FEDERATED EQUITY FUNDS, N-30D, 1997-12-24

FEDERATED EQUITY FUNDS
N-30D, 1997-12-24

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[LOGO] FEDERATED INVESTORS

Federated
Aggressive
Growth
Fund

1st Annual Report
October 31, 1997

Established 1996

[Graphic]

Dear Shareholder:

I am pleased to present the first Annual Report for Federated Aggressive Growth
Fund. This report covers the reporting period from November 25, 1996, when the
fund began operation, through October 31, 1997.

The report begins with an interview with Keith J. Sabol, Assistant Vice
President, Federated Management who co-manages the fund with Aash M. Shah, Vice
President, Federated Management. Following this discussion are three additional
items of shareholder interest: a series of graphs showing investment
performance, a complete listing of the fund's stock holdings, and the fund's
financial statements.

As its name implies, Federated Aggressive Growth Fund offers an aggressive
approach to long-term growth. The fund seeks to invest in securities of
companies ranging from small-cap+ to mid-cap to large-cap that display positive
growth characteristics. The fund's portfolio includes common stocks representing
12 key business sectors with many names that you'll recognize immediately, such
as Dell Computer, Ethan Allen, HBO, Travelers Group, and Safeway.

As shown by share class performance below, this diversified portfolio produced
an excellent total return during its first year of operation through gains from
security price appreciation.* The fund's returns far outpaced the 22.74% total
return of its peer group, the Lipper Capital Appreciation Funds Average.**

<TABLE>
<CAPTION>
Total Net Asset
Return Value Increase
<S> <C> <C>
Class A Shares 33.21% $10.00 to $13.31=33%
Class B Shares 32.75% $10.00 to $13.27=32%
Class C Shares 32.04% $10.00 to $13.20=32%
</TABLE>

While the fund's first-year performance was extremely strong in a favorable
economic environment, it's important to remember that, as the past few months
have shown, short-term volatility is an inevitable part of stock investing. At
times, the volatility can be severe, however, the overall trend of the stock
market over history has been upward.

+ Small Cap Stocks have historically experienced greater volatility than
average.

* Past performance quoted is based on net asset value and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the period based on offering price for Class
A, B, and C Shares were 25.91%, 27.25%, and 31.04%, respectively.

** Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the respective category indicated. This figure does not reflect any
sales charges.

As a shareholder, you have two easy, convenient ways to increase your
opportunity to participate in the growth of quality American companies. First,
if you are not already doing so, you can reinvest your dividends and capital
gains automatically in additional shares--and help your shares increase in
number through the benefit of compounding. Second, you can "pay yourself first"
by investing in the fund through a systematic investment program.++ This program
withdraws a specific amount from your checking account on a regular basis to
purchase more fund shares. For more information, contact your investment
representative.

Thank you for entrusting a portion of your wealth to Federated Aggressive Growth
Fund. We hope you are pleased with your investment's progress, and as always, we
welcome your comments and suggestions.

Sincerely,

[sig]

Glenn R. Johnson
President
December 15, 1997

++ Systematic investing does not ensure a profit against loss in declining
markets.

Investment Review

[Graphic]

Keith J Sabol
Assistant Vice President
Federated Management

[Graphic]

Aash M. Shah, CFA
Vice President
Federated Management

[Q]

Since this is the first annual report of Federated Aggressive Growth Fund, how
would you sum up the fund's objective?

[A]

The fund pursues maximum capital appreciation over time by investing in
companies we believe have the strongest growth prospects--whether large-cap,
mid- cap, or small-cap--regardless of their industry.

[Q]

What type of investor should be interested in the fund?

[A]

This fund is designed to appeal to investors who believe, like we do, in a
long-term, earnings-focused approach to creating wealth. Because such investors
are willing to assume risk in pursuit of capital appreciation, they should not
be overly concerned with the stock market's short-term volatility.

[Q]

How did Federated Aggressive Growth Fund perform during the reporting period
ended October 31, 1997?

[A]

The fund produced extremely strong total returns. Class A, B, and C Shares
returns were 33.21%, 32.75%, and 32.04%, respectively.* These returns were
competitive with the 32.11% return for S&P 500 Index** and the 22.74% return for
the average fund in the Lipper Capital Appreciation Funds universe for the full
one-year period from November 1, 1996 through October 31, 1997.

* Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the period based on offering price for Class
A, B, and C Shares were 25.91%, 27.25% and 31.04%, respectively.

** The S&P500 is an unmanaged index comprising stocks in industry,
transportation, financial and public utility companies. Investments cannot be
made in an index.

[Q]

What explains the fund's excellent performance?

[A]

The fund's performance is best explained by the disciplined investment process
we employ. One key belief is that in the long term, the most important
determinant of stock prices is earnings growth. This is fundamental to the whole
portfolio management process. Each week, we run a proprietary quantitative model
that ranks every stock's earnings prospects. At any point, there are about 7,000
stocks we could buy, but our quantitative model quickly reduces that list to
about 450 that we'll even consider purchasing. Next, we apply fundamental
analysis to identify which of the 450 stocks on the short list have the highest
return potential. Ultimately, we own about 130 companies that we believe are the
best 2% of publicly traded companies, with the best combination of earnings
growth and return potential.

[Q]

Can you explain more about this quantitative investment approach?

[A]

The beauty of a quantitative process is that it enables a manager to quickly,
efficiently, and most importantly, objectively compare a large number of
investment alternatives. As humans, we can become emotionally attached to a
stock. On the other hand, a computer cannot and therefore, renders an unbiased
assessment. Because we believe earnings growth drives stock prices, our
quantitative model considers factors that have historically tended to precede
sustainable business momentum. Some of the factors we examine are earnings
growth, changes to consensus earnings estimates, earnings surprises, and rates
of revenue growth.

[Q]

How do you know when to sell a stock?

[A]

I reiterate that we strongly believe that long term, the most important
determinant of stock prices is earnings growth. Therefore, we always aim to hold
the best companies with the brightest earnings prospects. If we detect a
fundamental change that's likely to have a negative impact on the earnings power
of one of our holdings, we sell. A number of other factors could also trigger a
sale, for example, a negative earnings surprise or a deterioration in
quantitative ranking relative to other stocks. Finally, we'll sell a stock if we
believe it is over-valued.

[Q]

Regarding market volatility, in the nearly 12 months since the fund began
operation, the stock market reached new heights and experienced unprecedented
volatility. While the Dow broke the 8,000 mark for the first time in history,
the reporting period ended as the Dow plunged 554 points--and has since staged a
spectacular recovery. What's your review of this turbulent market?

[A]

It is true that concerns over Southeast Asia recently increased the volatility
in the market substantially. The large point swings in the Dow, however,
overstate the true magnitude of the swings. On a percentage change basis, the
Dow's drop from October 21-27, 1997, was roughly 11%, less than half the
magnitude of the move we witnessed in October of 1987. From the market bottom on
April 25, 1997, Federated Aggressive Growth Fund had risen more than 50%. We're
not surprised that we had to give back a little of the gain experienced by the
fund. Today, we're finding that a number of great companies with solid earnings
prospects have become much cheaper to buy.

After the 1987 market crash, a couple of months passed before the bull market
was able to reassert itself. We expect the same may be true this time around and
we are confident that history will view this as having been a buying opportunity
for investors.

[Q]

What was the fund's sector exposure and its top 10 holdings as of October 31,
1997?

[A]

At the end of the reporting period, the fund's sector weightings were as
follows:

Sector Weightings
Percentage S&P500
Sector of Net Assets Weighting
<S> <C> <C>
Technology 23.3% 15.2%
Finance 15.1% 16.0%
Energy Minerals 12.2% 9.1%
Retail Trade 9.3% 4.8%
Services 8.6% 5.1%
Health Care 7.5% 11.4%
Producer Manufacturing 4.6% 7.7%
Consumer Non-Durables 4.3% 11.0%
Transportation 4.0% 1.4%
Basic Industry 3.5% 5.4%
Consumer Durables 2.3% 3.4%
Utilities 0.9% 9.5%
Miscellaneous 4.4%
</TABLE>

Top Holdings
Percentage
Name of Net Assets
<S> <C>
AmeriPath, Inc. 1.6%
Imperial Bancorp 1.4%
SkyWest, Inc. 1.4%
Citrix Systems Inc. 1.4%
BJ Services Co. 1.3%
UTI Energy Corp. 1.3%
Cooper Cameron Corp. 1.3%
Dave & Buster's, Inc. 1.2%
Advanced Fibre Communications 1.2%
Total Percentage of Portfolio 12.1%
</TABLE>

Federated Aggressive Growth Fund
(Class A Shares)

Growth of $10,000 Invested in Federated Aggressive Growth Fund (Class A Shares)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Aggressive Growth Fund (Class A Shares) (the "Fund") from November 25, 1996
(start of performance) to October 31, 1997 compared to Standard and Poor's 500
Index (S&P 500)+ and the Lipper Capital Appreciation Fund Index (LCAFI).+

[Graphic representation A.1. See Appendix.]

Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate, so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.

* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.50% ($10,000 investment minus $550 sales charge
= $9,450). The Fund's performance assumes the reinvestment of all dividends
and distributions. The S&P 500 and the LCAFI have been adjusted to reflect
reinvestment of dividends on securities in the indices.

** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

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

Federated Aggressive Growth Fund
(Class B Shares)

Growth of $10,000 Invested in Federated Aggressive Growth Fund (Class B Shares)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Aggressive Growth Fund (Class B Shares) (the "Fund") from November 25, 1996
(start of performance) to October 31, 1997 compared to Standard and Poor's 500
Index (S&P 500)+ and the Lipper Capital Appreciation Fund Index (LCAFI).+

[Graphic representation A.2. See Appendix.]

* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a contingent deferred sales charge of 5.50% on any
redemption less than 1 year from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The S&P 500 and
the LCAFI have been adjusted to reflect reinvestment of dividends on
securities in the indices.

** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

Federated Aggressive Growth Fund
(Class C Shares)

Growth of $10,000 Invested in Federated Aggressive Growth Fund (Class C Shares)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Aggressive Growth Fund (Class C Shares) (the "Fund") from November 25, 1996
(start of performance) to October 31, 1997 compared to Standard and Poor's 500
Index (S&P 500)+ and the Lipper Capital Appreciation Fund Index (LCAFI).+

[Graphic representation A.3. See Appendix.]

* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a contingent deferred sales charge of 1.00% on any
redemption less than 1 year from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The S&P 500 and
the LCAFI have been adjusted to reflect reinvestment of dividends on
securities in the indices.

** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

Federated Aggressive Growth Fund
Portfolio of Investments

October 31, 1997

<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
Common Stocks--94.3%
Basic Industry--3.4%
2,500 (a)Dril-Quip, Inc. $ 89,687
2,737 Fort James Corp. 108,625
2,500 Southdown, Inc. 138,438
4,000 (a)Steel Dynamics, Inc. 85,000
Total 421,750
Consumer Durables--2.3%
1,800 (a)Equity Marketing, Inc. 51,412
3,300 Ethan Allen Interiors, Inc. 116,944
4,600 The First Years, Inc. 115,000
Total 283,356
Consumer Non-Durables--4.2%
6,700 (a)American Italian Pasta Co., Class A 140,700
1,050 (a)Blyth Industries, Inc. 26,119
2,400 Liz Claiborne, Inc. 121,650
4,600 (a)Nautica Enterprise, Inc. 122,475
4,600 (a)North Face, Inc. 108,675
Total 519,619
Energy Minerals--12.0%
1,900 (a)BJ Services Co. 161,025
2,000 Camco International, Inc. 144,500
2,100 (a)Cooper Cameron Corp. 151,725
3,000 ENSCO International, Inc. 126,187
1,800 (a)Friede Goldman International, Inc. 71,663
4,000 (a)Key Energy Group, Inc. 125,500
3,400 (a)Marine Drilling Cos., Inc. 100,725
3,300 (a)Nabors Industries, Inc. 135,713
2,600 (a)Patterson Energy Inc. 145,600
500 (a)Reading & Bates Corp. $ 21,188
1,200 (a)SEACOR SMIT, Inc. 78,150
2,400 (a)Transcoastal Marine Services 58,200
3,500 (a)UTI Energy Corp. 156,188
Total 1,476,364
Finance--14.9%
1,900 Ahmanson (H.F.) & Co. 112,100
2,100 (a)American Capital Strategies Ltd. 37,800
4,100 (a)Americredit Corp. 119,156
3,900 (a)Amresco, Inc. 122,362
950 Amsouth Bancorporation 45,659
2,600 Conseco, Inc. 113,425
1,700 (a)Delphi Financial Group, Inc., Class A 70,125
2,500 Everest Re Holdings, Inc. 94,062
1,200 Executive Risk, Inc. 79,050
2,100 (a)FIRSTPLUS Financial Group, Inc. 115,500
3,000 Frontier Insurance Group, Inc. 101,063
3,900 (a)Imperial Bancorp 170,138
3,900 (a)Imperial Credit Commercial Mortgage Investment Corp. 64,350
4,200 Money Stores, Inc. 119,175
2,800 Morgan Stanley, Dean Witter, Discover & Co. 137,200
500 (a)Security Capital Group, Inc. 16,000
2,700 (a)Signature Resorts, Inc. 70,538
3,900 Trans Financial, Inc. 124,800
1,600 Travelers Group, Inc. 112,000
Total 1,824,503
Health Care--7.4%
1,400 (a)Agouron Pharmaceuticals, Inc. $ 63,875
11,900 (a)AmeriPath, Inc. 196,350
4,000 (a)Ascent Pediatrics, Inc. 36,500
2,000 (a)BioChem Pharma, Inc. 50,125
3,600 (a)FPA Medical Management, Inc. 86,850
3,200 HBO & Co. 139,200
700 (a)Medicis Pharmaceutical Corp., Class A 33,688
1,200 (a)Monarch Dental Corp. 21,750
3,100 (a)Parexel International Corp. 111,988
1,800 (a)Safeskin Corp. 81,675
2,700 (a)Spine-Tech, Inc. 84,038
Total 906,039
Producer Manufacturing--4.5%
2,200 (a)EVI, Inc. 141,212
1,600 (a)Lexmark Intl. Group, 48,900
Class A
3,000 Miller Herman, Inc. 146,625
5,300 (a)Terex Corp. 111,631
3,500 (a)U.S. Office Products Co. 109,375
Total 557,743
Retail Trade--9.2%
5,000 (a)Abercrombie & Fitch Co., Class A 130,000
5,100 (a)Borders Group, Inc. 132,281
1,900 (a)Buckle, Inc. 51,300
2,500 (a)Children's Place Retail Stores, Inc. 15,000
700 (a)Cole National Corp., Class A 29,662
2,200 (a)Gadzooks, Inc. 54,725
5,700 (a)Genesco, Inc. 72,319
800 (a)Kohl's Corp. 53,700
2,900 (a)Mens Wearhouse, Inc. 112,375
3,000 (a)Microage, Inc. $ 66,000
4,050 (a)Pacific Sunwear of California 111,881
5,100 (a)Paul Harris Stores, Inc. 93,713
427 (a)Safeway, Inc. 24,819
3,200 (a)Stage Stores, Inc. 116,800
900 Tiffany & Co. 35,550
1,500 (a)U.S.A. Floral Products, Inc. 26,250
Total 1,126,375
Services--8.5%
3,050 CKE Restaurants, Inc. 121,809
1,000 Cognizant Corp. 39,187
2,200 (a)Consolidated Graphics, Inc. 114,125
5,700 (a)Dave & Buster's, Inc. 149,625
2,200 M/A/R/C, Inc. 44,000
3,400 (a)Mail-Well, Inc. 117,725
2,900 (a)Maximus, Inc. 81,200
2,100 (a)Peterson Cos., Inc. 41,475
2,200 (a)Pierce Leahy Corp. 61,600
2,550 (a)Robert Half International, Inc. 104,391
1,900 (a)Scopus Technology, Inc. 28,144
4,800 (a)Snyder Communications, Inc. 141,600
Total 1,044,881
Technology--23.0%
2,300 (a)3DFX Interactive, Inc. 39,100
5,100 (a)Advanced Fibre Communications 148,219
800 (a)Altera Corp. 35,500
1,500 (a)Anadigics, Inc. 55,500
3,100 (a)Applied Materials, Inc. 103,462
300 (a)At Home Corp., Class A 7,237
1,000 (a)BMC Software, Inc. $ 60,375
1,400 (a)Baan Co. NV 98,175
1,000 (a)CBT Group PLC, ADR 76,750
400 (a)Cadence Design Systems, Inc. 21,300
1,200 (a)Cambridge Technology Partners, Inc. 43,800
2,300 (a)Citrix Systems Inc. 168,906
1,700 Compaq Computer Corp. 108,375
2,000 (a)Compuware Corp. 132,250
2,200 (a)Comverse Technology, Inc. 90,750
1,600 (a)Concord Communications, Inc. 28,400
5,200 (a)Creative Technology Ltd. 132,275
3,900 (a)Credence Systems Corp. 115,050
4,900 (a)Cymer, Inc. 112,087
2,700 (a)Davox Corp. 96,525
400 (a)Dell Computer Corp. 32,050
5,000 (a)Faro Technologies, Inc. 68,125
600 (a)Genesys Telecommunications Laboratories, Inc. 19,200
4,100 (a)Iomega Corp. 109,931
3,600 (a)Keane, Inc. 106,650
2,800 (a)Mastech Corp. 92,750
700 (a)Metromedia Fibre Network, Inc. 16,800
1,600 (a)N2K, Inc. 42,100
2,700 (a)National Semiconductor Corp. 97,200
1,300 (a)Pegasus Systems, Inc. 20,150
700 (a)Peritus Software Services, Inc. 12,950
4,800 (a)ProBusiness Services, Inc. 96,000
1,600 (a)Sanmina Corp. 119,600
2,000 (a)Sun Microsystems, Inc. 68,500
3,000 (a)Veeco Instruments, Inc. 118,875

Shares or
Principal
Amount Value
<C> <S> <C>
Common Stocks--continued
Technology--continued
1,500 (a)Western Digital Corp. $ 44,906
2,150 (a)Wind River Systems, Inc. 82,506
Total 2,822,329
Transportation--4.0%
1,500 Airborne Freight Corp. 95,062
3,000 (a)Continental Airlines, Inc., Class B 129,750
7,000 SkyWest, Inc. 169,750
300 (a)UAL Corp. 26,288
2,500 (a)Yellow Corp. 68,594
Total 489,444
Utilities--0.9%
2,400 (a)Corsair Communications, Inc. 55,800
1,600 (a)Premiere Technologies, Inc. 54,400
Total 110,200
Total Common Stocks (identified cost $10,238,114) 11,582,603
(b)Repurchase Agreement--3.4%
$415,000 BT Securities Corp., 5.71%, dated 10/31/1997,
due 11/3/1997 (at amortized cost) 415,000
Total Investments (identified cost $10,653,114)(c) $11,997,603
</TABLE>

(a) Non-income producing security.

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

(c) The cost of investments for federal tax purposes amounts to $10,653,114. The
net unrealized appreciation of investments on a federal tax basis amounts to
$1,344,489 which is comprised of $1,660,093 appreciation and $315,604
depreciation at October 31, 1997.

Note: The categories of investments are shown as a percentage of net assets
($12,288,722) at October 31, 1997.

