federal funds target rate three times during the reporting period and signaling it expects additional increases in the subsequent months. The reporting period ended with the federal funds target range at 1.25% to 1.50% and the 10-year U.S. Treasury yield at 2.41%.
Corporate credit spreads continued to grind tighter, with the option-adjusted spread on the BBICI starting the period at 97 basis points and ending at 67 basis points. Credit spreads were in a gradual tightening environment throughout the period despite the volatility3 in rates with peak spreads occurring at the beginning of the period and the trough (67 basis points) occurring near the end.
SECURITY selection
For the reporting period, individual security selection was the largest driver of Fund performance relative to the BBICI. Security selection was particularly strong in the Capital Goods, Consumer Non-Cyclical, Energy and Insurance sectors. Specific credits that contributed the most to performance included: Textron, Valero, Nationwide Mutual, Bruce Mansfield and Electricite de France. Conversely, credits that detracted the most included: Teva, M&T Bank, Reckitt Benckiser, Petroleos Mexicanos and General Electric.
SECTOR/INDUSTRY selection
The decision to hold overweight or underweight positions in specific corporate sectors and/or ratings qualities was the secondary driver of Fund performance relative to the BBICI. Broadly, the Fund held overweight positions in lower-quality investment-grade4 securities (i.e., those in the “BBB” rated category), which benefited Fund performance for the reporting period. The Fund was helped by overweight positions in such sectors as Basic Industries and Brokers/Asset Managers as well as from underweight positions in underperforming sectors such as Supranationals and Local Authority. An underweight position in the Sovereign sector, which outperformed the benchmark, as well as an overweight position in the underperforming Electric Utilities sector, hurt performance during the reporting period.
Annual Shareholder Report
1

Table of Contents
Duration and DeRIVATIVEs MANAGEMENT
Duration had a positive impact on the performance of the Fund as the Fund was less interest rate sensitive5 than the BBICI throughout the year (97%). The entire duration performance contribution came in the latter half of the reporting period as interest rates rose from the year-to-date lows to close out the year at 2.41%. Derivatives, which were U.S. Treasury futures6 that were used to adjust duration targets, had a negative impact on Fund performance during the reporting period.
1 Please see the footnotes to the line graphs under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the BBICI.
2 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.
3 Volatility is a statistical measurement of the frequency and level of changes in the value of an asset, index or instrument without regard to the direction of those changes. Volatility may result from rapid and dramatic price swings.
4 Investment-grade securities are securities that are rated at least “BBB- (minus)” or unrated securities of a comparable quality. Noninvestment-grade securities are securities that are not rated at least “BBB- (minus)” or unrated securities of a comparable quality. Credit ratings are an indication of the risk that a security will default. They do not protect a security from credit risk. Lower-rated bonds typically offer higher yields to help compensate investors for the increased risk associated with them. Among these risks are lower credit-worthiness, greater price volatility, more risk to principal and income than with higher-rated securities and increased possibilities of default.
5 Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.
6 The Fund's use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional instruments.
Annual Shareholder Report
2

Table of Contents
FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,0001 in the Federated Quality Bond Fund II from December 31, 2007 to December 31, 2017, compared to the Bloomberg Barclays U.S. Intermediate Credit Index (BBICI).2 The Average Annual Total Return table below shows returns for each class averaged over the stated periods.
Growth of a $10,000 Investment
Growth of $10,000 as of December 31, 2017
Average Annual Total Returns for the Period Ended 12/31/2017
  1 Year 5 Years 10 Years
Primary Shares 4.04% 2.47% 4.39%
Service Shares 3.75% 2.21% 4.12%
BBICI 3.67% 2.43% 4.55%
    
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. 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 BBICI has been adjusted to reflect reinvestment of dividends on securities in the index.
2 The BBICI measures the investment-grade, U.S. dollar-denominated, fixed-rate, taxable corporate and government-related bond markets. The index only includes securities with maturity between one and ten years. It is composed of the Bloomberg Barclays U.S. Corporate Index and a non-corporate component that includes foreign agencies, sovereigns, supranationals and local authorities. The index is not adjusted to reflect sales loads, 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 cash flows. It is not possible to invest directly in an index.
Annual Shareholder Report
3

Table of Contents
Portfolio of Investments Summary Table (unaudited)
At December 31, 2017, the Fund's portfolio composition1 was as follows:
Security Type Percentage of
Total Net Assets
Corporate Debt Securities 96.7%
Foreign Government Debt Securities 0.6%
Municipal Bond 0.2%
Collateralized Mortgage Obligation 0.1%
Mortgage-Backed Securities2 0.1%
Derivative Contracts3,4 (0.0)%
Cash Equivalents5 1.3%
Other Assets and Liabilities—Net6 1.0%
TOTAL 100.0%
1 See the Fund's Prospectus and Statement of Additional Information for a description of these security types.
2 For purposes of this table, Mortgage-Backed Securities include mortgage-backed securities guaranteed by Government-Sponsored Enterprises.
3 Represents less than 0.1%.
4 Based upon net unrealized appreciation (depreciation) or value of the derivative contracts as applicable. Derivative contracts may consist of futures, forwards, options and swaps. The impact of a derivative contract on the Fund's performance may be larger than its unrealized appreciation (depreciation) or value may indicate. In many cases, the notional value or amount of a derivative contract may provide a better indication of the contract's significance to the portfolio. More complete information regarding the Fund's direct investments in derivative contracts, including unrealized appreciation (depreciation), value and notional values or amounts of such contracts, can be found in the table at the end of the Portfolio of Investments included in this Report.
5 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
6 Assets, other than investments in securities and derivative contracts, less liabilities. See Statement of Assets and Liabilities.
Annual Shareholder Report
4

Table of Contents
Portfolio of Investments
Principal
Amount
    Value
    CORPORATE BONDS—96.7%  
    Basic Industry - Chemicals—1.1%  
$640,000   FMC Corp., Sr. Unsecd. Note, 3.95%, 2/1/2022 $648,537
800,000   Incitec Pivot Finance LLC, Company Guarantee, Series 144A, 6.00%, 12/10/2019 847,725
790,000   RPM International, Inc., 6.50%, 2/15/2018 794,086
    TOTAL 2,290,348
    Basic Industry - Metals & Mining—2.3%  
230,000   Carpenter Technology Corp., Sr. Unsecd. Note, 4.45%, 3/1/2023 234,712
650,000   Carpenter Technology Corp., Sr. Unsecd. Note, 5.20%, 7/15/2021 678,459
520,000   Gerdau S.A., Company Guarantee, Series 144A, 5.75%, 1/30/2021 556,400
470,000   Newcrest Finance Property Ltd., Sr. Unsecd. Note, Series 144A, 4.20%, 10/1/2022 489,971
1,200,000   Reliance Steel & Aluminum Co., Sr. Unsecd. Note, 4.50%, 4/15/2023 1,266,161
320,000   Southern Copper Corp., Sr. Unsecd. Note, 3.50%, 11/8/2022 329,444
1,080,000   Worthington Industries, Inc., Sr. Unsecd. Note, 6.50%, 4/15/2020 1,169,890
    TOTAL 4,725,037
    Capital Goods - Aerospace & Defense—2.1%  
600,000   Airbus Group SE, Sr. Unsecd. Note, Series 144A, 3.15%, 4/10/2027 602,426
270,000   BAE Systems Holdings, Inc., Sr. Unsecd. Note, Series 144A, 2.85%, 12/15/2020 271,379
280,000   BAE Systems Holdings, Inc., Sr. Unsecd. Note, Series 144A, 3.85%, 12/15/2025 290,788
519,000   Embraer Overseas Ltd., Sr. Unsecd. Note, Series 144A, 5.696%, 9/16/2023 569,602
410,000   Huntington Ingalls Industries, Inc., Sr. Unsecd. Note, Series 144A, 3.483%, 12/1/2027 409,487
270,000   Lockheed Martin Corp., Sr. Unsecd. Note, 2.50%, 11/23/2020 271,888
260,000   Lockheed Martin Corp., Sr. Unsecd. Note, 3.55%, 1/15/2026 270,369
300,000   Northrop Grumman Corp., Sr. Unsecd. Note, 2.55%, 10/15/2022 298,155
320,000   Rockwell Collins, Inc., Sr. Unsecd. Note, 3.10%, 11/15/2021 324,594
910,000 1 Textron Financial Corp., Jr. Sub. Note, Series 144A, 3.151%, (3-month USLIBOR +1.735%), 2/15/2042 805,350
295,000   Textron, Inc., Sr. Unsecd. Note, 4.30%, 3/1/2024 312,312
    TOTAL 4,426,350
    Capital Goods - Building Materials—0.7%  
800,000   Allegion US Holdings Co., Inc., Sr. Unsecd. Note, 3.20%, 10/1/2024 792,600
300,000   Masco Corp., Sr. Unsecd. Note, 3.50%, 11/15/2027 296,270
80,000   Masco Corp., Sr. Unsecd. Note, 7.125%, 3/15/2020 87,634
275,000   Masco Corp., Unsecd. Note, 4.45%, 4/1/2025 292,958
    TOTAL 1,469,462
    Capital Goods - Construction Machinery—0.5%  
510,000   AGCO Corp., Sr. Unsecd. Note, 5.875%, 12/1/2021 550,960
250,000   CNH Industrial Capital LLC, Sr. Unsecd. Note, 4.375%, 4/5/2022 259,618
300,000   CNH Industrial NV, Sr. Unsecd. Note, Series MTN, 3.85%, 11/15/2027 299,681
    TOTAL 1,110,259
    Capital Goods - Diversified Manufacturing—2.2%  
750,000   CK Hutchison Holdings Ltd., Sr. Unsecd. Note, Series 144A, 2.75%, 3/29/2023 735,843
430,000   General Electric Capital Corp., Sr. Unsecd. Note, Series GMTN, 4.625%, 1/7/2021 456,318
600,000   General Electric Capital Corp., Sub. Note, 5.30%, 2/11/2021 648,097
800,000   Lennox International, Inc., Sr. Unsecd. Note, 3.00%, 11/15/2023 790,874
650,000   Parker-Hannifin Corp., Sr. Unsecd. Note, 3.25%, 3/1/2027 656,305
600,000   Roper Technologies, Inc., Sr. Unsecd. Note, 3.00%, 12/15/2020 607,511
210,000   Roper Technologies, Inc., Sr. Unsecd. Note, 3.80%, 12/15/2026 216,905
341,000   Valmont Industries, Inc., Sr. Unsecd. Note, 6.625%, 4/20/2020 371,182
    TOTAL 4,483,035
Annual Shareholder Report
5

Table of Contents
Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Capital Goods - Packaging—0.1%  
$75,000   WestRock Co., 7.65%, 3/15/2020 $76,943
100,000   WestRock Co., Sr. Deb., 7.50%, 6/15/2027 101,890
    TOTAL 178,833
    Communications - Cable & Satellite—2.2%  
940,000   CCO Safari II LLC, 3.579%, 7/23/2020 958,025
567,000   CCO Safari II LLC, 4.464%, 7/23/2022 592,095
600,000   Comcast Corp., Sr. Unsecd. Note, 1.625%, 1/15/2022 580,489
480,000   Comcast Corp., Sr. Unsecd. Note, 2.75%, 3/1/2023 482,556
1,290,000   NBC Universal, Inc., Sr. Unsecd. Note, 5.15%, 4/30/2020 1,374,759
400,000   Time Warner Cable, Inc., Sr. Unsecd. Note, 8.375%, 3/15/2023 486,115
    TOTAL 4,474,039
    Communications - Media & Entertainment—1.4%  
300,000   British Sky Broadcasting Group PLC, Series 144A, 3.75%, 9/16/2024 313,282
750,000   CBS Corp., 3.70%, 8/15/2024 772,667
500,000   Discovery Communications LLC, Sr. Unsecd. Note, 2.95%, 3/20/2023 495,359
250,000   Discovery Communications LLC, Sr. Unsecd. Note, 3.95%, 3/20/2028 249,106
595,000   Omnicom Group, Inc., Sr. Unsecd. Note, 3.625%, 5/1/2022 614,792
500,000   S&P Global, Inc., Sr. Unsecd. Note, 3.30%, 8/14/2020 509,576
    TOTAL 2,954,782
    Communications - Telecom Wireless—0.2%  
360,000   Crown Castle International Corp., Sr. Unsecd. Note, 2.25%, 9/1/2021 354,198
    Communications - Telecom Wirelines—3.1%  
700,000   AT&T, Inc., Sr. Unsecd. Note, 2.45%, 6/30/2020 699,609
610,000   AT&T, Inc., Sr. Unsecd. Note, 2.85%, 2/14/2023 613,045
450,000   AT&T, Inc., Sr. Unsecd. Note, 3.40%, 5/15/2025 443,027
800,000   AT&T, Inc., Sr. Unsecd. Note, 3.90%, 8/14/2027 806,685
1,090,000   AT&T, Inc., Sr. Unsecd. Note, 5.00%, 3/1/2021 1,168,025
500,000   CenturyLink, Inc., Sr. Note, Series Q, 6.15%, 9/15/2019 518,750
450,000   Telefonica Emisiones SAU, Company Guarantee, 5.462%, 2/16/2021 487,078
250,000   Telefonica SA, Company Guarantee, 7.045%, 6/20/2036 336,153
600,000   Verizon Communications, Inc., Sr. Unsecd. Note, 4.15%, 3/15/2024 631,784
735,000   Verizon Communications, Inc., Sr. Unsecd. Note, 5.15%, 9/15/2023 818,688
    TOTAL 6,522,844
    Consumer Cyclical - Automotive—3.8%  
600,000   American Honda Finance Corp., Sr. Unsecd. Note, Series MTN, 2.00%, 2/14/2020 597,077
700,000   Daimler Finance NA LLC, Sr. Unsecd. Note, Series 144A, 2.30%, 1/6/2020 698,590
500,000   Daimler Finance NA LLC, Sr. Unsecd. Note, Series 144A, 3.25%, 8/1/2024 510,473
650,000   Ford Motor Credit Co. LLC, Sr. Unsecd. Note, 2.021%, 5/3/2019 647,210
600,000   Ford Motor Credit Co. LLC, Sr. Unsecd. Note, 2.681%, 1/9/2020 601,709
500,000   Ford Motor Credit Co. LLC, Sr. Unsecd. Note, 3.336%, 3/18/2021 508,155
670,000   General Motors Co., Sr. Unsecd. Note, 4.00%, 4/1/2025 688,974
300,000   General Motors Financial Co., Inc., 3.15%, 6/30/2022 300,040
550,000   General Motors Financial Co., Inc., Sr. Unsecd. Note, 2.40%, 5/9/2019 550,269
500,000   General Motors Financial Co., Inc., Sr. Unsecd. Note, 3.20%, 7/6/2021 505,238
750,000   Nissan Motor Acceptance Corp., Sr. Unsecd. Note, Series 144A, 2.25%, 1/13/2020 748,832
475,000   Nissan Motor Acceptance Corp., Sr. Unsecd. Note, Series 144A, 2.65%, 7/13/2022 471,299
1,000,000   RCI Banque SA, Sr. Unsecd. Note, Series 144A, 3.50%, 4/3/2018 1,003,511
    TOTAL 7,831,377
    Consumer Cyclical - Leisure—0.5%  
1,000,000   Football Trust V, Pass Thru Cert., Series 144A, 5.35%, 10/5/2020 1,064,983
Annual Shareholder Report
6

Table of Contents
Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Consumer Cyclical - Lodging—0.2%  
$450,000   Choice Hotels International, Inc., Company Guarantee, 5.70%, 8/28/2020 $483,187
    Consumer Cyclical - Retailers—1.0%  
610,000   AutoZone, Inc., Sr. Secd. Note, 1.625%, 4/21/2019 605,067
460,000   AutoZone, Inc., Sr. Unsecd. Note, 3.75%, 6/1/2027 467,628
600,000   CVS Health Corp., Sr. Unsecd. Note, 2.80%, 7/20/2020 602,817
500,000   Home Depot, Inc., Sr. Unsecd. Note, 2.125%, 9/15/2026 468,546
    TOTAL 2,144,058
    Consumer Cyclical - Services—1.6%  
500,000   Alibaba Group Holding Ltd., Sr. Unsecd. Note, 3.40%, 12/6/2027 500,348
500,000   Amazon.com, Inc., Sr. Unsecd. Note, Series 144A, 2.40%, 2/22/2023 495,330
170,000   Amazon.com, Inc., Sr. Unsecd. Note, Series 144A, 3.15%, 8/22/2027 170,550
350,000   Expedia, Inc., Company Guarantee, 5.95%, 8/15/2020 376,765
370,000   University of Southern California, Sr. Unsecd. Note, 5.25%, 10/1/2111 468,079
1,000,000   Visa, Inc., Sr. Unsecd. Note, 2.80%, 12/14/2022 1,015,190
280,000   Visa, Inc., Sr. Unsecd. Note, 3.15%, 12/14/2025 286,464
    TOTAL 3,312,726
    Consumer Non-Cyclical - Food/Beverage—7.0%  
750,000   Anheuser-Busch InBev Finance, Inc., 1.90%, 2/1/2019 748,592
500,000   Anheuser-Busch InBev Finance, Inc., 2.65%, 2/1/2021 502,825
1,100,000   Anheuser-Busch InBev Finance, Inc., 3.65%, 2/1/2026 1,136,820
500,000   Anheuser-Busch InBev Finance, Inc., Sr. Unsecd. Note, 3.30%, 2/1/2023 512,154
210,000   Bacardi Ltd., Sr. Unsecd. Note, Series 144A, 2.75%, 7/15/2026 202,112
500,000   Coca-Cola Femsa S.A.B de C.V., Sr. Unsecd. Note, 3.875%, 11/26/2023 523,903
900,000   Coca-Cola Femsa S.A.B de C.V., Sr. Unsecd. Note, 4.625%, 2/15/2020 943,599
750,000   Danone SA, Sr. Unsecd. Note, Series 144A, 2.077%, 11/2/2021 734,239
340,000   Danone SA, Sr. Unsecd. Note, Series 144A, 2.947%, 11/2/2026 331,603
380,000   Flowers Foods, Inc., Sr. Unsecd. Note, 3.50%, 10/1/2026 373,274
500,000   Grupo Bimbo SAB de CV, Sr. Unsecd. Note, Series 144A, 3.875%, 6/27/2024 517,010
660,000   Grupo Bimbo SAB de CV, Sr. Unsecd. Note, Series 144A, 4.50%, 1/25/2022 697,346
270,000   Heineken NV, Sr. Unsecd. Note, Series 144A, 3.50%, 1/29/2028 275,942
1,050,000   Kerry Group Financial Services, Sr. Unsecd. Note, Series 144A, 3.20%, 4/9/2023 1,058,515
300,000   Kraft Heinz Foods Co., Sr. Unsecd. Note, 3.00%, 6/1/2026 289,137
410,000   McCormick & Co., Inc., Sr. Unsecd. Note, 2.70%, 8/15/2022 410,077
500,000   McCormick & Co., Inc., Sr. Unsecd. Note, 3.15%, 8/15/2024 503,267
600,000   Mead Johnson Nutrition Co., Sr. Unsecd. Note, 3.00%, 11/15/2020 609,192
540,000   Molson Coors Brewing Co., Sr. Unsecd. Note, 2.10%, 7/15/2021 529,663
520,000   Mondelez International Holdings Netherlands BV, Sr. Unsecd. Note, Series 144A, 2.00%, 10/28/2021 506,294
750,000   PepsiCo, Inc., 2.75%, 3/5/2022 759,292
500,000   PepsiCo, Inc., Sr. Unsecd. Note, 2.00%, 4/15/2021 494,499
600,000   PepsiCo, Inc., Sr. Unsecd. Note, 3.125%, 11/1/2020 615,873
380,000   Smithfield Foods, Inc., Sr. Unsecd. Note, Series 144A, 2.65%, 10/3/2021 375,122
240,000   Smithfield Foods, Inc., Sr. Unsecd. Note, Series 144A, 3.35%, 2/1/2022 240,683
60,000   Smithfield Foods, Inc., Sr. Unsecd. Note, Series 144A, 4.25%, 2/1/2027 61,668
500,000   Tyson Foods, Inc., Sr. Unsecd. Note, 4.50%, 6/15/2022 534,506
    TOTAL 14,487,207
    Consumer Non-Cyclical - Health Care—2.7%  
420,000   Agilent Technologies, Inc., Sr. Unsecd. Note, 3.200%, 10/1/2022 423,956
940,000   Agilent Technologies, Inc., Sr. Unsecd. Note, 3.875%, 7/15/2023 974,601
890,000   Bayer US Finance LLC, Unsecd. Note, Series 144A, 2.375%, 10/8/2019 890,625
500,000   Becton Dickinson & Co., Sr. Unsecd. Note, 2.894%, 6/6/2022 497,322
Annual Shareholder Report
7

