FEDERATED EQUITY FUNDS, 485BPOS, 1997-12-30

FEDERATED EQUITY FUNDS
485BPOS, 1997-12-30

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1933 Act File No. 2-91090
1940 Act File No. 811-4017

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X

Pre-Effective Amendment No. .......................

Post-Effective Amendment No. 38_....................... X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 32 ...................................... X

FEDERATED EQUITY FUNDS

(Exact Name of Registrant as Specified in Charter)

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)

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

John W. McGonigle, Esquire,
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

___ immediately upon filing pursuant to paragraph (b) on _________________
pursuant to paragraph (b) 60 days after filing pursuant to paragraph (a) (i)
X on December 31, 1997 pursuant to paragraph (a) (i). 75 days after filing
pursuant to paragraph (a)(ii) on _________________ pursuant to paragraph
(a)(ii) of Rule 485.

If appropriate, check the following box:

This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Copy to:

Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky, LLP
2101 L Street, N.W.
Washington, D.C. 20037

<PAGE>

CROSS-REFERENCE SHEET

This amendment to the Registration Statement of Federated Equity Funds,
which is comprised of four portfolios: (1) Federated Growth Strategies Fund
consisting of three classes of shares, (a) Class A Shares, (b) Class B Shares,
and (c) Class C Shares; (2) Federated Small Cap Strategies Fund consisting of
three classes of shares, (a) Class A Shares, (b) Class B Shares, and (c) Class C
Shares; (3) Federated Capital Appreciation Fund consisting of three classes of
shares, (a) Class A Shares, (b) Class B Shares, and (c) Class C Shares, and (4)
Federated Aggressive Growth Fund consisting of three classes of shares, (a)
Class A Shares, (b) Class B Shares, and (c) Class C Shares, is comprised of the
following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
(Rule 404(c) Cross Reference)
<S> <C> <C>

Item 1. Cover Page....................(1-4) Cover Page.
Item 2. Synopsis......................(1-4) Summary of Fund Expenses.
Item 3. Condensed Financial
Information (1-4) Financial Highlights.
Item 4. General Description of
Registrant....................(1-4) General Information; (1-4) Investment Information; (1-4) Investment Objective;
(1-4) Investment Policies; (1-4) Investment Limitations; (1-4) Performance Information;
..............................(1-4)Portfolio Turnover.

Item 5. Management of the Fund........(1-4) Trust Information; (1-4) Management of the Trust;
(1-4) Distribution of Shares; (1-4) Administration of the Fund; (4) Expenses of
the Fund and Class A Shares, Class B Shares, and Class C Shares;
(1-4) Brokerage Transactions.
Item 6. Capital Stock and Other
Securities....................(1-4) Investing in the Fund; (1-4)
Account and Share Information; (1-4)
Confirmations and Account Statements;
(1-4) Dividends and Distributions;
(1-4) Accounts with Low Balances;
(1-4) Shareholder Information; (1-4)
Voting Rights; (1-4) Tax Information;
(1-4) Federal Income Tax; (1-4) State
and Local Taxes.

<PAGE>

Item 7. Purchase of Securities Being
Offered.......................(1-4) Net Asset Value; (1-4)
Purchasing Shares; (1-4) Class A
Shares; (1(a),(b),(c)-4) Class B
Shares; (1(a),(b),(c)-4) Class C
Shares; (1-4) Purchasing Shares
through a Financial Intermediary;
(1-4) Purchasing Shares by Wire; (1-4)
Purchasing Shares by Check; (1-4)
Systematic Investment Program; (1-4)
Exchange Privilege.

Item 8. Redemption or Repurchase......(1-4) Redeeming and Exchanging Shares; (1-4) Redeeming or Exchanging
Shares Through a Financial Intermediary; (1-4) Redeeming or Exchanging
Shares by Telephone; (1-4) Redeeming or Exchanging Shares by Mail;
(1-4) Requirements for Redemption; (1-4) Systematic Withdrawal Program;
(1-4) Contingent Deferred Sales Charge; (1-4) Elimination of
Contingent Deferred Sales Charge.

Item 9. Pending Legal Proceedings None.

<PAGE>

PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.

Item 10. Cover Page....................(1-4) Cover Page.
Item 11. Table of Contents.............(1-4) Table of Contents.
Item 12. General Information and
History.......................(1-4) General Information About the Fund; (1-4) About Federated Investors;
(1-4) Massachusetts Partnership Law.
Item 13. Investment Objectives and
Policies......................(1-4) Investment Objective and Policies.
Item 14. Management of the Fund (1-4) Federated Equity Funds Management.
Item 15. Control Persons and Principal
Holders of Securities (1-4) Share Ownership.
Item 16. Investment Advisory and Other
Services......................(1-4) Investment Advisory Services; (1-4) Other Services;
(1-4) Fund Administration; (1-4) Transfer Agent; (1-4) Custodian;
(1-4) Independent Auditors; (1-4) Distribution Plan and Shareholder Services Agreement.
Item 17. Brokerage Allocation..........(1-4) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered ......................(1-4) Purchasing Shares; (1-4) Determining Net Asset Value;
(1-4) Redeeming Shares; (1-4) Exchanging Securities for Shares.
Item 20. Tax Status....................(1-4) Tax Status.
Item 21. Underwriters Not applicable.
Item 22. Calculation of Performance
Data..........................(1-4) Total Return; (1-4) Yield; (1-4) Performance Comparisons; (1,2,4) Appendix.
Item 23. Financial Statements..........(1-4) Filed in Annual Report to Shareholders dated October 31, 1997.

</TABLE>

Federated Aggressive Growth Fund
(A Portfolio of Federated Equity Funds)
Class A Shares, Class B Shares, Class C Shares

Prospectus

The shares of Federated Aggressive Growth Fund (the "Fund") represent interests
in a diversified portfolio of Federated Equity Funds (the "Trust"), an open-end
management investment company (a mutual fund). The Fund seeks appreciation of
capital by investing primarily in equity securities of companies with prospects
for above-average appreciation.

The shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank, and are not insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in Class A Shares, Class B Shares or Class C
Shares involves investment risks, including the possible loss of principal. This
prospectus contains the information you should read and know before you invest
in the Fund. Keep this prospectus for future reference.