The following acronyms are used throughout this portfolio:

ADR --American Depository Receipt
PLC --Public Limited Company

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

Federated Aggressive Growth Fund
Statement of Assets and Liabilities

October 31, 1997

<TABLE>
<S> <C> <C>
Assets:
Total investments in securities, at value (identified and tax cost $10,653,114) $11,997,603
Cash 49,371
Income receivable 571
Receivable for investments sold 68,998
Receivable for shares sold 561,381
Deferred organizational costs 13,912
Total assets 12,691,836
Liabilities:
Payable for investments purchased $376,370
Payable for shares redeemed 327
Accrued expenses 26,417
Total liabilities 403,114
Net Assets for 925,331 shares outstanding $12,288,722
Net Assets Consist of:
Paid in capital $10,940,913
Net unrealized appreciation of investments 1,344,489
Accumulated net realized gain on investments 5,250
Distributions in excess of net investment income (1,930)
Total Net Assets $12,288,722
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Class A Shares:
Net Asset Value Per Share ($4,147,931/311,580 shares outstanding) $13.31
Offering Price Per Share (100/94.50 of $13.31)* $14.08
Redemption Proceeds Per Share $13.31
Class B Shares:
Net Asset Value Per Share ($7,183,598/541,240 shares outstanding) $13.27
Offering Price Per Share $13.27
Redemption Proceeds Per Share (94.50/100 of $13.27)** $12.54
Class C Shares:
Net Asset Value Per Share ($957,193/72,511 shares outstanding) $13.20
Offering Price Per Share $13.20
Redemption Proceeds Per Share (99.00/100 of $13.20)** $13.07
</TABLE>

* See "Investing in the Fund" in the Prospectus.

** See "Contingent Deferred Sales Charge" in the Prospectus.

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

Federated Aggressive Growth Fund
Statement of Operations

Period Ended October 31, 1997(a)

<TABLE>
<S> <C> <C> <C>
Investment Income:
Dividends $ 15,474
Interest 12,326
Total income 27,800
Expenses:
Investment advisory fee $ 43,174
Administrative personnel and services fee 175,867
Custodian fees 8,950
Transfer and dividend disbursing agent fees and expenses 60,177
Auditing fees 188
Portfolio accounting fees 68,792
Distribution services fee--Class B Shares 17,975
Distribution services fee--Class C Shares 1,686
Shareholder services fee--Class A Shares 4,239
Shareholder services fee--Class B Shares 5,992
Shareholder services fee--Class C Shares 562
Share registration costs 45,154
Printing and postage 4,625
Miscellaneous 51
Total expenses 437,432
Waivers and reimbursements--
Waiver of investment advisory fee $ (43,174)
Reimbursement of other operating expenses (298,872)
Total waivers and reimbursements (342,046)
Net expenses 95,386
Net operating loss (67,586)
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments 72,836
Net change in unrealized appreciation (depreciation) of investments 1,344,489
Net realized and unrealized gain on investments 1,417,325
Change in net assets resulting from operations $1,349,739
</TABLE>

(a) For the period from November 25, 1996 (date of initial public investment) to
October 31, 1997.

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

Federated Aggressive Growth Fund
Statement of Changes in Net Assets

<TABLE>
Period Ended
October 31,
1997(a)
<S> <C>
Increase (Decrease) in Net Assets:
Operations--
Net operating loss $ (67,586)
Net realized gain on investments ($72,836 as computed for federal tax purposes) 72,836
Net change in unrealized appreciation 1,344,489
Change in net assets resulting from operations 1,349,739
Distributions to Shareholders--
Distributions in excess of net investment income
Class A Shares (1,722)
Class B Shares (165)
Class C Shares (43)
Change in net assets resulting from distributions to shareholders (1,930)
Share Transactions--
Proceeds from sale of shares 15,270,771
Net asset value of shares issued to shareholders in payment of
distributions declared 391
Cost of shares redeemed (4,330,249)
Change in net assets resulting from share transactions 10,940,913
Change in net assets 12,288,722
Net Assets:
Beginning of period --
End of period $12,288,722
</TABLE>

(a) For the period from November 25, 1996 (date of initial public investment) to
October 31, 1997.

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

Federated Aggressive Growth Fund
Financial Highlights--Class A Shares

(For a share outstanding throughout each period)

<TABLE>
<CAPTION>
Period Ended
October 31,
1997(a)
<S> <C>
Net asset value, beginning of period $ 10.00
Income from investment operations
Net operating loss (0.05)
Net realized and unrealized gain on investments 3.37
Total from investment operations 3.32
Less distributions
Distributions in excess of net investment income (0.01)
Net asset value, end of period $ 13.31
Total return(b) 33.21%
Ratios to average net assets
Expenses 1.74%*
Net operating loss (0.96%)*
Expense waiver/reimbursement(c) 8.97%*
Supplemental data
Net assets, end of period (000 omitted) $ 4,148
Average commission rate paid(d) $ 0.0380
Portfolio turnover 97%
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from November 25, 1996 (date of initial
public investment) to October 31, 1997.

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

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

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

Federated Aggressive Growth Fund
Financial Highlights--Class B Shares

(For a share outstanding throughout each period)

<TABLE>
<CAPTION>
Period Ended
October 31,
1997(a)
<S> <C>
Net asset value, beginning of period $ 10.00
Income from investment operations
Net operating loss (0.08)
Net realized and unrealized gain on investments 3.35
Total from investment operations 3.27
Less distributions
Distributions in excess of investment income (0.00)**
Net asset value, end of period $ 13.27
Total return(b) 32.75%
Ratios to average net assets
Expenses 2.51%*
Net operating loss (1.96%)*
Expense waiver/reimbursement(c) 7.25%*
Supplemental data
Net assets, end of period (000 omitted) $ 7,184
Average commission rate paid(d) $ 0.0380
Portfolio turnover 97%
</TABLE>
* Computed on an annualized basis.

** Amounts distributed per share do not round to $0.01.

(a) Reflects operations for the period from November 25, 1996 (date of initial
public investment) to October 31, 1997.

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

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

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

Federated Aggressive Growth Fund
Financial Highlights--Class C Shares

(For a share outstanding throughout each period)

<TABLE>
<CAPTION>
Period Ended
October 31,
1997(a)
<S> <C>
Net asset value, beginning of period $ 10.00
Income from investment operations
Net operating loss (0.06)
Net realized and unrealized gain on investments 3.26
Total from investment operations 3.20
Less distributions
Distributions in excess of investment income (0.00)**
Net asset value, end of period $ 13.20
Total return(b) 32.04%
Ratios to average net assets
Expenses 2.53%*
Net operating loss (1.95%)*
Expense waiver/reimbursement(c) 7.23%*
Supplemental data
Net assets, end of period (000 omitted) $ 957
Average commission rate paid(d) $ 0.0380
Portfolio turnover 97%
</TABLE>

* Computed on an annualized basis.

** Amounts distributed per share do not round to $0.01.

(a) Reflects operations for the period from November 25, 1996 (date of initial
public investment) to October 31, 1997.

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

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

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

Federated Aggressive Growth Fund
Notes to Financial Statements

October 31, 1997

1. Organization

Federated Equity Funds (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a diversified, open-end management
investment company. The Trust consists of four portfolios. The financial
statements included herein are only those of Federated Aggressive Growth Fund
(the "Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held.

The Fund offers three classes of shares: Class A Shares, Class B Shares, and
Class C Shares. The investment objective of the Fund is to provide appreciation
of capital.

2. Significant Accounting Policies

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

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

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

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

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

Distributions in excess of net investment income were a result of certain
book and tax timing differences. These distributions do not represent a
return of capital for federal income tax purposes.

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

Increase (Decrease)
Accumulated
Distributions in
Excess of Net Accumulated Net
Investment Income Realized Gain/Loss

$67,586 ($67,586)

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

Federal Taxes--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.

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

Deferred Expenses--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being amortized
over a period not to exceed five years from the Fund's commencement date.

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

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

3. Shares of Beneficial Interest

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

Transactions in shares were as follows:

<TABLE>
<CAPTION>
October 31, 1997(a)
Class A Shares Shares Amount
<S> <C> <C>
Shares sold 656,969 $ 7,390,752
Shares issued to shareholders in payment of distributions declared 19 184
Shares redeemed (345,408) (3,685,007)
Net change resulting from Class A Share transactions 311,580 $ 3,705,929
</TABLE>

(a) For the period from November 25, 1996 (date of initial public investment) to
October 31, 1997.

<TABLE>
<CAPTION>
October 31, 1997(a)
Class B Shares Shares Amount
<S> <C> <C>
Shares sold 582,846 $ 6,793,396
Shares issued to shareholders in payment of distributions declared 17 164
Shares redeemed (41,623) (458,090)
Net change resulting from Class B Share transactions 541,240 $ 6,335,470
</TABLE>

<TABLE>
<CAPTION>
October 31, 1997(a)
Class C Shares Shares Amount
<S> <C> <C>
Shares sold 89,902 $ 1,086,623
Shares issued to shareholders in payment of distributions declared 4 43
Shares redeemed (17,395) (187,152)
Net change resulting from Class B Share transactions 72,511 $ 899,514
Net change resulting from share transactions 925,331 $10,940,913
</TABLE>

(a) For the period from November 25, 1996 (date of initial public investment) to
October 31, 1997.

4. Investment Advisory Fee and Other Transactions with Affiliates

Investment Advisory Fee--Federated Management, the Trust's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.65% of the Trust's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee and/or reimburse certain
operating expenses of the Trust. The Adviser can modify or terminate this
voluntary waiver and/or reimbursement at any time at its sole discretion.

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

Distribution Services Fee--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's shares. The Plan provides that the Fund
may incur distribution expenses according to the following schedule annually,
to compensate FSC.

Percentage of Average
Daily Net Assets
Share Class Name of Class
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%

For the period ended October 31, 1997, the Class A Shares did not incur a
12b-1 fee.

Shareholder Services Fee--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Trust will pay FSS up to
0.25% of average daily net assets of the Trust for the period. The fee paid
to FSS is used to finance certain services for shareholders and to maintain
shareholder accounts.

Transfer and Dividend Disbursing Agent Fees and Expenses--Federated Services
Company ("FServ"), through its subsidiary, Federated Shareholder Services
Company ("FSSC") serves as transfer and dividend disbursing agent for the
Fund. The fee paid to FSSC is based on the size, type, and number of accounts
and transactions made by shareholders.

Portfolio Accounting Fees--Federated Services Company maintains the Fund's
accounting records for which it receives a fee. The fee is based on the level
of the Fund's average daily net assets for the period, plus out-of-pocket
expenses.

Organizational Expenses--Organizational expenses of $67,311 were borne
initially by the Adviser. The Fund has agreed to reimburse the Adviser for
the organizational expenses during the five year period following the Fund's
effective date. For the period ended October 31, 1997, the Fund paid $13,912
pursuant to this agreement.

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

5. Investment Transactions

Purchases and sales of investments, excluding short-term securities, for the
period ended October 31, 1997, were as follows:

Purchases $14,655,928
Sales $4,490,287

Report of Ernst &Young LLP, Independent AuditorsArt Dept.Art Dept.Report of
Ernst &Young LLP, Independent Auditors

To the Trustees and Shareholders of FEDERATED EQUITY FUNDS:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Aggressive Growth Fund, (a portfolio
of Federated Equity Funds) as of October 31, 1997, and the related statement of
operations, the statement of changes in net assets and the financial highlights
for the period then ended. these financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of October 31, 1997, by
correspondence with the custodian and brokers or other appropriate auditing
procedures where replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Aggressive Growth Fund as of October 31, 1997, the results of its
operations, the changes in its net assets, and its financial highlights for the
period then ended, in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Pittsburgh, Pennsylvania
December 12, 1997

Trustees

John F. Donahue

Thomas G. Bigley

John T. Conroy, Jr.

William J. Copeland

James E. Dowd

Lawrence D. Ellis, M.D.

Edward L. Flaherty, Jr.

Peter E. Madden

Gregor F. Meyer

John E. Murray, Jr.

Wesley W. Posvar

Marjorie P. Smuts

Officers

John F. Donahue
Chairman
Glen R. Johnson
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
Matthew S. Hardin
Assistant Secretary

Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including 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 Investors
Federated Securities Corp., Distributor

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

1-800-341-7400

www.federatedinvestors.com

Federated
Capital
Appreciation
Fund

21st Annual Report
October 31, 1997

Established 1977

President's Message

[Photo]

Dear Shareholder:

Federated Capital Appreciation Fund was created in 1977, and I am pleased to
present its 21st Annual Report to shareholders.

This report covers the 12-month fiscal year reporting period from November 1,
1996, to October 31, 1997. First, you'll find a discussion with the fund's
portfolio manager, Arthur J. Barry, Assistant Vice President, Federated
Management. Following his discussion are graphs showing the fund's long-term
investment performance, a complete listing of the fund's highly diversified
stock holdings, and the fund's financial statements.

The fund's portfolio of high-quality common stocks issued by mid- to large-
capitalization companies included household names--such as Travelers Group,
Inc., Bristol-Myers Squibb Company, and Compaq Computer Corp.--that performed
very well as the stock market environment continued to be favorable.

The fund turned in strong total return performance that far outpaced the 22.74%
total return of its peer group, the Lipper Capital Appreciation Funds Average.*
Total return for the 12-month reporting period, which reflects income dividends,
realized gain and net asset value increase, is shown below for each share
class.**

<TABLE>
<CAPTION>
Total Capital Net Asset Value
Return Income Gains Increase
<S> <C> <C> <C> <C>
Class A Shares 32.10% $0.11 $0.92 $16.17 to $20.08=24%
Class B Shares 31.65% $0.15 $16.12 to $20.04=24%
Class C Shares 30.90% $0.15 $16.13 to $19.95=24%
</TABLE>

While the fund's performance has been extremely strong in a continued favorable
economic environment, it's important to remember that, as recent months have
shown, short-term volatility is an inevitable part of stock investing. At times,
the volatility can be severe. However, the overall trend of the stock market
over history has been upward.

* Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the respective category indicated. This figure does not reflect any
sales charges.

** Performance quoted is based on net asset value and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns based on offering price for the period for Class
A, B, and C Shares were 24.84%, 25.80%, and 29.85%, respectively.

Please note that on the close of business on October 29, 1997, the fund
completed a 6-for-1 stock split. Shareholders of record on this date received
six shares of Federated Capital Appreciation Fund for every share they owned.
This event had no effect on the overall value of shareholder accounts; each
shareholder simply now owns more shares at a proportionately lower share price.
As you probably have noticed, the fund's share price had grown to more than
$100, which is extremely high for a mutual fund. This split brought the net
asset value of the fund to a comparable level with other funds in its peer
group. This event was non-taxable for shareholders in the fund.

Remember, as a shareholder you have two easy, convenient ways to increase your
participation in the growth and earnings of quality American companies. First,
if you are not already doing so, you can reinvest your dividends and capital
gains automatically in additional shares--and help your shares increase in
number through the benefit of quarterly compounding. Second, you can "pay
yourself first," by investing in the fund through a systematic investment
program.+ This program withdraws a specific amount from your checking account on
a regular basis to purchase more fund shares. For more information, please
contact your investment representative.

Thank you for entrusting a portion of your wealth to Federated Capital
Appreciation Fund. We hope you are pleased with your investment's progress. As
always, we welcome your comments and suggestions.

Sincerely,

[Sig]

Glen R. Johnson
President
December 15, 1997

+ Systematic investing does not ensure a profit or protect against loss in
declining markets.

Investment Review

[Photo]

Arthur J. Barry, CFA
Assistant Vice President
Federated Management

[Q]
Overall, the fund's fiscal year has been a rewarding--yet harrowing--period for
stock investors. What's your review of the market over the 12-month reporting
period?

[A]
For the 12 months ended October 31, 1997, the S&P 500* had a total return of
31.10% continuing the market strength that began in late 1994. The market had
roughly a 3% correction in March followed by a 26% advance through the end of
July. Then the market became particularly volatile: down 5% in August, up 5% in
September and finally down 3% in October. During the fiscal year, interest rates
continued to decline and investors remained steadfast buyers of mutual funds.
Uncertainty entered the marketplace as economic growth appeared to be slowing,
and a stronger dollar dampened revenue and earnings growth for many
multinationals. Turmoil in the international equity markets also effected the
domestic market. The higher probability of an emerging market economic slowdown
gave more credence to slowing economic growth in the United States.

[Q]
How did Federated Capital Appreciation Fund perform for its shareholders?

[A]
For the 12-month reporting period, the fund's Class A Shares produced a total
return of 32.10%. The fund's Class B and C Shares delivered total returns of
31.65% and 30.90%, respectively.** This performance is based on net asset value
and includes capital appreciation, income dividends, and capital gains. The fund
outperformed both of its peer groups, the Lipper Growth Funds Average and the
Lipper Capital Appreciation Funds Average, which recorded total returns of
27.28% and 22.74%, respectively, for the same 12-month reporting period.

* The S&P 500 is an unmanaged index comprising stocks in industry,
transportation, financial and public utility companies. Investments cannot
be made in an index.

** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate so an
investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the period based on offering price for
Class A, B, and C Shares were 24.84%, 25.80%, and 29.85%, respectively.

[Q]
What sectors are you underweighting and overweighting?

[A]
Our biggest underweight is in Consumer Durables, where the fund has a 65%
relative exposure. With this long economic boom, pent-up demand for consumer
durables is waning. Combined with high consumer debt levels, we are leery of
companies that sell big-ticket items. Our largest overweight is in the Services
sector, where we have a 150% relative exposure, but these holdings are spread
throughout several industries. During the fiscal year, we began to overweight
oil services as the industry gained pricing power. We ended the year slightly
underweighting Technology, Health Care and Consumer Non-Durables.

[Q]
Did you make any changes to the fund's market capitalization?

[A]
In the second quarter, we began trimming our holdings in larger cap names in
favor of the underperforming mid-cap arena. In the third quarter, we continued
this strategy, such that the median market cap of the fund is now $5.1 billion
versus $6.7 billion at the end of the second quarter. This rebalancing helped
our performance as mid-caps, as defined by the S&P 400 Mid Cap Index,*
outperformed large-caps, as defined by the S&P 500, by more than 700 basis
points. While we continue to discover attractive opportunities in the mid-cap
arena, the underperformance of large-caps in the third quarter led to some
potentially attractive opportunities.

[Q]
What were some of the fund's recent stock purchases?

[A]
Our recent purchases include the following:

Creative Technology (1.1% of portfolio)--Creative Technology is the leading
producer of PC sound cards through its brand "Sound Blaster." The company has
introduced new products for the Christmas season and is making a push into
digital video disk drives. The company has $5 per share in cash and is extremely
inexpensive on an earnings valuation.

* S&P 400 Mid Cap Index is an unmanaged capitalization weighted index that
measures the performance of the mid-range of the U.S. stock market.
Investments cannot be made in an index.

Key Energy (1.09% of portfolio)--Key Energy is leading the consolidation of oil
well service and completion rig companies. They provide services that allow oil
wells to retain their pressure, which increases oil extraction. Key Energy is
also a leading supplier of completion rigs, which should experience higher usage
as land rigs become more expensive. The stock is cheap on its earnings
potential.

Progressive Corp of Ohio (1.09% of portfolio)--Progressive Corp. is primarily an
auto insurer. The company has traditionally insured higher risk individuals but
now is targeting lower risk (standard) individuals through a direct network,
i.e., insurance by phone. We expect the company to be successful and experience
a period of relatively fast growth. After our purchase, Progressive Corp. was
added to the S&P 500.

Steel Dynamics (0.59% of portfolio)--The newest entry into the mini-mill
business, Steel Dynamics was founded by former Nucor executives who are using
the latest technology available in steel manufacturing. After only a year, the
company is among the highest margin manufacturers in the country. Our work
suggests that the company is very cheap on a growth to P/E basis.

[Q]

What were the fund's top 10 holdings as of October 31, 1997, and how is the fund
diversified by industry?