Table of Contents
Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Consumer Non-Cyclical - Health Care—continued  
$740,000   Becton Dickinson & Co., Sr. Unsecd. Note, 3.734%, 12/15/2024 $758,859
220,000   Becton Dickinson & Co., Sr. Unsecd. Note, Series 144A, 3.000%, 5/15/2026 216,449
670,000   Medtronic Global Holdings SCA, Sr. Unsecd. Note, 3.35%, 4/1/2027 688,069
340,000   Stryker Corp., Sr. Unsecd. Note, 2.00%, 3/8/2019 339,548
250,000   Thermo Fisher Scientific, Inc., Sr. Unsecd. Note, 2.95%, 9/19/2026 243,322
500,000   Thermo Fisher Scientific, Inc., Sr. Unsecd. Note, 3.00%, 4/15/2023 503,604
    TOTAL 5,536,355
    Consumer Non-Cyclical - Pharmaceuticals—3.2%  
300,000   Abbott Laboratories, Sr. Unsecd. Note, 2.90%, 11/30/2021 303,713
800,000   Abbott Laboratories, Sr. Unsecd. Note, 3.75%, 11/30/2026 822,785
475,000   AbbVie, Inc., Sr. Unsecd. Note, 2.50%, 5/14/2020 476,698
300,000   AbbVie, Inc., Sr. Unsecd. Note, 3.60%, 5/14/2025 308,834
67,000   Actavis Funding SCS, Sr. Unsecd. Note, 4.75%, 3/15/2045 71,540
605,000   AstraZeneca PLC, Sr. Unsecd. Note, 2.375%, 6/12/2022 598,374
180,000   Biogen Idec, Inc., Sr. Unsecd. Note, 2.90%, 9/15/2020 182,557
500,000   Celgene Corp., Sr. Unsecd. Note, 2.875%, 8/15/2020 504,942
340,000   Celgene Corp., Sr. Unsecd. Note, 3.875%, 8/15/2025 352,410
200,000   Celgene Corp., Sr. Unsecd. Note, 5.00%, 8/15/2045 227,606
330,000   Gilead Sciences, Inc., Sr. Unsecd. Note, 3.50%, 2/1/2025 341,524
220,000   Gilead Sciences, Inc., Sr. Unsecd. Note, 3.65%, 3/1/2026 228,405
330,000   Shire Acquisitions Investments Ireland DAC, Sr. Unsecd. Note, 2.40%, 9/23/2021 325,058
640,000   Shire Acquisitions Investments Ireland DAC, Sr. Unsecd. Note, 3.20%, 9/23/2026 626,768
900,000   Teva Pharmaceutical Finance III BV, Sr. Unsecd. Note, 2.20%, 7/21/2021 822,727
600,000   Teva Pharmaceutical Finance III BV, Sr. Unsecd. Note, 3.15%, 10/1/2026 496,167
    TOTAL 6,690,108
    Consumer Non-Cyclical - Products—1.0%  
575,000   Church and Dwight, Inc., Sr. Unsecd. Note, 2.45%, 8/1/2022 568,494
250,000   Newell Rubbermaid, Inc., Sr. Unsecd. Note, 3.15%, 4/1/2021 252,963
1,250,000   Reckitt Benckiser Treasury Services PLC, Sr. Unsecd. Note, Series 144A, 2.375%, 6/24/2022 1,226,100
    TOTAL 2,047,557
    Consumer Non-Cyclical - Supermarkets—0.4%  
610,000   Kroger Co., Bond, 6.90%, 4/15/2038 790,416
    Consumer Non-Cyclical - Tobacco—0.6%  
290,000   BAT International Finance PLC, Sr. Unsecd. Note, Series 144A, 3.95%, 6/15/2025 302,518
500,000   Bat Capital Corp., Sr. Unsecd. Note, Series 144A, 2.297%, 8/14/2020 497,529
360,000   Reynolds American, Inc., Sr. Unsecd. Note, 7.00%, 8/4/2041 488,396
    TOTAL 1,288,443
    Energy - Independent—1.1%  
600,000   Anadarko Petroleum Corp., Sr. Unsecd. Note, 3.45%, 7/15/2024 598,257
232,000   Apache Corp., Sr. Unsecd. Note, 3.25%, 4/15/2022 233,945
420,000   Canadian Natural Resources Ltd., Sr. Unsecd. Note, 2.95%, 1/15/2023 418,545
500,000   Cimarex Energy Co., Sr. Unsecd. Note, 3.90%, 5/15/2027 512,093
475,000   Marathon Oil Corp., Sr. Unsecd. Note, 3.85%, 6/1/2025 484,182
    TOTAL 2,247,022
    Energy - Integrated—2.5%  
500,000   BP Capital Markets PLC, 2.50%, 11/6/2022 497,690
500,000   BP Capital Markets PLC, Sr. Unsecd. Note, 2.315%, 2/13/2020 501,342
500,000   BP Capital Markets PLC, Sr. Unsecd. Note, 2.75%, 5/10/2023 500,501
500,000   BP Capital Markets PLC, Sr. Unsecd. Note, 3.994%, 9/26/2023 532,084
530,000   CNPC Hong Kong Overseas Capital Ltd., Company Guarantee, Series 144A, 5.95%, 4/28/2041 685,882
Annual Shareholder Report
8

Table of Contents
Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Energy - Integrated—continued  
$585,000   Husky Energy, Inc., 4.00%, 4/15/2024 $611,799
800,000   Petroleos Mexicanos, Company Guarantee, 5.50%, 1/21/2021 849,800
175,000   Petroleos Mexicanos, Sr. Unsecd. Note, 4.875%, 1/18/2024 181,729
525,000   Shell International Finance B.V., Sr. Unsecd. Note, 1.875%, 5/10/2021 517,479
325,000   Shell International Finance B.V., Sr. Unsecd. Note, 2.875%, 5/10/2026 325,274
    TOTAL 5,203,580
    Energy - Midstream—3.2%  
500,000   Andeavor Logistics LP, Sr. Unsecd. Note, 3.50%, 12/1/2022 499,542
350,000   Columbia Pipeline Group, Inc., 3.30%, 6/1/2020 355,176
200,000   Columbia Pipeline Group, Inc., Sr. Unsecd. Note, 4.50%, 6/1/2025 213,227
565,000   Energy Transfer Partners LP, Sr. Unsecd. Note, 4.90%, 2/1/2024 598,135
460,000   Enterprise Products Operating LLC, 3.90%, 2/15/2024 479,856
200,000   Enterprise Products Operating LLC, Sr. Unsecd. Note, 3.95%, 2/15/2027 208,205
280,000   Florida Gas Transmission Co. LLC, Sr. Unsecd. Note, Series 144A, 5.45%, 7/15/2020 298,795
1,600,000   Kinder Morgan Energy Partners LP, Sr. Unsecd. Note, 5.30%, 9/15/2020 1,706,293
395,000   MPLX LP, Sr. Unsecd. Note, 4.125%, 3/1/2027 405,215
345,000   ONEOK, Inc., Sr. Unsecd. Note, 4.00%, 7/13/2027 350,242
540,000   Texas Eastern Transmission LP, Sr. Unsecd. Note, Series 144A, 2.80%, 10/15/2022 537,071
610,000   Williams Partners LP, 5.25%, 3/15/2020 644,657
380,000   Williams Partners LP, Sr. Unsecd. Note, 4.125%, 11/15/2020 394,806
    TOTAL 6,691,220
    Energy - Oil Field Services—0.6%  
500,000   Nabors Industries, Inc., Sr. Unsecd. Note, 5.50%, 1/15/2023 486,250
52,000   Noble Holding International Ltd., Company Guarantee, 4.90%, 8/1/2020 50,180
300,000   Schlumberger Holdings Corp., Sr. Unsecd. Note, Series 144A, 3.00%, 12/21/2020 304,055
300,000   Schlumberger Holdings Corp., Sr. Unsecd. Note, Series 144A, 4.00%, 12/21/2025 315,699
    TOTAL 1,156,184
    Energy - Refining—0.5%  
215,000   Valero Energy Corp., 7.50%, 4/15/2032 290,333
635,000   Valero Energy Corp., Sr. Unsecd. Note, 6.625%, 6/15/2037 838,839
    TOTAL 1,129,172
    Financial Institution - Banking—21.6%  
500,000   American Express Credit Corp., Sr. Unsecd. Note, Series MTN, 2.70%, 3/3/2022 501,852
450,000   Associated Banc-Corp., Sub. Note, 4.25%, 1/15/2025 463,923
500,000   BB&T Corp., Sr. Unsecd. Note, Series MTN, 2.25%, 2/1/2019 500,903
245,000   BB&T Corp., Sr. Unsecd. Note, Series MTN, 2.75%, 4/1/2022 246,856
1,000,000   Bank of America Corp., Series L, 2.65%, 4/1/2019 1,005,783
500,000 1 Bank of America Corp., Sr. Unsecd. Note, 3.705%, (3-month USLIBOR +1.512%), 4/24/2028 513,653
2,200,000 1 Bank of America Corp., Sr. Unsecd. Note, Series GMTN, 2.816%, (3-month USLIBOR +0.930%), 7/21/2023 2,196,816
500,000   Bank of America Corp., Sr. Unsecd. Note, Series MTN, 3.248%, 10/21/2027 496,628
700,000   Bank of New York Mellon Corp., Sr. Unsecd. Note, Series MTN, 2.30%, 9/11/2019 701,919
300,000 1 Bank of New York Mellon Corp., Sr. Unsecd. Note, Series MTN, 2.661%, (3-month USLIBOR +0.634%), 5/16/2023 299,986
550,000   Bank of New York Mellon Corp., Sr. Unsecd. Note, Series MTN, 3.25%, 9/11/2024 561,929
340,000   Capital One Financial Corp., Sr. Unsecd. Note, 2.45%, 4/24/2019 340,870
600,000   Capital One Financial Corp., Sr. Unsecd. Note, 3.05%, 3/9/2022 604,713
500,000   Citigroup, Inc., 4.125%, 7/25/2028 516,267
1,000,000   Citigroup, Inc., Sr. Note, 5.375%, 8/9/2020 1,073,116
750,000 1 Citigroup, Inc., Sr. Unsecd. Note, 2.876%, (3-month USLIBOR +0.950%), 7/24/2023 746,937
480,000   Citigroup, Inc., Sr. Unsecd. Note, 3.40%, 5/1/2026 483,610
500,000   Citigroup, Inc., Sr. Unsecd. Note, 3.70%, 1/12/2026 515,515
Annual Shareholder Report
9

Table of Contents
Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Financial Institution - Banking—continued  
$150,000   Citigroup, Inc., Sr. Unsecd. Note, 4.50%, 1/14/2022 $159,694
1,160,000   Citizens Financial Group, Inc., Sub. Note, Series 144A, 4.15%, 9/28/2022 1,204,123
480,000   City National Corp., Sr. Unsecd. Note, 5.25%, 9/15/2020 514,839
300,000   Comerica, Inc., 3.80%, 7/22/2026 304,822
400,000   Compass Bank, Birmingham, Sr. Unsecd. Note, Series BKNT, 2.75%, 9/29/2019 401,226
500,000   Compass Bank, Birmingham, Sub. Note, Series BKNT, 3.875%, 4/10/2025 502,259
445,000   Fifth Third Bancorp, Sr. Unsecd. Note, 2.875%, 7/27/2020 449,942
630,000   Goldman Sachs Group, Inc., Sr. Unsecd. Note, 2.35%, 11/15/2021 620,948
1,000,000   Goldman Sachs Group, Inc., Sr. Unsecd. Note, 2.60%, 12/27/2020 1,000,526
500,000   Goldman Sachs Group, Inc., Sr. Unsecd. Note, 3.00%, 4/26/2022 502,148
1,000,000   Goldman Sachs Group, Inc., Sr. Unsecd. Note, 3.50%, 11/16/2026 1,006,632
500,000   Goldman Sachs Group, Inc., Sub. Note, 4.25%, 10/21/2025 522,957
500,000   HSBC Bank USA, N.A., Sub. Note, Series BKNT, 4.875%, 8/24/2020 528,931
1,341,000   HSBC USA, Inc., Sr. Unsecd. Note, 2.75%, 8/7/2020 1,348,766
500,000   HSBC USA, Inc., Sr. Unsecd. Note, 3.50%, 6/23/2024 513,757
1,130,000   Huntington Bancshares, Inc., Sr. Unsecd. Note, 2.30%, 1/14/2022 1,112,736
500,000   Huntington National Bank, Sr. Unsecd. Note, 2.375%, 3/10/2020 499,474
500,000   JPMorgan Chase & Co., Sr. Unsecd. Note, 2.25%, 1/23/2020 499,788
250,000   JPMorgan Chase & Co., Sr. Unsecd. Note, 2.35%, 1/28/2019 250,514
500,000 1 JPMorgan Chase & Co., Sr. Unsecd. Note, 3.782%, (3-month USLIBOR +1.337%), 2/1/2028 518,575
1,000,000   JPMorgan Chase & Co., Sr. Unsecd. Note, 4.50%, 1/24/2022 1,070,527
1,000,000   JPMorgan Chase & Co., Sub. Note, 3.375%, 5/1/2023 1,017,051
1,000,000   JPMorgan Chase & Co., Sub. Note, 3.875%, 9/10/2024 1,043,818
510,000   MUFG Americas Holdings Corp., Sr. Unsecd. Note, 3.00%, 2/10/2025 503,899
250,000   MUFG Americas Holdings Corp., Sr. Unsecd. Note, 3.50%, 6/18/2022 256,392
410,000   MUFG Union Bank, N.A., Sr. Unsecd. Note, 2.25%, 5/6/2019 409,520
2,440,000 1 Manufacturers & Traders Trust Co., Sub. Note, Series BKNT, 2.121%, (3-month USLIBOR +0.640%), 12/1/2021 2,427,904
750,000   Morgan Stanley, Sec. Fac. Bond, 2.75%, 5/19/2022 747,613
500,000   Morgan Stanley, Sr. Unsecd. Note, 3.625%, 1/20/2027 512,173
970,000   Morgan Stanley, Sr. Unsecd. Note, 5.75%, 1/25/2021 1,057,400
500,000   Morgan Stanley, Sr. Unsecd. Note, Series GMTN, 5.50%, 7/24/2020 536,377
250,000   Morgan Stanley, Sub. Note, 5.00%, 11/24/2025 273,944
1,000,000   Morgan Stanley, Sub. Note, Series MTN, 4.10%, 5/22/2023 1,042,944
890,000   Regions Financial Corp., Sr. Unsecd. Note, 3.20%, 2/8/2021 906,108
250,000 1 State Street Corp., Sr. Unsecd. Note, 2.653%, (3-month USLIBOR +0.635%), 5/15/2023 250,195
700,000   State Street Corp., Sr. Unsecd. Note, 3.30%, 12/16/2024 723,523
200,000   SunTrust Bank, Sub. Note, 3.30%, 5/15/2026 198,385
530,000   SunTrust Bank, Inc., Sr. Unsecd. Note, 2.50%, 5/1/2019 532,109
750,000   U.S. Bancorp, Sr. Unsecd. Note, Series V, 2.625%, 1/24/2022 754,645
500,000   Wells Fargo & Co., Series MTN, 3.50%, 3/8/2022 516,519
620,000   Wells Fargo & Co., Sr. Unsecd. Note, 3.00%, 10/23/2026 608,225
1,500,000   Wells Fargo & Co., Sr. Unsecd. Note, 3.069%, 1/24/2023 1,511,942
500,000   Wells Fargo & Co., Sr. Unsecd. Note, Series MTN, 2.55%, 12/7/2020 502,198
1,175,000   Westpac Banking Corp., Sr. Unsecd. Note, 4.875%, 11/19/2019 1,231,956
1,900,000   Wilmington Trust Corp., Sub. Note, 8.50%, 4/2/2018 1,930,212
    TOTAL 44,799,512
    Financial Institution - Broker/Asset Mgr/Exchange—1.8%  
170,000   Cantor Fitzgerald LP, Bond, 7.875%, Series 144A, 10/15/2019 184,073
370,000   Eaton Vance Corp., Sr. Unsecd. Note, 3.625%, 6/15/2023 381,835
350,000   Franklin Resources, Inc., Sr. Unsecd. Note, 4.625%, 5/20/2020 367,790
Annual Shareholder Report
10

Table of Contents
Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Financial Institution - Broker/Asset Mgr/Exchange—continued  
$220,000   Invesco Finance PLC, Sr. Unsecd. Note, 3.75%, 1/15/2026 $227,615
590,000   Jefferies Group LLC, Sr. Unsecd. Note, 5.125%, 1/20/2023 640,071
200,000   Jefferies Group LLC, Sr. Unsecd. Note, 6.50%, 1/20/2043 236,527
193,000   Raymond James Financial, Inc., Sr. Unsecd. Note, 5.625%, 4/1/2024 219,057
390,000   Stifel Financial Corp., 4.25%, 7/18/2024 399,969
190,000   Stifel Financial Corp., Sr. Unsecd. Note, 3.50%, 12/1/2020 191,610
500,000   TD Ameritrade Holding Corp., Sr. Unsecd. Note, 3.625%, 4/1/2025 517,984
450,000   TIAA Asset Management Finance Co. LLC, Sr. Unsecd. Note, Series 144A, 2.95%, 11/1/2019 454,452
    TOTAL 3,820,983
    Financial Institution - Finance Companies—2.1%  
463,000   Discover Bank, Sub. Note, Series BKNT, 8.70%, 11/18/2019 509,268
500,000   Discover Financial Services, Sr. Unsecd. Note, 4.10%, 2/9/2027 512,974
1,966,000   GE Capital International Funding Co., Sr. Unsecd. Note, 2.342%, 11/15/2020 1,957,598
375,000   HSBC Finance Corp., Sr. Sub. Note, 6.676%, 1/15/2021 417,181
960,000   Macquarie Group Ltd., Sr. Unsecd. Note, Series 144A, 6.00%, 1/14/2020 1,023,200
    TOTAL 4,420,221
    Financial Institution - Insurance - Health—0.6%  
750,000   UnitedHealth Group, Inc., Sr. Unsecd. Note, 2.70%, 7/15/2020 758,899
405,000   UnitedHealth Group, Inc., Sr. Unsecd. Note, 3.75%, 7/15/2025 427,197
    TOTAL 1,186,096
    Financial Institution - Insurance - Life—2.2%  
800,000   American International Group, Inc., Sr. Unsecd. Note, 4.125%, 2/15/2024 846,258
500,000   Lincoln National Corp., Sr. Secd. Note, 8.75%, 7/1/2019 546,068
290,000   Lincoln National Corp., Sr. Unsecd. Note, 4.20%, 3/15/2022 305,655
172,000   Massachusetts Mutual Life Insurance Co., Sub. Note, Series 144A, 8.875%, 6/1/2039 285,359
800,000   MetLife, Inc., Sr. Unsecd. Note, 4.75%, 2/8/2021 856,816
500,000   New York Life Global Funding, Sec. Fac. Bond, Series 144A, 2.00%, 4/9/2020 496,953
350,000   Penn Mutual Life Insurance Co., Sr. Note, Series 144A, 7.625%, 6/15/2040 489,542
235,000   Principal Life Global Funding II, Series 144A, 2.20%, 4/8/2020 234,168
400,000   Prudential Financial, Inc., Sr. Unsecd. Note, Series MTN, 4.60%, 5/15/2044 455,585
    TOTAL 4,516,404
    Financial Institution - Insurance - P&C—1.5%  
200,000   Berkshire Hathaway, Inc., Sr. Unsecd. Note, 2.20%, 3/15/2021 199,446
680,000   CNA Financial Corp., Sr. Unsecd. Note, 5.875%, 8/15/2020 735,938
250,000   Chubb INA Holdings, Inc., 2.30%, 11/3/2020 249,685
300,000   Chubb INA Holdings, Inc., Sr. Unsecd. Note, 3.35%, 5/15/2024 309,201
500,000   Liberty Mutual Group, Inc., Series 144A, 4.85%, 8/1/2044 557,369
600,000   Nationwide Mutual Insurance Co., Sub. Note, Series 144A, 9.375%, 8/15/2039 1,022,798
    TOTAL 3,074,437
    Financial Institution - REIT - Apartment—0.7%  
395,000   Avalonbay Communities, Inc., Sr. Unsecd. Note, Series MTN, 3.35%, 5/15/2027 398,407
550,000   Post Apartment Homes LP, Sr. Unsecd. Note, 3.375%, 12/1/2022 558,089
300,000   UDR, Inc., Company Guarantee, Series 0001, 4.625%, 1/10/2022 318,423
200,000   UDR, Inc., Sr. Unsecd. Note, Series MTN, 2.95%, 9/1/2026 192,525
    TOTAL 1,467,444
    Financial Institution - REIT - Healthcare—0.9%  
960,000   Health Care REIT, Inc., Sr. Unsecd. Note, 6.125%, 4/15/2020 1,037,418
500,000   Healthcare Trust of America, 3.70%, 4/15/2023 511,711
310,000   Physicians Realty Trust, Sr. Unsecd. Note, 4.30%, 3/15/2027 315,913
    TOTAL 1,865,042
Annual Shareholder Report
11