The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information or to make inquiries about the Fund, contact your
financial intermediary. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

Prospectus dated December 31, 1997

- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------

Summary of Fund Expenses.............................. 1

Financial Highlights.................................. 2
Class A Shares..................................... 2
Class B Shares..................................... 3
Class C Shares..................................... 4

General Information................................... 5

Investment Information................................ 5
Investment Objective............................... 5
Investment Policies................................ 5
Investment Limitations............................. 9
Hub and Spoke(R)Option.............................. 9

Net Asset Value....................................... 9

Investing in the Fund................................. 10

Purchasing Shares..................................... 10
Purchasing Shares Through a
Financial Intermediary.......................... 10
Purchasing Shares by Wire.......................... 11
Purchasing Shares by Check......................... 11
Systematic Investment Program...................... 11
Retirement Plans................................... 11
Class A Shares..................................... 11
Class B Shares..................................... 11
Class C Shares..................................... 12

Redeeming and Exchanging Shares ...................... 12
Redeeming or Exchanging Shares Through
a Financial Intermediary....................... 12
Redeeming or Exchanging Shares by Telephone........ 12
Redeeming or Exchanging Shares by Mail............. 12
Requirements for Redemption........................ 13
Requirements for Exchange.......................... 13
Systematic Withdrawal Program...................... 13
Contingent Deferred Sales Charge................... 13

Account and Share Information......................... 14
Confirmations and Account Statements............... 14
Dividends and Distributions........................ 14
Accounts with Low Balances......................... 14

Trust Information..................................... 14
Management of the Trust............................ 14
Distribution of Shares............................. 15
Administration of the Fund......................... 16
Expenses of the Fund and Class A Shares,
Class B Shares, and Class C Shares.............. 16

Brokerage Transactions................................ 17

Shareholder Information............................... 17

Tax Information....................................... 17
Federal Income Tax................................. 17
State and Local Taxes.............................. 17

Performance Information............................... 17

- -------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

Shareholder Transaction Expenses
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) 5.50% None None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage
of offering price) None None None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None 5.50%(1) 1.00%(1)
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee None None None

Annual Operating Expenses
(As a percentage of average net assets)
<S> <C> <C> <C>
Management Fee (after waiver)(2) 0.00% 0.00% 0.00%
12b-1 Fee 0.00%(3) 0.75% 0.75%
Total Other Expenses 1.75% 1.75% 1.75%
Shareholder Services Fee 0.25% 0.25% 0.25%

Total Operating Expenses(4) 1.74% 2.51% 2.53%

</TABLE>
(1) For shareholders of Class B Shares, the contingent deferred sales charge is
5.50% in the first year declining to 1.00% in the sixth year and 0.00%
thereafter. For shareholders of Class C Shares, the contingent deferred
sales charge assessed is 1.00% of the lesser of the original purchase price
or net asset value of shares redeemed within one year of their purchase
date. For a more complete description, see "Contingent Deferred Sales
Charge."

(2) The management fee has been reduced to reflect the voluntary waiver of the
management fee. The advisor can terminate this voluntary waiver at any time
at its sole discretion. The maximum management fee is 1.00%.

(3) The Class A Shares has no present intention of paying or accruing the 12b-1
fee during the period ending October 31, 1998. If Class A Shares were paying
or accruing the 12b-1 fee, the Class A Shares would be able to pay up to
0.25% of its average daily net assets for the 12b-1 fee. See "Trust
Information."

(4) The total Class A Shares, Class B Shares, and Class C Shares operating
expenses would have been 10.71%, 9.76% and 9.76% respectively, absent the
voluntary waiver described in note 2 and the voluntary reimbursement of
certain other operating expenses.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Fund will bear, either directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "Purchasing Shares" and "Trust Information." Wire-transferred redemptions of
less than $5,000 may be subject to additional fees. Long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales charges
permitted under the rules of the National Association of Securities Dealers,
Inc.

EXAMPLE Class A Class B Class C
- ---------------------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return, (2) redemption at the end of each time period, and (3) payment of
the maximum sales charge.

1 Year $ 72 $ 82 $ 36
3 Years $107 $121 $ 78
5 Years $145 $156 $133
10 Years $250 $264 $284

You would pay the following expenses on the same investment, assuming no
redemption.

1 Year $72 $25 $ 25
3 Years $107 $ 78 $ 78
5 Years $145 $133 $133
10 Years $250 $264 $284
</TABLE>

The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS CLASS A SHARES
- --------------------------------------------------------------------------------

(For a share outstanding throughout the period)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated December 12, 1997, on the Fund's
financial statements for the year ended October 31, 1997, and on the following
table for the period presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.

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 (loss) 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.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1997, which can be obtained free of charge.

- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS CLASS B SHARES
- -------------------------------------------------------------------------------

(For a share outstanding throughout the period)

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 (loss) on investments 3.35
------
Total from investment operations 3.27
------
Less distributions
Distributions from net 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.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1997, which can be obtained free of charge.

FINANCIAL HIGHLIGHTS CLASS C SHARES

(For a share outstanding throughout the period)

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 (loss) on investments 3.26
------
Total from investment operations 3.20
------
Less distributions
Distributions from net 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.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1997, which can be obtained free of charge.

- -------------------------------------------------------------------------------
GENERAL INFORMATION
- -------------------------------------------------------------------------------

The Fund was established under the laws of the Commonwealth of Massachusetts on
April 17, 1984. ClassAShares, Class B Shares and Class C Shares of the Fund
("Shares") are designed for individuals as a convenient means of accumulating an
interest in a professionally managed, diversified portfolio of equity
securities.

The Fund's current net asset value and offering price may be found in the mutual
funds section of local newspapers under "Federated" and the appropriate class
designation listing.

Calling the Fund Call the Fund at 1-800-341-7400.

- -------------------------------------------------------------------------------
INVESTMENT INFORMATION
- -------------------------------------------------------------------------------

Investment Objective

The investment objective of the Fund is to provide appreciation of capital. The
investment objective cannot be changed without approval of shareholders. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.