[A]
The top stock holdings and sector weightings were as follows:

Top Holdings

<TABLE>
<CAPTION>
<S> <C>
Percentage
Name of Net Assets
Travelers Corp. 2.0%
Diamond Offshore 1.8%
EVI Inc. 1.7%
Morgan Stanley, Dean Witter, Discover 1.7%
Chase Manhattan Corp. 1.6%
Bristol-Myers Squibb 1.6%
SmithKline Beecham 1.5%
Compaq Computer 1.5%
Textron, Inc. 1.4%
Sun Co. 1.4%
-----
Total Percentage of Portfolio 16.2%

</TABLE>

Sector Weightings

Percentage S&P 500
Sector of Net Assets Weighting
<S> <C> <C>
Finance 19.0% 16.3%
Technology 13.6% 15.2%
Energy Minerals 11.0% 8.9%
Producer Manufacturing 9.4% 7.7%
Consumer Non-Durables 7.8% 10.9%
Health Care 7.7% 11.3%
Utilities 7.6% 9.5%
Services 7.3% 4.8%
Basic Industry 4.8% 5.5%
Retail Trade 3.9% 4.6%
Consumer Durables 2.2% 3.4%
Transportation 1.6% 1.4%
Miscellaneous 4.1%
</TABLE>

[Q]

As 1997 draws to a close, it leaves a year of high returns and high volatility
in its wake. What is your outlook? Is the bull market back on its feet?

[A]
Despite slowing growth, the underpinnings exist for a strong stock market--
earnings are still strong, real interest rates are high, and money is flowing
into equity mutual funds. Valuations did become a little extended, but now
uncertainty and investor psychology have taken over the market. We are
cautiously bullish, but we expect the next couple of months to be volatile in
the stock market. If this bull market resumes its course, we wouldn't expect the
trend to re-emerge until the beginning of 1998.

Two Ways You May Seek to Invest for Success in
Federated Capital Appreciation Fund

Initial Investment:

If you had made an initial investment of $21,000 in the Class A Shares of
Federated Capital Appreciation Fund on 1/1/77, reinvested dividends and capital
gains, and didn't redeem any shares, your account would be worth $352,009 on
10/31/97. You would have earned 14.49%* average annual total return for the 20-
year investment life span.

One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.

As of 9/30/97, the Class A Shares' average annual one-year, five-year, and
ten-year total returns were 29.62%, 18.51%, and 12.25%, respectively. Class B
Shares' average annual one-year and since inception (1/4/96) total returns
were 30.37% and 24.10%, respectively. Class C Shares' average annual one-year
and since inception (1/4/96) total returns were 35.18% and 26.64%,
respectively.**

[Graphic representation A.7. See Appendix.]

* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 5.50%
sales charge applicable to an initial investment in Class A Shares.

Data quoted represents past performance and does not guarantee future
results. Investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their
original cost.

** The total return stated takes into account the 5.50% sales charge for Class
A Shares, the 5.50% contingent deferred sales charge for Class B Shares, and
the 1% contingent deferred sales charge for Class C Shares.

Federated Capital Appreciation Fund

One Step at a Time:

$1,000 invested each year for 20 years (reinvesting all dividends and capital
gains) grew to $132,615.

With this approach, the key is consistency.

If you had started investing $1,000 annually in the Class A Shares of Federated
Capital Appreciation Fund on 1/1/77, reinvested your dividends and capital
gains, and didn't redeem any shares, you would have invested only $21,000 but
your account would have reached a total value of $132,615* by 10/31/97. You
would have earned an average annual total return of 15.03%.

A practical investment plan helps you pursue long-term performance from growth-
oriented stocks. Through systematic investing, you buy shares on a regular basis
and reinvest all earnings. An investment plan works for you when you invest only
$1,000 annually. You can take it one step at a time. Put time, money, and
compounding to work.

[Graphic representation A.8. See Appendix.]

* This chart assumes that the subsequent annual investments are made on the last
day of each anniversary month. No method of investing can guarantee a profit
or protect against loss in down markets. However, by investing regularly over
time and buying shares at various prices, investors can purchase more shares
at lower prices, and all accumulated shares have the ability to pay income to
the investor.

Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue
purchases through periods of low price levels.

Federated Capital Appreciation Fund
Hypothetical Investor Profile: Investing For a College Education

David and Joan Rice are a fictitious couple who, like many shareholders, are
searching for a way to make their money grow over time.

David and Joan are planning for the college education of their children. On
October 31, 1987, they invested $5,000 in the Class A Shares of Federated
Capital Appreciation Fund. Since then, David and Joan have made additional
investments of $250 every month.

As this chart shows, over 10 years, the original $5,000 investment along with
their additional monthly $250 investments totaling $35,000 has grown to $88,016.
This represents a 15.53% average annual total return.* For the Rices, a
dedicated program of monthly investment really paid off.

[Graphic representation A.9. See Appendix.]

* This hypothetical scenario is provided for illustrative purposes only and
does not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results.

Federated Capital Appreciation Fund
(Class A Shares)

Growth of $10,000 Invested in Federated Capital Appreciation Fund (Class A
Shares)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Capital Appreciation Fund (Class A Shares) (the "Fund") from October 31, 1987 to
October 31, 1997 compared to Standard and Poor's 500 Index (S&P 500),+ and the
Lipper Growth and Income Funds Average (LGIFA).++

[Graphic representation A.10. See Appendix.]

* Effective January 1, 1996, the fiscal year end of this fund was changed from
December 31 to October 31. The hypothetical investment of $10,000 assumes an
investment date of October 31, 1987 with no sales charge. As of November 14,
1995, the maximum sales charge was 5.50%. The Fund's performance assumes the
reinvestment of all dividends and distributions. The S&P 500 and the LGIFA
have been adjusted to reflect reinvestment of dividends on securities in the
index and the average.

** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

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

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

Federated Capital Appreciation Fund
(Class B Shares)

Growth of $10,000 Invested in Federated Capital Appreciation Fund (Class B
Shares)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Capital Appreciation Fund (Class B Shares) (the "Fund") from January 4, 1996
(start of performance) to October 31, 1997 compared to Standard and Poor's 500
Index (S&P 500)+ and the Lipper Growth and Income Funds Average (LGIFA).++

[Graphic representation A.11. See Appendix.]

* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 4.75% contingent deferred sales charge on any
redemption less than three years from the purchase date. The maximum
contingent deferred sales charge is 5.50% on any redemption less than one
year from the purchase date. The Fund's performance assumes the reinvestment
of all dividends and distributions. The S&P 500 and the LGIFA have been
adjusted to reflect reinvestment of dividends on securities in the index and
the average.

** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

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

Federated Capital Appreciation Fund
(Class C Shares)

Growth of $10,000 Invested in Federated Capital Appreciation Fund (Class C
Shares)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Capital Appreciation Fund (Class C Shares) (the "Fund") from January 4, 1996
(start of performance) to October 31, 1997 compared to Standard and Poor's 500
Index (S&P 500)+ and the Lipper Growth and Income Funds Average (LGIFA).++

[Graphic representation A.12. See Appendix.]

* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 1.00% contingent deferred sales charge on any
redemption less than 1 year from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The S&P 500 and
the LGIFA have been adjusted to reflect reinvestment of dividends on
securities in the index and the average.

** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

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

Federated Capital Appreciation Fund
Portfolio of Investments
October 31, 1997

<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
Common Stocks--81.0%
Basic Industry--4.8%
46,000 Goodrich (B.F.) Co. $2,049,875
46,500 Millennium Chemicals, Inc. 1,092,750
60,000 Sigma-Aldrich Corp. 2,107,500
36,000 Southdown, Inc. 1,993,500
48,000 (a)Steel Dynamics, Inc. 1,020,000
Total 8,263,625
Consumer Durables--2.2%
38,000 Aeroquip-Vickers, Inc. 1,978,375
47,000 Mattel, Inc. 1,827,125
Total 3,805,500
Consumer Non-Durables--7.2%
29,000 Avon Products, Inc. 1,899,500
28,000 Dean Foods Co. 1,324,750
10,000 Interstate Bakeries Corp. 638,750
56,000 PepsiCo, Inc. 2,061,500
45,000 Philip Morris Cos., Inc. 1,783,125
52,900 RJR Nabisco Holdings Corp. 1,676,269
35,000 Schweitzer-Mauduit International, Inc. 1,474,375
38,000 (a)Tommy Hilfiger Corp. 1,503,375
Total 12,361,644
Energy Minerals--9.2%
25,000 (a)BJ Services Co. 2,118,750
23,532 British Petroleum Co. PLC, ADR 2,064,933
49,000 (a)Friede Goldman International, Inc. 1,950,812
60,000 (a)Key Energy Group, Inc. 1,882,500
27,000 Mobil Corp. 1,965,937
48,000 (a)Nabors Industries, Inc. 1,974,000
Shares Value
Common Stocks--continued
Energy Minerals--continued
19,400 Pennzoil Co. $1,435,600
60,000 Sun Co., Inc. 2,403,750
Total 15,796,282
Finance--18.2%
22,000 Ace, Ltd. 2,044,625
23,000 Allstate Corp. 1,907,562
15,000 CIGNA Corp. 2,328,750
23,000 Chase Manhattan Corp. 2,653,625
17,000 Citicorp 2,126,062
58,300 Equity Office Properties Trust 1,781,794
28,000 Executive Risk, Inc. 1,844,500
40,000 Hartford Life, Inc., Class A 1,477,500
59,290 Morgan Stanley, Dean Witter, Discover & Co. 2,905,210
60,000 Nationwide Financial Services, Inc., Class A 1,826,250
18,000 Progressive Corp. Ohio 1,876,500
52,500 (a)Security Capital Group, Inc. 1,680,000
48,666 Travelers Group, Inc. 3,406,620
27,000 Vesta Insurance Group, Inc. 1,569,375
6,600 Wells Fargo & Co. 1,923,075
Total 31,351,448
Health Care--6.6%
31,000 American Home Products Corp. 2,297,875
30,000 (a)Amgen, Inc. 1,477,500
30,000 Bristol-Myers Squibb Co. 2,632,500
60,000 (a)MedPartners, Inc. 1,526,250
55,000 Smithkline Beecham Corp., ADR 2,619,375
30,000 U.S. Surgical Corp. 808,125
Total 11,361,625

Shares Value
Common Stocks--continued
Producer Manufacturing--8.0%
14,000 (a)EVI, Inc. $ 898,625
35,000 General Electric Co. 2,259,687
35,000 HON Industries, Inc. 1,806,875
10,000 (a)Halter Marine Group, Inc. 523,125
45,000 Parker-Hannifin Corp. 1,881,562
42,000 Textron, Inc. 2,428,125
50,000 Tyco International, Ltd. 1,887,500
27,000 Xerox Corp. 2,141,438
Total 13,826,937
Retail Trade--2.6%
41,000 (a)CompUSA, Inc. 1,342,750
25,000 Dayton-Hudson Corp. 1,570,313
58,000 (a)Proffitts, Inc. 1,663,875
Total 4,576,938
Services--4.2%
25,000 (a)ASE Test Ltd. 1,368,750
12,800 (a)ITC DeltaCom, Inc. 246,400
46,500 Interpublic Group Cos., Inc. 2,208,750
45,000 Manpower, Inc. 1,726,875
42,201 (a)TCI Ventures Group, Class A 973,261
35,000 Waste Management, Inc. 818,125
Total 7,342,161
Technology--12.6%
40,000 (a)Compaq Computer Corp. 2,550,000
26,000 Computer Associates International, Inc. 1,938,625
77,000 (a)Creative Technology Ltd. 1,958,688
52,000 (a)DST Systems, Inc. 1,836,250
24,300 Hewlett-Packard Co. 1,499,006
Shares or
Principal
Amount Value
Common Stocks--continued
Technology--continued
21,000 Intel Corp. $1,617,000
17,000 Lockheed Martin Corp. 1,616,062
20,000 Lucent Technologies, Inc. 1,648,750
56,600 (a)Mastech Corp. 1,874,875
23,000 (a)McAfee Associates, Inc. 1,144,250
10,900 (a)Metromedia Fibre Network, Inc. 261,600
12,500 (a)Microsoft Corp. 1,625,000
17,000 (a)Speedfam International, Inc. 631,125
28,000 (a)Tellabs, Inc. 1,512,000
Total 21,713,231

46,000 CMS Energy Corp. 1,679,000
37,800 (a)IXC Communications, Inc. 1,247,400
16,800 (a)Qwest Communications International, Inc. 1,037,400
39,000 Sonat, Inc. 1,791,563
73,799 (a)Tele-Communications, Inc., Class A 1,692,773
35,000 Williams Cos., Inc. (The) 1,782,813
Total 9,230,949
Total Common Stocks (identified cost $96,921,480) 139,630,340
Corporate Bonds--5.3%
Energy Minerals--1.8%
$1,890,000 (a)Diamond Offshore Drilling, Inc., Conv. Bond, 3.75%, 2/15/2007 3,065,731
Health Care--1.1%
1,850,000 (a)Tenet Healthcare Corp., Conv. Bond, 6.00%, 12/1/2005 1,817,625
Producer Manufacturing--0.2%
300,000 (a,b)Halter Marine Group, Inc., Conv. Sub. Note, 4.50%, 9/15/2004 381,630

Shares or
Principal
Amount Value
Corporate Bonds--continued
Retail Trade--1.2%
$3,950,000 (a,b)Costco Cos., Inc., Conv. Bond, 8/19/2017 $2,122,849
Technology--1.0%
1,300,000 (a,b)Solectron Corp., Conv. Bond, 6.00%, 3/1/2006 1,695,330
Total Corporate Bonds (identified cost $7,672,326) 9,083,165
Preferred Stocks--9.4%
Consumer Non-Durables--0.6%
17,800 Ralston Purina Co., SAILS, $1.08 1,121,400
Finance--0.8%
50,000 National Australia Bank, Ltd., Melbourne, Exchangeable
Capital Unit, $1.97 1,390,625
Producer Manufacturing--1.2%
40,000 (b)EVI, Inc., Cumulative Conv. Pfd., $.63 2,015,000
Services--3.0%
47,000 Browning-Ferris Industries, Inc., ACES, $2.58 1,504,000
143,200 Hollinger International Publishing, Inc., Conv. Pfd., $.95 1,682,600
70,000 Snyder Communications, Inc., STRYPES, $1.68 1,995,000
Total 5,181,600
Transportation--1.6%
27,500 CNF Transportation, Inc., Conv. Pfd., Series A, $2.50 1,746,250
10,000 Continental Airlines, Inc., Conv. Pfd., $4.25 950,570
Total 2,696,820
Utilities--2.2%
38,000 (b)CalEnergy Co., Inc., Conv. Pfd. 1,968,286
16,250 WorldCom, Inc., DECS 1,901,250
Total 3,869,536
Total Preferred Stocks (identified cost $14,480,687) 16,274,981

Principal
Amount Value
(c) Repurchase Agreement--2.7%
$4,700,000 BT Securities Corp., 5.71%, dated 10/31/1997, due 11/3/1997
(at amortized cost) $4,700,000
Total Investments (identified cost $123,774,493)(d) $169,688,486
</TABLE>
(a) Non-income producing security.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1997, these securities
amounted to $8,183,095 which represents 4.7% of net assets.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $123,784,499.
The net unrealized appreciation of investments on a federal tax basis
amounts to $45,903,987 which is comprised of $47,931,542 appreciation and
$2,027,555 depreciation at October 31, 1997.

Note: The categories of investments are shown as a percentage of net assets
($172,425,395) at October 31, 1997.

The following acronyms are used throughout this portfolio:

ACES --Adjustable Convertible Extendable Securities
ADR --American Depository Receipt
DECS --Dividend Enhanced Convertible Stock
PLC --Public Limited Company
SAILS --Stock Appreciation Income Linked Security
STRYPES --Structured Yield Product Exchangeable for Stock

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

Federated Capital Appreciation Fund
Statement of Assets and Liabilities
October 31, 1997

<TABLE>
<CAPTION>
<S> <C> <C>
Assets:
Total investments in securities, at value (identified cost $123,774,493 and tax cost $123,784,499) $169,688,486
Income receivable 249,044
Receivable for investments sold 4,636,305
Receivable for shares sold 1,019,219
Total assets 175,593,054
Liabilities:
Payable to Bank $ 251,034
Payable for investments purchased 2,728,563
Payable for shares redeemed 110,245
Accrued expenses 77,817
Total liabilities 3,167,659
Net Assets for 8,589,012 shares outstanding $172,425,395
Net Assets Consist of:
Paid in capital $105,758,939
Net unrealized appreciation of investments 45,913,993
Accumulated net realized gain on investments 20,312,484
Undistributed net investment income 439,979
Total Net Assets $172,425,395
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Class A Shares:
Net Asset Value Per Share ($148,175,200/7,378,301 shares outstanding) $ 20.08
Offering Price Per Share (100/94.50 of $20.08)* $ 21.25
Redemption Proceeds Per Share $ 20.08
Class B Shares:
Net Asset Value Per Share ($21,635,776/1,079,695 shares outstanding) $ 20.04
Offering Price Per Share $ 20.04
Redemption Proceeds Per Share (94.50/100 of $20.04)** $ 18.94
Class C Shares:
Net Asset Value Per Share ($2,614,419/131,016 shares outstanding) $ 19.95
Offering Price Per Share $ 19.95
Redemption Proceeds Per Share (99.00/100 of $19.95)** $ 19.75
</TABLE>

* See "Investing in the Fund" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)

Federated Capital Appreciation Fund
Statement of Operations
Year Ended October 31, 1997

<TABLE>
<S> <C> <C>
Investment Income:
Dividends $ 2,336,634
Interest 637,848
Total expenses 2,974,482
Expenses:
Investment advisory fee $ 1,072,874
Administrative personnel and services fee 185,000
Custodian fees 15,170
Transfer and dividend disbursing agent fees and expenses 68,024
Directors'/Trustees' fees 5,337
Auditing fees 11,632
Legal fees 3,022
Portfolio accounting fees 75,372
Distribution services fee--Class B Shares 95,395
Distribution services fee--Class C Shares 10,975
Shareholder services fee--Class A Shares 322,170
Shareholder services fee--Class B Shares 31,798
Shareholder services fee--Class C Shares 3,658
Share registration costs 14,614
Printing and postage 37,117
Insurance premiums 4,491
Taxes 7,524
Miscellaneous 5,082
Total expenses 1,969,255
Waivers--
Waiver of investment advisory fee (98,874)
Net expenses 1,870,381
Net investment income 1,104,101
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments 20,317,712
Net change in unrealized appreciation of investments 18,103,419
Net realized and unrealized gain on investments 38,421,131
Change in net assets resulting from operations $39,525,232

</TABLE>

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

Federated Capital Appreciation Fund
Statement of Changes in Net Assets

Year Period
Ended Ended
October 31, October 31,
1997 1996(a)
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 1,104,101 $ 259,736
Net realized gain on investments ($20,327,687 and $9,100,399,
respectively, as computed for federal tax purposes) 20,317,712 9,100,399
Net change in unrealized appreciation of investments 18,103,419 3,829,310
Change in net assets resulting from operations 39,525,232 13,189,445
Distributions to Shareholders--
Distributions from net investment income
Class A Shares (745,779) (178,012)
Class B Shares (98)
Distributions from net realized gains on investments
Class A Shares (6,319,819) (2,209,569)
Class B Shares (426,677) (89,485)
Class C Shares (48,727) (11,319)
Change in net assets resulting from distributions to shareholders (7,541,002) (2,488,483)
Share Transactions--
Proceeds from sale of shares 35,687,762 13,529,456
Net asset value of shares issued to shareholders
in payment of distributions declared 2,769,618 887,243
Cost of shares redeemed (13,899,390) (7,434,744)
Change in net assets resulting from share transactions 24,557,990 6,981,955
Change in net assets 56,542,220 17,682,917
Net Assets:
Beginning of period 115,883,175 98,200,258
End of period (including undistributed net investment
income of $439,979 and $81,626, respectively) $172,425,395 $115,883,175
</TABLE>
(a) Reflects operations for the period from January 1, 1996 (start of business)
to October 31, 1996.