Table of Contents
Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Financial Institution - REIT - Office—0.7%  
$500,000   Alexandria Real Estate Equities, Inc., 2.75%, 1/15/2020 $502,318
450,000   Alexandria Real Estate Equities, Inc., Sr. Unsecd. Note, 4.60%, 4/1/2022 478,229
480,000   Boston Properties LP, Sr. Unsecd. Note, 3.20%, 1/15/2025 479,105
    TOTAL 1,459,652
    Financial Institution - REIT - Other—0.4%  
300,000   ProLogis LP, Sr. Unsecd. Note, 4.25%, 8/15/2023 321,514
450,000   WP Carey, Inc., Sr. Unsecd. Note, 4.60%, 4/1/2024 470,620
    TOTAL 792,134
    Financial Institution - REIT - Retail—0.7%  
396,000   Kimco Realty Corp., Sr. Unsecd. Note, 3.20%, 5/1/2021 402,849
100,000   Kimco Realty Corp., Sr. Unsecd. Note, 3.40%, 11/1/2022 102,077
450,000   Regency Centers Corp., Sr. Unsecd. Note, 3.75%, 11/15/2022 461,431
421,000   Regency Centers LP, Company Guarantee, 4.80%, 4/15/2021 445,014
    TOTAL 1,411,371
    Municipal Services—0.9%  
872,930   Army Hawaii Family Housing, Series 144A, 5.524%, 6/15/2050 1,002,625
740,000   Camp Pendleton & Quantico Housing LLC, Series 144A, 5.572%, 10/1/2050 823,064
    TOTAL 1,825,689
    Sovereign—0.5%  
320,000   Corp Andina De Fomento, Sr. Unsecd. Note, 4.375%, 6/15/2022 341,725
510,000   Inter-American Development Bank, Series MTN, 6.75%, 7/15/2027 664,876
    TOTAL 1,006,601
    Technology—6.2%  
500,000   Adobe Systems, Inc., Sr. Unsecd. Note, 3.25%, 2/1/2025 513,845
500,000   Apple, Inc., Sr. Unsecd. Note, 2.10%, 9/12/2022 490,870
650,000   Apple, Inc., Sr. Unsecd. Note, 2.40%, 5/3/2023 643,693
400,000   Apple, Inc., Sr. Unsecd. Note, 3.20%, 5/13/2025 408,376
125,000   Apple, Inc., Sr. Unsecd. Note, 4.45%, 5/6/2044 143,002
340,000   Automatic Data Processing, Inc., 3.375%, 9/15/2025 351,192
800,000   BMC Software, Inc., 7.25%, 6/1/2018 814,000
230,000   Broadcom Corp., Sr. Unsecd. Note, Series 144A, 3.625%, 1/15/2024 228,969
280,000   Broadcom Corp., Sr. Unsecd. Note, Series 144A, 3.875%, 1/15/2027 275,976
400,000   Diamond 1 Finance Corp./Diamond 2 Finance Corp., Term Loan—1st Lien, Series 144A, 4.42%, 6/15/2021 417,093
400,000   Diamond 1 Finance Corp./Diamond 2 Finance Corp., Term Loan—1st Lien, Series 144A, 6.02%, 6/15/2026 441,662
345,000   Equifax, Inc., Sr. Unsecd. Note, 2.30%, 6/1/2021 336,996
83,000   Fidelity National Information Services, Inc., Sr. Unsecd. Note, 3.875%, 6/5/2024 86,741
130,000   Flextronics International Ltd., Sr. Unsecd. Note, 4.75%, 6/15/2025 139,267
300,000   Hewlett Packard Enterprise Co., Sr. Unsecd. Note, 2.85%, 10/5/2018 301,500
670,000   Ingram Micro, Inc., Sr. Unsecd. Note, 5.00%, 8/10/2022 657,455
250,000   Intel Corp., Sr. Unsecd. Note, 2.45%, 7/29/2020 252,801
500,000   Intel Corp., Sr. Unsecd. Note, 3.70%, 7/29/2025 528,744
460,000   Keysight Technologies, Inc., 4.55%, 10/30/2024 488,610
1,500,000   Microsoft Corp., Sr. Unsecd. Note, 1.55%, 8/8/2021 1,461,115
750,000   Microsoft Corp., Sr. Unsecd. Note, 2.40%, 8/8/2026 723,904
300,000   Molex Electronics Technologies LLC, Sr. Unsecd. Note, Series 144A, 2.878%, 4/15/2020 300,212
190,000   Molex Electronics Technologies LLC, Unsecd. Note, Series 144A, 3.90%, 4/15/2025 193,987
250,000   Oracle Corp., Sr. Unsecd. Note, 2.80%, 7/8/2021 253,777
750,000   Oracle Corp., Sr. Unsecd. Note, 3.40%, 7/8/2024 778,188
190,000   Qualcomm, Inc., Sr. Unsecd. Note, 2.10%, 5/20/2020 189,255
310,000   Qualcomm, Inc., Sr. Unsecd. Note, 2.60%, 1/30/2023 302,549
Annual Shareholder Report
12

Table of Contents
Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Technology—continued  
$350,000   Total System Services, Inc., Sr. Unsecd. Note, 3.80%, 4/1/2021 $358,972
195,000   Verisk Analytics, Inc., Sr. Unsecd. Note, 4.125%, 9/12/2022 203,768
670,000   Verisk Analytics, Inc., Sr. Unsecd. Note, 4.875%, 1/15/2019 686,203
    TOTAL 12,972,722
    Transportation - Airlines—0.0%  
99,842 2 Continental Airlines, Inc., Equip. Trust, Series 991A, 6.545%, 2/2/2019 102,338
    Transportation - Railroads—1.0%  
43,952   Burlington Northern Santa Fe Corp., Pass Thru Cert., Series 99-2, 7.57%, 1/2/2021 46,105
1,100,000   Burlington Northern Santa Fe Corp., Sr. Unsecd. Note, 3.45%, 9/15/2021 1,136,983
850,000   Kansas City Southern Industries, Inc., Sr. Unsecd. Note, 3.00%, 5/15/2023 843,545
    TOTAL 2,026,633
    Transportation - Services—0.5%  
500,000   Penske Truck Leasing Co. LP & PTL Finance Corp., Sr. Unsecd. Note, Series 144A, 3.375%, 2/1/2022 509,769
125,000   Ryder System, Inc., Sr. Unsecd. Note, Series MTN, 2.25%, 9/1/2021 123,159
280,000   Ryder System, Inc., Sr. Unsecd. Note, Series MTN, 2.80%, 3/1/2022 279,579
150,000   Ryder System, Inc., Sr. Unsecd. Note, Series MTN, 3.45%, 11/15/2021 153,940
    TOTAL 1,066,447
    Utility - Electric—6.6%  
310,000   AEP Texas, Inc., Sr. Unsecd. Note, 3.85%, 10/1/2025 324,173
420,000   Ameren Corp., Sr. Unsecd. Note, 2.70%, 11/15/2020 421,636
880,000   American Electric Power Co., Inc., Sr. Unsecd. Note, Series F, 2.95%, 12/15/2022 893,380
500,000   Berkshire Hathaway Energy Co., 3.50%, 2/1/2025 516,180
1,016,295   Bruce Mansfield Unit 1 2, Pass Thru Cert., 6.85%, 6/1/2034 345,540
210,000   Consolidated Edison Co., Sr. Unsecd. Note, 2.00%, 5/15/2021 206,939
250,000   Duke Energy Corp., Sr. Unsecd. Note, 1.80%, 9/1/2021 243,351
750,000   Duke Energy Corp., Sr. Unsecd. Note, 2.40%, 8/15/2022 737,571
500,000   EDP Finance BV, Sr. Unsecd. Note, Series 144A, 3.625%, 7/15/2024 503,956
1,000,000 1 Electricite de France SA, Jr. Sub. Note, Series 144A, 5.625%, 7/22/2066 1,036,250
180,000   Emera US Finance LP, Sr. Unsecd. Note, 2.70%, 6/15/2021 179,691
470,000   Enel Finance International NV, Sr. Unsecd. Note, Series 144A, 2.875%, 5/25/2022 469,144
270,000   Fortis, Inc., Sr. Unsecd. Note, 2.10%, 10/4/2021 263,760
240,000   Fortis, Inc., Sr. Unsecd. Note, 3.055%, 10/4/2026 232,106
235,000   Great Plains Energy, Inc., Note, 4.85%, 6/1/2021 249,064
600,000   National Rural Utilities Cooperative Finance Corp., Sec. Fac. Bond, 2.40%, 4/25/2022 596,881
140,000   National Rural Utilities Cooperative Finance Corp., Sr. Unsecd. Note, 2.95%, 2/7/2024 141,135
900,000   NextEra Energy Capital Holdings, Inc., Sr. Unsecd. Note, 2.40%, 9/15/2019 902,577
366,000   NextEra Energy Capital Holdings, Inc., Sr. Unsecd. Note, 2.70%, 9/15/2019 368,347
300,000   NextEra Energy Capital Holdings, Inc., Sr. Unsecd. Note, 3.55%, 5/1/2027 306,097
110,000   NiSource Finance Corp., Sr. Unsecd. Note, 2.65%, 11/17/2022 109,279
500,000   NiSource Finance Corp., Sr. Unsecd. Note, 3.49%, 5/15/2027 509,765
500,000   Northeast Utilities, Sr. Unsecd. Note, 1.60%, 1/15/2018 499,901
590,000   PPL Capital Funding, Inc., Sr. Unsecd. Note, 4.20%, 6/15/2022 623,962
425,000   PSEG Power LLC, Sr. Unsecd. Note, 4.15%, 9/15/2021 443,537
250,000   Public Service Enterprises Group, Inc., Sr. Unsecd. Note, 2.00%, 11/15/2021 244,259
530,000   Southern Co., Sr. Unsecd. Note, 1.85%, 7/1/2019 526,937
250,000   Southern Co., Sr. Unsecd. Note, 3.25%, 7/1/2026 245,565
230,000   TECO Finance, Inc., Company Guarantee, 5.15%, 3/15/2020 242,181
800,000   UIL Holdings Corp., Sr. Unsecd. Note, 4.625%, 10/1/2020 838,194
450,000   Wisconsin Energy Corp., Sr. Unsecd. Note, 3.55%, 6/15/2025 460,698
    TOTAL 13,682,056
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Principal
Amount
    Value
    CORPORATE BONDS—continued  
    Utility - Natural Gas—1.8%  
$250,000   Atmos Energy Corp., Sr. Unsecd. Note, 3.00%, 6/15/2027 $248,979
1,000,000   Enbridge Energy Partners LP, Sr. Unsecd. Note, 4.20%, 9/15/2021 1,040,222
1,100,000   National Fuel Gas Co., Sr. Unsecd. Note, 3.75%, 3/1/2023 1,115,562
600,000   Sempra Energy, Sr. Unsecd. Note, 1.625%, 10/7/2019 592,714
300,000   Southeast Supply Header LLC, Sr. Unsecd. Note, Series 144A, 4.25%, 6/15/2024 310,588
500,000   TransCanada PipeLines Ltd., Sr. Unsecd. Note, 2.125%, 11/15/2019 498,359
    TOTAL 3,806,424
    Utility - Natural Gas Distributor—0.2%  
450,000   Southern Co. Gas Capital, Sr. Unsecd. Note, 2.45%, 10/1/2023 436,006
    TOTAL CORPORATE BONDS
(IDENTIFIED COST $197,078,703)
200,830,994
    MORTGAGE-BACKED SECURITIES—0.1%  
    Federal Home Loan Mortgage Corporation—0.0%  
921   Federal Home Loan Mortgage Corp., Pool C01051, 8.00%, 9/1/2030 1,087
    Federal National Mortgage Association—0.0%  
29   Federal National Mortgage Association, Pool 50276, 9.50%, 2/1/2020 30
    Government National Mortgage Association—0.1%  
2,654   Government National Mortgage Association, Pool 1512, 7.50%, 12/20/2023 2,949
3,011   Government National Mortgage Association, Pool 2630, 6.50%, 8/20/2028 3,416
4,112   Government National Mortgage Association, Pool 2631, 7.00%, 8/20/2028 4,732
6,116   Government National Mortgage Association, Pool 2658, 6.50%, 10/20/2028 6,948
9,232   Government National Mortgage Association, Pool 2701, 6.50%, 1/20/2029 10,493
368   Government National Mortgage Association, Pool 276337, 10.00%, 8/15/2019 385
6,389   Government National Mortgage Association, Pool 2796, 7.00%, 8/20/2029 7,391
1,586   Government National Mortgage Association, Pool 3039, 6.50%, 2/20/2031 1,818
4,110   Government National Mortgage Association, Pool 3040, 7.00%, 2/20/2031 4,777
14,547   Government National Mortgage Association, Pool 3188, 6.50%, 1/20/2032 16,769
11,079   Government National Mortgage Association, Pool 3239, 6.50%, 5/20/2032 12,753
22,473   Government National Mortgage Association, Pool 3261, 6.50%, 7/20/2032 25,908
1,177   Government National Mortgage Association, Pool 493514, 8.00%, 9/15/2030 1,321
5,124   Government National Mortgage Association, Pool 516688, 8.00%, 8/15/2029 6,134
    TOTAL 105,794
    TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $93,018)
106,911
    MUNICIPAL BOND—0.2%  
    Municipal Services—0.2%  
410,000   Chicago, IL, Taxable Project and Refunding Series 2012B GO Bonds, 5.432%, 1/1/2042
(IDENTIFIED COST $410,000)
394,834
    FOREIGN GOVERNMENTS/AGENCIES—0.6%  
    Sovereign—0.6%  
225,000   Colombia, Government of, Sr. Unsecd. Note, 4.375%, 7/12/2021 237,263
900,000   Qatar, Government of, Series 144A, 5.25%, 1/20/2020 944,989
    TOTAL FOREIGN GOVERNMENTS/AGENCIES
(IDENTIFIED COST $1,124,098)
1,182,252
    COLLATERALIZED MORTGAGE OBLIGATION—0.1%  
    Commercial Mortgage—0.1%  
193,974   TIAA Seasoned Commercial Mortgage Trust 2007-C4, Class AJ, 5.476%, 8/15/2039
(IDENTIFIED COST $192,464)
193,535
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Principal
Amount
    Value
    REPURCHASE AGREEMENT—1.3%  
$2,803,000   Interest in $950,000,000 joint repurchase agreement 1.42%, dated 12/29/2017 under which Bank of America, N.A. will repurchase securities provided as collateral for $950,149,889 on 1/2/2018. The securities provided as collateral at the end of the period held with BNY Mellon as tri-party agent, were U.S. Government Agency securities maturing on 7/20/2046 and the market value of those underlying securities was $969,152,887.
(IDENTIFIED COST $2,803,000)
$2,803,000
    TOTAL INVESTMENT IN SECURITIES—99.0%
(IDENTIFIED COST $201,701,283)3
205,511,526
    OTHER ASSETS AND LIABILITIES - NET—1.0%4 2,110,982
    TOTAL NET ASSETS—100% $207,622,508
At December 31, 2017, the Fund had the following outstanding futures contracts:
Description Number of
Contracts
Notional
Value
Expiration
Date
Value and
Unrealized
Appreciation
(Depreciation)
5U.S. Treasury Note 10-Year Long Futures 100 $12,404,688 March 2018 $(67,745)
5U.S. Treasury Long Bond Short Futures 45 $6,885,000 March 2018 $5,875
5U.S. Treasury Note 2-Year Short Futures 15 $3,211,641 March 2018 $5,638
5U.S. Treasury Ultra Bond Short Futures 14 $2,347,188 March 2018 $(10,491)
NET UNREALIZED DEPRECIATION ON FUTURES CONTRACTS $(66,723)
Net Unrealized Appreciation (Depreciation) on Futures Contracts is included in “Other Assets and Liabilities—Net.”
1 Floating/variable note with current rate and current maturity or next reset date shown. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above.
2 Market quotations and price evaluations are not available. Fair value determined using significant unobservable inputs in accordance with procedures established by and under the general supervision of the Fund's Board of Trustees (the “Trustees”).
3 The cost of investments for federal tax purposes amounts to $201,701,431.
4 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
5 Non-income-producing security.
Note: The categories of investments are shown as a percentage of total net assets at December 31, 2017.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1—quoted prices in active markets for identical securities.
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Also includes securities valued at amortized cost.
Level 3—significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
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The following is a summary of the inputs used, as of December 31, 2017, in valuing the Fund's assets carried at fair value:
Valuation Inputs        
  Level 1—
Quoted
Prices
Level 2—
Other
Significant
Observable
Inputs
Level 3—
Significant
Unobservable
Inputs
Total
Debt Securities:        
Corporate Bonds $$200,728,656 $102,338 $200,830,994
Mortgage-Backed Securities 106,911 106,911
Municipal Bond 394,834 394,834
Foreign Governments/Agencies 1,182,252 1,182,252
Collateralized Mortgage Obligations 193,535 193,535
Repurchase Agreement 2,803,000 2,803,000
TOTAL SECURITIES $$205,409,188 $102,338 $205,511,526
Other Financial Instruments        
Assets        
Futures $11,513 $$$11,513
Liabilities        
Futures (78,236) (78,236)
TOTAL OTHER FINANCIAL INSTRUMENTS $(66,723) $$$(66,723)
The following acronyms are used throughout this portfolio:
BKNT —Bank Note
GMTN —Global Medium Term Note
GO —General Obligation
LIBOR —London Interbank Offered Rate
MTN —Medium Term Note
REIT —Real Estate Investment Trust
See Notes which are an integral part of the Financial Statements
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Financial HighlightsPrimary Shares
(For a Share Outstanding Throughout Each Period)
Year Ended December 31 2017 2016 2015 2014 2013
Net Asset Value, Beginning of Period $10.98 $10.97 $11.42 $11.43 $11.80
Income From Investment Operations:          
Net investment income1 0.31 0.34 0.37 0.40 0.41
Net realized and unrealized gain (loss) on investments and futures contracts 0.12 0.07 (0.39) 0.03 (0.29)
TOTAL FROM INVESTMENT OPERATIONS 0.43 0.41 (0.02) 0.43 0.12
Less Distributions:          
Distributions from net investment income (0.36) (0.40) (0.43) (0.44) (0.49)
Net Asset Value, End of Period $11.05 $10.98 $10.97 $11.42 $11.43
Total Return2 4.04% 3.82% (0.24)% 3.79% 1.04%
Ratios to Average Net Assets:          
Net expenses 0.74% 0.73% 0.73% 0.73% 0.73%
Net investment income 2.81% 3.10% 3.30% 3.53% 3.55%
Expense waiver/reimbursement3 0.06% 0.07% 0.05% 0.04% 0.06%
Supplemental Data:          
Net assets, end of period (000 omitted) $185,026 $188,831 $198,990 $220,355 $230,647
Portfolio turnover 27% 26% 17% 18% 23%
1 Per share numbers have been calculated using the average shares method.
2 Based on net asset value. Total returns do not reflect any additional fees or expenses that may be imposed by separate accounts of insurance companies or in connection with any variable annuity or variable life insurance contract.
3 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
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Financial HighlightsService Shares
(For a Share Outstanding Throughout Each Period)
Year Ended December 31 2017 2016 2015 2014 2013
Net Asset Value, Beginning of Period $10.94 $10.93 $11.37 $11.38 $11.75
Income From Investment Operations:          
Net investment income1 0.28 0.31 0.34 0.38 0.38
Net realized and unrealized gain (loss) on investments and futures contracts 0.12 0.07 (0.38) 0.01 (0.29)
TOTAL FROM INVESTMENT OPERATIONS 0.40 0.38 (0.04) 0.39 0.09
Less Distributions:          
Distributions from net investment income (0.33) (0.37) (0.40) (0.40) (0.46)
Net Asset Value, End of Period $11.01 $10.94 $10.93 $11.37 $11.38
Total Return2 3.75% 3.53% (0.44)% 3.51% 0.75%
Ratios to Average Net Assets:          
Net expenses 0.99% 0.98% 0.98% 0.98% 0.98%
Net investment income 2.56% 2.86% 3.04% 3.29% 3.29%
Expense waiver/reimbursement3 0.06% 0.07% 0.05% 0.04% 0.06%
Supplemental Data:          
Net assets, end of period (000 omitted) $22,596 $23,920 $27,977 $33,857 $38,536
Portfolio turnover 27% 26% 17% 18% 23%
1 Per share numbers have been calculated using the average shares method.
2 Based on net asset value. Total returns do not reflect any additional fees or expenses that may be imposed by separate accounts of insurance companies or in connection with any variable annuity or variable life insurance contract.
3 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
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Statement of Assets and Liabilities
Assets:    
Investment in securities, at value (identified cost $201,701,283)   $205,511,526
Cash   1,692
Restricted cash (Note 2)   100,250
Income receivable   2,046,969
Receivable for shares sold   161,342
Receivable for daily variation margin on futures contracts   1,393
TOTAL ASSETS   207,823,172
Liabilities:    
Payable for shares redeemed $79,210  
Payable to adviser (Note 5) 9,017  
Payable for administrative fees (Note 5) 1,367  
Payable for custodian fees 5,057  
Payable for transfer agent fee 3,800  
Payable for auditing fees 22,030  
Payable for portfolio accounting fees 63,423  
Payable for distribution services fee (Note 5) 4,864  
Payable for insurance premiums 3,921  
Accrued expenses (Note 5) 7,975  
TOTAL LIABILITIES   200,664
Net assets for 18,801,171 shares outstanding   $207,622,508
Net Assets Consist of:    
Paid-in capital   $197,929,819
Net unrealized appreciation of investments and futures contracts   3,743,520
Accumulated net realized gain on investments and futures contracts   66,575
Undistributed net investment income   5,882,594
TOTAL NET ASSETS   $207,622,508
Net Asset Value, Offering Price and Redemption Proceeds Per Share    
Primary Shares:    
Net asset value per share ($185,026,124 ÷ 16,749,403 shares outstanding), no par value, unlimited shares authorized   $11.05
Service Shares:    
Net asset value per share ($22,596,384 ÷ 2,051,768 shares outstanding), no par value, unlimited shares authorized   $11.01
See Notes which are an integral part of the Financial Statements
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Statement of Operations
Investment Income:    
Interest   $7,513,965
Expenses:    
Investment adviser fee (Note 5) $1,269,713  
Administrative fee (Note 5) 167,510  
Custodian fees 11,657  
Transfer agent fee 20,525  
Directors'/Trustees' fees (Note 5) 3,002  
Auditing fees 25,920  
Legal fees 8,583  
Portfolio accounting fees 79,444  
Distribution services fee (Note 5) 59,562  
Printing and postage 77,983  
Miscellaneous (Note 5) 26,099  
TOTAL EXPENSES 1,749,998  
Waiver:    
Waiver of investment adviser fee (Note 5) $(119,617)  
Net expenses   1,630,381
Net investment income   5,883,584
Realized and Unrealized Gain (Loss) on Investments and Futures Contracts:    
Net realized gain on investments   1,404,861
Net realized loss on futures contracts   (424,430)
Net change in unrealized appreciation of investments   1,516,509
Net change in unrealized depreciation of futures contracts   (64,615)
Net realized and unrealized gain on investments and futures contracts   2,432,325
Change in net assets resulting from operations   $8,315,909
See Notes which are an integral part of the Financial Statements
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Statement of Changes in Net Assets
Year Ended December 31 2017 2016
Increase (Decrease) in Net Assets    
Operations:    
Net investment income $5,883,584 $6,854,788
Net realized gain on investments and futures contracts 980,431 754,359
Net change in unrealized appreciation/depreciation of investments and futures contracts 1,451,894 932,107
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 8,315,909 8,541,254
Distributions to Shareholders:    
Distributions from net investment income    
Primary Shares (6,150,393) (7,034,809)
Service Shares (704,143) (909,198)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (6,854,536) (7,944,007)
Share Transactions:    
Proceeds from sale of shares 14,911,393 15,156,631
Net asset value of shares issued to shareholders in payment of distributions declared 6,854,533 7,944,007
Cost of shares redeemed (28,355,851) (37,913,109)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (6,589,925) (14,812,471)
Change in net assets (5,128,552) (14,215,224)
Net Assets:    
Beginning of period 212,751,060 226,966,284
End of period (including undistributed net investment income of $5,882,594 and $6,853,546, respectively) $207,622,508 $212,751,060
See Notes which are an integral part of the Financial Statements
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Notes to Financial Statements
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 seven 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. Each portfolio pays its own expenses. The Fund offers two classes of shares: Primary Shares and Service Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. Fund shares are available exclusively as a funding vehicle for life insurance companies writing variable life insurance policies and variable annuity contracts. The investment objective of the Fund is to provide current 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 U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
Fixed-income securities are fair valued using price evaluations provided by a pricing service approved by the Trustees.
Derivative contracts listed on exchanges are valued at their reported settlement or closing price, except that options are valued at the mean of closing bid and asked quotations.
Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs.
For securities that are fair valued in accordance with procedures established by and under the general supervision of the Trustees, certain factors may be considered, such as: the last traded or purchase price of the security, information obtained by contacting the issuer or dealers, analysis of the issuer's financial statements or other available documents, fundamental analytical data, the nature and duration of restrictions on disposition, the movement of the market in which the security is normally traded, public trading in similar securities or derivative contracts of the issuer or comparable issuers, movement of a relevant index, or other factors including but not limited to industry changes and relevant government actions.
If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, if the Fund cannot obtain price evaluations from a pricing service or from more than one dealer for an investment within a reasonable period of time as set forth in the Fund's valuation policies and procedures, or if information furnished by a pricing service, in the opinion of the valuation committee (“Valuation Committee”), is deemed not representative of the fair value of such security, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could obtain the fair value assigned to an investment if it sold the investment at approximately the time at which the Fund determines its NAV per share.
Fair Valuation and Significant Events Procedures
The Trustees have ultimate responsibility for determining the fair value of investments for which market quotations are not readily available. The Trustees have appointed a Valuation Committee comprised of officers of the Fund, Federated Investment Management Company (the “Adviser”) and certain of the Adviser's affiliated companies to assist in determining fair value and in overseeing the calculation of the NAV. The Trustees have also authorized the use of pricing services recommended by the Valuation Committee to provide fair value evaluations of the current value of certain investments for purposes of calculating the NAV. The Valuation Committee employs various methods for reviewing third-party pricing-service evaluations including periodic reviews of third-party pricing services' policies, procedures and valuation methods (including key inputs, methods, models and assumptions), transactional back-testing, comparisons of evaluations of different pricing services, and review of price challenges by the Adviser based on recent market activity. In the event that market quotations and price evaluations are not available for an investment, the Valuation Committee determines the fair value of the investment in accordance with procedures adopted by the Trustees. The Trustees periodically review and approve the fair valuations made by the Valuation Committee and any changes made to the procedures.
Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a “bid” evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a “mid” evaluation). The Fund normally uses bid evaluations for any U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for any other types of fixed-income securities and any OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
With respect to securities traded principally in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures contracts;
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Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded;
Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, or a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have adopted procedures whereby the Valuation Committee uses a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment in accordance with the fair valuation procedures approved by the Trustees. The Trustees have ultimate responsibility for any fair valuations made in response to a significant event.
Repurchase Agreements
The Fund may invest in repurchase agreements for short-term liquidity purposes. It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a “securities entitlement” and exercises “control” as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
The insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Repurchase agreements are subject to Master Netting Agreements which are agreements between the Fund and its counterparties that provide for the net settlement of all transactions and collateral with the Fund, through a single payment, in the event of default or termination. Amounts presented on the Portfolio of Investments and Statement of Assets and Liabilities are not net settlement amounts but gross. As indicated above, the cash or securities to be repurchased, as shown on the Portfolio of Investments, exceeds the repurchase price to be paid under the agreement reducing the net settlement amount to zero.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income, if any, are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Amortization/accretion of premium and discount is included in investment income. Gains and losses realized on principal payment of mortgage-backed securities (paydown gains and losses) are classified as part of investment income. 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 Primary Shares and Service Shares may bear distribution services fees unique to those classes. The detail of the total fund expense waiver of $119,617 is disclosed in Note 5.
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.
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. As of and during the year ended December 31, 2017, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of December 31, 2017, tax years 2014 through 2017 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
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.
Futures Contracts
The Fund purchases and sells financial futures contracts to manage duration risk and yield curve risk. Upon entering into a financial futures contract with a broker, the Fund is required to deposit in a segregated account, either U.S. government securities or a specified amount of Restricted cash, which is shown in the Statement of Assets and Liabilities. 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
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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. There is minimal counterparty risk to the Fund since futures contracts are exchange traded and the exchange's clearing house, as counterparty to all exchange traded futures contracts, guarantees the futures contracts against default.
Futures contracts outstanding at period end are listed after the Fund's Portfolio of Investments.
The average notional value of long and short futures contracts held by the Fund throughout the period was $15,560,289 and $19,043,260, respectively. This is based on amounts held as of each month-end throughout the fiscal period.
Restricted Securities
The Fund may purchase securities which are considered restricted. Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security 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 such restricted securities may be resold in the secondary market in transactions exempt from registration. 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, like other securities, are priced in accordance with procedures established by and under the general supervision of the Trustees.
Additional Disclosure Related to Derivative Instruments
  Asset
  Statement of
Assets and
Liabilities
Location
Fair
Value
Derivatives not accounted for as hedging instruments under ASC Topic 815    
Interest rate contracts Receivable for daily
variation margin on
futures contracts
$(66,723)*
* Includes cumulative depreciation of futures contracts as reported in the footnotes to the Portfolio of Investments. Only the current day's variation margin is reported within the Statement of Assets and Liabilities.
The Effect of Derivative Instruments on the Statement of Operations for the Year Ended December 31, 2017
Amount of Realized Gain or (Loss) on Derivatives Recognized in Income
  Futures
Contracts
Interest rate contracts $(424,430)
    
Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized in Income
  Futures
Contracts
Interest rate contracts $(64,615)
Other
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. The Fund applies investment company accounting and reporting guidance.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
Year Ended December 31 2017 2016
Primary Shares: Shares Amount Shares Amount
Shares sold 1,108,844 $12,178,568 1,301,003 $14,280,877
Shares issued to shareholders in payment of distributions declared 572,662 6,150,393 656,233 7,034,809
Shares redeemed (2,130,443) (23,413,689) (2,901,973) (31,983,988)
NET CHANGE RESULTING FROM PRIMARY SHARE TRANSACTIONS (448,937) $(5,084,728) (944,737) $(10,668,302)
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Year Ended December 31 2017 2016
Service Shares: Shares Amount Shares Amount
Shares sold 250,406 $2,732,825 79,596 $875,754
Shares issued to shareholders in payment of distributions declared 65,623 704,140 84,892 909,198
Shares redeemed (450,145) (4,942,162) (538,703) (5,929,121)
NET CHANGE RESULTING FROM SERVICE SHARE TRANSACTIONS (134,116) $(1,505,197) (374,215) $(4,144,169)
NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS (583,053) $(6,589,925) (1,318,952) $(14,812,471)
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 expiration of capital loss carryforwards.
For the year ended December 31, 2017, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease)
Paid-In Capital Accumulated
Net Realized
Gain (Loss)
$(371,956) $371,956
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, 2017 and 2016, was as follows:
  2017 2016
Ordinary income $6,854,536 $7,944,007
As of December 31, 2017, the components of distributable earnings on a tax-basis were as follows:
Undistributed ordinary income $5,882,594
Net unrealized appreciation $3,810,095
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for deferral of losses on wash sales and mark-to-market of futures contracts.
At December 31, 2017, the cost of investments for federal tax purposes was $201,701,431. The net unrealized appreciation of investments for federal tax purposes was $3,810,095. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $5,427,531 and net unrealized depreciation from investments for those securities having an excess of cost over value of $1,617,436. The amounts presented are inclusive of derivative contracts.
The Fund used capital loss carryforwards of $915,735 to offset capital gains realized during the year ended December 31, 2017.
Capital loss carryforwards of $371,956 expired during the year ended December 31, 2017.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.60% of the Fund's average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee. For the year ended December 31, 2017, the Adviser voluntarily waived $119,617 of its fee.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below:
Administrative Fee Average Daily Net Assets
of the Investment Complex
0.100% on assets up to $50 billion
0.075% on assets over $50 billion
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the year ended December 31, 2017, the annualized fee paid to FAS was 0.079% of average daily net assets of the Fund.
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Prior to September 1, 2017, the breakpoints of the Administrative Fee paid to FAS, described above, were:
Administrative Fee Average Daily Net Assets
of the Investment Complex
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
In addition, FAS may charge certain out-of-pocket expenses to the Fund.
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 Primary Shares and Service Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name Percentage of Average
Daily Net Assets of Class
Primary Shares 0.25%
Service Shares 0.25%
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. For the year ended December 31, 2017, distribution services fees for the Fund were as follows:
  Distribution Services
Fees Incurred
Service Shares $59,562
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended December 31, 2017, FSC retained $34 of fees paid by the Fund. For the year ended December 31, 2017, the Fund's Primary Shares did not incur a distribution services fee; however, it may begin to incur this fee upon approval of the Trustees.
Expense Limitation
The Adviser and certain of its affiliates (which may include FSC and FAS) on their own initiative have agreed to waive certain amounts of their respective fees and/or reimburse expenses. Total annual fund operating expenses (as shown in the financial highlights, excluding interest expense, extraordinary expenses, line of credit expenses and proxy-related expenses paid by the Fund, if any) paid by the Fund's Primary Shares and Service Shares (after the voluntary waivers and/or reimbursements) will not exceed 0.73% and 0.98% (the “Fee Limit”), respectively, up to but not including the later of (the “Termination Date”): (a) May 1, 2018; or (b) the date of the Fund's next effective Prospectus. While the Adviser and its applicable affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Trustees.
Directors'/Trustees' and Miscellaneous Fees
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Directors'/Trustees' fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Adviser which in due course are reimbursed by the Fund. These expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended December 31, 2017, were as follows:
Purchases $56,071,173
Sales $60,718,832
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7. LINE OF CREDIT
The Fund participates with certain other Federated Funds, on a several basis, in an up to $500,000,000 unsecured, 364-day, committed, revolving line of credit (LOC) agreement. The LOC was made available to finance temporarily the repurchase or redemption of shares of the Fund, failed trades, payment of dividends, settlement of trades and for other short-term, temporary or emergency general business purposes. The Fund cannot borrow under the LOC if an inter-fund loan is outstanding. The Fund's ability to borrow under the LOC also is subject to the limitations of the Act and various conditions precedent that must be satisfied before the Fund can borrow. Loans under the LOC are charged interest at a fluctuating rate per annum equal to the highest, on any day, of (a) (i) the federal funds effective rate, (ii) the one month London Interbank Offered Rate (LIBOR), and (iii) 0.0%, plus (b) a margin. The LOC also requires the Fund to pay, quarterly in arrears and at maturity, its pro rata share of a commitment fee based on the amount of the lenders' commitment that has not been utilized. As of December 31, 2017, the Fund had no outstanding loans. During the year ended December 31, 2017, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the Fund to borrow from other participating affiliated funds. As of December 31, 2017, there were no outstanding loans. During the year ended December 31, 2017, the program was not utilized.
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Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF THE FEDERATED INSURANCE SERIES AND SHAREHOLDERS OF FEDERATED QUALITY BOND FUND II:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Federated Quality Bond Fund II (the “Fund”), a portfolio of Federated Insurance Series, as of December 31, 2017, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. 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, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor for one or more of Federated Investors'- investment companies since 2006.
Boston, Massachusetts
February 14, 2018
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Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or other service 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 funds used as 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, 2017 to December 31, 2017.
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 required to be provided to enable you to compare the ongoing costs of investing in the Fund with 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
7/1/2017
Ending
Account Value
12/31/2017
Expenses Paid
During Period1
Actual:      
Primary Shares $1,000 $1,010.10 $3.70
Service Shares $1,000 $1,008.20 $4.96
Hypothetical (assuming a 5% return before expenses):      
Primary Shares $1,000 $1,021.50 $3.72
Service Shares $1,000 $1,020.30 $4.99
1 Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). The expenses shown in the table do not include the charges and expenses imposed by the insurance company under the variable insurance product contract. Please refer to the variable insurance product prospectus for a complete listing of these expenses. The annualized net expense ratios are as follows:
   
Primary Shares 0.73%
Service Shares 0.98%
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In Memoriam
With profound sadness, Federated announces the passing of John F. (“Jack”) Donahue and John W. (“John”) McGonigle. They will be greatly missed.
Jack Donahue
(Former Chairman and President, and Emeritus Director/Trustee, of the Federated Funds, and Founder, Former Chairman, President and Chief Executive Officer, and Chairman Emeritus, of Federated Investors, Inc.)
Jack Donahue, along with Richard B. Fisher, founded Federated in 1955 and served as a leader and member of the Boards of Directors/Trustees of the Federated Funds and the Board of Directors of Federated Investors, Inc. Mr. Donahue was a family man of deep faith with exemplary character and fealty, who served his religion, family, community, and the Federated Funds and Federated, as well as their shareholders, officers and employees, with distinction. His integrity, intelligence, and keen sense of fiduciary duty, coupled with his faith, family and background as a West Point graduate and Strategic Air Command B-29 pilot, served as a foundation for his strong business acumen and leadership. Among his many achievements, Mr. Donahue's steadfast and innovative leadership of the Federated Funds and Federated, as well as within the investment management industry, led to the birth of money market funds in the 1970s and their growth as an innovative, efficient and effective cash management vehicle throughout the 1980s, 1990s, 2000s and beyond. Federated expresses deep gratitude to Mr. Donahue for his inspiring leadership, distinguished service and contributions as a husband, father, founder, Board member and officer, colleague and friend.
John McGonigle
(Former Secretary of the Federated Funds, Former Director, Secretary and Chief Legal Officer of Federated Investors, Inc.)
John McGonigle served the Federated Funds and their respective Boards with distinction for more than 50 years as Fund Secretary and also served as Director for several closed-end funds. Mr. McGonigle was a gifted lawyer and wise counselor with a genial presence, keen intellect and convivial demeanor. A man of deep faith, he was a devoted husband, father and grandfather. A graduate of Duquesne University School of Law, Mr. McGonigle served as an officer in the U.S. Army for two years, achieving the rank of Captain. He also served on the staff of the Securities and Exchange Commission before joining Federated in 1966. Among many professional accomplishments, Mr. McGonigle helped fashion the regulatory foundation for money market funds, established Federated's first offshore funds in Ireland, and represented Federated on the Board of Governors of the Investment Company Institute where he was a member of the Executive Committee. Federated expresses deep gratitude for Mr. McGonigle and his impact on his family, friends, the community, and the mutual fund industry.
Board of Trustees and Trust Officers
The Board of Trustees 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 Trustee and the senior officers of the Fund. Where required, the tables separately list Trustees who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Trustees listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2017, the Trust comprised seven portfolio(s), and the Federated Fund Family consisted of 40 investment companies (comprising 108 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Trustee oversees all portfolios in the Federated Fund Family and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
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Interested Trustees Background
Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
J. Christopher Donahue*
Birth Date: April 11, 1949
Trustee
Indefinite Term
Began serving: September 1993
Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of the Funds in the Federated Fund Family; 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 and Trustee, Federated Equity Management Company of Pennsylvania; 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; Chairman, Passport Research, Ltd.
Thomas R. Donahue*
Birth Date: October 20, 1958
Trustee
Indefinite Term
Began serving: May 2016
Principal Occupations: Director or Trustee of certain of the funds in the Federated Fund Family; Chief Financial Officer, Treasurer, Vice President and Assistant Secretary, Federated Investors, Inc.; Chairman and Trustee, Federated Administrative Services; Chairman and Director, Federated Administrative Services, Inc.; Trustee and Treasurer, Federated Advisory Services Company; Director or Trustee and Treasurer, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, and Federated Investment Management Company; Director, MDTA LLC; Director, Executive Vice President and Assistant Secretary, Federated Securities Corp.; Director or Trustee and Chairman, Federated Services Company and Federated Shareholder Services Company; and Director and President, FII Holdings, Inc.
Previous Positions: Director, Federated Investors, Inc.; Assistant Secretary, Federated Investment Management Company, Federated Global Investment Management Company and Passport Research, LTD; Treasurer, Passport Research, LTD; Executive Vice President, Federated Securities Corp.; and Treasurer, FII Holdings, Inc.
* Family relationships and reasons for “interested” status: J. Christopher Donahue and Thomas R. Donahue are brothers. Both are “interested” due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT Trustees Background
Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
John T. Collins
Birth Date: January 24, 1947
Trustee
Indefinite Term
Began serving: October 2013
Principal Occupations: Director or Trustee of the Federated Fund Family; formerly, Chairman and CEO, The Collins Group, Inc. (a private equity firm) (Retired).
Other Directorships Held: Director, Current Chair of the Compensation Committee, KLX Corp.
Qualifications: Mr. Collins has served in several business and financial management roles and directorship positions throughout his career. Mr. Collins previously served as Chairman and CEO, The Collins Group, Inc. (a private equity firm). Mr. Collins serves as Chairman Emeriti, Bentley University. Mr. Collins previously served as Director and Audit Committee Member, Bank of America Corp.; Director, FleetBoston Financial Corp.; and Director, Beth Israel Deaconess Medical Center (Harvard University Affiliate Hospital).
G. Thomas Hough
Birth Date: February 28, 1955
Trustee
Indefinite Term
Began serving: August 2015
Principal Occupations: Director or Trustee of the Federated Fund Family; formerly, Vice Chair, Ernst & Young LLP (public accounting firm) (Retired).
Other Directorships Held: Director, Chair of the Audit Committee, Governance Committee, Publix Super Markets, Inc.; Director, Member of the Audit Committee and Technology Committee of Equifax, Inc.
Qualifications: Mr. Hough has served in accounting, business management and directorship positions throughout his career. Mr. Hough most recently held the position of Americas Vice Chair of Assurance with Ernst & Young LLP (public accounting firm). Mr. Hough is an Executive Committee member of the United States Golf Association, he serves on the President's Cabinet and Business School Board of Visitors for the University of Alabama and is on the Business School Board of Visitors for Wake Forest University.
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Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
Maureen Lally-Green
Birth Date: July 5, 1949
Trustee
Indefinite Term
Began serving: August 2009
Principal Occupations: Director or Trustee of the Federated Fund Family; Dean of the Duquesne University School of Law; Professor and Adjunct Professor of Law, Duquesne University School of Law; formerly, Interim Dean of the Duquesne University School of Law; Associate General Secretary and Director, Office of Church Relations, Diocese of Pittsburgh.
Other Directorships Held: Director, CNX Resources Corporation (formerly known as CONSOL Energy Inc.).
Qualifications: Judge Lally-Green has served in various legal and business roles and directorship positions throughout her career. Judge Lally-Green previously served as: Associate General Secretary, Diocese of Pittsburgh; a member of the Superior Court of Pennsylvania; and as a Professor of Law, Duquesne University School of Law. Judge Lally-Green also currently holds the positions on either a public or not for profit Board of Directors as follows: Director and Chair, UPMC Mercy Hospital; Director and Vice Chair, Our Campaign for the Church Alive!, Inc.; Director, Saint Vincent College; Member, Pennsylvania State Board of Education (public); and Director CNX Resources Corporation (formerly known as CONSOL Energy Inc.), where she currently serves as a member of the Compensation, Nominating and Corporate Governance Committee (Chair) and the Health, Safety and Environmental Committee. Judge Lally-Green has held the positions of: Director, Auberle; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Ireland Institute of Pittsburgh; Director, Saint Thomas More Society; Director and Chair, Catholic High Schools of the Diocese of Pittsburgh, Inc.; Director, Pennsylvania Bar Institute; Regent, St. Vincent Seminary; and Director and Chair, Cardinal Wuerl North Catholic High School, Inc.
Charles F. Mansfield, Jr.
Birth Date: April 10, 1945
Trustee