Investment Policies

The Fund pursues its investment objective by investing at least 65% of its
assets in equity securities of companies with prospects for above-average
appreciation. Equity securities include common stocks, preferred stocks, and
investment grade securities (including debt securities) that are convertible
into common stocks. Unless indicated otherwise, the investment policies of the
Fund may be changed by the Board of Trustees (the "Trustees") without the
approval of shareholders. Shareholders will be notified before any material
changes in these policies become effective.

Acceptable Investments

Federated Management, the Fund's investment adviser (the "Adviser"), creates a
universe of growing companies by using proprietary software and research models
that incorporate important attributes of successful growth, such as upward
earnings estimate revisions, positive earnings surprises, accelerated sales and
earnings growth. Using fundamental research, the Adviser evaluates each
company's earnings quality and assesses the sustainability of the company's
current growth trends. Through this highly disciplined process, the Adviser
seeks to construct an investment portfolio that possesses strong growth
characteristics.

The Fund will not be restricted to specific market capitalization requirements.
Sector weightings will be restricted to no greater than 300% of the Standard and
Poor's 500 sector weightings or no more than 20% of the total portfolio,
whichever is greater. The Fund will diversify its holdings across at least 100
companies, but generally will not exceed 200 company holdings.

The securities in which the Fund invests include, but are not limited to:

. common stock of U.S. companies that are considered by the Adviser to have
potential for above-average appreciation;

. other corporate securities including: corporate debt obligations, convertible
securities, and preferred stocks;

. securities of foreign issuers; and

. securities issued or guaranteed by the U.S. government, its agencies, or
instrumentalities.

Common Stock

As described above, the Fund invests primarily in equity securities. As with
other mutual funds that invest primarily in equity securities, the Fund is
subject to market risks. That is, the possibility exists that common stocks will
decline over short or even extended periods of time, and the United States
equity market tends to be cyclical, experiencing both periods when stock prices
generally increase and periods when stock prices generally decrease. However,
since the Fund invests in growth-oriented equity securities, there are some
additional risk factors associated with investment in the Fund. Growth-oriented
stocks may include issuers with smaller capitalization. Small and medium
capitalization stocks have historically been more volatile in price than larger
capitalization stocks, such as those included in the Standard & Poor's 500
Index. This is because, among other things, smaller companies have a lower
degree of liquidity in the equity market and tend to have a greater sensitivity
to changing economic conditions. That is, the stock of small and medium
capitalization companies may decline in price as the price of large company
stocks rise, or vice versa. Therefore, investors should expect that the Fund
will be more volatile than, and may fluctuate independently of, broad market
indices such as the Standard & Poor's 500 Index.Additionally, many small
capitalization companies tend to have operating histories of less than three
years.

Convertible Securities

Convertible securities are fixed income securities which may be exchanged or
converted into a predetermined number of the issuer's underlying common stock at
the option of the holder during a specified time period. The Fund considers
convertible securities to be equity securities. Convertible securities may take
the form of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants, or a combination of the features of
several of these securities. The investment characteristics of each convertible
security vary widely, which allows convertible securities to be employed for
different investment objectives. The convertible securities in which the Fund
invests may be rated below investment grade and considered speculative.

Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted, but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Usable bonds are corporate bonds that can be used, in
whole or in part, customarily at full face value, in lieu of cash to purchase
the issuer's common stock. When owned as part of a unit along with warrants,
which are options to buy the common stock, they function as convertible bonds,
except that the warrants generally will expire before the bond's maturity.
Convertible securities are senior to equity securities and, therefore, have a
claim to assets of the corporation prior to the holders of common stock in the
case of liquidation. However, convertible securities are generally subordinated
to similar nonconvertible securities of the same company. The interest income
and dividends from convertible bonds and preferred stocks provide a stable
stream of income with generally higher yields than common stocks, but lower than
nonconvertible securities of similar quality. The Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stock when, in the Adviser's opinion, the investment characteristics of
the underlying common shares will assist the Fund in achieving its investment
objective. Otherwise, the Fund will hold or trade the convertible securities. In
selecting convertible securities for the Fund, the Adviser evaluates the
investment characteristics of the convertible security as a fixed income
instrument, and the investment potential of the underlying equity security for
capital appreciation. In evaluating these matters with respect to a particular
convertible security, the Adviser considers numerous factors, including the
economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the issuer's profits, and
the issuer's management capability and practices.

The prices of fixed income securities fluctuate inversely to the direction of
interest rates.

Securities of Foreign Issuers

The Fund may invest in the securities of foreign issuers which are freely traded
on United States securities exchanges or in the over-the-counter market in the
form of depository receipts. Securities of a foreign issuer may present greater
risks in the form of nationalization, confiscation, domestic marketability, or
other national or international restrictions. As a matter of practice, the Fund
will not invest in the securities of a foreign issuer if any such risk appears
to the Adviser to be substantial.

U.S. Government Securities

The types of U.S. government securities in which the Fund may invest generally
include direct obligations of the U.S. Treasury (such as U.S. Treasury bills,
notes, and bonds) and obligations issued or guaranteed by U.S. government
agencies or instrumentalities. These securities are backed in a variety of ways
by the U.S. government or its agencies or instrumentalities. Some of these
obligations, such as Government National Mortgage Association mortgage-backed
securities, are backed by the full faith and credit of the U.S. Treasury.
Obligations of Federal Home Loan Banks are backed by the discretionary authority
of the U.S. government to purchase certain obligations of agencies or
instrumentalities. Obligations of Federal Home Loan Banks, Federal Farm Credit
System, including the National Bank for Cooperatives and Banks for Cooperatives,
Tennessee Valley Authority, Export-Import Bank of the United States, Commodity
Credit Corporation, Federal Financing Bank, Federal National Mortgage
Association, and Federal Home Loan Mortgage Corporation, National Credit Union
Administration, and Student Loan Marketing Association are backed by the credit
of the agency or instrumentality issuing the obligations.

Restricted and Illiquid Securities

The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its investment
objective and policies, but which are subject to restrictions on resale under
federal securities law. However, the Fund will limit investments in illiquid
securities, including certain restricted securities not determined by the
Trustees to be liquid, over-the-counter options, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of its net
assets.