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

Federated Capital Appreciation Fund
Financial Highlights--Class A Shares
(For a share outstanding throughout each period)**

Year Period
Ended Ended
October 31, October 31, Year Ended December 31,(a)
1997 1996(b) 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 16.17 $ 14.60 $ 11.47 $ 11.90 $ 10.97 $ 10.28 $ 8.43 $ 9.16 $ 8.34 $ 7.70
Income from investment
operations
Net investment income 0.09 0.04 0.18 0.20 0.19 0.23 0.19 0.24 0.23 0.22
Net realized and
unrealized gain (loss) on
investments 4.85 1.89 4.07 (0.24) 1.05 0.92 2.11 (0.64) 1.22 0.85
Total from investment
operations 4.94 1.93 4.25 (0.04) 1.24 1.15 2.30 (0.40) 1.45 1.07
Less distributions
Distributions from net
investment income (0.11) (0.03) (0.18) (0.19) (0.19) (0.23) (0.19) (0.25) (0.22) (0.22)
Distributions from net
realized gain on
investments (0.92) (0.33) (0.94) (0.20) (0.12) (0.23) (0.26) (0.08) (0.41) (0.21)
Total distributions (1.03) (0.36) (1.12) (0.39) (0.31) (0.46) (0.45) (0.33) (0.63) (0.43)
Net asset value, end
of period $ 20.08 $ 16.17 $ 14.60 $ 11.47 $ 11.90 $ 10.97 $ 10.28 $ 8.43 $ 9.16 $ 8.34
Total return(c) 32.10% 13.36% 37.17% (0.30%) 11.31% 11.38% 27.42% (4.43%) 17.58% 13.97%
Ratios to average net
assets
Expenses 1.23% 1.23%* 1.08% 1.15% 1.15% 1.11% 1.12% 1.07% 1.13% 1.08%
Net investment income 0.85% 0.31%* 1.29% 1.63% 1.59 2.13% 1.97% 2.76%* 2.45% 2.61%
Expense waiver/
reimbursement(d) 0.07% 0.27%* 0.15% -- -- -- -- -- -- --
Supplemental data
Net assets, end of
period (000 omitted) $148,175 $108,804 $98,200 $81,377 $88,949 $91,551 $90,503 $79,114 $95,422 $89,228
Average commission
rate paid(e) $ 0.0515 $ 0.0012 -- -- -- -- -- -- -- --
Portfolio turnover 85% 79% 81% 23% 26% 47% 54% 61% 41% 36%
</TABLE>
* Computed on an annualized basis.
** All prior year amounts have been restated for a 6-for-1 stock split
effective as of October 29, 1997.
(a) Amounts presented prior to January 1, 1996 represent results of operations
for Federated Exchange Fund, Ltd.
(b) Reflects operations for the period from January 1, 1996 (start of business)
to October 31, 1996.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.

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

Financial Federated Capital Appreciation Fund
Financial Highlights--Class B Shares
(For a share outstanding throughout each period)**

Year Period
Ended Ended
October 31, October 31,
1997 1996(a)
<S> <C> <C>
Net asset value, beginning of period $ 16.12 $ 14.70
Income from investment operations
Net investment income 0.12 (0.04)(b)
Net realized and unrealized gain on investments 3.95 1.80
Total from investment operations 4.07 1.76
Less distributions
Distributions from net investment income (0.01)
Distributions from net realized gain on investments (0.15) (0.33)
Total distributions (0.15) (0.34)
Net asset value, end of period $ 20.04 $ 16.12
Total return(c) 31.65% 12.00%
Ratios to average net assets
Expenses 1.98% 1.98%*
Net investment income 0.07% (0.36%)*
Expense waiver/reimbursement(d) 0.06% 0.27%*
Supplemental data
Net assets, end of period (000 omitted) $21,636 $ 6,369
Average commission rate paid(e) $0.0515 $ 0.0012
Portfolio turnover 85% 79%
</TABLE>

* Computed on an annualized basis.
** All prior year amounts have been restated for a 6-for-1 stock split
effective as of October 29, 1997.
(a) Reflects operations for the period from January 4, 1996 (date of initial
public offering) to October 31, 1996.
(b) Per share information presented is based upon the monthly average number of
shares outstanding due to large fluctuations in the number of shares
outstanding during the period.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.

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

Federated Capital Appreciation Fund
Financial Highlights--Class C Shares
(For a share outstanding throughout each period)**

Year Period
Ended Ended
October 31, October 31,
1997 1996(a)
<S> <C> <C>
Net asset value, beginning of period $ 16.13 $ 14.70
Income from investment operations
Net investment income 0.13 (0.04)(b)
Net realized and unrealized gain on investments 3.84 1.81
Total from investment operations 3.97 1.77
Less distributions
Distributions from net investment income (0.01)
Distributions from net realized gain on investments (0.15) (0.33)
Total distributions (0.15) (0.34)
Net asset value, end of period $ 19.95 $ 16.13
Total return(c) 30.90% 12.05%
Ratios to average net assets
Expenses 1.98% 1.98%*
Net investment income 0.08% (0.37%)*
Expense waiver/reimbursement(d) 0.06% 0.27%*
Supplemental data
Net assets, end of period (000 omitted) $ 2,614 $ 710
Average commission rate paid(e) $0.0515 $ 0.0012
Portfolio turnover 85% 79%
</TABLE>

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

Federated Capital Appreciation Fund
Notes to Financial Statements
October 31, 1997

1. Organization

Federated Equity Funds (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 four portfolios. The financial statements
included herein are only those of Federated Capital Appreciation Fund (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The Fund offers three classes of shares: Class A Shares, Class B Shares,
and Class C Shares. The investment objective of the Fund is to provide capital
appreciation.

Effective January 3, 1996, the Fund added Class B Shares and Class C Shares.

All prior year per share amounts have been restated to reflect the 6-for-1 stock
split effective October 29, 1997.

Pursuant to the terms of the merger agreement dated October 10, 1995,
shareholders of Federated Exchange Fund, Ltd. agreed to acquire shares of the
Fund, effective January 2, 1996. As part of the transaction, 1,121,204 Class A
Shares of the Fund were issued in exchange for all the assets of Federated
Exchange Fund, Ltd., which amounted to $98,200,258. The shares issued as a
result of this transaction represented substantially all of the Funds
outstanding shares as of the transaction date. Due to this, and due to the
similarities in investment objectives and policies between the Fund and
Federated Exchange Fund, Ltd., the historical performance of Federated Exchange
Fund, Ltd. prior to January 2, 1996, has been incorporated into the Fund's
financial statements.

2. Significant Accounting Policies

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

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

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

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

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.

Restricted Securities--Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the issuer's
expense either upon demand by the Fund or in connection with another registered
offering of the securities, Many restricted securities may be resold in the
secondary market in transactions exempt from registration. Such restricted
securities may be determined to be liquid costs upon such resales. The Fund's
restricted securities are valued at the price provided by dealers in the
secondary market or, if no market prices are available, at the fair value as
determined by the Fund's pricing committee.

Additional information on each restricted security held at October 31, 1997 is
as follows:

<TABLE>
<CAPTION>
Security Acquisition Date Acquisition Cost
<S> <C> <C>
CalEnergy Co., Inc., Convertible Preferred 2/20/97 $1,900,000
Costco Cos., Inc. Convertible Bond 8/14/97 1,997,331
EVI, Inc., Cumulative Convertible Preferred 10/29/97 2,000,000
Halter Marine Group, Inc. Conv. Sub. Note 9/10/97 300,000
Soectron Corp., Conv. Bond 1/17/97 1,469,000
</TABLE>

Change in Fiscal Year--The fund has changed its fiscal year-end from December
31, to October 31 beginning January 2, 1996.

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

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

3. Shares of Beneficial Interest

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

Transactions in shares were as follows:

October 31,
1997 1996(a)
Class A Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 6,341,131 $ 19,684,007 66,891 $ 6,413,221
Shares issued to shareholders in
payment of distributions declared 23,951 2,319,203 8,506 788,628
Shares redeemed (108,343) (11,482,142) (75,039) (7,185,625)
Net change resulting from
Class A Share transactions 6,256,739 $ 10,521,068 358 $ 16,224
</TABLE>

(a) For the period from January 1, 1996 (start of business) to October 31, 1996.

<TABLE>
<CAPTION>
October 31,
1997 1996(b)
Class B Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 1,030,943 $14,045,085 67,529 $6,418,841
Shares issued to shareholders in
payment of distributions declared 4,486 407,033 955 88,155
Shares redeemed (21,597) (1,992,700) (2,621) (248,515)
Net change resulting from
Class B Share transactions 1,013,832 $12,459,418 65,863 $6,258,481
</TABLE>

(b) For the period from January 4, 1996 (date of initial public investment) to
October 31, 1996.

<TABLE>
<CAPTION>
October 31,
1997 1996(b)
Class C Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 126,956 $ 1,958,669 7,228 $ 697,394
Shares issued to shareholders in
payment of distributions declared 451 43,383 113 10,460
Shares redeemed (3,725) (424,548) (7) (604)
Net change resulting from
Class C Share transactions 123,682 $ 1,577,504 7,334 $ 707,250
Net change resulting from
share transactions 7,394,253 $24,557,990 73,555 $6,981,955
</TABLE>

(b) For the period from January 4, 1996 (date of initial public investment) to
October 31, 1996.

4. Investment Advisory Fee and Other Transactions with Affiliates

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

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

Distribution Services Fee--The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC") the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Class A, Class B, and Class C Shares.
The Plan provides that the Fund may incur distribution expenses according to
the following schedule annually, to compensate FSC.

Percentage of
average daily
Share Class Name net assets of class
<S> <C>
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>

For the year ended October 31, 1997, Class A did not incur a distribution
services fee.

Transfer and Dividend Disbursing Agent Fees and Expenses--FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on
the size, type, and number of accounts and transactions made by shareholders.

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

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

5. Investment Transactions

Purchases and sales of investments, excluding short-term securities, for the
year ended

October 31, 1997, were as follows:

<TABLE>
<S> <C>
Purchases $134,044,414
Sales $115,606,823

</TABLE>

REPORT OF ERNEST & YOUNG LLP, INDEPENDENT AUDITORS

To the Trustees and Shareholders of FEDERATED EQUITY FUNDS:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Capital Appreciation Fund, (a
portfolio of Federated Equity Funds) as of October 31, 1997, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented therein. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Capital Appreciation Fund at October 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for the
periods presented therein, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

Pittsburgh, Pennsylvania
December 12, 1997
<TABLE>
<CAPTION>
<S> <C>
Directors Officers

John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Glen R. Johnson
William J. Copeland President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Executive Vice President
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. Executive Vice President, Treasurer, and Secretary
Wesley W. Posvar Richard B. Fisher
Marjorie P. Smuts Vice President
Matthew S. Hardin
Assistant Secretary
</TABLE>

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.

[This Page Intentionally Left Blank]

[LOGO] FEDERATED INVESTORS

Federated Securities Corp., Distributor

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

1-800-341-7400

www.federatedinvestors.com

Cusip 314172701
Cusip 314172701
Cusip 314172800
Cusip 314172883
G01649-04 (12/97)

Federated Investors

Federated
Small Cap
Strategies
Fund

2nd Annual Report
October 31, 1997

Established 1995

President's Message

Dear Shareholder:

I am pleased to present the 2nd Annual Report for Federated Small Cap Strategies
Fund, which covers the 12-month fiscal year reporting period from November 1,
1996 through October 31, 1997.

This report begins with an interview with Aash M. Shah, Vice President, who co-
manages the fund with Keith Sabol, Assistant Vice President, both with Federated
Management. Following their interview are three additional items of shareholder
interest: a series of graphs showing investment performance, a complete listing
of the fund's stock holdings, and the fund's financial statements.

Federated Small Cap Strategies Fund is managed to help your money grow over time
by investing in a highly diversified portfolio of small-cap stocks issued by
U.S. companies with a market capitalization of less than $1 billion. These
small-cap stocks offer the potential for high returns over time in exchange for
a higher level of risk, compared to stocks issued by larger, well-established
companies.+ To help reduce risk in this dynamic market, the fund's portfolio is
carefully selected and diversified with 120 stocks across 12 industry sectors.

Your fund produced a strong total return through capital gains and a very high
level of growth in net asset value, as shown by share class performance below.*
The fund's total return also outperformed that of its peer group, the Lipper
Small Company Growth Funds Average.** It's worth noting that when the fund began
operation on November 1, 1995, its net asset value was $10.00 and in two years
has increased to more than $18.00.

<TABLE>
<CAPTION>
Total Capital Net Asset Value
Return Gains Increase
<S> <C> <C> <C>
Class A Shares 29.55% $0.22 $14.68 to $18.75=27%
Class B Shares 28.56% $0.22 $14.62 to $18.53=26%
Class C Shares 28.60% $0.22 $14.60 to $18.51=26%
</TABLE>

+ Small Cap Stocks have historically experienced greater volatility than
average.

While the fund's performance has been extremely strong in a favorable economic
environment, it's important to remember that, as the past few months have shown,
short-term volatility is an inevitable part of stock investing. At times, the
volatility can be severe, but the overall trend of the stock market over history
has been upward.

Thank you for selecting Federated Small Cap Strategies Fund to pursue your
long-term financial goals. As a shareholder, you have two easy, convenient ways
to increase your participation in the growth and earnings of quality American
companies. First, if you are not already doing so, you can reinvest your
dividends and capital gains automatically in additional shares--and help your
shares increase in number through the benefit of compounding. Second, you can
"pay yourself first," by investing in the fund through a systematic investment
program.+ This program withdraws a specific amount from your checking account on
a regular basis to purchase more fund shares. For more information, contact your
investment representative.

We hope you're pleased with the fund's continued strong performance. We welcome
your comments and suggestions.

Sincerely,

Glen R. Johnson
President
December 15, 1997

+ Systematic investing does not ensure a profit or protect against loss in
declining markets.

[Q] During the fund's fiscal year, small-cap stocks bore the brunt of market
volatility that occurred early in the period, but recovered well despite the
October 27 market drop. What is your analysis?

[A] The equity market, as measured by the S&P 500 Index,* turned in strong
overall performance over the 12-month reporting period with a total return
of 32.11%. Small-cap stocks, as measured by the S&P 600 Small Cap Index*,
also performed well with a 31.97% total return. Over the year, major stock
indices continued to reach new all-time highs as economic conditions--
moderate growth, stable interest rates, subdued inflation, and rising
corporate profits--were favorable for stocks.

As an asset class, small-cap stocks do not typically perform in tandem with
large-cap stocks. The fund's fiscal year was no exception. For example,
during the first quarter of 1997, the S&P 600 Small Cap Index was down over
5% while the S&P 500 Index was up almost 3%. In the second quarter, small-
caps recovered and were up 18.1%, while large-caps were up 17.5%. The third
quarter saw small-caps outperform large-caps by a greater margin. The Lipper
Equity Small Cap Index was up 15.3%, the S&P 600 Small Cap Index was up
16.2%, and the Russell 2000 Small Cap Index* was up 14.9%, while the S&P 500
Index was up 7.5%, and the Dow Jones Industrial Average was up only 4.0%.

Of course, the end of the fiscal year was marked by an extreme degree of
volatility--notably October 27th's 554-point drop in the Dow. The market
rebounded somewhat over the next few days, with the S&P 500 Index ending
October with a total return of -3.34% for the month, while the small-cap
market's return as measured by the S&P 600 Small Cap Index was -4.32%.

* The Russell 2000 Index is an unmanaged index consisting of approximately
2000 small capitalization common stocks. The S&P 600 Small Capitalization
Index is an unmanaged index of 600 small capitalization common stocks with
a market capitalization generally ranging between $80 million and $600
million. The S&P500 is an unmanaged index of common stocks in industry,
transportation, and financial and public utility companies. Investments
cannot be made in an index.

[Q] How did Federated Small Cap Strategies Fund perform over the twelve-month
reporting period compared to the Lipper Small Company Growth Funds universe?

[A] The fund recovered well from a negative total return in the first half of
its fiscal year. For the full 12-month fiscal year reporting period, the
fund's total return was 29.55% for Class A Shares, 28.56% for Class B
Shares, and 28.60% for Class C Shares based on net asset value.** These
returns outperformed the 26.45% total return of the Lipper Small Company
Growth Funds Average.

[Q] What is your overall strategy to tap the historically rewarding long-term
performance of the small-cap stock market?

[A] Our ongoing objective is to remain fully invested in the best 2% of small
companies we can find across a universe of over 7,000 small companies in the
U.S. Two of this fund's characteristics make it an ideal investment vehicle
for this market. First, sector discipline--we stay invested in all 12
economic sectors at all times with appropriate overweights and underweights.
Second, small-cap discipline--we've kept the median capitalization of the
fund below $1 billion making this truly a small-cap fund. Again, the current
average capitalization of the holdings in the fund is $788 million.

[Q] In light of current market conditions, in what sectors are you finding
opportunities?

[A] We are currently slightly overweighted in the Retail, Services, Producer
Manufacturing, Health Care, and Finance sectors, and underweighted in
Utilities, Transportation, Consumer Durables, Basic Industry, Consumer Non-
Durables, and Energy. In our two largest sectors, Technology and Finance, we
remain close to market neutral.

** Performance quoted is based on net asset value and reflects past
performance. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the report period based on offering
price for Class A, B, and C Shares were 22.46%, 23.01%, and 27.56%,
respectively.

[Q] How have you structured the fund's portfolio as of October 31, 1997?

[A] The portfolio composition and top stock holdings were as follows:

Sector Weightings
Percentage S&P 600
Sector of Net Assets Weighting
<S> <C> <C>
Finance 18.4% 15.6%
Technology 17.0% 18.9%
Services 10.7% 11.0%
Retail 10.1% 6.0%
Basic Industry 10.0% 6.8%
Health Care 8.9% 10.0%
Consumer Durables 7.3% 6.3%
Producer Manufacturing 6.1% 6.5%
Energy Minerals 4.8% 6.6%
Utilities 1.8% 4.7%
Consumer Non Durables 1.9% 4.6%
Transportation 1.8% 3.0%
Miscellaneous 1.2%
</TABLE>

Top Holdings
Percentage
Name of Net Assets
<S> <C>
Imperial Bancorp 1.3%
FIRSTPLUS Financial Group, Inc. 1.2%
HADCO Corp. 1.2%
GBC Bancorp 1.2%
Key Energy Group, Inc. 1.2%
AFC Cable Systems, Inc. 1.2%
Dura Automotive Systems, Inc. 1.2%
Frontier Insurance Group, Inc. 1.2%
ProBusiness Services, Inc. 1.2%
Newpark Resources, Inc. 1.1%
-----
Total Percentage of Portfolio 12.0%
</TABLE>

[Q] What is your outlook for small-cap stocks?

[A] Under low inflation and moderate economic growth conditions, we expect
small- caps to do well. Two powerful longer term drivers are: first,
valuation levels of small company stocks are extremely attractive versus
larger caps, and second, earnings growth in the small-cap market is expected
to outpace large cap stocks over the next three to five years. Our analysis
of the smaller cap market reveals numerous opportunities to find companies
with rapidly growing revenues and earnings at attractive prices. Growth
companies in the small-cap sector still appear very reasonably priced
relative to large-cap companies.

Federated Small Cap Strategies Fund
(Class A Shares)

Growth of $10,000 Invested in Federated Small Cap Strategies Fund (Class A
Shares)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Small Cap Strategies Fund (Class A Shares) (the "Fund") from November 1, 1995
(start of performance) to October 31, 1997 compared to the Russell 2000 Index
(RUS2).+

[Graphic representation A.4. See Appendix.]

* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 5.50% ($10,000 investment minus $550 sales charge
= $9,450). The Fund's performance assumes the reinvestment of all dividends
and distributions. The RUS2 has been adjusted to reflect reinvestment of
dividends on securities in the index.

** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

+ The RUS2 is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires in the Fund's
performance. The index is unmanaged.

Federated Small Cap Strategies Fund
(Class B Shares)

Growth of $10,000 Invested in Federated Small Cap Strategies Fund (Class B
Shares)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Small Cap Strategies Fund (Class B Shares) (the "Fund" from November 1, 1995
(start of performance) to October 31, 1997 compared to the Russell 2000 Index
(RUS2).+

[Graphic representation A.5. See Appendix.]

* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 4.75% contingent deferred sales charge on any
redemption less than 2 years from the purchase date. The maximum contingent
deferred sales charge is 5.50% on any redemption less than 1year from the
purchase date. The Fund's performance assumes the reinvestment of all
dividends and distributions. The RUS2 has been adjusted to reflect
reinvestment of dividends on securities in the index.

** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

+ The RUS2 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.

Federated Small Cap Strategies Fund
(Class C Shares)

Growth of $10,000 Invested in Federated Small Cap Strategies Fund (Class C
Shares)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Small Cap Strategies Fund (Class C Shares) (the "Fund") from November 1, 1995
(start of performance) to October 31, 1997 compared to the Russell 2000 index
(RUS2).+

[Graphic representation A.6. See Appendix.]

Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate, so when shares are redeemed, they may be
more or less than their original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.

* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a contingent deferred sales charge of 1.00% on any
redemption less than 1 year from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The RUS2 has
been adjusted to reflect reinvestment of dividends on securities in the
index.

** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

+ The RUS2 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.

Federated Small Cap Strategies Fund
Portfolio of Investments

October 31, 1997

<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
Common Stocks--97.5%
Basic Industry--9.9%
118,600 BMC Industries, Inc. $ 3,817,437
80,300 Cambrex Corp. 3,849,381
106,300 (a) Carbide/Graphite Group, Inc. 3,786,937
170,300 (a) Chirex, Inc. 3,469,862
93,100 Furon Co. 3,549,437
66,700 Lone Star Industries, Inc. 3,664,331
88,600 (a) Lone Star Technologies, Inc. 3,383,413
112,700 (a) Royal Group Technologies Ltd. 2,859,763
233,600 Spartech Corp. 3,708,400
62,200 Valspar Corp. 1,834,900
Total 33,923,861
Consumer Durables--7.2%
146,500 (a) Action Performance Cos., Inc. 3,754,062
66,700 (a) American Homestar Corp. 1,500,750
73,600 Brilliance China Automotive Holdings Ltd. 745,200
60,600 Carlisle Cos., Inc. 2,620,950
127,900 (a) Dura Automotive Systems, Inc. 3,964,900
83,200 (a) Equity Marketing, Inc. 2,376,400
80,300 (a) Gentex Corp. 1,967,350
175,300 (a) Helen of Troy Ltd. 2,914,363
48,300 Oakwood Homes Corp. 1,270,894
94,200 (a) Stanley Furniture Co., Inc. 2,331,450
43,800 Wynns International, Inc. 1,486,463
Total 24,932,782
Consumer Non-Durables--1.8%
58,650 (a) Blyth Industries, Inc. 1,458,919
98,900 (a) North Face, Inc. 2,336,513
63,800 (a) Tommy Hilfiger Corp. $ 2,524,088
Total 6,319,520
Energy Minerals--4.7%
29,500 Camco International, Inc. 2,131,375
128,300 (a) Key Energy Group, Inc. 4,025,413
41,000 (a) Patterson Energy Inc. 2,296,000
62,000 (a) Transcoastal Marine Services 1,542,250
90,700 (a) Tuboscope Vetco International Corp. 2,879,725
148,000 Vintage Petroleum, Inc. 3,385,500
Total 16,260,263
Finance--18.2%
104,000 (a) Amresco, Inc. 3,263,000
63,300 CMAC Investment Corp. 3,461,719
127,700 City National Corp. 3,838,981
68,000 (a) Delphi Financial Group, Inc., Class A 2,805,000
148,700 (a) Delta Financial Corp. 2,713,775
44,600 Executive Risk, Inc. 2,938,025
75,900 (a) FIRSTPLUS Financial Group, Inc. 4,174,500
106,500 (a) FirstFed Financial Corp. 3,727,500
116,700 Frontier Insurance Group, Inc. 3,931,331
74,700 GBC Bancorp 4,033,800
102,000 (a) Imperial Bancorp 4,449,750
129,000 North Fork Bancorp, Inc. 3,797,438
71,900 (a) Philadelphia Consolidated Holding Corp. 2,651,313
44,800 Sirrom Capital Corp. 2,256,800
210,800 Sovereign Bancorp, Inc. 3,741,700
114,900 Trans Financial, Inc. 3,676,800
124,400 (a) Triad Guaranty, Inc. 3,669,800
61,100 Vesta Insurance Group, Inc. 3,551,438
Total 62,682,670
Health Care--8.8%
41,500 (a) Arbor Health Care Co. $ 1,841,562
136,500 (a) Ascent Pediatrics, Inc. 1,245,562
127,100 Ballard Medical Products 2,867,694
93,700 (a) Complete Management, Inc. 1,628,037
51,900 (a) Curative Technologies, Inc. 1,563,488
105,500 (a) FPA Medical Management, Inc. 2,545,187
130,300 (a) Genesis Health Ventures, Inc. 3,192,350
15,000 (a) Healthdyne Technologies, Inc. 300,000
80,700 (a) Hologic, Inc. 2,067,937
57,300 (a) Medicis Pharmaceutical Corp., Class A 2,757,563
81,400 (a) Phycor, Inc. 1,877,288
201,000 (a) Prime Medical Services 2,663,250
106,800 (a) Respironics, Inc. 3,003,750
63,500 (a) Universal Health Services, Inc., Class B 2,797,969
Total 30,351,637
Producer Manufacturing--6.0%
141,600 (a) AFC Cable Systems, Inc. 4,017,900
149,400 (a) Ballantyne of Omaha, Inc. 2,502,450
97,000 (a) Cable Design Technologies, Class A 3,807,250
115,900 (a) Chicago Miniature Lamp, Inc. 3,708,800
54,300 (a) EVI, Inc. 3,485,381
99,000 (a) U.S. Office Products Co. 3,093,750
Total 20,615,531
Retail Trade--10.0%
59,600 (a) CDW Computer Centers, Inc. 3,695,200
175,400 Claire's Stores, Inc. 3,880,725
59,000 (a) Express Scripts, Inc., Class A 3,326,125
82,500 (a) Funco, Inc. 1,691,250
135,300 (a) Microage, Inc. 2,976,600
132,800 (a) O'Reilly Automotive, Inc. $ 3,237,000
171,000 (a) Paul Harris Stores, Inc. 3,142,125
138,000 (a) Pomeroy Computer Resources 3,519,000
79,600 (a) Proffitts, Inc. 2,283,525
140,600 (a) Renters Choice, Inc. 3,128,350
134,100 (a) Zale Corp. 3,386,025
Total 34,265,925
Services--10.5%
53,800 (a) ASE Test Ltd. 2,945,550
93,000 (a) Allied Waste Industries, Inc. 1,894,875
151,200 (a) American Business Information, Class A 1,587,600
151,200 (a) American Business Information, Class B 1,965,600
137,550 (a) BARRA, Inc. 3,541,912
66,400 (a) Caribiner International, Inc. 2,958,950
55,300 (a) Daisytek International Corp. 2,108,312
85,000 (a) FactSet Research Systems 2,268,437
94,000 (a) Newpark Resources, Inc. 3,901,000
99,800 (a) Personnel Group of America, Inc. 3,461,813
149,700 (a) Prime Hospitality Corp. 3,050,138
290,400 (a) Seattle Filmworks, Inc. 2,904,000
125,600 (a) Snyder Communications, Inc. 3,705,200
Total 36,293,387
Technology--16.8%
104,500 (a) ATMI, Inc. 2,808,437
125,800 (a) Alphanet Solutions, Inc. 1,761,200
133,600 (a) Apex MPC Solutions, Inc. 3,440,200
91,100 (a) Applied Science & Technology, Inc. 1,799,225
139,100 (a) Applied Voice Technology, Inc. 3,616,600
123,600 (a) Benchmark Electronics, Inc. $ 3,082,275
117,600 (a) Benchmarq Microelectronics, Inc. 2,440,200
116,200 (a) Cybex Computer Products Corp. 2,817,850
127,400 (a) Cymer, Inc. 2,914,275
99,200 (a) DSP Group, Inc. 3,515,400
86,000 (a) Ducommun, Inc. 2,870,250
100,300 (a) Eltron International, Inc. 2,921,237
72,900 (a) HADCO Corp. 4,036,837
104,800 (a) II-VI, Inc. 2,714,975
123,100 (a) MRV Communications, Inc. 3,600,675
98,000 (a) Mastech Corp. 3,246,250
196,400 (a) ProBusiness Services, Inc. 3,928,000
80,800 (a) Qlogic Corp. 2,626,000
87,900 (a) Three-Five Systems, Inc. 1,823,925
75,400 (a) Tollgrade Communications, Inc. 1,856,725
Total 57,820,536
Transportation--1.8%
42,900 Airlines Express International Corp. 1,313,812
71,700 Comair Holdings, Inc. 2,634,975
28,000 Expeditors International Washington, Inc. 1,029,000
35,100 USFreightways Corp. 1,136,363
Total 6,114,150
Utilities--1.8%
53,100 Cincinnati Bell, Inc. 1,433,700
81,600 (a) IXC Communications, Inc. 2,692,800
45,300 Sonat, Inc. 2,080,969
Total 6,207,469
Total Common Stocks
(identified cost $289,424,537) 335,787,731

<CAPTION>
Principal
Amount Value
<C> <S> <C>
(b)Repurchase Agreement--5.1%
$17,460,000 BT Securities Corp., 5.71%, dated 10/31/1997,
due 11/3/1997 (at amortized cost) $ 17,460,000
Total Investments
(identified cost $306,884,537)(c) $353,247,731
</TABLE>

(a) Non-income producing security.

(c) The cost of investments for federal tax purposes amounts to $306,931,480.
The net unrealized appreciation of investments on a federal tax basis
amounts to $46,316,251 which is comprised of $52,896,767 appreciation and
$6,580,516 depreciation at October 31, 1997.

Note: The categories of investments are shown as a percentage of net assets
($344,457,258) at October 31, 1997.

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

Federated Small Cap Strategies Fund
Statement of Assets and Liabilities

October 31, 1997

<TABLE>
<S> <C> <C>
Assets:

Total investments in securities, at value (identified cost
$306,884,537 and tax cost $306,931,480) $353,247,731
Cash 217,053
Income receivable 69,614
Receivable for investments sold 452,546
Receivable for shares sold 8,448,373
Deferred organizational costs 45,762
Total assets 362,481,079
Liabilities:
Payable for investments purchased $17,277,590
Payable for shares redeemed 282,547
Accrued expenses 463,684
Total liabilities 18,023,821
Net Assets for 18,502,995 shares outstanding $344,457,258
Net Assets Consist of:
Paid in capital $298,088,530
Net unrealized appreciation of investments 46,363,194
Accumulated net realized gain on investments 5,454
Undistributed net investment income 80
Total Net Assets $344,457,258
Net Asset Value, Offering Price and
Redemption Proceeds Per Share:
Class A Shares:
Net Asset Value Per Share ($134,902,691 / 7,193,898
shares outstanding) $18.75
Offering Price Per Share (100/94.50 of $18.75)* $19.84
Redemption Proceeds Per Share $18.75
Class B Shares:
Net Asset Value Per Share ($183,179,696 / 9,883,938
shares outstanding) $18.53
Offering Price Per Share $18.53
Redemption Proceeds Per Share (94.50/100 of $18.53)** $17.51
Class C Shares:
Net Asset Value Per Share ($26,374,871 / 1,425,159
shares outstanding) $18.51
Offering Price Per Share $18.51
Redemption Proceeds Per Share (99.00/100 of $18.51)** $18.32
</TABLE>

* See "Investing in the Fund" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.

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

Federated Small Cap Strategies Fund
Statement of Operations

Year Ended October 31, 1997

<TABLE>
<S> <C> <C>
Investment Income:
Dividends $ 429,016
Interest 920,379
Total income 1,349,395
Expenses:
Investment advisory fee $1,283,451
Administrative personnel and services fee 195,031
Custodian fees 22,666
Transfer and dividend disbursing agent fees and expenses 254,970
Directors'/Trustees' fees 2,540
Auditing fees 15,047
Legal fees 7,544
Portfolio accounting fees 72,581
Distribution services fee--Class B Shares 672,399
Distribution services fee--Class C Shares 109,541
Shareholder services fee--Class A Shares 167,166
Shareholder services fee--Class B Shares 224,133
Shareholder services fee--Class C Shares 36,514
Share registration costs 71,618
Printing and postage 27,986
Insurance premiums 2,895
Taxes 1,043
Miscellaneous 87,958
Total expenses 3,255,083
Net operating loss (1,905,688)
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments 1,329,530
Net change in unrealized appreciation of investments 44,425,343
Net realized and unrealized gain on investments 45,754,873
Change in net assets resulting from operations $43,849,185
</TABLE>

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

Federated Small Cap Strategies Fund
Statement of Changes in Net Assets

<TABLE>
<CAPTION>
Year Ended
October 31,
1997 1996
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations--
Net operating loss $ (1,905,688) $ (175,647)
Net realized gain on investments ($1,368,031 and $1,389,302,
respectively, as computed for federal tax purposes) 1,329,530 1,375,654
Net change in unrealized appreciation 44,425,343 1,937,851
Change in net assets resulting from operations 43,849,185 3,137,858
Net equalization credits (debits)-- -- (30)
Distributions to Shareholders--
Distributions in excess of net investment income
Class A Shares -- (9,870)
Distributions from net realized gains
Class A Shares (479,065) --
Class B Shares (622,004) --
Class C Shares (97,800) --
Change in net assets resulting from distributions to shareholders (1,198,869) (9,870)
Share Transactions--
Proceeds from sale of shares 316,254,217 67,377,652
Net asset value of shares issued to shareholders in payment of
distributions declared 1,012,743 1,448
Cost of shares redeemed (76,309,740) (9,657,336)
Change in net assets resulting from share transactions 240,957,220 57,721,764
Change in net assets 283,607,536 60,849,722
Net Assets:
Beginning of period 60,849,722 --
End of period (including undistributed net investment income of
$80 and $0, respectively) $344,457,258 $60,849,722
</TABLE>

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

Federated Small Cap Strategies Fund
Financial Highlights--Class A Shares

(For a share outstanding throughout each period)

<TABLE>
<CAPTION>
Year Ended
October 31,
1997 1996
<S> <C> <C>
Net asset value, beginning of period $ 14.68 $ 10.00
Income from investment operations
Net operating loss (0.04) (0.05)(d)
Net realized and unrealized gain on investments 4.33 4.75
Total from investment operations 4.29 4.70
Less distributions
Distributions in excess of net investment income -- (0.02)
Distributions from net realized gain on investments (0.22) --
Total distributions (0.22) (0.02)
Net asset value, end of period $ 18.75 $ 14.68
Total return(a) 29.55% 47.06%
Ratios to average net assets
Expenses 1.44% 1.35%
Net operating loss (0.65%) (0.39%)
Expense waiver/reimbursement(b) 0.00% 1.70%
Supplemental data
Net assets, end of period (000 omitted) $134,903 $23,242
Average commission rate paid(c) $ 0.0501 $0.0264
Portfolio turnover 118% 83%
</TABLE>

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

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

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

(d) Per share information presented is based upon the monthly average number of
shares outstanding due to large fluctuations in the number of shares
outstanding during the period.

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

Federated Small Cap Strategies Fund
Financial Highlights--Class B Shares

(For a share outstanding throughout each period)

<TABLE>
<CAPTION>
Year Ended
October 31,
1997 1996
<S> <C> <C>
Net asset value, beginning of period $14.62 $10.00
Income from investment operations
Net operating loss (0.09) (0.16)(d)
Net realized and unrealized gain on investments 4.22 4.78
Total from investment operations 4.13 4.62
Less distributions
Distributions from net realized gain on investments (0.22) --
Net asset value, end of period $18.53 $14.62
Total return(a) 28.56% 46.20%
Ratios to average net assets
Expenses 2.19% 2.10%
Net operating loss (1.40%) (1.27%)
Expense waiver/reimbursement(b) 0.00% 1.70%
Supplemental data
Net assets, end of period (000 omitted) $183,180 $32,112
Average commission rate paid(c) $ 0.0501 $0.0264
Portfolio turnover 118% 83%
</TABLE>

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

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

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

(d) Per share information presented is based upon the monthly average number of
shares outstanding due to large fluctuations in the number of shares
outstanding during the period.

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

Federated Small Cap Strategies Fund
Financial Highlights--Class C Shares

(For a share outstanding throughout each period)

<TABLE>
<CAPTION>
Year Ended
October 31,
1997 1996
<S> <C> <C>
Net asset value, beginning of period $ 14.60 $ 10.00
Income from investment operations
Net operating loss (0.10) (0.16)(d)
Net realized and unrealized gain on investments 4.23 4.76
Total from investment operations 4.13 4.60
Less distributions
Distributions from net realized gain on investments (0.22) --
Net asset value, end of period $ 18.51 $ 14.60
Total return(a) 28.60% 46.00%
Ratios to average net assets
Expenses 2.19% 2.10%
Net operating loss (1.40%) (1.28%)
Expense waiver/reimbursement(b) 0.00% 1.70%
Supplemental data
Net assets, end of period (000 omitted) $26,375 $ 5,496
Average commission rate paid(c) $0.0501 $0.0264
Portfolio turnover 118% 83%
</TABLE>

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

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

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

(d) Per share information presented is based upon the monthly average number of
shares outstanding due to large fluctuations in the number of shares
outstanding during the period.

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

Federated Small Cap Strategies Fund
Notes to Financial Statements

October 31, 1997

1. Organization

Federated Equity Funds (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 four portfolios. The financial statements
included herein are only those of Federated Small Cap Strategies Fund (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The Fund offers three classes of shares: Class A Shares, Class B Shares,
and Class C Shares. The investment objective of the Fund is to provide capital
appreciation.

2. Significant Accounting Policies

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

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

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

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

Distributions in excess of net investment income were a result of certain book
and tax timing differences. These distributions do not represent a return of
capital for federal income tax purposes.

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

<TABLE>
<CAPTION>
Increase (Decrease)
<S> <C> <C>
Accumulated
Accumulated Net Distributions in
Realized Excess of Net Paid in
Gain/Loss Investment Income Capital
(1,506,067) 2,096,521 (590,454)
</TABLE>

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

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

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.

Deferred Expenses--The costs incurred by the Fund with respect to registration
of its shares in its first fiscal year, excluding the initial expense of
registering its shares, have been deferred and are being amortized over a
period not to exceed five years from the Fund's commencement date.

Futures Contracts--The Fund purchases stock index futures contracts to hedge
against the effects of changes in the value of portfolio securities due to
anticipated changes in interest rates and market conditions. Upon entering into
a stock index futures contract with a broker, the Fund is required to deposit
in a segregated account a specified amount of cash or U.S. government
securities. Futures contracts are valued daily and unrealized gains or losses
are recorded in a "variation margin" account. Daily, the Fund receives from or
pays to the broker a specified amount of cash based upon changes in the
variation margin account. For the period ended October 31, 1997, the Fund had
realized losses of $987,597 on futures contracts.

Futures contracts have market risks, including the risk that the change in the
value of the contract may not correlate with changes in the value of the
underlying securities.

At October 31, 1997, the Fund had no outstanding futures contracts.