Indefinite Term
Began serving: September 1999
Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant.
Other Directorships Held: None.
Qualifications: Mr. Mansfield has served as a Marine Corps officer and in several banking, business management, educational roles and directorship positions throughout his long career. He remains active as a Management Consultant.
Thomas M. O'Neill
Birth Date: June 14, 1951
Trustee

Indefinite Term
Began serving: August 2006
Principal Occupations: Director or Trustee, Chair of the Audit Committee of the Federated Fund Family; Sole Proprietor, Navigator Management Company (investment and strategic consulting).
Other Directorships Held: None.
Qualifications: Mr. O'Neill has served in several business, mutual fund and financial management roles and directorship positions throughout his career. Mr. O'Neill serves as Director, Medicines for Humanity and Director, The Golisano Children's Museum of Naples, Florida. Mr. O'Neill previously served as Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); and Director, Midway Pacific (lumber).
P. Jerome Richey
Birth Date: February 23, 1949
Trustee
Indefinite Term
Began serving: October 2013
Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant; formerly, Senior Vice Chancellor and Chief Legal Officer, University of Pittsburgh and Executive Vice President and Chief Legal Officer, CNX Resources Corporation (formerly known as CONSOL Energy Inc.)
Other Directorships Held: None.
Qualifications: Mr. Richey has served in several business and legal management roles and directorship positions throughout his career. Mr. Richey most recently held the positions of Senior Vice Chancellor and Chief Legal Officer, University of Pittsburgh. Mr. Richey previously served as Chairman of the Board, Epilepsy Foundation of Western Pennsylvania and Chairman of the Board, World Affairs Council of Pittsburgh. Mr. Richey previously served as Chief Legal Officer and Executive Vice President, CNX Resources Corporation (formerly known as CONSOL Energy Inc.); and Board Member, Ethics Counsel and Shareholder, Buchanan Ingersoll & Rooney PC (a law firm).
John S. Walsh
Birth Date: November 28, 1957
Trustee

Indefinite Term
Began serving: January 1999
Principal Occupations: Director or Trustee, and Chair of the Board of Directors or Trustees, of the Federated Fund Family; 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.
Other Directorships Held: None.
Qualifications: Mr. Walsh has served in several business management roles and directorship positions throughout his career. Mr. Walsh previously served as Vice President, Walsh & Kelly, Inc. (paving contractors).
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OFFICERS
Name
Birth Date
Address
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years
and Previous Position(s)
Lori A. Hensler
Birth Date: January 6, 1967
TREASURER
Officer since: April 2013
Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Family; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp. and Edgewood Services, Inc.; and Assistant Treasurer, Federated Investors Trust Company. Ms. Hensler has received the Certified Public Accountant designation.
Previous Positions: Controller of Federated Investors, Inc.; Senior Vice President and Assistant Treasurer, Federated Investors Management Company; Treasurer, Federated Investors Trust Company; Assistant Treasurer, Federated Administrative Services, Federated Administrative Services, Inc., Federated Securities Corp., Edgewood Services, Inc., Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company, Passport Research, Ltd., and Federated MDTA, LLC; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc.
Peter J. Germain
Birth Date: September 3, 1959
CHIEF LEGAL OFFICER, SECRETARY and EXECUTIVE VICE PRESIDENT
Officer since: January 2005
Principal Occupations: Mr. Germain is Chief Legal Officer, Secretary and Executive Vice President of the Federated Fund Family. He is General Counsel, Chief Legal Officer, Secretary and Executive Vice President, Federated Investors, Inc.; Trustee and Senior Vice President, Federated Investors Management Company; Trustee and President, Federated Administrative Services; Director and President, Federated Administrative Services, Inc.; Director and Vice President, Federated Securities Corp.; Director and Secretary, Federated Private Asset Management, Inc.; Secretary, Federated Shareholder Services Company; and Secretary, Retirement Plan Service Company of America. Mr. Germain joined Federated in 1984 and is a member of the Pennsylvania Bar Association.
Previous Positions: Deputy General Counsel, Special Counsel, Managing Director of Mutual Fund Services, Federated Investors, Inc.; Senior Vice President, Federated Services Company; and Senior Corporate Counsel, Federated Investors, Inc.
Richard B. Fisher
Birth Date: May 17, 1923
VICE PRESIDENT
Officer since: September 1993
Principal Occupations: Vice Chairman or Vice President of some of the Funds in the Federated Fund Family; 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 Family; Executive Vice President, Federated Investors, Inc.; Director and Chief Executive Officer, Federated Securities Corp.
John B. Fisher
Birth Date: May 16, 1956
PRESIDENT
Officer since: November 2004
Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of certain of the Funds in the Federated Fund Family; Vice President, Federated Investors, Inc.; President, Director/Trustee and CEO, Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company; President and CEO of Passport Research, Ltd.; President of some of the Funds in the Federated Fund Complex and Director, Federated Investors Trust Company.
Previous Positions: President and Director of the Institutional Sales Division of Federated Securities Corp.; President and Director of Federated Investment Counseling; Director, Edgewood Securities Corp.; Director, Federated Services Company; Director, Federated Investors, Inc.; Chairman and Director, Southpointe Distribution Services, Inc. and President, Technology, Federated Services Company.
Stephen Van Meter
Birth Date: June 5, 1975
CHIEF COMPLIANCE OFFICER AND SENIOR VICE PRESIDENT
Officer since: July 2015
Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Family; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of certain of its subsidiaries. Mr. Van Meter joined Federated in October 2011. He holds FINRA licenses under Series 3, 7, 24 and 66.
Previous Positions: Mr. Van Meter previously held the position of Compliance Operating Officer, Federated Investors, Inc. Prior to joining Federated, Mr. Van Meter served at the United States Securities and Exchange Commission in the positions of Senior Counsel, Office of Chief Counsel, Division of Investment Management and Senior Counsel, Division of Enforcement.
Stephen F. Auth
Birth Date: September 13, 1956
101 Park Avenue
41st Floor
New York, NY 10178
CHIEF INVESTMENT OFFICER
Officer since: November 2002
Principal Occupations: Stephen F. Auth is Chief Investment Officer of various Funds in the Federated Fund Family; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp. and Federated Equity Management Company of Pennsylvania.
Previous Positions: Executive Vice President, Federated Investment Management Company and Passport Research, Ltd. (investment advisory subsidiary of Federated); 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
Officer since: May 2004
Principal Occupations: Robert J. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of Federated's taxable fixed-income products in 2004 and also serves as a Senior Portfolio Manager. Mr. Ostrowski became an Executive Vice President of the Fund's Adviser in 2009 and served as a Senior Vice President of the Fund's Adviser from 1997 to 2009. Mr. Ostrowski has received the Chartered Financial Analyst designation. He received his M.S. in Industrial Administration from Carnegie Mellon University.
Deborah A. Cunningham
Birth Date: September 15, 1959
Chief Investment Officer
Officer since: June 2012
Principal Occupations: Deborah A. Cunningham was named Chief Investment Officer of Federated's money market products in 2004. She joined Federated in 1981 and has been a Senior Portfolio Manager since 1997 and an Executive Vice President of the Fund's Adviser since 2009. Ms. Cunningham has received the Chartered Financial Analyst designation and holds an M.S.B.A. in Finance from Robert Morris College.
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Evaluation and Approval of Advisory ContractMay 2017
Federated Quality Bond Fund II (the “Fund”)
Following a review and recommendation of approval by the Fund's independent trustees, the Fund's Board of Trustees (the “Board”) reviewed and unanimously approved the continuation of the Fund's investment advisory contract for an additional one-year term at its May 2017 meetings. The Board's decision regarding the contract reflects the exercise of its business judgment after considering all of the information received on whether to continue the existing arrangements.
The Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below (the “Senior Officer's Evaluation”). The Board considered the Senior Officer's Evaluation, along with other information, in deciding to approve the investment advisory contract.
The Board also considered judicial decisions concerning allegedly excessive investment advisory fees in its decision. Using these judicial decisions as a guide, the Board has indicated that the following factors may be relevant to an adviser's fiduciary duty with respect to its receipt of compensation from a fund: (1) the nature and quality of the services provided by an adviser to a fund and its shareholders (including the performance of the Fund and of comparable funds); (2) an adviser's cost of providing the services (including the profitability to an adviser of providing advisory services to a fund); (3) the extent to which an adviser may realize “economies of scale” as a fund grows larger and, if such economies of scale exist, whether they have been shared with a fund and its shareholders or the family of funds; (4) any “fall-out financial benefits” that accrue to an adviser because of its relationship with a fund (including research services received from brokers that execute fund trades and any fees paid to affiliates of an adviser for services rendered to a fund); (5) comparative fee and expense structures (including a comparison of fees paid to an adviser with those paid by similar funds); and (6) the extent of care, conscientiousness and independence with which the Fund's board members perform their duties and their expertise (including whether they are fully informed about all facts the Board deems relevant to its consideration of an adviser's services and fees). The Board noted that the Securities and Exchange Commission (“SEC”) disclosure requirements regarding the basis for the Board's approval of the Fund's investment advisory contract generally align with the factors listed above. Consistent with the judicial decisions and SEC disclosure requirements, the Board also considered management fees charged to institutional and other clients of Federated Investment Management Company (the “Adviser”) and its advisory affiliates for what might be viewed as like services. The Board was aware of these factors and was guided by them in its review of the Fund's investment advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these factors in light of its substantial accumulated experience in governing the Fund and working with Federated Investors, Inc. and its affiliates (“Federated”) on matters relating to the Federated funds. The Board was assisted in its deliberations by independent legal counsel. In addition to the extensive materials that comprise and accompany the Senior Officer's Evaluation, the Board received detailed information about the Fund and the Federated organization throughout the year, and in connection with its May meetings. Federated provided much of this information at each regular meeting of the Board, and furnished additional information in connection with the May meetings at which the Board's formal approval of the investment advisory contract occurred. At the May meetings in addition to meeting in separate sessions of the independent trustees without management present, senior management of the Adviser also met with the independent trustees and their counsel to discuss the materials presented and any other matters thought relevant by the Adviser or the trustees. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. The Board's consideration of the investment advisory contract included review of the Senior Officer's Evaluation, accompanying data and additional information covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short-term and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in terms relative to its particular investment program and certain competitor or “peer group” funds and/or other benchmarks, as appropriate) and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses, including the advisory fee and the overall expense structure of the Fund (both in absolute terms and relative to similar and/or competing funds), with due regard for contractual or voluntary expense limitations; the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders; the entrepreneurial risk assumed by the Adviser in sponsoring the Fund; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are generally available for exchange without the incurrence of additional sales
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charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
While mindful that courts have cautioned against giving such comparisons too much weight, the Board has found the use of comparisons of the Fund's fees and expenses to other mutual funds with comparable investment programs to be relevant to its deliberations. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, total expense ratios and each element of the Fund's total expense ratio (i.e., gross and net advisory fees, custody fees, portfolio accounting fees and transfer agency fees) relative to the Fund's peers. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, in that they are readily available to Fund shareholders as alternative investment vehicles. Also, they are the type of investment vehicle, in fact, chosen and maintained by the Fund's investors. The range of their fees and expenses, therefore, appears to be a relevant indicator of what consumers have found to be reasonable in the marketplace in which the Fund competes.
The Board reviewed the contractual advisory fee rate, net advisory fee rate where partially waived and other expenses of the Fund and noted the position of the Fund's contractual advisory fee rate and other expenses relative to its peers. In this regard, the Board noted that the contractual advisory fee rate was above the median of the relevant peer group, but the Board noted the applicable waivers and reimbursements, and that the overall expense structure of the Fund remained competitive in the context of other factors considered by the Board.
For comparison, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated funds (e.g., institutional and separate accounts and sub-adviser services). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes and portfolio management techniques made necessary by different cash flows and different associated costs; and the time spent by portfolio managers and their teams, funds financial services, legal, compliance and risk management in reviewing securities pricing, addressing different administrative responsibilities, addressing different degrees of risk associated with management and a variety of different costs. The Senior Officer did not consider the fees for providing advisory services to these outside products to be determinative in judging the appropriateness of mutual fund advisory fees.
Following such evaluation, and full deliberations, the Board concluded that the expenses of the Fund are reasonable and supported renewal of the Fund's investment advisory contract.
The Board considered the nature, extent and quality of the services provided to the Fund by the Adviser and the resources of the Adviser and its affiliates dedicated to the Fund. In this regard, the Board evaluated, among other things, the Adviser's personnel, experience, track record, overall reputation and willingness to invest in personnel and infrastructure that benefit the Fund. In addition, the Board reviewed the qualifications, backgrounds and responsibilities of the portfolio management team primarily responsible for the day-to-day management of the Fund. The Board noted the compliance programs of, and the compliance-related resources provided to, the Fund by the Adviser. The Fund's ability to deliver competitive performance when compared to its peer group was also deemed to be relevant by the Board as a useful indicator of how the Adviser is executing the Fund's investment program. The Adviser's ability to execute this program was one of the Board's considerations in reaching a conclusion that the nature, extent and quality of the Adviser's investment management services warrant the continuation of the investment advisory contract.
In evaluating the Fund's investment performance, the Board considered performance results in light of the Fund's investment objective, strategies and risks, as disclosed in the Fund's prospectus. The Board particularly considered detailed investment reports on the Fund's performance that were provided to the Board throughout the year and in connection with the May meetings. The Senior Officer also reviewed information compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups may be helpful, though not conclusive, in judging the reasonableness of the proposed fees. The Board considered, in evaluating such comparisons, that in some cases individual funds may exhibit significant and unique differences in their objectives and management techniques when compared to other funds within an industry peer group.
The Fund's performance fell below the median of the relevant peer group for the one-year, three-year and five-year periods covered by the Senior Officer's Evaluation. The Board discussed the Fund's performance with the Adviser and recognized the efforts being taken by the Adviser in the context of other factors considered relevant by the Board.
Following such evaluation, and full deliberations, the Board concluded that the performance of the Fund supported renewal of the Fund's investment advisory contract.
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The Board also received financial information about Federated, including information regarding the compensation and ancillary (or “fall-out”) benefits Federated derived from its relationships with the Federated funds. This information covered not only the fees under the investment advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The information also detailed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to Fund investors and/or indicated to the Board their intention to do so in the future. Moreover, the Board receives regular reporting as to the institution, adjustment or elimination of these voluntary waivers. The Board considered Federated's previous reductions in contractual management fees to certain funds in response to the Senior Officer's recommendations.
Federated furnished information, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in allocating costs continues to cause the Senior Officer to question the precision of the process and to conclude that such reports may be unreliable, since a single change in an allocation estimate may dramatically alter the resulting estimate of cost and/or profitability of a fund and may produce unintended consequences. The allocation information, including the Senior Officer's view that fund-by-fund estimations may be unreliable, was considered in the analysis by the Board.
The Board and the Senior Officer also reviewed information compiled by Federated comparing its profitability information to other publicly held fund management companies. In this regard, the Senior Officer concluded that Federated's profit margins did not appear to be excessive. The Senior Officer also noted that Federated appeared financially sound, with the resources to fulfill its obligations under its contracts with the Fund.
The Senior Officer's Evaluation also discussed the notion of possible realization of “economies of scale” as a fund grows larger. In this regard, the Board considered that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, shareholder services, compliance, internal audit and risk management functions, as well as systems technology (including technology relating to cybersecurity) and that the benefits of these efforts (as well as any economies of scale, should they exist) were likely to be enjoyed by the fund family as a whole. The Board noted that the Adviser's investments in these areas are extensive. In addition, the Board considered that Federated and its affiliates have frequently waived fees and/or reimbursed expenses and that this has allowed fund shareholders to share potential economies of scale from a fund's inception. Federated, as it does throughout the year, and in connection with the Board's review, furnished information relative to revenue sharing or adviser paid fees. Federated and the Senior Officer noted that this information should be viewed to determine if there was an incentive to either not apply breakpoints, or to apply breakpoints at higher levels. It should not be viewed to determine the appropriateness of advisory fees because it would represent marketing and distribution expenses. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's Evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with “breakpoints” that serve to reduce the fee as a fund attains a certain size.
While the Senior Officer noted certain items for follow-up reporting to the Board and further consideration by management, he stated that his observations and information accompanying the Senior Officer's Evaluation supported a finding by the Board that the management fee for the Fund was reasonable. Under these circumstances, no changes were recommended to, and no objection was raised to the continuation of the Fund's investment advisory contract.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an investment advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the investment advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund. The Board concluded that, in light of the factors discussed above, including the nature, quality and scope of the services provided to the Fund by the Adviser and its affiliates, continuation of the investment advisory contract was appropriate.
The Board based its decision to approve the investment advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the continuation of the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangement.
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Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, 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 via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at www.FederatedInvestors.com/FundInformation. Form N-PX filings are also available at the SEC's website at 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 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 via the link to the Fund and share class name at www.FederatedInvestors.com/FundInformation.
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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 Quality Bond Fund II

Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313916884
CUSIP 313916785
G00433-14 (2/18)
Federated is a registered trademark of Federated Investors, Inc.
2018 ©Federated Investors, Inc.
Annual Shareholder Report

Federated Fund for U.S. Government Securities II

A Portfolio of Federated Insurance Series
Dear Valued Shareholder,
I am pleased to present the Annual Shareholder Report for your fund covering the period from January 1, 2017 through December 31, 2017. This report includes Management's Discussion of Fund Performance, a complete listing of your fund's holdings, performance information and financial statements along with other important fund information.
In addition, our website, FederatedInvestors.com, offers easy access to Federated resources that include timely fund updates, economic and market insights from our investment strategists, and financial planning tools. We invite you to register to take full advantage of its capabilities.
Thank you for investing with Federated. I hope you find this information useful and look forward to keeping you informed.
Sincerely,
John B. Fisher, President

Not FDIC Insured ■ May Lose Value ■ No Bank Guarantee

CONTENTS

Table of Contents
Management's Discussion of Fund Performance (unaudited)
The total return of Federated Fund for U.S. Government Securities II (the “Fund”), based on net asset value for the 12-month reporting period ended December 31, 2017, was 1.92%. The Fund's custom benchmark (“Blended Index”),1 which consists of a 67%/33% blend of the Bloomberg Barclays U.S. Mortgage Backed Securities Index and Bloomberg Barclays U.S. Government Index, returned 2.41% for the same period. 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 Blended Index.
During the reporting period, the most significant factors affecting the Fund's performance relative to the Blended Index included: (a) sector allocation; and (b) duration.2
MARKET OVERVIEW
Policymakers took additional steps toward interest rate normalization with adjustments to the federal funds target rate as well as initiating a reduction of central bank portfolio investments. Rising consumer and business confidence, along with over 2 million jobs created during the reporting period, provided the Federal Open Market Committee (FOMC) ample evidence that growth was sufficient to support tighter monetary policy. The federal funds target rate was increased three times to a range of 1.25% to 1.50%. Additionally, the Federal Reserve (the “Fed”) commenced a reduction of reinvestment in the mortgage-backed security (MBS) and Treasury portfolios in order to slowly shrink its $4.5 trillion portfolio. The combination of a higher federal funds target rate and smaller portfolio resulted in tighter monetary policy. Slack demand and tighter monetary policy increased yields for short and intermediate maturity Treasuries while the bid for higher yielding, non-Treasury sectors was robust.
Investor demand for spread sectors remained strong as positive excess returns were posted across the spectrum of fixed-income sectors including high yield, investment-grade corporate debt,3 commercial and residential MBS4 and asset-backed securities (ABS). An environment of steady long-term rates and declining volatility was very supportive of mortgage securities, which posted strong excess returns as mortgage-to-Treasury spreads tightened due to strong buying from real estate investment trusts (REITs) and domestic banks. The Fed reduced MBS and Treasury reinvestment by a monthly maximum of $4 and $6 billion, respectively, beginning in October 2017. While the Fed tightened monetary policy, European and Asian central banks continued to expand balance sheets, flooding the market with increased liquidity in order to support growth. While central bank policies diverged, economic growth converged as growth across developed markets improved. Interest rates remained low in developed markets, supported by easy monetary policy, with the exception of the U.S. where Fed policy led to higher yields for most maturities.5
Short and intermediate Treasury yields increased in response to the tightening of monetary policy. Longer-term yields were little changed, resulting in a flattening of the yield curve as measured by the yield differential between 2- and 10-year yields. 2-year yields increased 70 basis points to 1.88% while 10-year Treasury yields decreased 4 basis points to 2.41%.
Sector Allocation
Spread sectors posted positive excess returns for a variety of sectors held in the portfolio including ABS and agency debt as well as commercial and residential MBS. Commercial MBS posted the strongest excess returns among the listed sectors and significant exposure proved beneficial. The Fund's overweight to spread sectors and an underweight to U.S. Treasuries resulted in sector allocation producing a positive contribution to Fund gross performance without the impact of cash flows, transaction costs and other expenses.
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Duration
Portfolio effective duration was below that of the benchmark for a significant portion of the reporting period in a strategy designed to reduce the negative impact of rising interest rates. The strategy proved beneficial as rates increased, most notably for short to intermediate maturity yields. Interest rate strategy incorporated the use of traditional cash bond investments as well as derivatives in the form of Treasury futures contracts.6 Interest rate strategy had a positive impact on gross Fund performance as compared to the Blended Index.
1 The Bloomberg Barclays U.S. Mortgage Backed Securities Index (BBMBS) and Bloomberg Barclays U.S. Government Bond Index returned 2.47% and 2.30%, respectively. The Blended Index is being used for comparison purposes because, although it is not the Fund's broad-based securities market index, the Fund's Adviser believes it more closely reflects the market sectors in which the Fund invests. The Fund's broad-based securities market index is the BBMBS. Please see the footnotes to the line graph under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the Blended Index.
2 Duration measures the price sensitivity of a fixed-income security to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities of shorter durations.
3 Investment-grade securities are securities that are rated at least “BBB- (minus)” or unrated securities of a comparable quality. Noninvestment-grade securities are securities that are not rated at least “BBB- (minus)” or unrated securities of a comparable quality. Credit ratings are an indication of the risk that a security will default. They do not protect a security from credit risk. Lower-rated bonds typically offer higher yields to help compensate investors for the increased risk associated with them. Among these risks are lower credit-worthiness, greater price volatility, more risk to principal and income than with higher-rated securities and increased possibilities of default.
4 The value of some mortgage-backed securities may be particularly sensitive to changes in prevailing interest rates, and although the securities are generally supported by some form of government or private insurance, there is no assurance that private guarantors or insurers will meet their obligations.
5 Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.
6 The Fund's use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional instruments.
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FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,0001 in the Federated Fund for U.S. Government Securities II from December 31, 2007 to December 31, 2017, compared to the Bloomberg Barclays U.S. Mortgage Backed Securities Index (BBMBS),2 the Bloomberg Barclays U.S. Government Index (BBGI)3 and a blended index comprised of 67% BBMBS and 33% BBGI (“Blended Index”).2,3 The Average Annual Total Return table below shows returns averaged over the stated periods.
GROWTH OF A $10,000 INVESTMENT
Growth of $10,000 as of December 31, 2017
Average Annual Total Returns for the Period Ended 12/31/2017
  1 Year 5 Years 10 Years
Fund 1.92% 1.30% 2.97%
BBMBS 2.47% 2.04% 3.84%
BBGI 2.30% 1.28% 3.23%
Blended Index 2.41% 1.79% 3.64%
    