When-Issued and Delayed Delivery Transactions

The Fund may dispose of a commitment prior to settlement if the Adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.

Temporary Investments

Under normal market conditions, the Fund will be fully invested in its primary
investments. However, for temporary defensive purposes, when the Adviser
determines that market conditions warrant, the Fund may invest up to 100% of its
assets in cash and money market instruments.

Money market instruments may be:

. money market instruments;

. commercial paper;

. instruments of domestic banks and savings associations (such as certificates
of deposit, demand and time deposits, savings shares and bankers'
acceptances);

. securities issued and/or guaranteed as to payment of principal and interest
by the U.S. government, its agencies or instrumentalities; and

. repurchase agreements.

Repurchase Agreements

Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial intermediaries sell U.S.
government securities or other securities to the Fund and agree at the time of
sale to repurchase them at a mutually agreed upon time and price. To the extent
that the original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities.

Put and Call Options

The Fund may also write covered call options on securities either held in its
portfolio, or which it has the right to obtain without payment of further
consideration, or for which it has segregated cash in the amount of any
additional consideration. As a writer of a call option, the Fund has the
obligation, upon exercise of the option during the option period, to deliver the
underlying security upon payment of the exercise price. The call options which
the Fund writes and sells must be listed on a recognized options exchange.
Writing of calls by the Fund is intended to seek to generate income for the Fund
and, thereby, protect against price movements in particular securities in the
Fund's portfolio.

Over-the-counter options are two party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not.

Risks

Prior to exercise or expiration, an option position can only be terminated by
entering into a closing purchase or sale transaction. This requires a
secondary market on an exchange which may or may not exist for any particular
call or put option at any specific time. The absence of a liquid secondary
market also may limit the Fund's ability to dispose of the securities
underlying an option. The inability to close options also could have an
adverse impact on the Fund's ability to effectively hedge its portfolio.

Financial Futures

The Fund may purchase and sell financial futures contracts to hedge all or a
portion of its portfolio against changes in interest rates. Financial futures
contracts call for the delivery of particular financial instruments at a certain
time in the future. The seller of the contract agrees to make delivery of the
type of instrument called for in the contract and the buyer agrees to take
delivery of the instrument at the specified future time.

Stock index futures contracts are based on indices that reflect the market value
of common stock of the firms included in the indices. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.

The Fund may not purchase or sell futures contracts if immediately thereafter
the sum of the amount of margin deposits on the Fund's existing futures
positions would exceed 5% of the market value of the Fund's total assets. When
the Fund purchases futures contracts, an amount of cash and U.S. Treasury
securities, equal to the underlying commodity value of the futures contracts
(less any related margin deposits), will be deposited in a segregated account
with the Fund's custodian (or the broker, if legally permitted) to collateralize
the position and thereby ensure that the use of such futures contract is
unleveraged.

Risks

When the Fund uses financial futures as hedging devices, much depends on the
ability of the Adviser to predict market conditions based upon certain
economic analysis and factors. There is a risk that the prices of the
securities subject to the futures contracts may not correlate perfectly with
the prices of the securities in the Fund's portfolio. This may cause the
futures contract to react differently than the portfolio securities to market
changes. In addition, the Adviser could be incorrect in its expectations
about the direction or extent of market factors such as interest rate
movements. In these events, the Fund may lose money on the futures contract.

It is not certain that a secondary market for positions in futures contracts
will exist at all times. The Fund's ability toestablish and close out futures
depends on this secondary market.

Investing in Securities of Other Investment Companies

As a matter of non-fundamental investment policy, the Fund may invest its assets
in securities of other investment companies as an efficient means of carrying
out its investment policies. It should be noted that investment companies incur
certain expenses, such as management fees, and, therefore, any investment by the
Fund in shares of other investment companies may be subject to such duplicate
expenses.

Lending of Portfolio Securities

In order to generate additional income, the Fund may lend portfolio securities
on a short-term or a long-term basis, up to one-third of the value of its total
assets to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Adviser has determined are creditworthy under
guidelines established by the Trustees and will receive collateral equal to at
least 100% of the value of the securities loaned.

There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.

Portfolio Turnover

Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
Adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. The Fund's rate of portfolio turnover may exceed that of certain
other mutual funds with the same investment objective. A higher rate of
portfolio turnover involves correspondingly greater transaction expenses which
must be borne directly by the Fund and, thus, indirectly by its shareholders. In
addition, a high rate of portfolio turnover may result in the realization of
larger amounts of capital gains which, when distributed to the Fund's
shareholders, are taxable to them. (Further information is contained in the
Fund's Statement of Additional Information within the sections "Brokerage
Transactions" and "Tax Status"). Nevertheless, transactions for the Fund's
portfolio will be based only upon investment considerations and will not be
limited by any other considerations when the Adviser deems it appropriate to
make changes in the Fund's portfolio.

Investment Limitations

The Fund will not:

. borrow money directly or through reverse repurchase agreements (arrangements
in which the Fund sells a portfolio instrument for a percentage of its cash
value with an agreement to buy it back on a set date) except, under certain
circumstances, the Fund may borrow up to one-third of the value of its net
assets;

. sell securities short except, under strict limitations, the Fund may maintain
open short positions so long as not more than 10% of the value of its net
assets is held as collateral for those positions; or

. with respect to 75% of its total assets, invest more than 5% of the value of
its total assets in securities of any one issuer (other than cash, cash
items, or securities issued or guaranteed by the U.S. government and its
agencies or instrumentalities, securities of other investment companies and
repurchase agreements collateralized by such securities) or acquire more than
10% of the outstanding voting securities of any one issuer.

The Fund will not:

. pledge 10% of the value of its assets, except to secure permitted borrowings;

. commit more than 5% of its total assets to premiums on open put option
positions; or

. invest more than 5% of its net assets in warrants.

Hub and Spoke' Option

If the Trustees determine it to be in the best interest of the Fund and its
shareholders, the Fund may in the future seek to achieve its investment
objective by investing all of its assets in another investment company having
the same investment objective and substantially the same investment policies and
restrictions as those applicable to the Fund. It is expected that any such
investment company would be managed in substantially the same manner as the
Fund.