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

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

3. Shares of Beneficial Interest

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

Transactions in shares were as follows:

<TABLE>
<CAPTION>
Year Ended October 31,
1997 1996(a)
Class A Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 8,939,852 $152,717,553 2,243,995 $29,137,057
Shares issued to shareholders in
payment of distributions declared 22,727 351,365 126 1,448
Shares redeemed (3,351,598) (59,328,543) (661,204) (8,108,029)
Net change resulting from
Class A Share transactions 5,610,981 $ 93,740,375 1,582,917 $21,030,476
</TABLE>

<TABLE>
<CAPTION>
Year Ended October 31,
1997 1996(a)
Class B Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 8,333,326 $140,776,114 2,289,952 $32,610,920
Shares issued to shareholders in
payment of distributions declared 36,949 568,269 -- --
Shares redeemed (682,324) (11,279,092) (93,965) (1,283,271)
Net change resulting from
Class B Share transactions 7,687,951 $130,065,291 2,195,987 $31,327,649
</TABLE>

(a) Reflects operations for the period from November 1, 1995 (date of initial
public investment) to October 31, 1996.

<TABLE>
<CAPTION>
Year Ended October 31,
1997 1996(a)
Class C Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 1,377,339 $ 22,760,551 395,842 $ 5,629,675
Shares issued to shareholders in
payment of distributions declared 6,061 93,109 -- --
Shares redeemed (334,548) (5,702,106) (19,535) (266,036)
Net change resulting from
Class C Share transactions 1,048,852 $ 17,151,554 376,307 $ 5,363,639
Net change resulting from share
transactions 14,347,784 $240,957,220 4,155,211 $57,721,764
</TABLE>

(a) Reflects operations for the period from November 1, 1995 (date of initial
public investment) to October 31, 1996.

4. Investment Advisory Fee and Other Transactions with Affiliates

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

Distribution Services Fee--The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Class A Shares, Class B Shares, and Class C
Shares. The Plan provides that the Fund may incur distribution expenses
according to the following schedule annually, to compensate FSC.

<TABLE>
<CAPTION>
Percentage of
Average Daily Net
Share Class Name Assets of Class
<S> <C>
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>

For the year ended October 31, 1997, Class A did not incur a distribution
service fee.

Shareholder Services Fee--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.

Organizational Expenses--Organizational and/or start-up administrative service
expenses of $10,292 were borne initially by FServ. The Fund has agreed to
reimburse FServ for the expenses during the five year period following the
effective date. For the year ended October 31, 1997, the Fund paid $3,052
pursuant to this agreement.

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

5. Investment Transactions

Purchases and sales of investments, excluding short-term securities, for the
year ended October 31, 1997, were as follows:

Purchases $427,536,691
Sales $191,985,185

Report of Ernst & Young LLP, Independent Auditors

To the Trustees and Shareholders of FEDERATED EQUITY FUNDS:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Federated Small Cap Strategies Fund, (a
portfolio of Federated Equity Funds) as of October 31, 1997, and the related
statement of operations, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for the periods
presented therein. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Small Cap Strategies Fund at October 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for the
period presented therein, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

Pittsburgh, Pennsylvania
December 12, 1997

Trustees

John F. Donahue

Thomas G. Bigley

John T. Conroy, Jr.

William J. Copeland

James E. Dowd

Lawrence D. Ellis, M.D.

Edward L. Flaherty, Jr.

Peter E. Madden

Gregor F. Meyer

John E. Murray, Jr.

Wesley W. Posvar

Marjorie P. Smuts

Officers

Federated Investors
Federated Securities Corp., Distributor

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

1-800-341-7400

www.federatedinvestors.com

Cusip 314172404
Cusip 314172503
Cusip 314172602
G01658-04 (12/97)

[LOGO] FEDERATED INVESTORS

Federated
Growth
Strategies
Fund

13th Annual Report
October 31, 1997

Established 1984

President's Message

[PHOTO APPEARS HERE]

Dear Shareholder:

Federated Growth Strategies Fund was created in 1984, and I am pleased to
present the fund's 13th Annual Report to shareholders.

This report covers the 12-month fiscal year reporting period from November 1,
1996, through October 31, 1997. It begins with an interview with portfolio
manager, Jim Grefenstette, Vice President, Federated Management. Following his
discussion are three additional items of shareholder interest: a series of
graphs showing long-term investment performance, a complete listing of the
fund's stock holdings, and the fund's financial statements.

Federated Growth Strategies Fund is managed to pursue long-term growth through a
highly diversified portfolio of mid- and large-capitalization stocks selected
for their strong price and earnings momentum. The fund's portfolio includes
common stocks and convertible securities representing 12 key business sectors
with many familiar names you'll recognize immediately, such as Allstate, America
Online, Compaq Computer, General Electric, HBO, Merck, Microsoft, and Pfizer.

As shown by the share class performance below, this diversified portfolio
produced an excellent total return during the 12-month reporting period that far
outpaced the 27.28% total return of its peer group, the Lipper Growth Funds
Average.* The fund's performance was due primarily to gains realized from
security price appreciation.**

<TABLE>
<CAPTION>
Total Capital Net Asset Value
Return Gains Increase
<S> <C> <C> <C>
Class A Shares 36.37% $2.82 $25.84 to $31.54=22%
Class B Shares 35.23% $2.82 $25.65 to $31.02=21%
Class C Shares 35.66% $2.82 $25.68 to $31.16=21%
</TABLE>

** Past performance quoted is based on net asset value and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the period based on offering price for Class
A, B, and C Shares were 28.88%, 29.08%, and 34.53%, respectively.

stock investing. At times, the volatility can be severe, however, the overall
trend of the stock market over history has been upward.

As a shareholder, you have two easy, convenient ways to increase your
participation in the growth of quality American companies. First, if you are not
already doing so, you can reinvest your dividends and capital gains
automatically in additional shares--and help your shares increase in number
through the benefit of compounding. Second, you can "pay yourself first" by
investing in the fund through a systematic investment program. This program
withdraws a specific amount from your checking account on a regular basis to
purchase more fund shares. For more information, contact your investment
representative.

Thank you for entrusting a portion of your wealth to Federated Growth Strategies
Fund. We hope you are pleased with your investment's progress, and as always, we
welcome your comments and suggestions.

Sincerely,

/s/ Glenn R. Johnson

Glenn R. Johnson
President
December 15, 1997

+ Systematic investing does not ensure a profit or protect against loss in
declining markets.

Investment Review

[PHOTO APPEARS HERE]
Jim Grefenstette, CFA
Vice President
Federated Management

Q What are your comments on the fund's fiscal year, which was an extremely
rewarding and volatile period?

A The two most important factors in determining market direction, we believe,
are interest rates and earnings. During the last twelve months, the market had
both of these factors squarely on its side. As inflation continued its downward
trend, the yield on 30-year Treasury bonds fell from 6.64% to 6.15%.
Concurrently, U.S. businesses continued to increase productivity enough that
they were able to grow earnings on average between 8%-10%. Economic growth
without inflation is the perfect scenario for a strong stock market, and that's
just what we saw these past 12 months.

Because this fund has an average capitalization slightly lower than that of the
average growth fund, Federated Growth Strategies Fund benefited from the breadth
of this year's market gains. That breadth was narrow at the beginning of the
fiscal year and expanded throughout the year to the point where year-end total
returns for smaller capitalized stocks were nearly identical to those of larger
stocks. We believe this breadth was driven by the fact that the U.S. economy
appeared to grow faster than economies outside the U.S. This allowed smaller
stocks to grow earnings faster than the larger, multi-nationals as the year wore
on.

The fund also benefited from strong performance in some of our overweighted
sectors namely Finance, Health Care (especially pharmaceuticals), Technology and
Energy (especially energy service companies and drillers). We were also
underweighted in some underperforming sectors such as Utilities, Consumer Non-
Durables and Consumer Durables.

Q How did Federated Growth Strategies Fund perform over its fiscal year
compared to the S&P 500 Index and the Lipper Growth Funds universe?

A The fund produced very strong total returns for all share classes--Class A, B,
and C Share returns were 36.37%, 35.23%, and 35.66%, respectively, based on net
asset value.* These returns all outperformed the 32.11% return of the S&P 500
Index** and the fund's peer group, the Lipper Growth Funds universe, which had a
total return of 27.28% for the same period.

Q Can you tell us about recent portfolio additions with particularly
interesting stories?

A Dell Computer (0.6% of portfolio)--One of the fastest growing retailers of
personal computers and servers, we believe Dell, with its successful direct
sales model, is in a particularly good position to benefit from a strong demand
for computers during the next five to ten years.

E Trade Group (0.6% of portfolio)--Providing an on-line stock trading service,
this firm is the epitome of the convergence of finance and technology. The firm
is growing rapidly from the proliferation of personal computers, the increasing
popularity of the Internet, and the low cost trading capabilities it offers
investors.

Jones Apparel Group (1.0% of portfolio)--We consider Jones Apparel Group to be
one of the strongest top- and bottom-line growth stories in the apparel
business. As management continues its strong execution of a multi-brand
strategy, we expect sales and earnings growth near 20% for the next two years,
surpassing the low single-digit rate for the industry.

Omnicare, Inc. (0.9% of portfolio)--This leading independent institutional
pharmacy continues to consolidate the industry and gain market share. The
industry has been growing better than 15% from new innovative drugs, and
increasing acuity and utilization in nursing homes. New rural hospitals and
assisted living facilities offer further growth opportunities.

* Performance quoted reflects past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the period based on offering price or the
payment of a contingent deferred sales charge for Class A, B, and C Shares
were 28.88%, 29.08%, and 34.53%, respectively.

** The S&P 500 is an unmanaged index comprising stocks in industry,
transportation, financial and utility companies. Investments cannot be made
in an index.

Rambus (0.5% of portfolio)--This chip-less and fabrication-less semiconductor-
based intellectual property firm has cutting-edge technology that allows data to
be transferred at significantly higher speeds than conventional memory
methodologies. All of the top 10 memory suppliers have licensed Rambus'
technology ensuring strong growth as it gains market share.

Snyder Communications (0.6% of portfolio)--An international provider of complete
marketing solutions, Snyder should grow as its customers seek to outsource
certain marketing activities in order to expand their selling capabilities. The
firm is leveraging its sampling business into media contracts, gaining new
contracts with Johnson & Johnson and Procter & Gamble, building a proprietary
database, and making acquisitions.

Q As we exit a tumultuous 1997, what is your outlook for growth stocks, and
how has that influenced your sector weightings?

A We continue to believe that the economy will grow more slowly than expected
through the next several quarters. The lack of core price inflation at either
the producer or consumer level, the high proportion of national growth driven by
inventory accumulation, and the absence of broad signs of economic strength all
tell us that the current pace of domestic growth is not sustainable. As
consensus views on the economy shift to reflect more moderation, money should
continue to flow into stocks that are less sensitive to the strength of the
economy.

Consequently, as we have for the last several quarters, we continue to favor,
with modest overweights, sectors that offer the potential for stronger secular
growth--namely Technology, Finance, Health Care and Energy. We are also remain
underweight in economically sensitive sectors such as Basic Industry, Consumer
Durables, and Utilities.

At the end of the reporting period, the portfolio composition and top holdings
were as follows:

<TABLE>
<CAPTION>
Sector Weightings
Percentage S&P 500
Sector of Net Assets Weighting
<S> <C> <C>
Finance 18.3% 16.0%
Technology 17.0% 15.2%
Health Care 14.1% 11.4%
Energy/Minerals 12.9% 9.1%
Consumer Non Durables 8.3% 11.0%
Producer Manufacturing 5.9% 7.7%
Services 5.4% 5.1%
Utilities 4.7% 9.5%
Retail 4.4% 4.8%
Basic Industry 3.2% 5.4%
Consumer Durables 2.4% 3.4%
Transportation 0.9% 1.4%
Miscellaneous 2.5%
</TABLE>

<TABLE>
<CAPTION>
Top Holdings
Percentage
Name of Net Assets
<S> <C>
Ahmanson (H.F.) & Co 1.9%
MBNA Corp. 1.5%
Travelers Group, Inc. 1.4%
IXC Communications, Inc. 1.2%
General Nutrition Cos., Inc. 1.1%
HBO & Co. 1.1%
Hyperion Software Corp. 1.1%
Frontier Insurance Group, Inc. 1.1%
Diamond Offshore Drilling, Inc. 1.1%
Intel Corp. 1.0%
Total Percentage of Portfolio 12.5%
</TABLE>

Two Ways You May Seek to Invest for Success in
Federated Growth Strategies Fund

Initial Investment:

If you had made an initial investment of $14,000 in the Class A Shares of
Federated Growth Strategies Fund on 8/23/84, reinvested dividends and capital
gains, and did not redeem any shares, your account would be worth $106,653 on
10/31/97. You would have earned a 16.65%* average annual total return for the
13-year investment life span.

One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.

As of 9/30/97, the Class A Shares' average annual one-year, five-year, and
ten-year total returns were 34.98%, 17.42%, and 17.20%, respectively. Class B
Shares' average annual one-year and since inception (8/16/95) total returns
were 35.54%, and 29.35%, respectively. Class C Shares' average annual one-year
and since inception (8/16/95) total returns were 40.74% and 31.44%,
respectively.**

[Graphic representation A.13. See Appendix.]

** The total return stated takes into account the 5.50% sales charge for Class A
Shares, the 5.50% contingent deferred sales charge for Class B Shares, and
the 1% contingent deferred sales charge for Class C Shares.

Federated Growth Strategies Fund

One Step at a Time:

$1,000 invested each year for 13 years (reinvesting all dividends and capital
gains) grew to $43,269.

With this approach, the key is consistency.

If you had started investing $1,000 annually in the Class A Shares of Federated
Growth Strategies Fund on 8/23/84, reinvested your dividends and capital gains,
and did not redeem any shares, you would have invested only $14,000 but your
account would have reached a total value of $43,269* by 10/31/97. You would have
earned an average annual total return of 15.55%.

A practical investment plan helps you pursue long-term performance from growth
oriented stocks. Through systematic investing, you buy shares on a regular basis
and reinvest all earnings. An investment plan works for you when you invest only
$1,000 annually. You can take it one step at a time. Put time, money, and
compounding to work.

[Graphic representation A.14. See Appendix.]

* This chart assumes that the subsequent annual investments are made on the last
day of each anniversary month. No method of investing can guarantee a profit
or protect against loss in down markets. However, by investing regularly over
time and buying shares at various prices, investors can purchase more shares
at lower prices. All accumulated shares have the ability to pay income to the
investor.

Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue
purchases through periods of low price levels.

Federated Growth Strategies Fund
Hypothetical Investor Profile: Investing for a College Education

David and Joan Rice are a fictitious couple who, like many shareholders, are
searching for a way to make their money grow over time.

David and Joan are planning for the college education of their children. On
October 31, 1987, they invested $5,000 in the Class A Shares of Federated Growth
Strategies Fund. Since then, David and Joan have made additional investments of
$250 every month.

As this chart shows, over 10 years, the original $5,000 investment along with
their additional monthly $250 investments totaling $35,000 has grown to $91,963.
This represents an 16.25% average annual total return.* For the Rices, a
dedicated program of monthly investment really paid off.

[Graphic representation A.15. See Appendix.]

* This hypothetical scenario is provided for illustrative purposes only and does
not represent the results obtained by any particular shareholder. Past
performance does not guarantee future results.

Federated Growth Strategies Fund
(Class A Shares)

Growth of $10,000 Invested in Federated Growth Strategies Fund (Class A Shares)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Growth Strategies Fund (Class A Shares) (the "Fund") from October 31, 1987 to
October 31, 1997 compared to Standard and Poor's 500 Index (S&P 500) and the
Lipper Growth Fund Index(LGFI).

[Graphic representation A.16. See Appendix.]

* Represents a hypothetical investment of $10,000 in the Fund with no sales
charge. As of August 15, 1995, the maximum sales charge was 5.50%. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
S&P 500 and the LGFI have been adjusted to reflect reinvestment of dividends
on securities in the indices.

** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

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

Federated Growth Strategies Fund
(Class B Shares)

Growth of $10,000 Invested in Federated Growth Strategies Fund (Class B Shares)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Growth Strategies Fund (Class B Shares) (the "Fund") from August 16, 1995 (start
of performance) to October 31, 1997 compared to Standard and Poor's 500 Index
(S&P 500) and the Lipper Growth Fund Index (LGFI).

[Graphic representation A.17. See Appendix.]

* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 4.00% contingent deferred sales charge on any
redemption less than 3 years from the purchase date. The maximum contingent
deferred sales charge is 5.50% on any redemption less than 1 year from the
purchase date. The Fund's performance assumes the reinvestment of all
dividends and distributions. The S&P 500 and the LGFI have been adjusted to
reflect reinvestment of dividends on securities in the indices.

** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

Federated Growth Strategies Fund
(Class C Shares)

Growth of $10,000 Invested in Federated Growth Strategies Fund (Class C Shares)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Growth Strategies Fund (Class C Shares) (the "Fund") from August 16, 1995 (start
of performance) to October 31, 1997 compared to Standard and Poor's 500 Index
(S&P 500) and the Lipper Growth Fund Index (LGFI).

[Graphic representation A.18. See Appendix.]

* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 1.00% contingent deferred sales charge on any
redemption less than 1 year from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The S&P 500 and
the LGFI have been adjusted to reflect reinvestment of dividends on
securities in the indices.

** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

Federated Growth Strategies Fund
Portfolio of Investments
October 31, 1997

<TABLE>
<CAPTION>
Shares Value
------ -----
<C> <S> <C>
Common Stocks--96.9%
- ------------------------------------------------------------
Basic Industry--3.2%
-----------------------------------------
66,000 Fort James Corp. $ 2,619,375
95,400 (a)Lone Star Technologies, Inc. 3,643,087
217,200 (a)Royal Group Technologies Ltd. 5,511,450
56,100 Southdown, Inc. 3,106,538
140,300 (a)Steel Dynamics, Inc. 2,981,375
Total 17,861,825

Consumer Durables--2.3%
-----------------------------------------
93,200 Carlisle Cos., Inc. 4,030,900
214,200 (a)Furniture Brands International, Inc. 3,587,850
42,400 Honda Motor Co. Ltd., ADR 2,835,500
29,500 Sony Corp., ADR 2,489,063
Total 12,943,313

Consumer Non-Durables--8.2%
-----------------------------------------
34,900 Avon Products, Inc. 2,285,950
127,000 Bass PLC, ADR 3,516,312
100,100 (a)Consolidated Cigar Holdings, Inc. 3,928,925
30,000 Gillette Co. 2,671,875
109,300 (a)Jones Apparel Group, Inc. 5,560,637
117,800 Philip Morris Cos., Inc. 4,667,825
60,000 Procter & Gamble Co. 4,080,000
83,400 St. John Knits, Inc. 3,351,638
91,100 (a)Tommy Hilfiger Corp. 3,604,144
106,400 Universal Corp. 4,089,750
120,500 Wolverine World Wide, Inc. 2,651,000
70,200 Wrigley (Wm.), Jr. Co. 5,080,725
Total 45,488,781

Energy Minerals--12.7%
-----------------------------------------
67,400 (a)BJ Services Co. $ 5,712,150
123,400 Baker Hughes, Inc. 5,668,687
44,782 British Petroleum Co. PLC, ADR 3,929,620
124,300 Cabot Oil & Gas Corp., Class A 2,983,200
62,300 (a)Cooper Cameron Corp. 4,501,175
94,600 Diamond Offshore Drilling, Inc. 5,888,850
103,400 ENSCO International, Inc. 4,349,262
149,700 (a)Falcon Drilling Co., Inc. 5,445,337
117,800 (a)Friede Goldman International, Inc. 4,689,912
122,900 (a)Key Energy Group, Inc. 3,855,987
134,200 (a)Nabors Industries, Inc. 5,518,975
34,200 (a)Petroleum Geo-Services, ADR 2,368,350
147,900 (a)Rowan Companies, Inc. 5,749,613
62,700 (a)Smith International, Inc. 4,780,875
83,500 Tosco Corp. 2,755,500
101,000 (a)Transcoastal Marine Services 2,449,250
Total 70,646,743

Finance--18.2%
-----------------------------------------
175,400 Ahmanson (H.F.) & Co. 10,348,600
58,700 Allstate Corp. 4,868,431
37,500 American International Group, Inc. 3,827,344
92,400 Bank of New York Co., Inc. 4,348,575
68,000 BankAmerica Corp. 4,862,000
183,600 (a)Catellus Development Corp. 3,155,625
35,100 Citicorp 4,389,694
115,400 Conseco, Inc. 5,034,325
102,600 (a)E*Trade Group, Inc. 3,167,775
175,300 Frontier Insurance Group, Inc. 5,905,419
123,000 (a)Golden State Bancorp, Inc. $ 4,089,750
305,887 MBNA Corp. 8,048,665
40,000 MGIC Investment Corp. 2,412,500
83,400 Mellon Bank Corp. 4,300,312
78,200 Merrill Lynch & Co., Inc. 5,288,275
68,805 Morgan Stanley, Dean Witter,
Discover & Co. 3,371,445
64,300 NationsBank Corp. 3,849,963
107,700 Old Republic International Corp. 3,850,275
57,400 T. Rowe Price Associates 3,802,750
101,500 Torchmark Corp. 4,047,313
113,800 Travelers Group, Inc. 7,966,000
Total 100,935,036

Health Care--14.0%
-----------------------------------------
144,800 (a)BioChem Pharma, Inc. 3,629,050
96,000 (a)Centocor, Inc. 4,224,000
107,900 (a)Dura Pharmaceuticals, Inc. 5,219,662
70,500 Guidant Corp. 4,053,750
139,800 HBO & Co. 6,081,300
155,000 (a)HEALTHSOUTH Corp. 3,962,187
129,000 Jones Medical Industries, Inc. 3,886,125
81,600 Lilly (Eli) & Co. 5,457,000
75,400 (a)MedPartners, Inc. 1,917,987
36,400 Merck & Co., Inc. 3,248,700
185,000 Omnicare, Inc. 5,145,313
38,200 Pfizer, Inc. 2,702,650
56,800 (a)Phycor, Inc. 1,309,950
54,300 (a)Quintiles Transnational Corp. 3,936,750
120,700 (a)Safeskin Corp. 5,476,763
71,000 Smithkline Beecham Corp., ADR $ 3,381,375
142,900 (a)Tenet Healthcare Corp. 4,367,381
91,500 (a)Universal Health Services,
Inc., Class B 4,031,719
37,200 Warner-Lambert Co. 5,326,575
Total 77,358,237

Producer Manufacturing--5.8%
-----------------------------------------
85,900 (a)EVI, Inc. 5,513,706
77,500 General Electric Co. 5,003,594
79,300 (a)Halter Marine Group, Inc. 4,148,381
125,000 (a)Maverick Tube Corp. 4,406,250
65,500 Precision Castparts Corp. 3,852,219
123,000 Tyco International, Ltd. 4,643,250
154,100 (a)U.S. Office Products Co. 4,815,625
Total 32,383,025

Retail Trade--4.4%
-----------------------------------------
119,700 (a)CompUSA, Inc. 3,920,175
198,300 (a)General Nutrition Cos., Inc. 6,246,450
74,600 Home Depot, Inc. 4,149,625
136,650 Pier 1 Imports, Inc. 2,493,863
49,100 (a)Safeway, Inc. 2,853,938
150,800 TJX Cos., Inc. 4,467,450
Total 24,131,501

Services--5.4%
-----------------------------------------
55,700 (a)ASE Test Ltd. 3,049,575
67,200 (a)Corrections Corp. America 2,049,600
55,300 (a)HFS, Inc. 3,898,650
42,400 (a)Heftel Broadcasting Corp., Class A 2,819,600
82,200 New York Times Co., Class A 4,500,450
75,300 (a)Newpark Resources, Inc. $ 3,124,950
204,800 (a)Philip Services Corp. 3,584,000
110,700 (a)Snyder Communications, Inc. 3,265,650
99,500 (a)USA Waste Services, Inc. 3,681,500
Total 29,973,975

Technology--17.2%
-----------------------------------------
26,200 (a)ASM Lithography Holding NV, ADR 1,919,150
64,900 (a)Advanced Fibre Communications 1,886,156
53,500 (a)America Online, Inc. 4,119,500
90,000 (a)Applied Materials, Inc. 3,003,750
52,600 (a)Cadence Design Systems, Inc. 2,800,950
66,500 (a)Cisco Systems, Inc. 5,455,078
84,250 (a)Compaq Computer Corp. 5,370,937
170,900 (a)Creative Technology Ltd. 4,347,269
57,700 Dallas Semiconductor Corp. 2,820,087
38,600 (a)Dell Computer Corp. 3,092,825
49,200 (a)EMC Corp. Mass 2,755,200
82,700 (a)HNC Software 3,059,900
155,600 (a)Hyperion Software Corp. 5,932,250
74,700 Intel Corp. 5,751,900
53,500 Lucent Technologies, Inc. 4,410,406
130,100 (a)Mastech Corp. 4,309,562
35,000 (a)Metromedia Fibre Network, Inc. 840,000
43,600 (a)Microsoft Corp. 5,668,000
142,500 (a)Ortel Corp. 3,330,938
40,400 (a)PRI Automation, Inc. 1,545,300
36,800 (a)Peoplesoft, Inc. 2,313,800
<CAPTION>
Shares or
Principal
Amount Value
--------- -----
<C> <S> <C>
Common Stocks--continued
- ------------------------------------------------------------
Technology--continued
-----------------------------------------
55,250 (a)Rambus, Inc. $ 2,748,688
110,900 (a)SCI Systems, Inc. 4,879,600
108,400 (a)Sandisk Corp. 2,588,050
37,600 (a)Speedfam International, Inc. 1,395,900
74,400 (a)Tellabs, Inc. 4,017,600
27,200 Texas Instruments, Inc. 2,901,900
82,900 (a)World Access, Inc. 2,196,850
Total 95,461,546

Transportation--0.9%
-----------------------------------------
133,200 Expeditors International Washington, Inc. 4,895,100

Utilities--4.6%
-----------------------------------------
117,400 Cincinnati Bell, Inc. 3,169,800
66,000 Coastal Corp. 3,968,250
188,600 (a)ICG Communications, Inc. 4,337,800
193,100 (a)IXC Communications, Inc. 6,372,300
73,700 Sonat, Inc. 3,385,594
132,800 (a)WorldCom, Inc. 4,465,400
Total 25,699,144
Total Common Stocks
(identified cost $416,546,911) 537,778,226

U.S. Treasury Obligation--1.5%
- ------------------------------------------------------------
$7,875,000 United States Treasury Bond,
6.375%, 8/15/2027
(identified cost $8,059,552) 8,118,338
<CAPTION>
Principal
Amount Value
--------- -----
<C> <S> <C>
(b)Repurchase Agreement--1.6%
- ------------------------------------------------------------
$8,985,000 BT Securities Corporation, 5.71%,
dated 10/31/1997, due 11/3/1997
(at amortized cost) $ 8,985,000
Total Investments
(identified cost $433,591,463)(c) $554,881,564
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $434,357,118.
The net unrealized appreciation of investments on a federal tax basis
amounts to $120,524,446 which is comprised of $132,399,469 appreciation and
$11,875,023 depreciation at October 31, 1997.

Note: The categories of investments are shown as a percentage of net assets
($555,125,818) at October 31, 1997.

The following acronyms are used throughout this portfolio:

ADR--American Depository Receipt
PLC--Public Limited Company

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

Federated Growth Strategies Fund
Statement of Assets and Liabilities
October 31, 1997

<TABLE>
<S> <C> <C>
Assets:
Total investments in securities, at value (identified cost $433,591,463 and tax cost $434,357,118) $554,881,564
Cash 29,322
Income receivable 370,456
Receivable for investments sold 5,994,456
Receivable for shares sold 7,163,878
------------
Total assets 568,439,676
Liabilities:
Payable for investments purchased $ 12,185,791
Payable for shares redeemed 820,716
Payable for taxes withheld 1,630
Accrued expenses 305,721
Total liabilities 13,313,858
------------
Net Assets for 17,626,414 shares outstanding $555,125,818
------------
Net Assets Consist of:
Paid in capital $321,405,087
Net unrealized appreciation of investments 121,290,101
Accumulated net realized gain on investments 112,442,316
Distributions in excess of net investment income (11,686)
------------
Total Net Assets $555,125,818
------------
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Class A Shares:
Net Asset Value Per Share ($509,678,049 / 16,162,060 shares outstanding) $31.54
------------
Offering Price Per Share (100/94.50 of $31.54)* $33.38
------------
Redemption Proceeds Per Share $31.54
------------
Class B Shares:
Net Asset Value Per Share ($39,587,893 / 1,276,311 shares outstanding) $31.02
------------
Offering Price Per Share $31.02
------------
Redemption Proceeds Per Share (94.50/100 of $31.02)** $29.31
------------
Class C Shares:
Net Asset Value Per Share ($5,859,876 / 188,043 shares outstanding) $31.16
------------
Offering Price Per Share $31.16
------------
Redemption Proceeds Per Share (99.00/100 of $31.16)** $30.85
------------
</TABLE>
* See "Investing in the Fund" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.

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

Federated Growth Strategies Fund
Statement of Operations
Year Ended October 31, 1997

<TABLE>
<S> <C> <C> <C>
Investment Income:
Dividends $3,458,347
Interest 1,122,643
-------------
Total income 4,580,990
Expenses:
Investment advisory fee $3,438,932
Administrative personnel and services fee 346,201
Custodian fees 25,111
Transfer and dividend disbursing agent fees and expenses 474,011
Directors'/Trustees' fees 4,006
Auditing fees 17,044
Legal fees 3,811
Portfolio accounting fees 103,203
Distribution services fee--Class B Shares 162,025
Distribution services fee--Class C Shares 33,692
Shareholder services fee--Class A Shares 1,081,072
Shareholder services fee--Class B Shares 54,008
Shareholder services fee--Class C Shares 11,231
Share registration costs 41,210
Printing and postage 55,338
Insurance premiums 6,090
Taxes 27,617
Miscellaneous 14,762
----------
Total expenses 5,899,364
Waivers--
Waiver of shareholder services fee--Class A Shares $(431,425)
Waiver of shareholder services fee--Class C Shares (4,025)
---------
Total waivers (435,450)
----------
Net expenses 5,463,914
-------------
Net operating loss (882,924)
-------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments 113,887,481
-------------
Net change in unrealized appreciation of investments 58,806,461
Net realized and unrealized gain on investments 172,693,942
Change in net assets resulting from operations $ 171,811,018
-------------
</TABLE>

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

Federated Growth Strategies Fund
Statement of Changes in Net Assets

<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations--
Net (operating loss)/investment income $ (882,924) $ 353,605
Net realized gain (loss) on investments ($114,090,561 and
$34,792,008, respectively, as computed for federal tax purposes) 113,887,481 34,229,221
Net change in unrealized appreciation/depreciation 58,806,461 25,049,643
-------------- --------------
Change in net assets resulting from operations 171,811,018 59,632,469
-------------- --------------
Distributions to Shareholders--
Distributions from net investment income
Class A Shares (15,300) (439,174)
Distribution in excess of net investment income
Class A Shares (11,686) --
Distributions from net realized gains
Class A Shares (32,989,453) (50,905,303)
Class B Shares (1,366,243) (314,552)
Class C Shares (434,938) (47,135)
-------------- --------------
Change in net assets resulting from distributions to shareholders (34,817,620) (51,706,164)
-------------- --------------
Share Transactions--
Proceeds from sale of shares 345,861,726 166,947,581
Proceeds from shares issued in connection with the acquisition 74,233,048 --
Net asset value of shares issued to shareholders in payment of
distributions declared 22,808,813 29,896,567
Cost of shares redeemed (347,178,563) (132,875,327)
-------------- --------------
Change in net assets resulting from share transactions 95,725,024 63,968,821
-------------- --------------
Change in net assets 232,718,422 71,895,126
Net Assets:
Beginning of period 322,407,396 250,512,270
-------------- --------------
End of period (including
undistributed net investment income
of $0 and $15,300, respectively) $ 555,125,818 $ 322,407,396
-------------- --------------
</TABLE>

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

Federated Growth Strategies Fund
Financial Highlights--Class A Shares
(For a share outstanding throughout each period)

<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
------------ --------- --------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 25.84 $ 26.22 $ 21.28 $ 23.92 $ 21.16 $ 21.58 $ 16.78 $ 20.99
Income from investment
operations
Net investment
income (loss) (0.04) 0.04 0.24 0.21 0.20 0.33 0.57 0.75
Net realized and
unrealized
gain (loss) on investments 8.56 5.01 5.64 (2.18) 2.96 0.45 5.97 (2.69)
------------ --------- --------- ---------- --------- --------- --------- ----------
Total from investment
operations 8.52 5.05 5.88 (1.97) 3.16 0.78 6.54 (1.94)
------------ --------- --------- ---------- --------- --------- --------- ----------
Less distributions
Distributions from net
investment income (0.00)** (0.04) (0.26) (0.19) (0.23) (0.33) (0.61) (0.79)
Distributions from net
realized gain on
investment
transactions (2.82) (5.39) (0.68) (0.48) (0.17) (0.87) (1.13) (1.48)
------------ --------- --------- ---------- --------- --------- --------- ----------
Total distributions (2.82) (5.43) (0.94) (0.67) (0.40) (1.20) (1.74) (2.27)
------------ --------- --------- ---------- --------- --------- --------- ----------
Net asset value, end of
period $ 31.54 $ 25.84 $ 26.22 $ 21.28 $ 23.92 $ 21.16 $ 21.58 $ 16.78
------------ --------- --------- ---------- --------- --------- --------- ----------
Total return(b) 36.37% 23.16% 29.03% (8.43%) 15.06% 3.93% 41.54% (10.41%)
Ratios to average net
assets
Expenses 1.14% 1.13% 1.10% 0.99% 0.96% 1.01% 1.01% 1.01%
Net investment
income (loss) (0.14%) 0.15% 1.05% 0.89% 0.90% 1.54% 2.88% 4.00%
Expense waiver/
reimbursement(c) 0.10% 0.15% 0.16% -- -- -- 0.10% 0.22%
Supplemental data
Net assets, end of
period (000 omitted) $ 509,678 $307,382 $249,110 $320,630 $460,811 $391,655 $275,561 $138,407
Average commission
rate paid(d) $ .0571 $ 0.0566 -- -- -- -- -- --
Portfolio turnover 146% 89% 125% 59% 57% 46% 54% 67%

<CAPTION>
Year Ended
October 31,
--------------------- May 31,
1989 1988(a) 1988(e)
--------- ---------- ---------
<S> <C> <C> <C>
Net asset value, beginning
of period $ 17.18 $ 16.93 $ 17.67
Income from investment
operations
Net investment
income (loss) 0.59 0.09 0.25
Net realized and
unrealized
gain (loss) on investments 3.80 1.08 (0.23)
--------- ---------- ---------
Total from investment
operations 4.39 1.17 0.02
--------- ---------- ---------
Less distributions
Distributions from net
investment income (0.52) (0.15) (0.20)
Distributions from net
realized gain on
investment
transactions (0.06) (0.77) (0.56)
--------- ---------- ---------
Total distributions (0.58) (0.92) (0.76)
--------- ---------- ---------
Net asset value, end of
period $ 20.99 $ 17.18 $ 16.93
--------- ---------- ---------
Total return(b) 25.87% 6.95% 0.50%
Ratios to average net
assets
Expenses 1.01% 1.00%* 1.00%
Net investment
income (loss) 2.99% 1.30%* 1.39%
Expense waiver/
reimbursement(c) 0.14% 0.60%* 0.15%
Supplemental data
Net assets, end of
period (000 omitted) $134,735 $104,146 $102,395
Average commission
rate paid(d) -- -- --
Portfolio turnover 79% 24% 88%
</TABLE>

* Computed on an annualized basis.
** Amounts distributed per share do not round to $0.01
(a) For the five months ended October 31, 1988. The Fund changed its fiscal year
end from May 31 to October 31.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(e) For the year ended May 31, 1988.

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

Federated Growth Strategies Fund
Financial Highlights--Class B Shares

(For a share outstanding throughout each period)

<TABLE>
<CAPTION>
Year Ended October 31,
----------------------------------
1997 1996 1995(a)
--------- --------- ------------
<S> <C> <C> <C>
Net asset value, beginning of period $25.65 $26.23 $25.51
Income from investment operations
Net operating loss (0.10) (0.10) (0.02)
Net realized and unrealized gain on investments 8.29 4.91 0.74
--------- --------- ------------
Total from investment operations 8.19 4.81 0.72
--------- --------- ------------
Less distributions
Distributions from net realized gain on investments (2.82) (5.39) --
--------- --------- ------------
Net asset value, end of period $31.02 $25.65 $26.23
--------- --------- ------------
Total return(b) 35.23% 22.03% 2.82%
Ratios to average net assets
Expenses 1.99% 2.03% 2.04%*
Net operating loss (1.04%) (0.79%) (0.66%)*
Supplemental data
Net assets, end of period (000 omitted) $39,588 $10,858 $1,345
Average commission rate paid(c) $0.0571 $0.0566 --
Portfolio turnover 146% 89% 125%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 16, 1995 (date of initial
public investment) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.

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

Federated Growth Strategies Fund
Financial Highlights--Class C Shares

(For a share outstanding throughout each period)

<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------
1997 1996 1995(a)
-------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period $25.68 $26.22 $25.51
Income from investment operations
Net operating loss (0.20) (0.05) (0.02)
Net realized and unrealized gain on investments 8.50 4.90 0.73
-------- -------- ---------
Total from investment operations 8.30 4.85 0.71
-------- -------- ---------
Less distributions
Distributions from net realized gain on investments (2.82) (5.39) --
-------- -------- ---------
Net asset value, end of period $31.16 $25.68 $26.22
-------- -------- ---------
Total return(b) 35.66% 22.12% 2.78%
Ratios to average net assets
Expenses 1.90% 1.92% 2.05%*
Net operating loss (0.91%) (0.72%) (0.71%)*
Expense waiver/reimbursement(c) 0.09% 0.12% --
Supplemental data
Net assets, end of period (000 omitted) $5,860 $3,667 $57
Average commission rate paid(d) $0.0571 $0.0566 --
Portfolio turnover 146% 89% 125%
</TABLE>

* Computed on an annualized basis.
(a) Reflects operations for the period from August 16, 1995 (date of initial
public investment) to October 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.

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

Federated Growth Strategies Fund
Notes to Financial Statements

October 31, 1997

1. Organization

Federated Equity Funds (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a diversified, open-end management
investment company. The Trust consists of four portfolios. The financial
statements included herein are only those of Federated Growth Strategies Fund
(the "Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The Fund offers three classes of shares: Class A Shares, Class B Shares
and Class C Shares. The investment objective of the Fund is appreciation of
capital.

On December 13, 1996, the Fund acquired all the net assets of State Bond Common
Stock Fund ("Acquired Fund") pursuant to a plan of reorganization approved by
the Acquired Fund's shareholders. The acquisition was accomplished by a tax-free
exchange of 3,104,686 shares of the Fund (valued at $74,233,048) for the
7,784,543 shares of the Acquired Fund outstanding on December 13, 1996. The
Acquired Fund's net assets of $74,233,048 at that date were combined with those
of the Fund.