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. 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 BBMBS, BBGI and Blended Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The BBMBS covers agency mortgage-backed pass-through securities (both fixed-rate and hybrid ARM) issued by Ginnie Mae (GNMA), Fannie Mae (FNMA) and Freddie Mac (FHLMC). The index is not adjusted to reflect sales loads, 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 cash flows. It is not possible to invest directly in an index.
3 The BBGI is a market value weighted index of U.S. government and government agency securities (other than mortgage securities) with maturities of one year or more. The index is not adjusted to reflect sales loads, 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 cash flows. It is not possible to invest directly in an index.
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Portfolio of Investments Summary Table (unaudited)
At December 31, 2017, the Fund's portfolio composition1 was as follows:
Type of Investments Percentage of
Total Net Assets
U.S. Government Agency Mortgage-Backed Securities 43.9%
U.S. Treasury Securities 26.1%
U.S. Government Agency Commercial Mortgage-Backed Securities 13.9%
U.S. Government Agency Securities 6.4%
Repurchase Agreements 3.5%
Asset-Backed Securities 3.4%
Non-Agency Mortgage-Backed Securities 2.6%
Other Assets and Liabilities—Net2 0.2%
TOTAL 100.0%
1 See the Fund's Prospectus and Statement of Additional Information for a description of the types of securities in which the Fund invests.
2 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
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Portfolio of Investments
Principal
Amount
    Value
    U.S. TREASURY—26.1%  
    U.S. Treasury Bonds—5.2%  
$500,000   2.250%, 8/15/2046 $451,016
750,000   2.500%, 2/15/2045 715,137
1,000,000   2.750%, 8/15/2042 1,007,109
1,200,000   2.875%, 8/15/2045 1,230,844
1,250,000   3.000%, 11/15/2044 1,313,281
500,000   3.000%, 11/15/2045 525,117
400,000   3.500%, 2/15/2039 456,750
950,000   4.750%, 2/15/2037 1,265,578
    TOTAL 6,964,832
    U.S. Treasury Notes—20.9%  
2,000,000   1.125%, 7/31/2021 1,934,375
2,000,000   1.375%, 4/30/2020 1,975,350
3,000,000   1.375%, 9/30/2020 2,954,048
1,250,000   1.500%, 8/15/2026 1,163,889
1,750,000   1.625%, 7/31/2020 1,736,364
1,000,000   1.625%, 10/31/2023 965,508
3,500,000   1.750%, 11/30/2021 3,451,326
1,000,000   1.750%, 5/31/2022 982,539
1,500,000   1.875%, 1/31/2022 1,484,531
1,000,000   1.875%, 2/28/2022 989,141
2,000,000   1.875%, 3/31/2022 1,977,187
1,000,000   2.000%, 8/31/2021 996,624
3,500,000   2.000%, 2/15/2023 3,463,906
550,000   2.250%, 8/15/2027 542,597
3,000,000   3.125%, 5/15/2021 3,104,553
    TOTAL 27,721,938
    TOTAL U.S. TREASURY
(IDENTIFIED COST $34,669,138)
34,686,770
    ASSET-BACKED SECURITIES—3.4%  
    Auto Receivables—2.5%  
1,223,000   Capital Auto Receivables Asset Trust 2015-2, Class D, 3.160%, 11/20/2020 1,234,413
2,030,000   Santander Drive Auto Receivables Trust 2015-2, Class D, 3.020%, 4/15/2021 2,050,882
    TOTAL 3,285,295
    Other—0.9%  
370,579   Sofi Consumer Loan Program Trust 2016-1, Class A, 3.260%, 8/25/2025 373,079
531,462   Sofi Consumer Loan Program Trust 2016-2, Class A, 3.090%, 10/27/2025 534,451
360,218   Sofi Consumer Loan Program Trust 2016-3, Class A, 3.050%, 12/26/2025 362,203
    TOTAL 1,269,733
    TOTAL ASSET-BACKED SECURITIES
(IDENTIFIED COST $4,514,010)
4,555,028
    GOVERNMENT AGENCIES—6.4%  
    Federal Farm Credit System—0.9%  
1,000,000   5.750%, 12/7/2028 1,274,744
    Federal Home Loan Bank System—1.2%  
1,100,000   7.125%, 2/15/2030 1,557,462
    Federal Home Loan Mortgage Corporation—0.1%  
72,000   6.750%, 9/15/2029 100,341
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Table of Contents
Principal
Amount
    Value
    GOVERNMENT AGENCIES—continued  
    Federal National Mortgage Association—1.1%  
$1,500,000   2.125%, 4/24/2026 $1,453,712
    Tennessee Valley Authority Bonds—3.1%  
1,700,000   2.875%, 2/1/2027 1,737,523
2,000,000   4.650%, 6/15/2035 2,449,689
    TOTAL 4,187,212
    TOTAL GOVERNMENT AGENCIES
(IDENTIFIED COST $7,327,411)
8,573,471
    MORTGAGE-BACKED SECURITIES—43.9%  
    Federal Home Loan Mortgage Corporation—15.8%  
1,663,078   3.000%, 8/1/2043 1,672,828
816,808   3.000%, 5/1/2045 819,045
2,830,401   3.000%, 1/1/2047 2,832,844
1,122,934   3.500%, 4/1/2042 1,161,197
887,993   3.500%, 7/1/2042 918,251
1,703,631   3.500%, 9/1/2043 1,759,019
3,005,395   4.000%, 12/1/2041 3,167,469
312,268   4.000%, 1/1/2042 329,108
106,013   4.500%, 6/1/2019 107,401
67,175   4.500%, 10/1/2020 68,819
511,875   4.500%, 8/1/2040 549,170
1,077,916   4.500%, 12/1/2040 1,156,116
1,535,031   4.500%, 4/1/2041 1,646,393
57,660   5.000%, 7/1/2019 58,431
61,304   5.000%, 2/1/2021 63,260
579,311   5.000%, 1/1/2034 628,234
152,016   5.000%, 5/1/2034 164,878
142,374   5.000%, 4/1/2036 154,668
42,014   5.000%, 5/1/2036 45,594
30,211   5.000%, 6/1/2036 32,821
279,308   5.000%, 6/1/2040 302,780
23,042   5.500%, 12/1/2020 23,885
897,544   5.500%, 5/1/2034 993,240
15,033   5.500%, 12/1/2035 16,669
189,804   5.500%, 2/1/2036 210,619
60,232   5.500%, 5/1/2036 67,293
11,871   5.500%, 5/1/2036 13,164
19,550   5.500%, 5/1/2036 21,658
8,406   5.500%, 6/1/2036 9,326
4,420   5.500%, 6/1/2036 4,902
154,090   5.500%, 11/1/2037 171,077
311,537   5.500%, 1/1/2038 345,880
269,438   5.500%, 3/1/2040 298,804
6,150   6.000%, 1/1/2032 6,947
6,657   6.000%, 1/1/2032 7,539
43,389   6.000%, 2/1/2032 48,936
183,216   6.000%, 4/1/2036 207,260
41,003   6.000%, 5/1/2036 46,304
281,280   6.000%, 6/1/2037 317,216
34,255   6.000%, 7/1/2037 38,594
35,330   6.500%, 6/1/2022 38,846
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Table of Contents
Principal
Amount
    Value
    MORTGAGE-BACKED SECURITIES—continued  
    Federal Home Loan Mortgage Corporation—continued  
$1,539   6.500%, 5/1/2024 $1,686
13,039   6.500%, 3/1/2029 14,744
5,665   6.500%, 6/1/2029 6,412
4,449   6.500%, 7/1/2029 5,036
733   6.500%, 9/1/2029 822
81,921   6.500%, 5/1/2031 92,259
3,040   7.000%, 12/1/2029 3,498
1,235   7.000%, 6/1/2030 1,413
268   7.000%, 11/1/2030 311
197,924   7.000%, 4/1/2032 230,679
20,057   7.500%, 12/1/2030 23,541
16,751   7.500%, 1/1/2031 19,603
5,497   8.500%, 5/1/2030 6,572
1,350   9.000%, 2/1/2025 1,534
1,222   9.000%, 5/1/2025 1,399
    TOTAL 20,935,994
    Federal National Mortgage Association—13.7%  
3,606,291   3.500%, 8/1/2042 3,730,581
1,307,074   3.500%, 9/1/2042 1,349,876
1,908,860   3.500%, 2/1/2047 1,961,376
559,660   4.000%, 2/1/2041 590,016
336,122   4.000%, 12/1/2041 354,774
1,492,019   4.000%, 12/1/2041 1,572,946
866,969   4.500%, 1/1/2042 928,612
1,185,966   4.000%, 4/1/2042 1,250,293
49,309   4.500%, 12/1/2019 49,970
490,238   4.500%, 10/1/2041 525,094
2,648,111   4.500%, 2/1/2042 2,834,741
429,506   5.000%, 7/1/2034 465,149
46,101   5.000%, 11/1/2035 49,972
365,512   5.000%, 7/1/2040 395,244
48,713   5.500%, 11/1/2021 50,952
203,807   5.500%, 9/1/2034 225,903
100,785   5.500%, 8/1/2035 111,761
108,372   5.500%, 1/1/2036 120,102
127,659   5.500%, 4/1/2036 141,447
72,134   6.000%, 8/1/2021 75,487
6,133   6.000%, 7/1/2029 6,819
3,196   6.000%, 5/1/2031 3,588
19,971   6.000%, 5/1/2036 22,519
226,935   6.000%, 7/1/2036 256,397
10,207   6.000%, 7/1/2036 11,524
71,950   6.000%, 9/1/2037 81,000
186,964   6.000%, 11/1/2037 210,663
106,385   6.000%, 12/1/2037 114,094
325,175   6.000%, 3/1/2038 367,121
2,084   6.500%, 6/1/2029 2,375
6,955   6.500%, 6/1/2029 7,910
753   6.500%, 6/1/2029 857
381   6.500%, 7/1/2029 432
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Table of Contents
Principal
Amount
    Value
    MORTGAGE-BACKED SECURITIES—continued  
    Federal National Mortgage Association—continued  
$798   6.500%, 7/1/2029 $852
270   6.500%, 7/1/2029 306
7,445   6.500%, 7/1/2029 8,484
31   6.500%, 7/1/2029 35
369   6.500%, 7/1/2029 418
460   6.500%, 8/1/2029 519
10,153   6.500%, 9/1/2030 11,570
25   6.500%, 5/1/2031 26
31,430   6.500%, 6/1/2031 35,594
26,519   6.500%, 4/1/2032 30,231
11,111   6.500%, 11/1/2035 12,604
3,465   7.000%, 2/1/2024 3,800
4,975   7.000%, 10/1/2029 5,704
14,654   7.000%, 10/1/2029 16,948
4,786   7.000%, 11/1/2030 5,568
105,733   7.000%, 4/1/2031 122,692
96,314   7.000%, 4/1/2032 112,156
2,448   7.500%, 8/1/2028 2,818
378   7.500%, 9/1/2028 439
4,175   7.500%, 2/1/2030 4,883
8,714   8.000%, 7/1/2030 10,341
2,002   8.000%, 7/1/2030 2,383
    TOTAL 18,257,966
    Government Agency—0.7%  
930,545   FDIC Trust 2013-R2, Class A, 1.250%, 3/25/2033 919,180
    Government National Mortgage Association—13.7%  
4,000,000   3.000%, 5/20/2047 4,040,434
4,240,800   3.500%, 6/20/2046 4,388,840
1,481,024   3.500%, 8/20/2047 1,539,435
2,985,580   3.500%, 9/20/2047 3,091,202
806,355   4.500%, 6/20/2039 866,712
713,788   4.500%, 10/15/2039 767,216
931,347   4.500%, 8/20/2040 1,001,059
440,937   5.000%, 7/15/2034 486,067
41,940   6.000%, 4/15/2032 47,424
80,045   6.000%, 5/15/2032 91,546
150,774   6.000%, 4/15/2036 173,215
303,969   6.000%, 5/15/2036 346,493
307,715   6.000%, 5/15/2036 354,164
55,324   6.000%, 5/20/2037 63,086
58,872   6.000%, 7/20/2036 67,009
320,418   6.000%, 7/20/2038 364,515
8,569   6.500%, 12/15/2023 9,309
16,310   6.500%, 5/15/2024 17,791
3,218   6.500%, 6/15/2029 3,685
9,518   6.500%, 7/15/2029 10,950
5,904   6.500%, 6/15/2031 6,809
7,014   6.500%, 7/20/2031 8,078
6,787   6.500%, 8/20/2031 7,814
51,058   6.500%, 10/15/2031 58,593
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Table of Contents
Principal
Amount
    Value
    MORTGAGE-BACKED SECURITIES—continued  
    Government National Mortgage Association—continued  
$67,500   6.500%, 12/15/2031 $77,779
9,187   6.500%, 4/15/2032 10,530
32,746   6.500%, 5/15/2032 37,562
223,535   6.500%, 5/15/2032 258,457
1,904   7.500%, 10/15/2029 2,236
1,159   7.500%, 10/15/2029 1,361
6,654   7.500%, 3/20/2030 7,774
1,121   8.000%, 4/15/2030 1,354
    TOTAL 18,208,499
    TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $56,548,934)
58,321,639
    COLLATERALIZED MORTGAGE OBLIGATIONS—2.6%  
    Non-Agency Mortgage-Backed Securities—2.6%  
151,726   Credit Suisse Mortgage Trust 2007-4, Class 4A2, 5.500%, 6/25/2037 115,611
385,500   Credit Suisse Mortgage Trust 2014-WIN2, Class A2, 3.500%, 10/25/2044 391,739
887,202   Credit Suisse Mortgage Trust 2015-WIN1, Class A6, 3.500%, 12/25/2044 899,455
124,429   Sequoia Mortgage Trust 2012-1, Class 2A1, 3.474%, 1/25/2042 126,389
503,241   Sequoia Mortgage Trust 2014-1, Class 2A5, 4.000%, 4/25/2044 521,258
1,344,883   Sequoia Mortgage Trust 2014-4, Class A5, 3.500%, 11/25/2044 1,367,596
    TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(IDENTIFIED COST $3,438,198)
3,422,048
    COMMERCIAL MORTGAGE-BACKED SECURITIES—13.9%  
    Agency Commercial Mortgage-Backed Securities—13.9%  
2,256,875   FHLMC REMIC K720 A1, 2.316%, 11/25/2021 2,255,591
1,800,000   FHLMC REMIC K504 A2, 2.566%, 9/25/2020 1,812,198
1,250,000   FHLMC REMIC K054 A2, 2.745%, 1/25/2026 1,244,438
2,570,554   FHLMC REMIC K050 A1, 2.802%, 1/25/2025 2,583,882
2,741,382   FHLMC REMIC K060 A1, 2.958%, 7/25/2026 2,782,825
3,721,402   FHLMC REMIC K703 A2, 2.699%, 5/25/2018 3,723,435
1,930,122   FHLMC REMIC K704 A2, 2.412%, 8/25/2018 1,932,913
2,127,925   FNMA REMIC 2011-M7 A2, 2.578%, 9/25/2018 2,129,263
    TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $18,707,747)
18,464,545
    REPURCHASE AGREEMENT—3.5%  
4,672,000   Interest in $950,000,000 joint repurchase agreement 1.42%, dated 12/29/2017 under which Bank of America, N.A. will repurchase securities provided as collateral for $950,149,889 on 1/2/2018. The securities provided as collateral at the end of the period held with BNY Mellon as tri-party agent, were U.S. Government Agency securities maturing on 7/20/2046 and the market value of those underlying securities was $969,152,887.
(IDENTIFIED COST $4,672,000)
4,672,000
    TOTAL INVESTMENT IN SECURITIES—99.8%
(IDENTIFIED COST $129,877,438)1
132,695,501
    OTHER ASSETS AND LIABILITIES - NET—0.2%2 262,430
    TOTAL NET ASSETS—100% $132,957,931
1 The cost of investments for federal tax purposes amounts to $129,832,510.
2 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at December 31, 2017.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1—quoted prices in active markets for identical securities.
Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Also includes securities valued at amortized cost.
Level 3—significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments).
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Table of Contents
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
As of December 31, 2017, all investments of the Fund utilized Level 2 inputs in valuing the Fund's assets carried at fair value.
The following acronyms are used throughout this portfolio:
FDIC —Federal Deposit Insurance Corporation
FHLMC —Federal Home Loan Mortgage Corporation
FNMA —Federal National Mortgage Association
REMIC —Real Estate Mortgage Investment Conduit
See Notes which are an integral part of the Financial Statements
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Financial Highlights
(For a Share Outstanding Throughout Each Period)
Year Ended December 31 2017 2016 2015 2014 2013
Net Asset Value, Beginning of Period $10.78 $10.88 $11.12 $10.95 $11.55
Income From Investment Operations:          
Net investment income 0.231 0.231 0.251 0.271 0.261
Net realized and unrealized gain (loss) on investments (0.03) (0.06) (0.19) 0.23 (0.49)
TOTAL FROM INVESTMENT OPERATIONS 0.20 0.17 0.06 0.50 (0.23)
Less Distributions:          
Distributions from net investment income (0.25) (0.27) (0.30) (0.33) (0.37)
Net Asset Value, End of Period $10.73 $10.78 $10.88 $11.12 $10.95
Total Return2 1.92% 1.61% 0.52% 4.62% (2.05)%
Ratios to Average Net Assets:          
Net expenses 0.78% 0.76% 0.76% 0.76% 0.76%
Net investment income 2.13% 2.12% 2.25% 2.45% 2.34%
Expense waiver/reimbursement3 0.07% 0.06% 0.03% 0.04% 0.03%
Supplemental Data:          
Net assets, end of period (000 omitted) $132,958 $152,795 $168,742 $187,012 $201,117
Portfolio turnover 24% 53% 34% 51% 94%
Portfolio turnover (excluding purchases and sales from dollar-roll transactions) 24% 41% 27% 26% 38%
1 Per share numbers have been calculated using the average shares method.
2 Based on net asset value. Total returns do not reflect any additional fees or expenses that may be imposed by separate accounts of insurance companies or in connection with any variable annuity or variable life insurance contract.
3 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
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Table of Contents
Statement of Assets and Liabilities
Assets:    
Investment in securities, at value (identified cost $129,877,438)   $132,695,501
Cash   69
Income receivable   500,648
Receivable for shares sold   18,145
TOTAL ASSETS   133,214,363
Liabilities:    
Payable for shares redeemed $163,200  
Payable to adviser (Note 5) 5,620  
Payable for administrative fees (Note 5) 876  
Payable for portfolio accounting fees 59,038  
Payable for printing and postage 15,310  
Accrued expenses (Note 5) 12,388  
TOTAL LIABILITIES   256,432
Net assets for 12,395,172 shares outstanding   $132,957,931
Net Assets Consist of:    
Paid-in capital   $127,716,927
Net unrealized appreciation of investments   2,818,063
Accumulated net realized loss on investments   (648,411)
Undistributed net investment income   3,071,352
TOTAL NET ASSETS   $132,957,931
Net Asset Value, Offering Price and Redemption Proceeds Per Share:    
$132,957,931 ÷ 12,395,172 shares outstanding, no par value, unlimited shares authorized   $10.73
See Notes which are an integral part of the Financial Statements
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Table of Contents
Statement of Operations
Investment Income:    
Interest   $4,165,915
Net income on securities loaned   246
TOTAL INCOME   4,166,161
Expenses:    
Investment adviser fee (Note 5) $861,311  
Administrative fee (Note 5) 113,592  
Custodian fees 16,914  
Transfer agent fee 13,979  
Directors'/Trustees' fees (Note 5) 2,444  
Auditing fees 24,500  
Legal fees 8,638  
Portfolio accounting fees 105,092  
Printing and postage 45,529  
Miscellaneous (Note 5) 20,751  
TOTAL EXPENSES 1,212,750  
Waiver of investment adviser fee (Note 5) (99,183)  
Net expenses   1,113,567
Net investment income   3,052,594
Realized and Unrealized Gain (Loss) on Investments:    
Net realized loss on investments   (44,101)
Net change in unrealized appreciation of investments   (149,444)
Net realized and unrealized loss on investments   (193,545)
Change in net assets resulting from operations   $2,859,049
See Notes which are an integral part of the Financial Statements
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Table of Contents
Statement of Changes in Net Assets
Year Ended December 31 2017 2016
Increase (Decrease) in Net Assets    
Operations:    
Net investment income $3,052,594 $3,457,240
Net realized gain (loss) on investments and futures contracts (44,101) 180,091
Net change in unrealized appreciation/depreciation of investments (149,444) (906,896)
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 2,859,049 2,730,435
Distributions to Shareholders:    
Distributions from net investment income (3,508,674) (4,161,172)
Share Transactions:    
Proceeds from sale of shares 10,604,671 29,512,173
Net asset value of shares issued to shareholders in payment of distributions declared 3,508,674 4,161,172
Cost of shares redeemed (33,301,113) (48,188,993)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (19,187,768) (14,515,648)
Change in net assets (19,837,393) (15,946,385)
Net Assets:    
Beginning of period 152,795,324 168,741,709
End of period (including undistributed net investment income of $3,071,352 and $3,507,201, respectively) $132,957,931 $152,795,324
See Notes which are an integral part of the Financial Statements
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Notes to Financial Statements
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 seven 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. Each portfolio pays its own expenses. Fund shares are available exclusively as a funding vehicle for life insurance companies writing variable life insurance policies and variable annuity contracts. The investment objective of the Fund is to provide current 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 U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
Fixed-income securities are fair valued using price evaluations provided by a pricing service approved by the Fund's Board of Trustees (the “Trustees”).
Derivative contracts listed on exchanges are valued at their reported settlement or closing price, except that options are valued at the mean of closing bid and asked quotations.
Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs.
For securities that are fair valued in accordance with procedures established by and under the general supervision of the Trustees, certain factors may be considered such as: the last traded or purchase price of the security, information obtained by contacting the issuer or dealers, analysis of the issuer's financial statements or other available documents, fundamental analytical data, the nature and duration of restrictions on disposition, the movement of the market in which the security is normally traded, public trading in similar securities or derivative contracts of the issuer or comparable issuers, movement of a relevant index, or other factors including but not limited to industry changes and relevant government actions.
If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, if the Fund cannot obtain price evaluations from a pricing service or from more than one dealer for an investment within a reasonable period of time as set forth in the Fund's valuation policies and procedures, or if information furnished by a pricing service, in the opinion of the valuation committee (“Valuation Committee”), is deemed not representative of the fair value of such security, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could obtain the fair value assigned to an investment if it sold the investment at approximately the time at which the Fund determines its NAV per share.
Fair Valuation Procedures
The Trustees have ultimate responsibility for determining the fair value of investments for which market quotations are not readily available. The Trustees have appointed a Valuation Committee comprised of officers of the Fund, Federated Investment Management Company (“Adviser”) and certain of the Adviser's affiliated companies to assist in determining fair value and in overseeing the calculation of the NAV. The Trustees have also authorized the use of pricing services recommended by the Valuation Committee to provide fair value evaluations of the current value of certain investments for purposes of calculating the NAV. The Valuation Committee employs various methods for reviewing third-party pricing-service evaluations including periodic reviews of third-party pricing services' policies, procedures and valuation methods (including key inputs, methods, models and assumptions), transactional back-testing, comparisons of evaluations of different pricing services, and review of price challenges by the Adviser based on recent market activity. In the event that market quotations and price evaluations are not available for an investment, the Valuation Committee determines the fair value of the investment in accordance with procedures adopted by the Trustees. The Trustees periodically review and approve the fair valuations made by the Valuation Committee and any changes made to the procedures.
Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a “bid” evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a “mid” evaluation). The Fund normally uses bid evaluations for any U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for any other types of fixed-income securities and any OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
Repurchase Agreements
The Fund may invest in repurchase agreements for short-term liquidity purposes. It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a “securities entitlement” and exercises “control” as those terms are defined in the Uniform
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Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
The insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Repurchase agreements are subject to Master Netting Agreements (MNA) which are agreements between the Fund and its counterparties that provide for the net settlement of all transactions and collateral with the Fund, through a single payment, in the event of default or termination. Amounts presented on the Portfolio of Investments and Statement of Assets and Liabilities are not net settlement amounts but gross. As indicated above, the cash or securities to be repurchased, as shown on the Portfolio of Investments, exceeds the repurchase price to be paid under the agreement reducing the net settlement amount to zero.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Distributions of net investment income, if any, are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Amortization/accretion of premium and discount is included in investment income. Gains and losses realized on principal payment of mortgage-backed securities (paydown gains and losses) are classified as part of investment income. The detail of the total fund expense waiver of $99,183 is disclosed in Note 5.
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. As of and during the year ended December 31, 2017, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of December 31, 2017, tax years 2014 through 2017 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
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.
The Fund may transact in To Be Announced Securities (TBAs). As with other delayed-delivery transactions, a seller agrees to issue TBAs 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 TBAs 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.
Dollar-Roll Transactions
The Fund engages in dollar-roll transactions in which the Fund sells mortgage-backed securities with a commitment to buy similar (same type, coupon and maturity), but not identical mortgage-backed securities on a future date. Both securities involved are TBA mortgage-backed securities. The Fund treats dollar-roll transactions as purchases and sales. Dollar-rolls are subject to interest rate risks and credit risks.
Futures Contracts
The Fund purchases and sells financial futures contracts to manage duration risk and yield curve risk. Upon entering into a financial futures contract with a broker, the Fund is required to deposit in a segregated account, either U.S. government securities or a specified amount of Restricted cash, which is shown in the Statement of Assets and Liabilities. 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. There is minimal counterparty risk to the Fund since futures contracts are exchange traded and the exchange's clearing house, as counterparty to all exchange traded futures contracts, guarantees the futures contracts against default.
At December 31, 2017, and for the period then ended, the Fund had no outstanding futures contracts.
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Securities Lending
The Fund participates in a securities lending program providing for the lending of government securities to qualified brokers. The Fund normally receives cash collateral for securities loaned that is invested in short-term securities including repurchase agreements. Collateral is maintained at a minimum level of 100% of the market value of investments loaned, plus interest, if applicable. In accordance with the Fund's securities lending agreement, the market value of securities on loan is determined each day at the close of business and any additional collateral required to cover the value of securities on loan is delivered to the Fund on the next business day. Earnings on collateral are allocated between the borrower of the security, 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, 2017, the Fund had no outstanding securities on loan.
Restricted Securities
The Fund may purchase securities which are considered restricted. Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security 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 such restricted securities may be resold in the secondary market in transactions exempt from registration. 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, like other securities, are priced in accordance with procedures established by and under the general supervision of the Trustees.
Other
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. The Fund applies investment company accounting and reporting guidance.
3. SHARES OF BENEFICIAL INTEREST
The following table summarizes share activity:
Year Ended December 31 2017 2016
Shares sold 987,615 2,694,329
Shares issued to shareholders in payment of distributions declared 332,891 386,367
Shares redeemed (3,105,366) (4,406,170)
NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS (1,784,860) (1,325,474)
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 dollar-roll transactions and expiration of capital loss carryforwards.
For the year ended December 31, 2017, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease)
Paid-In Capital Undistributed
Net Investment
Income (Loss)
Accumulated
Net Realized
Gain (Loss)
$(98,280) $20,231 $78,049
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, 2017 and 2016, was as follows:
  2017 2016
Ordinary income $3,508,674 $4,161,172
As of December 31, 2017, the components of distributable earnings on a tax-basis were as follows:
Undistributed ordinary income $3,071,352
Net unrealized appreciation $2,727,034
Capital loss carry forwards $(557,382)
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for deferral of straddle loss and dollar-roll transactions.
At December 31, 2017, the cost of investments for federal tax purposes was $129,832,510. The net unrealized appreciation of investments for federal tax purposes was $2,727,034. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $3,575,564 and net unrealized depreciation from investments for those securities having an excess of cost over value of $848,530.
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At December 31, 2017, the Fund had a capital loss carryforward of $557,382 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, thereby reducing the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, a net capital loss incurred in taxable years beginning after December 22, 2010, retains its character as either short-term or long-term and does not expire. All of the Fund's capital loss carryforwards were incurred in taxable years after December 22, 2010.
The following schedule summarizes the Fund's capital loss carryforwards:
Short-Term Long-Term Total
$324,844 $232,538 $557,382
Capital loss carryforwards of $98,280 expired during the year ended December 31, 2017.
At December 31, 2017, for federal income tax purposes, the Fund had $135,957 in straddle loss deferrals.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.60% of the Fund's average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee. For the year ended December 31, 2017, the Adviser voluntarily waived $99,183 of its fee.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below:
Administrative Fee Average Daily Net Assets
of the Investment Complex
0.100% on assets up to $50 billion
0.075% on assets over $50 billion
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the year ended December 31, 2017, the annualized fee paid to FAS was 0.079% of average daily net assets of the Fund.
Prior to September 1, 2017, the breakpoints of the Administrative Fee paid to FAS, described above, were:
Administrative Fee Average Daily Net Assets
of the Investment Complex
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
In addition, FAS may charge certain out-of-pocket expenses to the Fund.
Expense Limitation
The Adviser and certain of its affiliates (which may include FAS) on their own initiative have agreed to waive certain amounts of their respective fees and/or reimburse expenses. Total annual fund operating expenses (as shown in the financial highlights, excluding interest expense, extraordinary expenses, line of credit expenses and proxy-related expenses paid by the Fund, if any) paid by the Fund (after the voluntary waivers and/or reimbursements) will not exceed 0.76% (the “Fee Limit”) up to but not including the later of (the “Termination Date”): (a) May 1, 2018; or (b) the date of the Fund's next effective Prospectus. While the Adviser and its applicable affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Trustees.
Directors'/Trustees' and Miscellaneous Fees
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Directors'/Trustees' fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Adviser which in due course are reimbursed by the Fund. These expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
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6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended December 31, 2017, were as follows:
Purchases $
Sales $16,777,246
7. LINE OF CREDIT
The Fund participates with certain other Federated Funds, on a several basis, in an up to $500,000,000 unsecured, 364-day, committed, revolving line of credit (LOC) agreement. The LOC was made available to finance temporarily the repurchase or redemption of shares of the Fund, failed trades, payment of dividends, settlement of trades and for other short-term, temporary or emergency general business purposes. The Fund cannot borrow under the LOC if an inter-fund loan is outstanding. The Fund's ability to borrow under the LOC also is subject to the limitations of the Act and various conditions precedent that must be satisfied before the Fund can borrow. Loans under the LOC are charged interest at a fluctuating rate per annum equal to the highest, on any day, of (a) (i) the federal funds effective rate, (ii) the one month London Interbank Offered Rate (LIBOR), and (iii) 0.0%, plus (b) a margin. The LOC also requires the Fund to pay, quarterly in arrears and at maturity, its pro rata share of a commitment fee based on the amount of the lenders' commitment that has not been utilized. As of December 31, 2017, the Fund had no outstanding loans. During the year ended December 31, 2017, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the Fund to borrow from other participating affiliated funds. As of December 31, 2017, there were no outstanding loans. During the year ended December 31, 2017, the program was not utilized.
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Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF the FEDERATED INSURANCE SERIES AND SHAREHOLDERS OF FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Federated Fund for U.S Government Securities II (the “Fund”), a portfolio of Federated Insurance Series, as of December 31, 2017, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. 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, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor for one or more of Federated Investors'- investment companies since 2006.
Boston, Massachusetts
February 14, 2018
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Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or other service 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, 2017 to December 31, 2017.
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 required to be provided to enable you to compare the ongoing costs of investing in the Fund with 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
7/1/2017
Ending
Account Value
12/31/2017
Expenses Paid
During Period1
Actual $1,000 $1,004.70 $3.94
Hypothetical (assuming a 5% return before expenses) $1,000 $1,021.30 $3.97
1 Expenses are equal to the Fund's annualized net expense ratio of 0.78%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). The expenses shown in the table do not include the charges and expenses imposed by the insurance company under the variable insurance product contract. Please refer to the variable insurance product prospectus for a complete listing of these expenses.
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In Memoriam
With profound sadness, Federated announces the passing of John F. (“Jack”) Donahue and John W. (“John”) McGonigle. They will be greatly missed.
Jack Donahue
(Former Chairman and President, and Emeritus Director/Trustee, of the Federated Funds, and Founder, Former Chairman, President and Chief Executive Officer, and Chairman Emeritus, of Federated Investors, Inc.)
Jack Donahue, along with Richard B. Fisher, founded Federated in 1955 and served as a leader and member of the Boards of Directors/Trustees of the Federated Funds and the Board of Directors of Federated Investors, Inc. Mr. Donahue was a family man of deep faith with exemplary character and fealty, who served his religion, family, community, and the Federated Funds and Federated, as well as their shareholders, officers and employees, with distinction. His integrity, intelligence, and keen sense of fiduciary duty, coupled with his faith, family and background as a West Point graduate and Strategic Air Command B-29 pilot, served as a foundation for his strong business acumen and leadership. Among his many achievements, Mr. Donahue's steadfast and innovative leadership of the Federated Funds and Federated, as well as within the investment management industry, led to the birth of money market funds in the 1970s and their growth as an innovative, efficient and effective cash management vehicle throughout the 1980s, 1990s, 2000s and beyond. Federated expresses deep gratitude to Mr. Donahue for his inspiring leadership, distinguished service and contributions as a husband, father, founder, Board member and officer, colleague and friend.
John McGonigle
(Former Secretary of the Federated Funds, Former Director, Secretary and Chief Legal Officer of Federated Investors, Inc.)
John McGonigle served the Federated Funds and their respective Boards with distinction for more than 50 years as Fund Secretary and also served as Director for several closed-end funds. Mr. McGonigle was a gifted lawyer and wise counselor with a genial presence, keen intellect and convivial demeanor. A man of deep faith, he was a devoted husband, father and grandfather. A graduate of Duquesne University School of Law, Mr. McGonigle served as an officer in the U.S. Army for two years, achieving the rank of Captain. He also served on the staff of the Securities and Exchange Commission before joining Federated in 1966. Among many professional accomplishments, Mr. McGonigle helped fashion the regulatory foundation for money market funds, established Federated's first offshore funds in Ireland, and represented Federated on the Board of Governors of the Investment Company Institute where he was a member of the Executive Committee. Federated expresses deep gratitude for Mr. McGonigle and his impact on his family, friends, the community, and the mutual fund industry.
Board of Trustees and Trust Officers
The Board of Trustees 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 Trustee and the senior officers of the Fund. Where required, the tables separately list Trustees who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Trustees listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2017, the Trust comprised seven portfolio(s), and the Federated Fund Family consisted of 40 investment companies (comprising 108 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Trustee oversees all portfolios in the Federated Fund Family and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
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Interested Trustees Background
Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
J. Christopher Donahue*
Birth Date: April 11, 1949
Trustee
Indefinite Term
Began serving: September 1993
Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of the Funds in the Federated Fund Family; 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 and Trustee, Federated Equity Management Company of Pennsylvania; 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; Chairman, Passport Research, Ltd.
Thomas R. Donahue*
Birth Date: October 20, 1958
Trustee
Indefinite Term
Began serving: May 2016
Principal Occupations: Director or Trustee of certain of the funds in the Federated Fund Family; Chief Financial Officer, Treasurer, Vice President and Assistant Secretary, Federated Investors, Inc.; Chairman and Trustee, Federated Administrative Services; Chairman and Director, Federated Administrative Services, Inc.; Trustee and Treasurer, Federated Advisory Services Company; Director or Trustee and Treasurer, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, and Federated Investment Management Company; Director, MDTA LLC; Director, Executive Vice President and Assistant Secretary, Federated Securities Corp.; Director or Trustee and Chairman, Federated Services Company and Federated Shareholder Services Company; and Director and President, FII Holdings, Inc.
Previous Positions: Director, Federated Investors, Inc.; Assistant Secretary, Federated Investment Management Company, Federated Global Investment Management Company and Passport Research, LTD; Treasurer, Passport Research, LTD; Executive Vice President, Federated Securities Corp.; and Treasurer, FII Holdings, Inc.
* Family relationships and reasons for “interested” status: J. Christopher Donahue and Thomas R. Donahue are brothers. Both are “interested” due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT Trustees Background
Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
John T. Collins
Birth Date: January 24, 1947
Trustee
Indefinite Term
Began serving: October 2013
Principal Occupations: Director or Trustee of the Federated Fund Family; formerly, Chairman and CEO, The Collins Group, Inc. (a private equity firm) (Retired).
Other Directorships Held: Director, Current Chair of the Compensation Committee, KLX Corp.
Qualifications: Mr. Collins has served in several business and financial management roles and directorship positions throughout his career. Mr. Collins previously served as Chairman and CEO, The Collins Group, Inc. (a private equity firm). Mr. Collins serves as Chairman Emeriti, Bentley University. Mr. Collins previously served as Director and Audit Committee Member, Bank of America Corp.; Director, FleetBoston Financial Corp.; and Director, Beth Israel Deaconess Medical Center (Harvard University Affiliate Hospital).
G. Thomas Hough
Birth Date: February 28, 1955
Trustee
Indefinite Term
Began serving: August 2015
Principal Occupations: Director or Trustee of the Federated Fund Family; formerly, Vice Chair, Ernst & Young LLP (public accounting firm) (Retired).
Other Directorships Held: Director, Chair of the Audit Committee, Governance Committee, Publix Super Markets, Inc.; Director, Member of the Audit Committee and Technology Committee of Equifax, Inc.
Qualifications: Mr. Hough has served in accounting, business management and directorship positions throughout his career. Mr. Hough most recently held the position of Americas Vice Chair of Assurance with Ernst & Young LLP (public accounting firm). Mr. Hough is an Executive Committee member of the United States Golf Association, he serves on the President's Cabinet and Business School Board of Visitors for the University of Alabama and is on the Business School Board of Visitors for Wake Forest University.
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Name
Birth Date
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
Maureen Lally-Green
Birth Date: July 5, 1949
Trustee
Indefinite Term
Began serving: August 2009
Principal Occupations: Director or Trustee of the Federated Fund Family; Dean of the Duquesne University School of Law; Professor and Adjunct Professor of Law, Duquesne University School of Law; formerly, Interim Dean of the Duquesne University School of Law; Associate General Secretary and Director, Office of Church Relations, Diocese of Pittsburgh.
Other Directorships Held: Director, CNX Resources Corporation (formerly known as CONSOL Energy Inc.).
Qualifications: Judge Lally-Green has served in various legal and business roles and directorship positions throughout her career. Judge Lally-Green previously served as: Associate General Secretary, Diocese of Pittsburgh; a member of the Superior Court of Pennsylvania; and as a Professor of Law, Duquesne University School of Law. Judge Lally-Green also currently holds the positions on either a public or not for profit Board of Directors as follows: Director and Chair, UPMC Mercy Hospital; Director and Vice Chair, Our Campaign for the Church Alive!, Inc.; Director, Saint Vincent College; Member, Pennsylvania State Board of Education (public); and Director CNX Resources Corporation (formerly known as CONSOL Energy Inc.), where she currently serves as a member of the Compensation, Nominating and Corporate Governance Committee (Chair) and the Health, Safety and Environmental Committee. Judge Lally-Green has held the positions of: Director, Auberle; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Ireland Institute of Pittsburgh; Director, Saint Thomas More Society; Director and Chair, Catholic High Schools of the Diocese of Pittsburgh, Inc.; Director, Pennsylvania Bar Institute; Regent, St. Vincent Seminary; and Director and Chair, Cardinal Wuerl North Catholic High School, Inc.
Charles F. Mansfield, Jr.
Birth Date: April 10, 1945
Trustee