The initial shareholder of the Fund (who is an affiliate of Federated Investors)
voted to vest authority to use this investment structure in the sole discretion
of the Trustees. No further approval of shareholders is required. Shareholders
will receive at least 30 days prior notice of any such investment.

In making its determination, the Trustees will consider, among other things, the
benefits to shareholders and/or the opportunity to reduce costs and achieve
operational efficiencies. Although it is expected that the Trustees will not
approve an arrangement that is likely to result in higher costs, no assurance is
given that costs will remain the same or be materially reduced if this
investment structure is implemented.

- -------------------------------------------------------------------------------
NET ASSET VALUE
- -------------------------------------------------------------------------------

The Fund's net asset value ("NAV") per Share fluctuates and is based on the
market value of all securities and other assets of the Fund. The NAV for each
class of Shares may differ due to the variance in daily net income realized by
each class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.

All purchases, redemptions and exchanges are processed at the NAV next
determined after the request in proper form is received by the Fund. The NAV is
determined as of the close of trading on the New York Stock Exchange (normally
4:00 p.m., Eastern time) every day the New York Stock Exchange is open.

- -------------------------------------------------------------------------------
INVESTING IN THE FUND
- -------------------------------------------------------------------------------

This prospectus offers three classes of Shares each with the characteristics
described below.

Class A Class B Class C
--------- ---------- ---------
<S> <C> <C> <C>
Minimum and
Subsequent
Investment Amounts $500/$100 $1500/$100 $1500/$100
Minimum and Subsequent
Investment Amount for
Retirement Plans $50 $50 $50
Maximum Sales Charge 5.50%* None None
Maximum Contingent
Deferred Sales Charge** None 5.50%+ 1.00%#
Conversion Feature No Yes++ No
</TABLE>

* Class A Shares are sold at NAV, plus a sales charge as follows:

Sales Charge
as a Percentage of Dealer
-------------------- Concession as
Public Net a Percentage of
Offering Amount Public Offering
Amount of Transaction Price Invested Price
- ---------------------- -------- -------- ------------------
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less
than $100,000 4.50% 4.71% 4.00%
$100,000 but less
than $250,000 3.75% 3.90% 3.25%
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
$500,000 but less
than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%
</TABLE>

** Computed on the lesser of the NAV of the redeemed Shares at the time of
purchase or the NAV of the redeemed Shares at the time of redemption.

# The following contingent deferred sales charge schedule applies to Class B
Shares:

Year of Redemption Contingent Deferred
After Purchase Sales Charge
------------------ -------------------
<S> <C>
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>

++ Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase. See "Conversion of Class B
Shares."

# The contingent deferred sales charge is assessed on Shares redeemed within
one year of their purchase date.

- -------------------------------------------------------------------------------
PURCHASING SHARES
- -------------------------------------------------------------------------------

Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial intermediary (such as a bank or broker/dealer) or by sending a wire or
check directly to the Fund. Financial intermediaries may impose different
minimum investment requirements on their customers. An account must be
established with a financial intermediary or by completing, signing, and
returning the new account form available from the Fund before Shares can be
purchased. Shareholders in certain other funds advised and distributed by
affiliates of Federated Investors ("Federated Funds") may exchange their Shares
for Shares of the corresponding class of the Fund. The Fund reserves the right
to reject any purchase or exchange request.

In connection with any sale, Federated Securities Corp. may, from time to time,
offer certain items of nominal value to any shareholder or investor.

Purchasing Shares through a Financial Intermediary

Orders placed through a financial intermediary are considered received when the
Fund is notified of the purchase order or when payment is converted into federal
funds. Purchase orders through a broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be purchased at that
day's price. Purchase orders through other financial intermediaries must be
received by the financial intermediary and transmitted to the Fund before 4:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price. It
is the financial intermediary's responsibility to transmit orders promptly.
Financial intermediaries may charge fees for their services.

The financial intermediary which maintains investor accounts in Class B Shares
or Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial intermediaries may be subject to reclaim by the
distributor for accounts transferred to financial intermediaries which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.

Purchasing Shares by Wire

Shares may be purchased by Federal Reserve wire by calling the Fund. All
information needed will be taken over the telephone, and the order is considered
received when State Street Bank receives payment by wire. Federal funds should
be wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA 02266-8600; Attention; EDGEWIRE; For Credit
to: (Fund Name) (Fund Class); (Fund Number_this number can be found on the
account statement or by contacting the Fund); Account Number; Trade Date and
Order Number; Group Number or Dealer Number; Nominee or Institution Name; and
ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted.

Purchasing Shares by Check

Shares may be purchased by mailing a check made payable to the name of the Fund
(designate class of Shares and account number) to: Federated Shareholder
Services Company, P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are
considered received when payment by check is converted into federal funds
(normally the business day after the check is received).

Systematic Investment Program

Under this program, funds may be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in the Fund. Shareholders should contact their financial intermediary
or the Fund to participate in this program.

Retirement Plans

Fund Shares can be purchased as an investment for retirement plans or Investment
Retirement Accounts ("IRA"). For further details, contact the Fund and consult a
tax adviser.

Class A Shares

Class A Shares are sold at NAV, plus a sales charge. However:

No sales charge is imposed for

Class A Shares purchased:

. through financial intermediaries that do not receive sales charge dealer
concessions;

. by Federated Life Members who maintain a $500 minimum balance in at least one
of the Federated Funds; or

. through "wrap accounts" or similar programs under which clients pay a fee for
services.

In addition, the sales charge can be reduced or eliminated by:

. purchasing in quantity and accumulating purchases at the levels in the table
under "Investing in the Fund";

. combining concurrent purchases of two or more funds;

. signing a letter of intent to purchase a specific quantity of shares within 13
months; or

. using the reinvestment privilege.

Consult a financial intermediary or Federated Securities Corp. for details on
these programs. In order to eliminate the sales charge or receive sales charge
reductions, Federated Securities Corp. must be notified by the shareholder in
writing or by a financial intermediary at the time of purchase.