2. Significant Accounting Policies

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

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

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

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

Distributions in excess of net investment income were a result of certain book
and tax timing differences. These distributions do not represent a return of
capital for federal income tax purposes.

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

<TABLE>
<CAPTION>
Increase (Decrease)
----------------------------------------------
Accumulated
Distributions in
Excess of Net Accumulated Net
Investment Income Realized Gain/Loss
------------------ -------------------------
<S> <C>
$882,924 ($882,924)
</TABLE>

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

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

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

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

3. Shares of Beneficial Interest

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

Transactions in shares were as follows:

<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------------------------------------
1997 1996
---------------------------- ---------------------------
Class A Shares Shares Amount Shares Amount
------------ -------------- ----------- --------------
<S> <C> <C> <C> <C>
Shares sold 12,275,128 $ 315,683,919 6,354,390 $ 151,803,719
Shares issued in connection with
the acquisition 3,104,686 74,233,048 -- --
Shares issued to shareholders in
payment of distributions declared 878,652 21,166,808 1,358,129 29,564,831
Shares redeemed (12,012,363) (340,958,561) (5,295,894) (129,571,078)
------------ -------------- ----------- --------------
Net change resulting from
Class A Share transactions 4,246,103 $ 70,125,214 2,416,625 $ 51,797,472
------------ -------------- ----------- --------------
</TABLE>

<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------------------------------
1997 1996
------------------------- -------------------------
Class B Shares Shares Amount Shares Amount
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Shares sold 954,973 $ 27,222,810 479,932 $ 11,412,701
Shares issued to shareholders in
payment of distributions declared 53,641 1,280,406 13,074 284,612
Shares redeemed (155,624) (4,220,243) (120,979) (2,885,554)
--------- -------------- --------- --------------
Net change resulting from
Class B Share transactions 852,990 $ 24,282,973 372,027 $ 8,811,759
--------- -------------- --------- --------------
</TABLE>

<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------------------------
1997 1996
-------------------------- --------------------------
Class C Shares Shares Amount Shares Amount
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Shares sold 106,759 $ 2,954,997 153,301 $ 3,731,161
Shares issued to shareholders in
payment of distributions declared 15,123 361,599 2,164 47,124
Shares redeemed (76,646) (1,999,759) (14,839) (418,695)
---------- -------------- ---------- --------------
Net change resulting from
Class C Share transactions 45,236 $ 1,316,837 140,626 $ 3,359,590
---------- -------------- ---------- --------------
Net change resulting from
share transactions 5,144,329 $ 95,725,024 2,929,278 $ 63,968,821
---------- -------------- ---------- --------------
</TABLE>

4. Investment Advisory Fee and Other Transactions with Affiliates

Investment Advisory Fee--Federated Management, the Fund's investment adviser
receives for its services an annual investment advisory fee equal to 0.75% of
the Fund's average daily net assets.

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

Distribution Services Fee--The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Funds Class B and Class C Shares. The Plan provides
that the Fund may incur distribution expenses, according to the following
schedule, annually, to compensate FSC.

<TABLE>
<CAPTION>
Percentage of average
Share Class Name daily net assets of class
---------------- -------------------------
<S> <C>
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>

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

5. Investment Transactions

Purchases and sales of investments, excluding short-term securities, for the
year ended October 31, 1997, were as follows:

<TABLE>
<S> <C>
Purchases $698,103,930
------------
Sales $631,474,293
------------
</TABLE>

Report of Ernst & Young LLP, Independent Auditors

To the Trustees and Shareholders of FEDERATED EQUITY FUNDS:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Growth Strategies Fund, (a portfolio
of Federated Equity Funds) as of October 31, 1997, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the periods presented therein. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Growth Strategies Fund at October 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the periods presented therein, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

Pittsburgh, Pennsylvania
December 12, 1997

Directors

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

Officers

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.

[LOGO] FEDERATED INVESTORS

Federated Securities Corp., Distributor

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

www.federatedinvestors.com

Cusip 314172107
Cusip 314172206 [LOGO OF RECYCLED PAPER]
Cusip 314172305
G01228-08 (12/97)

APPENDIX

FEDERATED EQUITY FUNDS

Federated Aggressive Growth Fund

A1. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated Aggressive Growth Fund, based on a 5.50% sales charge are
represented by a solid line. The Lipper Capital Appreciation Fund Index (the
"LCAFI") is represented by a dotted line and Standard and Poor's 500 Index
(S&P 500) is represented by a dash line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class A Shares of the fund, and the LCAFI and S&P. The "x"
axis reflects computation periods from 11/25/96 to 10/31/97. The "y" axis,
measured in increments of $1,000 and ranging from $9,000 to $13,000, reflects
the cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the fund's Class A Shares, based on a 5.50% sales
charge, as compared to the LCAFI and S&P 500. The ending values were $12,588
for the fund, and $11,663 for the LCAFI and $12,284 for the S&P,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the fund's Class A Shares Average Annual Total Returns, reflecting
all applicable sales charges, for the start of performance (11/25/96) ended
10/31/97. The total return was 25.91%.

A2. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Federated Aggressive Growth Fund, based on a 5.50% contingent
deferred sales charge are represented by a solid line. The Lipper Capital
Appreciation Fund Index (the "LCAFI") is represented by a dotted line and
Standard and Poor's 500 Index (S&P 500) is represented by a dash line. The
line graph is a visual representation of a comparison of change in value of a
$10,000 hypothetical investment in the Class B Shares of the fund, and the
LCAFI and S&P. The "x" axis reflects computation periods from 11/25/96 to
10/31/97. The "y" axis, measured in increments of $1,000 and ranging from
$9,000 to $13,000, reflects the cost of the investment. The right margin
reflects the ending value of the hypothetical investment in the fund's Class
B Shares, based on a 5.50% contingent deferred sales charge, as compared to
the LCAFI and S&P 500. The ending values were $12,725 for the fund, and
$11,663 for the LCAFI and $12,284 for the S&P, respectively. The legend in
the bottom quadrant of the graphic presentation indicates the fund's Class B
Shares Average Annual Total Returns, reflecting all applicable sales charges,
for the start of performance (11/25/96) ended 10/31/97. The total return was
27.25%.

A3. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of Federated Aggressive Growth Fund, based on a 1.00% contingent
deferred sales charge are represented by a solid line. The Lipper Capital
Appreciation Fund Index (the "LCAFI") is represented by a dotted line and
Standard and Poor's 500 Index (S&P 500) is represented by a dash line. The
line graph is a visual representation of a comparison of change in value of a
$10,000 hypothetical investment in the Class A Shares of the fund, and the
LCAFI and S&P. The "x" axis reflects computation periods from 11/25/96 to
10/31/97. The "y" axis, measured in increments of $1,000 and ranging from
$9,000 to $14,000, reflects the cost of the investment. The right margin
reflects the ending value of the hypothetical investment in the fund's Class
C Shares, based on a 1.00% contingent deferred sales charge, as compared to
the LCAFI and S&P 500. The ending values were $13,104 for the fund, and
$11,663 for the LCAFI and $12,284 for the S&P, respectively. The legend in
the bottom quadrant of the graphic presentation indicates the fund's Class C
Shares Average Annual Total Returns, reflecting all applicable sales charges,
for the start of performance (11/25/96) ended 10/31/97. The total return was
31.04%.

<PAGE>

Federated Small Cap Strategies Fund

A4. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated Small Cap Strategies Fund., based on a 5.50% sales charge
are represented by a solid line. The Russell 2000 Index (the "RUS2") is
represented by a dotted line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the
Class A Shares of the fund, and the RUS2. The "x" axis reflects computation
periods from 11/1/95 to 10/31/97. The "y" axis, measured in increments of
$3,000 and ranging from $9,000 to $21,000, reflects the cost of the
investment. The right margin reflects the ending value of the hypothetical
investment in the fund's Class A Shares, based on a 5.50% sales charge, as
compared to the RUS2. The ending values were $18,000 for the fund, and
$15,080 for the RUS2, respectively. The legend in the bottom quadrant of the
graphic presentation indicates the fund's Class A Shares Average Annual Total
Returns, reflecting all applicable sales charges and contingent deferred
sales charge, for the one-year and start of performance (11/01/95) ended
10/31/97. The total returns were 22.46%, and 34.19%, respectively.

A5. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Federated Small Cap Strategies Fund., based on a 4.75% contingent
deferred sales charge are represented by a solid line. The Russell 2000 Index
(the "RUS2") is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class B Shares of the fund, and the RUS2. The "x" axis
reflects computation periods from 11/1/95 to 10/31/97. The "y" axis, measured
in increments of $3,000 and ranging from $9,000 to $21,000, reflects the cost
of the investment. The right margin reflects the ending value of the
hypothetical investment in the fund's Class B Shares, based on a 4.75%
contingent deferred sales charge, as compared to the RUS2. The ending values
were $18,320 for the fund, and $15,080 for the RUS2, respectively. The legend
in the bottom quadrant of the graphic presentation indicates the fund's Class
B Shares Average Annual Total Returns, reflecting all applicable contingent
deferred sales charges, for the one-year and start of performance (11/01/95)
ended 10/31/97.
The total returns were 23.01%, and 35.35%, respectively.

A6. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of Federated Small Cap Strategies Fund., based on a 4.75% contingent
deferred sales charge are represented by a solid line. The Russell 2000 Index
(the "RUS2") is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class C Shares of the fund, and the RUS2. The "x" axis
reflects computation periods from 11/1/95 to 10/31/97. The "y" axis, measured
in increments of $3,000 and ranging from $9,000 to $21,000, reflects the cost
of the investment. The right margin reflects the ending value of the
hypothetical investment in the fund's Class B Shares, based on a 4.75%
contingent deferred sales charge, as compared to the RUS2. The ending values
were $18,776 for the fund, and $15,080 for the RUS2, respectively. The legend
in the bottom quadrant of the graphic presentation indicates the fund's Class
C Shares Average Annual Total Returns, reflecting all applicable contingent
deferred sales charges, for the one-year and start of performance (11/01/95)
ended 10/31/97.
The total returns were 27.56%, and 37.03%, respectively.

<PAGE>

Federated Capital Appreciation Fund

A7. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from
1/1/77 to 10/31/97. The "y" axis is measured in increments of $60,000 ranging
from $0 to $360,000 and indicates that the ending value of a hypothetical
initial investment of $21,000 in the fund's Class A Shares, assuming the
reinvestment of capital gains and dividends and all applicable sales charges
would have grown to $352,009 on 10/31/97. The legend in the top quadrant of
the graphic presentation indicates the fund's Class A Shares' Average Annual
Total Returns for the one-year, five-year and 10-year periods ended 10/31/97
were 29.62%, 18.51%, and 12.25%, respectively. Class B Shares' Average
one-year and since inception (1/4/96) total returns were 30.37%, and 24.10,
respectively. Class C Shares' Average one-year and since inception (1/4/96)
total returns were 35.18%, and 26.64%, respectively.

A8. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from
1/1/77 to 10/31/97. The "y" axis is measured in increments of $20,000 ranging
from $0 to $140,000 and indicates that the ending value of hypothetical
yearly investments of $1,000 in the fund's Class A Shares over 20 years
assuming the reinvestment of capital gains and dividends, would have grown to
$132,615 on 10/31/97.

A9. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text beneath it. The "x" axis reflects computation periods from
10/31/87 to 10/31/97. The "y" axis is measured in increments of $15,000
ranging from $0 to $90,000 and indicates that the ending value of a
hypothetical initial investment of $5,000 in Class A Shares of the fund, and
subsequent monthly investments of $250 over 10 years have grown to $88,016 on
10/31/97.

A10. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated Capital Appreciation Fund, based on a 5.50% sales charge
are represented by a solid line. The Lipper Growth and Income Funds Average
(the "LGIFA") is represented by a dotted line and Standard and Poor's 500
Index ("S&P 500") is represented by a dash line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class A Shares of the fund, and the LGIFA and S&P. The "x"
axis reflects computation periods from 10/31/87 to 10/31/97. The "y" axis,
measured in increments of $10,000 and ranging from $10,000 to $50,000,
reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the fund's Class A Shares, based on a
5.50% sales charge, as compared to the LGIFA and S&P 500. The ending values
were $48,643 for the fund, and $40,815 for the LGIFA and $40,575 for the S&P,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the fund's Class A Shares Average Annual Total Returns for the
one-year, five-year, ten-year, and start of performance (1/1/71) ended
10/31/97 and reflecting all applicable sales charges were, 24.84%, 18.21%,
14.45%, and 14.49%, respectively.

A11. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Federated Capital Appreciation Fund, based on a 4.75% contingent
deferred sales charge on any redemption less than 3 years from the purchase
date, are represented by a solid line. The Lipper Growth and Income Funds
Average (the "LGIFA") is represented by a dotted line and Standard and Poor's
500 Index ("S&P 500") is represented by a dash line. The line graph is a
visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class B Shares of the fund, and the LGIFA and
S&P. The "x" axis reflects computation periods from 1/1/77 to 10/31/97. The
"y" axis, measured in increments of $2,000 and ranging from $8,000 to
$16,000, reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the fund's Class B Shares,
based on a 4.75% contingent deferred sales charge on any redemption less than
3 years from the purchase date, as compared to the LGIFA and S&P 500. The
ending values were $14,228 for the fund, and $14,675 for the LGIFA and
$15,360 for the S&P, respectively. The legend in the bottom quadrant of the
graphic presentation indicates the fund's Class B Shares Average Annual Total
Returns for the one-year, and start of performance (1/4/96) ended 10/31/97
and reflecting all applicable sales charges were, 25.80%, and 21.30%,
respectively.

A12. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of Federated Capital Appreciation Fund, based on a 1.00% contingent
deferred sales charge on any redemption less than 1 year, are represented by
a solid line. The Lipper Growth and Income Funds Average (the "LGIFA") is
represented by a dotted line and Standard and Poor's 500 Index ("S&P 500") is
represented by a dash line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the
Class C Shares of the fund, and the LGIFA and S&P. The "x" axis reflects
computation periods from 1/4/96 to 10/31/97. The "y" axis, measured in
increments of $2,000 and ranging from $8,000 to $16,000, reflects the cost of
the investment. The right margin reflects the ending value of the
hypothetical investment in the fund's Class C Shares, based on a 1.00%
contingent deferred sales charge on any redemption less than 1 year from the
purchase date, as compared to the LGIFA and S&P 500. The ending values were
$14,675 for the fund, and $14,667 for the LGIFA and $15,360 for the S&P,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the fund's Class C Shares Average Annual Total Returns for the
one-year, and start of performance (1/4/96) ended 10/31/97 and reflecting all
applicable sales charges were, 29.85%, and 23.23%, respectively.

<PAGE>

Federated Growth Strategies Fund

A13. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation of
the narrative text above it. The "x" axis reflects computation periods from
8/23/84 to 10/31/97. The "y" axis is measured in increments of $20,000
ranging from $0 to $120,000 and indicates that the ending value of a
hypothetical initial investment of $14,000 in the fund's Class A Shares,
assuming the reinvestment of capital gains and dividends and a contingent
deferred sales charge of 5.50%, would have grown to $106,653 on 10/31/97. The
legend in the top quadrant of the graphic presentation indicates the fund's
Class A Shares' Average Annual Total Returns for the one-year, five-year and
10-year periods ended 10/31/97 were 34.98%, 17.42%, and 17.20%, respectively.
Class B Shares' Average one-year and since inception (8/16/95) total returns
were 35.54%, and 29.35, respectively. Class C Shares' Average one-year and
since inception (8/16/95) total returns were 40.74%, and 31.44%,
respectively.

A14. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation of
the narrative text above it. The "x" axis reflects computation periods from
8/23/84 to 10/31/97. The "y" axis is measured in increments of $5,000 ranging
from $0 to $45,000 and indicates that the ending value of hypothetical yearly
investments of $1,000 in the fund's Class A Shares over 13 years assuming the
reinvestment of capital gains and dividends, would have grown to $43,269 on
10/31/97.

A15. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color-coded mountain chart is a visual representation of
the narrative text beneath it. The "x" axis reflects computation periods from
10/31/87 to 10/31/97. The "y" axis is measured in increments of $20,000
ranging from $0 to $100,000 and indicates that the ending value of a
hypothetical initial investment of $5,000 in Class A Shares of the fund, and
subsequent monthly investments of $250 over 10 years have grown to $91,963 on
10/31/97.

A16. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated Growth Strategies Fund, based on a 5.50% sales charge are
represented by a solid line. The Lipper Growth Fund Index (the "LGFI") is
represented by a dotted line and Standard and Poor's 500 Index ("S&P 500") is
represented by a dash line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the
Class A Shares of the fund, and the LGFI and S&P. The "x" axis reflects
computation periods from 10/31/87 to 10/31/97. The "y" axis, measured in
increments of $8,000 and ranging from $8,000 to $56,000, reflects the cost of
the investment. The right margin reflects the ending value of the
hypothetical investment in the fund's Class A Shares, based on a 5.50% sales
charge, as compared to the LGFI and S&P 500. The ending values were $50,117
for the fund, and $43,137 for the LGFI and $48,643 for the S&P, respectively.
The legend in the bottom quadrant of the graphic presentation indicates the
fund's Class A Shares Average Annual Total Returns for the one-year,
five-year, ten-year, and start of performance (8/23/84) ended 10/31/97 and
reflecting all applicable sales charges were, 28.88%, 16.63%, 16.83%, and
16.64%, respectively.

A17. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Federated Growth Strategies Fund, based on a 4.00% contingent
deferred sales charge on any redemption less than 3 years, are represented by
a solid line. The Lipper Growth Fund Index (the "LGFI") is represented by a
dotted line and Standard and Poor's 500 Index ("S&P 500") is represented by a
dash line. The line graph is a visual representation of a comparison of
change in value of a $10,000 hypothetical investment in the Class B Shares of
the fund, and the LGFI and S&P. The "x" axis reflects computation periods
from 8/16/95 to 10/31/97. The "y" axis, measured in increments of $2,000 and
ranging from $8,000 to $18,000, reflects the cost of the investment. The
right margin reflects the ending value of the hypothetical investment in the
fund's Class B Shares, based on a 4.00% contingent deferred sales charge on
any redemption less than 3 years from the purchase date, as compared to the
LGFI and S&P 500. The ending values were $16,321 for the fund, and $15,176
for the LGFI and $17,170 for the S&P, respectively. The legend in the bottom
quadrant of the graphic presentation indicates the fund's Class B Shares
Average Annual Total Returns for the one-year, and start of performance
(8/16/95) ended 10/31/97 and reflecting all applicable sales charges were,
29.08%, and 25.11%, respectively.

A18. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of Federated Growth Strategies Fund, based on a 1.00% contingent
deferred sales charge on any redemption less than 1 year, are represented by
a solid line. The Lipper Growth Fund Index (the "LGFI") is represented by a
dotted line and Standard and Poor's 500 Index ("S&P 500") is represented by a
dash line. The line graph is a visual representation of a comparison of
change in value of a $10,000 hypothetical investment in the Class C Shares of
the fund, and the LGFI and S&P. The "x" axis reflects computation periods
from 8/16/95 to 10/31/97. The "y" axis, measured in increments of $2,000 and
ranging from $8,000 to $18,000, reflects the cost of the investment. The
right margin reflects the ending value of the hypothetical investment in the
fund's Class C Shares, based on a 4.00% contingent deferred sales charge on
any redemption less than 1 year from the purchase date, as compared to the
LGFI and S&P 500. The ending values were $17,034 for the fund, and $15,176
for the LGFI and $17,170 for the S&P, respectively. The legend in the bottom
quadrant of the graphic presentation indicates the fund's Class C Shares
Average Annual Total Returns for the one-year, and start of performance
(8/16/95) ended 10/31/97 and reflecting all applicable sales charges were,
34.53%, and 27.27%, respectively.