Indefinite Term
Began serving: September 1999
Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant.
Other Directorships Held: None.
Qualifications: Mr. Mansfield has served as a Marine Corps officer and in several banking, business management, educational roles and directorship positions throughout his long career. He remains active as a Management Consultant.
Thomas M. O'Neill
Birth Date: June 14, 1951
Trustee

Indefinite Term
Began serving: August 2006
Principal Occupations: Director or Trustee, Chair of the Audit Committee of the Federated Fund Family; Sole Proprietor, Navigator Management Company (investment and strategic consulting).
Other Directorships Held: None.
Qualifications: Mr. O'Neill has served in several business, mutual fund and financial management roles and directorship positions throughout his career. Mr. O'Neill serves as Director, Medicines for Humanity and Director, The Golisano Children's Museum of Naples, Florida. Mr. O'Neill previously served as Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); and Director, Midway Pacific (lumber).
P. Jerome Richey
Birth Date: February 23, 1949
Trustee
Indefinite Term
Began serving: October 2013
Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant; formerly, Senior Vice Chancellor and Chief Legal Officer, University of Pittsburgh and Executive Vice President and Chief Legal Officer, CNX Resources Corporation (formerly known as CONSOL Energy Inc.)
Other Directorships Held: None.
Qualifications: Mr. Richey has served in several business and legal management roles and directorship positions throughout his career. Mr. Richey most recently held the positions of Senior Vice Chancellor and Chief Legal Officer, University of Pittsburgh. Mr. Richey previously served as Chairman of the Board, Epilepsy Foundation of Western Pennsylvania and Chairman of the Board, World Affairs Council of Pittsburgh. Mr. Richey previously served as Chief Legal Officer and Executive Vice President, CNX Resources Corporation (formerly known as CONSOL Energy Inc.); and Board Member, Ethics Counsel and Shareholder, Buchanan Ingersoll & Rooney PC (a law firm).
John S. Walsh
Birth Date: November 28, 1957
Trustee