Dealer Concession

For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid to a
dealer will be retained by the distributor. However, the distributor may offer
to pay dealers up to 100% of the sales charge retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at recreational-
type facilities, or items of material value. In some instances, these incentives
will be made available only to dealers whose employees have sold or may sell a
significant amount of Shares. On purchases of $1million or more, the investor
pays no sales charge; however, the distributor will make twelve monthly payments
to the dealer totaling 0.25% of the public offering price over the first year
following the purchase. Such payments are based on the original purchase price
of Shares outstanding at each month end. The sales charge for Shares sold other
than through registered broker/dealers will be retained by Federated Securities
Corp.

Federated Securities Corp. may pay fees to banks out of the sales charge in
exchange for sales and/or administrative services performed on behalf of the
bank's customers in connection with the establishment of customer accounts and
purchases of Shares.

Class B Shares

Class B Shares are sold at NAV. Under certain circumstances, a contingent
deferred sales charge will be assessed at the time of a redemption. Orders for
$250,000 or more of Class B Shares will automatically be invested in Class A
Shares.

Conversion of Class B Shares

Class B Shares will automatically convert into Class A Shares after eight full
years from the purchase date. Such conversion will be on the basis of the
relative NAVs per Share, without the imposition of any charges. Class B Shares
acquired by exchange from Class B Shares of another Federated Fund will convert
into Class A Shares based on the time of the initial purchase.

Class C Shares

Class C Shares are sold at NAV. A contingent deferred sales charge of 1.00% will
be charged on assets redeemed within the first full 12 months following
purchase.

- -------------------------------------------------------------------------------
REDEEMING AND EXCHANGING SHARES
- -------------------------------------------------------------------------------

Shares of the Fund may be redeemed for cash or exchanged for Shares of the same
class of other Federated Funds on days on which the Fund computes its NAV.
Shares are redeemed at NAV less any applicable contingent deferred sales charge.
Exchanges are made at NAV. Shareholders who desire to automatically exchange
Shares, of a like class, in a pre-determined amount on a monthly, quarterly, or
annual basis may take advantage of a systematic exchange privilege. Information
on this privilege is available from the Fund or your financial intermediary.
Depending upon the circumstances, a capital gain or loss may be realized when
Shares are redeemed or exchanged.

Redeeming or Exchanging Shares Through a Financial Intermediary

Shares of the Fund may be redeemed or exchanged by contacting your financial
intermediary before 4:00 p.m. (Eastern time). In order for these transactions to
be processed at that day's NAV, financial intermediaries (other than
broker/dealers) must transmit the request to the Fund before 4:00 p.m. (Eastern
time), while broker/dealers must transmit the request to the Fund before 5:00
p.m. (Eastern time). The financial intermediary is responsible for promptly
submitting transaction requests and providing proper written instructions.
Customary fees and commissions may be charged by the financial intermediary for
this service. Appropriate authorization forms for these transactions must be on
file with the Fund.

Redeeming or Exchanging Shares by Telephone

Shares acquired directly from the Fund may be redeemed in any amount, or
exchanged, by calling 1-800-341-7400. Appropriate authorization forms for these
transactions must be on file with the Fund. Shares held in certificate form must
first be returned to the Fund as described in the instructions under "Redeeming
or Exchanging Shares by Mail." Redemption proceeds will either be mailed in the
form of a check to the shareholder's address of record or wire-transferred to
the shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System. The minimum amount for a wire transfer is $1,000.
Proceeds from redeemed Shares purchased by check or through ACH will not be
wired until that method of payment has cleared.

Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming or Exchanging Shares By Mail" should be considered. The
telephone transaction privilege may be modified or terminated at any time.
Shareholders would be promptly notified.

Redeeming or Exchanging Shares by Mail

Shares may be redeemed in any amount, or exchanged, by mailing a written request
to: Federated Shareholder Services Company, Fund Name, Fund Class, P.O. Box
8600, Boston, MA 02266-8600. If share certificates have been issued, they must
accompany the written request. It is recommended that certificates be sent
unendorsed by registered or certified mail.

All written requests should state: Fund Name and the Share Class name; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount of the transaction. An exchange
request should also state the name of the Fund into which the exchange is to be
made. All owners of the account must sign the request exactly as the Shares are
registered. A check for redemption proceeds is normally mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request. Dividends are paid up to and including the day that
a redemption or exchange request is processed.

Requirements for Redemption

Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record, must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.

Requirements for Exchange

Shareholders must exchange Shares having an NAV equal to the minimum investment
requirements of the fund into which the exchange is being made. Contact your
financial intermediary directly or the Fund for free information on and
prospectuses for the Federated Funds into which your Shares may be exchanged.
Before the exchange, the shareholder must receive a prospectus of the fund for
which the exchange is being made.

Upon receipt of proper instructions and required supporting documents, Shares
submitted for exchange are redeemed and proceeds invested in the same class of
shares of the other fund. Signature guarantees will be required to exchange
between fund accounts not having identical shareholder registrations. The
exchange privilege may be modified or terminated at any time. Shareholders will
be notified of the modification or termination of the exchange privilege.

Systematic Withdrawal Program

Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder. To be eligible to participate
in this program, a shareholder must have an account value of at least $10,000,
other than retirement accounts subject to required minimum distributions. A
shareholder may apply for participation in this program through his financial
intermediary or by calling the Fund.

Because participation in this program may reduce, and eventually deplete the
shareholder's investment in the Fund, payments under this program should not be
considered as yield or income. It is not advisable for shareholders to continue
to purchase Class A Shares subject to a sales charge while participating in this
program. A contingent deferred sales charge may be imposed on Class B and C
Shares.

Contingent Deferred Sales Charge

The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. Redemptions will be processed in a manner intended to maximize the
amount of redemption which will not be subject to a contingent deferred sales
charge. The contingent deferred sales charge will not be imposed with respect to
Shares acquired through the reinvestment of dividends or distributions of
long-term capital gains. In determining the applicability of the contingent
deferred sales charge, the required holding period for your new Shares received
through an exchange will include the period for which your original Shares were
held.

Eliminating the Contingent Deferred Sales Charge

Upon written notification to Federated Securities Corp. or the transfer agent,
no contingent deferred sales charge will be imposed on redemptions:

. following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder;

. representing minimum required distributions from an IRA or other retirement
plan to a shareholder who has attained the age of 701/2;

. which are involuntary redemptions of shareholder accounts that do not comply
with the minimum balance requirements;

. which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;

. which are reinvested in the Fund under the reinvestment privilege;

. of Shares held by Trustees, employees and sales representatives of the Fund,
the distributor, or affiliates of the Fund or distributor, employees of any
financial intermediary that sells Shares of the Fund pursuant to a sales
agreement with the distributor, and their immediate family members to the
extent that no payments were advanced for purchases made by these persons;
and

. of Shares originally purchased through a bank trust department, an investment
adviser registered under the Investment Advisers Act of 1940 or retirement
plans where the third party administrator has entered into certain
arrangements with Federated Securities Corp. or its affiliates, or any other
financial intermediary, to the extent that no payments were advanced for
purchases made through such entities.

For more information regarding the elimination of the contingent deferred sales
charge through a Systematic Withdrawal Program, or any of the above provisions,
contact your financial intermediary or the Fund. The Fund reserves the right to
discontinue or modify these provisions. Shareholders will be notified of such
action.

- --------------------------------------------------------------------------------
ACCOUNT AND SHARE INFORMATION
- -------------------------------------------------------------------------------

Confirmations and Account Statements

Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.

Dividends and Distributions

Dividends are declared and paid annually to all shareholders invested in the
Fund on the record date. Net long-term capital gains realized by the Fund, if
any, will be distributed at least once every twelve months. Dividends and
distributions are automatically reinvested in additional Shares of the Fund on
payment dates at the ex-dividend date without a sales charge, unless
shareholders request cash payments on the new account form or by contacting the
transfer agent.

Accounts with Low Balances

Due to the high cost of maintaining accounts with low balances, the Fund may
close an account by redeeming all Shares and paying the proceeds to the
shareholder if the account balance falls below the applicable minimum investment
amount. Retirement plan accounts and accounts where the balance falls below the
minimum due to NAV changes will not be closed in this manner. Before an account
is closed, the shareholder will be notified and allowed 30 days to purchase
additional Shares to meet the minimum.

- -------------------------------------------------------------------------------
TRUST INFORMATION
- -------------------------------------------------------------------------------

Management of the Trust

Board of Trustees

The Fund is managed by a Board of Trustees. The Trustees are responsible for
managing the Trust's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.

Investment Adviser

Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser, subject to direction by the Trustees. The Adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.

Advisory Fees

The Adviser receives an annual investment advisory fee equal to 1% of the Fund's
average daily net assets. Under the investment advisory contract, which provides
for the voluntary waiver of the advisory fee by the Adviser, the Adviser may
voluntarily waive some or all of its fee. This does not include reimbursement to
the Fund of any expenses incurred by shareholders who use the transfer agent's
subaccounting facilities. The Adviser can terminate this voluntary waiver at any
time in its sole discretion.

Adviser's Background

Federated Management, a Delaware business trust organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) Shares of
Federated Investors are owned by a trust, the Trustees of which are
JohnF.Donahue, Chairman and Trustee of Federated Investors,Mr. Donahue's wife,
and Mr. Donahue's son, J.Christopher Donahue, who is President and Trustee of
Federated Investors.

Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1996, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions nationwide.

Keith J. Sabol has been the Fund's portfolio manager since inception. Mr. Sabol
joined Federated Investors in 1994 and has been the Equity Research Coordinator
of the Fund's investment adviser since 1996. Mr. Sabol was an Investment Analyst
for the Fund's investment adviser from 1994 to 1996. Following his graduation
from the U.S. Military Academy, MrSabol was commissioned as an officer in the
U.S. Army where he served until 1992. Mr. Sabol earned his Masters in Industrial
Administration from Carnegie Mellon University with a concentration in Finance
and Operations Research.

Aash M. Shah has been the Fund's portfolio manager since its inception. Mr. Shah
joined Federated Investors in 1993 and has been a Vice President of the Fund's
investment adviser since January 1997. Mr. Shah served as an Assistant Vice
President of the investment advisor from 1995 to 1996, and as an Investment
Analyst from 1993 to 1995. Mr. Shah was employed at Westinghouse Credit Corp.
from 1990 to 1993 as an Investment Analyst. Mr. Shah received his Masters in
Industrial Administration from Carnegie Mellon University with a concentration
in finance and accounting. Mr. Shah is a Chartered Financial Analyst.

Both the Trust and the Adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Board of Trustees,
and could result in severe penalties.

Distribution of Shares

Federated Securities Corp. is the principal distributor for Shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.

The distributor may offer to pay financial intermediaries an amount equal to 1%
of the NAV of Class C Shares purchased by their clients or customers at the time
of purchase. These payments will be made directly by the distributor from its
assets, and will not be made from assets of the Fund. Financial intermediaries
may elect to waive the initial payment described above; such waiver will result
in the waiver by the Fund of the otherwise applicable contingent deferred sales
charge.

The distributor will pay dealers an amount equal to 5.50% of the NAV of Class B
Shares purchased by their clients or customers. These payments will be made
directly by the distributor from its assets, and will not be made from the
assets of the Fund. Dealers may voluntarily waive receipt of all or any portion
of these payments. The distributor may pay a portion of the distribution fee
discussed below to financial intermediaries that waive all or any portion of the
advance payments.

Distribution Plan and Shareholder Services

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), Class B Shares and Class C Shares will pay a
fee to the distributor in an amount computed at an annual rate of 0.75% of the
average daily net assets of each class of Shares to finance any activity which
is principally intended to result in the sale of Shares subject to the
Distribution Plan. The Fund does not currently make payments to the distributor
or charge a fee under the Distribution Plan for Class A Shares, and shareholders
of Class A Shares will be notified if the Fund intends to charge a fee under the
Distribution Plan. For Class A Shares and Class C shares, the distributor may
select financial intermediaries such as banks, fiduciaries, custodians for
public funds, investment advisers, and broker/dealers to provide sales services
or distribution-related support services as agents for their clients or
customers. With respect to Class B Shares, because distribution fees to be paid
by the Fund to the distributor may not exceed an annual rate of 0.75% of each
class of Shares' average daily net assets, it will take the distributor a number
of years to recoup the expenses it has incurred for its sales services and
distribution-related support services pursuant to the Distribution Plan.