Indefinite Term
Began serving: January 1999
Principal Occupations: Director or Trustee, and Chair of the Board of Directors or Trustees, of the Federated Fund Family; 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.
Other Directorships Held: None.
Qualifications: Mr. Walsh has served in several business management roles and directorship positions throughout his career. Mr. Walsh previously served as Vice President, Walsh & Kelly, Inc. (paving contractors).
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OFFICERS
Name
Birth Date
Address
Positions Held with Trust
Date Service Began
Principal Occupation(s) for Past Five Years
and Previous Position(s)
Lori A. Hensler
Birth Date: January 6, 1967
TREASURER
Officer since: April 2013
Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Family; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp. and Edgewood Services, Inc.; and Assistant Treasurer, Federated Investors Trust Company. Ms. Hensler has received the Certified Public Accountant designation.
Previous Positions: Controller of Federated Investors, Inc.; Senior Vice President and Assistant Treasurer, Federated Investors Management Company; Treasurer, Federated Investors Trust Company; Assistant Treasurer, Federated Administrative Services, Federated Administrative Services, Inc., Federated Securities Corp., Edgewood Services, Inc., Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company, Passport Research, Ltd., and Federated MDTA, LLC; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc.
Peter J. Germain
Birth Date: September 3, 1959
CHIEF LEGAL OFFICER, SECRETARY and EXECUTIVE VICE PRESIDENT
Officer since: January 2005
Principal Occupations: Mr. Germain is Chief Legal Officer, Secretary and Executive Vice President of the Federated Fund Family. He is General Counsel, Chief Legal Officer, Secretary and Executive Vice President, Federated Investors, Inc.; Trustee and Senior Vice President, Federated Investors Management Company; Trustee and President, Federated Administrative Services; Director and President, Federated Administrative Services, Inc.; Director and Vice President, Federated Securities Corp.; Director and Secretary, Federated Private Asset Management, Inc.; Secretary, Federated Shareholder Services Company; and Secretary, Retirement Plan Service Company of America. Mr. Germain joined Federated in 1984 and is a member of the Pennsylvania Bar Association.
Previous Positions: Deputy General Counsel, Special Counsel, Managing Director of Mutual Fund Services, Federated Investors, Inc.; Senior Vice President, Federated Services Company; and Senior Corporate Counsel, Federated Investors, Inc.
Richard B. Fisher
Birth Date: May 17, 1923
VICE PRESIDENT
Officer since: September 1993
Principal Occupations: Vice Chairman or Vice President of some of the Funds in the Federated Fund Family; 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 Family; Executive Vice President, Federated Investors, Inc.; Director and Chief Executive Officer, Federated Securities Corp.
John B. Fisher
Birth Date: May 16, 1956
PRESIDENT
Officer since: November 2004
Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Fund Family; Director or Trustee of certain of the Funds in the Federated Fund Family; Vice President, Federated Investors, Inc.; President, Director/Trustee and CEO, Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company; President and CEO of Passport Research, Ltd.; President of some of the Funds in the Federated Fund Complex and Director, Federated Investors Trust Company.
Previous Positions: President and Director of the Institutional Sales Division of Federated Securities Corp.; President and Director of Federated Investment Counseling; Director, Edgewood Securities Corp.; Director, Federated Services Company; Director, Federated Investors, Inc.; Chairman and Director, Southpointe Distribution Services, Inc. and President, Technology, Federated Services Company.
Stephen Van Meter
Birth Date: June 5, 1975
CHIEF COMPLIANCE OFFICER AND SENIOR VICE PRESIDENT
Officer since: July 2015
Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Family; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of certain of its subsidiaries. Mr. Van Meter joined Federated in October 2011. He holds FINRA licenses under Series 3, 7, 24 and 66.
Previous Positions: Mr. Van Meter previously held the position of Compliance Operating Officer, Federated Investors, Inc. Prior to joining Federated, Mr. Van Meter served at the United States Securities and Exchange Commission in the positions of Senior Counsel, Office of Chief Counsel, Division of Investment Management and Senior Counsel, Division of Enforcement.
Stephen F. Auth
Birth Date: September 13, 1956
101 Park Avenue
41st Floor
New York, NY 10178
CHIEF INVESTMENT OFFICER
Officer since: November 2002
Principal Occupations: Stephen F. Auth is Chief Investment Officer of various Funds in the Federated Fund Family; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp. and Federated Equity Management Company of Pennsylvania.
Previous Positions: Executive Vice President, Federated Investment Management Company and Passport Research, Ltd. (investment advisory subsidiary of Federated); 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
Officer since: May 2004
Principal Occupations: Robert J. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of Federated's taxable fixed-income products in 2004 and also serves as a Senior Portfolio Manager. Mr. Ostrowski became an Executive Vice President of the Fund's Adviser in 2009 and served as a Senior Vice President of the Fund's Adviser from 1997 to 2009. Mr. Ostrowski has received the Chartered Financial Analyst designation. He received his M.S. in Industrial Administration from Carnegie Mellon University.
Deborah A. Cunningham
Birth Date: September 15, 1959
Chief Investment Officer
Officer since: June 2012
Principal Occupations: Deborah A. Cunningham was named Chief Investment Officer of Federated's money market products in 2004. She joined Federated in 1981 and has been a Senior Portfolio Manager since 1997 and an Executive Vice President of the Fund's Adviser since 2009. Ms. Cunningham has received the Chartered Financial Analyst designation and holds an M.S.B.A. in Finance from Robert Morris College.
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Evaluation and Approval of Advisory ContractMay 2017
Federated Fund for U.S. Government Securities II (the “Fund”)
Following a review and recommendation of approval by the Fund's independent trustees, the Fund's Board of Trustees (the “Board”) reviewed and unanimously approved the continuation of the Fund's investment advisory contract for an additional one-year term at its May 2017 meetings. The Board's decision regarding the contract reflects the exercise of its business judgment after considering all of the information received on whether to continue the existing arrangements.
The Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below (the “Senior Officer's Evaluation”). The Board considered the Senior Officer's Evaluation, along with other information, in deciding to approve the investment advisory contract.
The Board also considered judicial decisions concerning allegedly excessive investment advisory fees in its decision. Using these judicial decisions as a guide, the Board has indicated that the following factors may be relevant to an adviser's fiduciary duty with respect to its receipt of compensation from a fund: (1) the nature and quality of the services provided by an adviser to a fund and its shareholders (including the performance of the Fund and of comparable funds); (2) an adviser's cost of providing the services (including the profitability to an adviser of providing advisory services to a fund); (3) the extent to which an adviser may realize “economies of scale” as a fund grows larger and, if such economies of scale exist, whether they have been shared with a fund and its shareholders or the family of funds; (4) any “fall-out financial benefits” that accrue to an adviser because of its relationship with a fund (including research services received from brokers that execute fund trades and any fees paid to affiliates of an adviser for services rendered to a fund); (5) comparative fee and expense structures (including a comparison of fees paid to an adviser with those paid by similar funds); and (6) the extent of care, conscientiousness and independence with which the Fund's board members perform their duties and their expertise (including whether they are fully informed about all facts the Board deems relevant to its consideration of an adviser's services and fees). The Board noted that the Securities and Exchange Commission (“SEC”) disclosure requirements regarding the basis for the Board's approval of the Fund's investment advisory contract generally align with the factors listed above. Consistent with the judicial decisions and SEC disclosure requirements, the Board also considered management fees charged to institutional and other clients of Federated Investment Management Company (the “Adviser”) and its advisory affiliates for what might be viewed as like services. The Board was aware of these factors and was guided by them in its review of the Fund's investment advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these factors in light of its substantial accumulated experience in governing the Fund and working with Federated Investors, Inc. and its affiliates (“Federated”) on matters relating to the Federated funds. The Board was assisted in its deliberations by independent legal counsel. In addition to the extensive materials that comprise and accompany the Senior Officer's Evaluation, the Board received detailed information about the Fund and the Federated organization throughout the year, and in connection with its May meetings. Federated provided much of this information at each regular meeting of the Board, and furnished additional information in connection with the May meetings at which the Board's formal approval of the investment advisory contract occurred. At the May meetings in addition to meeting in separate sessions of the independent trustees without management present, senior management of the Adviser also met with the independent trustees and their counsel to discuss the materials presented and any other matters thought relevant by the Adviser or the trustees. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. The Board's consideration of the investment advisory contract included review of the Senior Officer's Evaluation, accompanying data and additional information covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short-term and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in terms relative to its particular investment program and certain competitor or “peer group” funds and/or other benchmarks, as appropriate) and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses, including the advisory fee and the overall expense structure of the Fund (both in absolute terms and relative to similar and/or competing funds), with due regard for contractual or voluntary expense limitations; the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders; the entrepreneurial risk assumed by the Adviser in sponsoring the Fund; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are generally available for exchange without the incurrence of additional sales
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charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
While mindful that courts have cautioned against giving such comparisons too much weight, the Board has found the use of comparisons of the Fund's fees and expenses to other mutual funds with comparable investment programs to be relevant to its deliberations. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, total expense ratios and each element of the Fund's total expense ratio (i.e., gross and net advisory fees, custody fees, portfolio accounting fees and transfer agency fees) relative to the Fund's peers. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, in that they are readily available to Fund shareholders as alternative investment vehicles. Also, they are the type of investment vehicle, in fact, chosen and maintained by the Fund's investors. The range of their fees and expenses, therefore, appears to be a relevant indicator of what consumers have found to be reasonable in the marketplace in which the Fund competes.
The Board reviewed the contractual advisory fee rate, net advisory fee rate where partially waived and other expenses of the Fund and noted the position of the Fund's contractual advisory fee rate and other expenses relative to its peers. In this regard, the Board noted that the contractual advisory fee rate was above the median of the relevant peer group, but the Board noted the applicable waivers and reimbursements and that the overall expense structure of the Fund remained competitive in the context of other factors considered by the Board.
For comparison, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated funds (e.g., institutional and separate accounts and sub-adviser services). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes and portfolio management techniques made necessary by different cash flows and different associated costs; and the time spent by portfolio managers and their teams, funds financial services, legal, compliance and risk management in reviewing securities pricing, addressing different administrative responsibilities, addressing different degrees of risk associated with management and a variety of different costs. The Senior Officer did not consider the fees for providing advisory services to these outside products to be determinative in judging the appropriateness of mutual fund advisory fees.
Following such evaluation, and full deliberations, the Board concluded that the expenses of the Fund are reasonable and supported renewal of the Fund's investment advisory contract.
The Board considered the nature, extent and quality of the services provided to the Fund by the Adviser and the resources of the Adviser and its affiliates dedicated to the Fund. In this regard, the Board evaluated, among other things, the Adviser's personnel, experience, track record, overall reputation and willingness to invest in personnel and infrastructure that benefit the Fund. In addition, the Board reviewed the qualifications, backgrounds and responsibilities of the portfolio management team primarily responsible for the day-to-day management of the Fund. The Board noted the compliance programs of, and the compliance-related resources provided to, the Fund by the Adviser. The Fund's ability to deliver competitive performance when compared to its peer group was also deemed to be relevant by the Board as a useful indicator of how the Adviser is executing the Fund's investment program. The Adviser's ability to execute this program was one of the Board's considerations in reaching a conclusion that the nature, extent and quality of the Adviser's investment management services warrant the continuation of the investment advisory contract.
In evaluating the Fund's investment performance, the Board considered performance results in light of the Fund's investment objective, strategies and risks, as disclosed in the Fund's prospectus. The Board particularly considered detailed investment reports on the Fund's performance that were provided to the Board throughout the year and in connection with the May meetings. The Senior Officer also reviewed information compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups may be helpful, though not conclusive, in judging the reasonableness of the proposed fees. The Board considered, in evaluating such comparisons, that in some cases individual funds may exhibit significant and unique differences in their objectives and management techniques when compared to other funds within an industry peer group.
For the one-year, three-year and five-year periods covered by the Senior Officer's Evaluation, the Fund's performance was above the median of the relevant peer group.
Following such evaluation, and full deliberations, the Board concluded that the performance of the Fund supported renewal of the Fund's investment advisory contract.
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The Board also received financial information about Federated, including information regarding the compensation and ancillary (or “fall-out”) benefits Federated derived from its relationships with the Federated funds. This information covered not only the fees under the investment advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The information also detailed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to Fund investors and/or indicated to the Board their intention to do so in the future. Moreover, the Board receives regular reporting as to the institution, adjustment or elimination of these voluntary waivers. The Board considered Federated's previous reductions in contractual management fees to certain funds in response to the Senior Officer's recommendations.
Federated furnished information, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in allocating costs continues to cause the Senior Officer to question the precision of the process and to conclude that such reports may be unreliable, since a single change in an allocation estimate may dramatically alter the resulting estimate of cost and/or profitability of a fund and may produce unintended consequences. The allocation information, including the Senior Officer's view that fund-by-fund estimations may be unreliable, was considered in the analysis by the Board.
The Board and the Senior Officer also reviewed information compiled by Federated comparing its profitability information to other publicly held fund management companies. In this regard, the Senior Officer concluded that Federated's profit margins did not appear to be excessive. The Senior Officer also noted that Federated appeared financially sound, with the resources to fulfill its obligations under its contracts with the Fund.
The Senior Officer's Evaluation also discussed the notion of possible realization of “economies of scale” as a fund grows larger. In this regard, the Board considered that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, shareholder services, compliance, internal audit and risk management functions, as well as systems technology (including technology relating to cybersecurity) and that the benefits of these efforts (as well as any economies of scale, should they exist) were likely to be enjoyed by the fund family as a whole. The Board noted that the Adviser's investments in these areas are extensive. In addition, the Board considered that Federated and its affiliates have frequently waived fees and/or reimbursed expenses and that this has allowed fund shareholders to share potential economies of scale from a fund's inception. Federated, as it does throughout the year, and in connection with the Board's review, furnished information relative to revenue sharing or adviser paid fees. Federated and the Senior Officer noted that this information should be viewed to determine if there was an incentive to either not apply breakpoints, or to apply breakpoints at higher levels. It should not be viewed to determine the appropriateness of advisory fees because it would represent marketing and distribution expenses. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's Evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with “breakpoints” that serve to reduce the fee as a fund attains a certain size.
While the Senior Officer noted certain items for follow-up reporting to the Board and further consideration by management, he stated that his observations and information accompanying the Senior Officer's Evaluation supported a finding by the Board that the management fee for the Fund was reasonable. Under these circumstances, no changes were recommended to, and no objection was raised to the continuation of the Fund's investment advisory contract.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an investment advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the investment advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund. The Board concluded that, in light of the factors discussed above, including the nature, quality and scope of the services provided to the Fund by the Adviser and its affiliates, continuation of the investment advisory contract was appropriate.
The Board based its decision to approve the investment advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the continuation of the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangement.
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Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, 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 via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at www.FederatedInvestors.com/FundInformation. Form N-PX filings are also available at the SEC's website at 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 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 via the link to the Fund and share class name at www.FederatedInvestors.com/FundInformation.
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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 Fund for U.S. Government Securities II

Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 313916207
G00846-01 (2/18)
Federated is a registered trademark of Federated Investors, Inc.
2018 ©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) There was no amendment to the registrant’s code of ethics described in Item 2(a) above during the period covered by the report.

(d) There was no waiver granted, either actual or implicit, from a provision to the registrant’s code of ethics described in Item 2(a) above during the period covered by the report.

(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 of the following members of the Board's Audit Committee is an “audit committee financial expert,” and is "independent," for purposes of this Item:   John T. Collins, G. Thomas Hough and Thomas M. O'Neill. 

 

Item 4.Principal Accountant Fees and Services

 

(a)       Audit Fees billed to the registrant for the two most recent fiscal years:

Fiscal year ended 2017 - $204,590

Fiscal year ended 2016 - $197,640

(b)       Audit-Related Fees billed to the registrant for the two most recent fiscal years:

Fiscal year ended 2017 - $0

Fiscal year ended 2016 - $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 $0 respectively.

(c)        Tax Fees billed to the registrant for the two most recent fiscal years:

Fiscal year ended 2017 - $0

Fiscal year ended 2016 - $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 $0 respectively.

(d)       All Other Fees billed to the registrant for the two most recent fiscal years:

Fiscal year ended 2017 - $0

Fiscal year ended 2016 - $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 $0 respectively.

(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 2017 – 0%

Fiscal year ended 2016 - 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 2017 – 0%

Fiscal year ended 2016 – 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 2017 – 0%

Fiscal year ended 2016 – 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 2017 - $22,091

Fiscal year ended 2016 - $5,827

(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.

In its required communications to the Audit Committee of the registrant’s Board, KPMG LLP (“KPMG”), the registrant’s independent public accountant, informed the Audit Committee that KPMG and/or covered person professionals within KPMG maintain lending relationships with certain owners of greater than 10% of the shares of the registrant and/or certain investment companies within the “investment company complex” as defined under Rule 2-01(f)(14) of Regulation S-X, which are affiliates of the registrant. KPMG has advised the Audit Committee that these lending relationships implicate Rule 2-01(c)(1)(ii)(A) of Regulation S-X (referred to as the “Loan Rule”). The Loan Rule prohibits an independent public accountant, or covered person professionals at such firm, from having a financial relationship (such as a loan) with a lender that is a record or beneficial owner of more than 10% of an audit client’s equity securities. For purposes of the Loan Rule, audit clients include the registrant, as well as all registered investment companies audited by KPMG (collectively, the “KPMG Funds”).

KPMG informed the Audit Committee that KPMG believes that these lending relationships described above do not and will not impair KPMG’s ability to exercise objective and impartial judgment in connection with financial statement audits of the registrant and a reasonable investor with knowledge of all relevant facts and circumstances would conclude that KPMG has been and is capable of objective and impartial judgment on all issues encompassed within KPMG’s audits.

On June 20, 2016, the Division of Investment Management of the Securities and Exchange Commission (“SEC”) issued a no-action letter to another mutual fund complex (see Fidelity Management & Research Company et al., No-Action Letter) related to similar Loan Rule matters as those described above (the “Letter). In the Letter, the SEC Staff confirmed that it would not recommend enforcement action against an investment company that relied on the audit services performed by an independent public accountant where the Loan Rule was implicated in certain specified circumstances provided that: (1) the auditor has complied with PCAOB Rule 3526(b)(1) and 3526(b)(2); (2) the Loan Rule is implicated because of lending relationships; and (3) notwithstanding such lending relationships that implicate the Loan Rule, the auditor has concluded that it is objective and impartial with respect to the issues encompassed within its engagement as auditor of the funds.  The circumstances described in the Letter are substantially similar to the circumstances that implicated the Loan Rule with respect to KPMG and the registrant.   On September 22, 2017, the SEC issued another no-action letter to Fidelity Management & Research Company et al extending the expiration of the Letter until the effectiveness of any amendments to the Loan Rule designed to address the concerns in the Letter (the “Letters”).

If it were to be determined that the relief available under the Letters was improperly relied upon, or that the independence requirements under the federal securities laws were not otherwise complied with regarding the registrant, for certain periods, any of the registrant’s filings with the SEC which contain financial statements of the registrant for such periods may not comply with applicable federal securities laws, the registrant’s ability to offer shares under its current registration statement may be impacted, and certain financial reporting and/or other covenants with, and representations and warranties to, the registrant’s lender under its committed line of credit may be impacted. Such events could have a material adverse effect on the registrant and the KPMG Funds.

 

 

Item 5.Audit Committee of Listed Registrants

 

Not Applicable

 

Item 6.Schedule of Investments

 

(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this form.

 

(b) Not Applicable; Fund had no divestments during the reporting period covered since the previous Form N-CSR filing.

 

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

 

No Changes to Report

 

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 second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

Item 12.Disclosure of Securities Lending Activities for Closed-End Management Investment Companies

 

Not Applicable

 

Item 13.Exhibits

 

(a)(1) Code of Ethics- Not Applicable to this Report.

 

(a)(2) Certifications of Principal Executive Officer and Principal Financial Officer.

 

(a)(3) Not Applicable.

 

(b) Certifications pursuant to 18 U.S.C. Section 1350.

 

 

 

 

 

 

 

 

 

 

 

 

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/ Lori A. Hensler

 

Lori A. Hensler, Principal Financial Officer

 

Date February 14, 2018

 

 

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

 

John B. Fisher, Principal Executive Officer

 

Date February 14, 2018

 

 

By /S/ Lori A. Hensler

 

Lori A. Hensler, Principal Financial Officer

 

Date February 14, 2018

 

 


Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘N-CSR’ Filing    Date    Other Filings
5/1/18
Filed on / Effective on:2/26/18
2/14/18
2/2/18497,  497K
For Period End:12/31/17
9/22/17
9/1/17
7/1/17
5/1/17497J
1/1/17
12/31/16N-CSR,  NSAR-B
6/20/16
4/29/1640-17G/A,  485BPOS,  N-MFP1,  N-MFP1/A
12/31/15N-CSR,  N-MFP,  NSAR-B
12/31/14N-CSR,  N-MFP,  NSAR-B
12/31/13N-CSR,  N-MFP,  NSAR-B
12/22/10
12/31/07N-CSR,  NSAR-B
 List all Filings 
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Filing Submission 0001623632-18-000268   –   Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

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