The Distribution Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Plan.

In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily NAV of Class A
Shares, Class B Shares, and Class C Shares to obtain certain personal services
for shareholders and for the maintenance of shareholder accounts ("Shareholder
Services"). Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial intermediaries to perform shareholder services. Financial
intermediaries will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.

Supplemental Payments to Financial Intermediaries

In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial intermediaries supplemental
fees for the performance of sales services, distribution-related support
services, or shareholder services.

Federated Securities Corp. will pay financial intermediaries, at the time of
purchase of Class A Shares, an amount equal to 0.50% of the NAV of Class A
Shares purchased by their clients or customers under certain qualified
retirement plans as approved by Federated Securities Corp. (Such payments are
subject to a reclaim from the financial intermediary should the assets leave the
program within 12 months after purchase.)

Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
the distributor may offer to pay a fee from its own assets to financial
intermediaries as financial assistance for providing substantial sales services,
distribution related support services, or shareholder services. The support may
include sponsoring sales, educational and training seminars for their employees,
providing sales literature, and engineering computer software programs that
emphasize the attributes of the Fund. Such assistance will be predicated upon
the amount of Shares the financial intermediary sells or may sell, and/or upon
the type and nature of sales or marketing support furnished by the financial
intermediary. Any payments made by the distributor may be reimbursed by the
Fund's investment adviser or its affiliates.

Administration of the Fund

Administrative Services

Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services Company
provides these at an annual rate which relates to the average aggregate daily
net assets of all Federated Funds as specified below:

Maximum Average Aggregate
Fee Daily Net Assets
------- -----------------------------------
<S> <C>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million

</TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.

Expenses of the Fund and Class A Shares, Class B Shares, and Class C Shares

Holders of Class A Shares, Class B Shares, and Class C Shares pay their
allocable portion of Trust and portfolio expenses.

The Trust expenses for which holders of Class A Shares, ClassB Shares, and Class
C Shares pay their allocable portion include, but are not limited to: the cost
of organizing the Trust and continuing its existence; registering the Trust with
federal and state securities authorities; Trustees' fees; auditors' fees; the
cost of meetings of Trustees; legal fees of the Trust; association membership
dues; and such non-recurring and extraordinary items as may arise from time to
time.

The Fund expenses for which holders of Class A Shares, ClassBShares, and Class C
Shares pay their allocable portion include, but are not limited to: registering
the Fund and ClassAShares, Class B Shares, and Class C Shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise from time to time.

At present, the only expenses which are allocated specifically to Class A
Shares, Class B Shares, and Class C Shares as classes are expenses under the
Trust's Distribution Plan and fees for Shareholder Services. However, the
Trustees reserve the right to allocate certain other expenses to holders of
Class A Shares, Class B Shares and Class C Shares as they deem appropriate
("Class Expenses"). In any case, Class Expenses would be limited to:
distribution fees; transfer agent fees as identified by the transfer agent as
attributable to holders of Class A Shares, Class B Shares, and Class C Shares;
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders;
registration fees paid to the Securities and Exchange Commission and to state
securities commissions; expenses related to administrative personnel and
services as required to support holders of Class A Shares, Class B Shares, and
Class C Shares; legal fees relating solely to Class A Shares, Class B Shares, or
Class C Shares; and Trustees' fees incurred as a result of issues related solely
to Class A Shares, Class B Shares, or Class C Shares.

- -------------------------------------------------------------------------------
BROKERAGE TRANSACTIONS
- -------------------------------------------------------------------------------

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Trustees.

- -------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------

Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of each portfolio
or class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only Shares of that portfolio or class are
entitled to vote.

Trustees may be removed by the Trustees or shareholders at a special meeting. A
special meeting of shareholders shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the Fund's outstanding Shares of
all series entitled to vote.

- -------------------------------------------------------------------------------
TAX INFORMATION
- -------------------------------------------------------------------------------

Federal Income Tax

The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.

The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.

Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.

State and Local Taxes

In the opinion of Houston, Donnelley, & Meck, counsel to the Trust, Trust shares
may be subject to personal property taxes imposed by counties, municipalities,
and school districts in Pennsylvania to the extent that the portfolio securities
in the Trust would be subject to such taxes if owned directly by residents of
those jurisdictions.

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

- -------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- -------------------------------------------------------------------------------

From time to time, the Fund advertises its total return and yield for each class
of Shares.

Total return represents the change, over a specific period of time, in the value
of an investment in each class of Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.

The yield of each class of Shares is calculated by dividing the net investment
income per share (as defined by the SEC) earned by each class of Shares over a
thirty-day period by the maximum offering price per share of each class on the
last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
each class of Shares and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.

The performance information reflects the effect of non-recurring charges, such
as the maximum sales charge or contingent deferred sales charges, which, if
excluded, would increase the total return and yield.

Total return and yield will be calculated separately for ClassAShares, Class B
Shares, and Class C Shares. Expense differences among Class A Shares, Class B
Shares, and ClassCShares may affect the performance of each class.

From time to time, advertisements for Class A Shares, ClassBShares, and Class C
Shares of the Fund may refer to ratings, rankings, and other information in
certain financial publications and/or compare the performance of ClassAShares,
Class B Shares, and Class C Shares to certain indices.

Federated Aggressive [logo] Federated Investors
Growth Fund Federated Aggressive
Federated Investors Funds Growth Fund
5800 Corporate Drive
Pittsburgh, PA 15237-7000 (A Portfolio of Federated Equity
Funds) Class A Shares, Class B
Shares, Class C Shares
Federated Securities Corp.,
Distributor
1-800-341-7400

www.federatedinvestors.com

Prospectus
December 31, 1997

Cusip 314172875
Cusip 314172867
Cusip 314172859
G01925-01-ABC (11/97) An Open-End, Diversified
[recycled logo] ManagementInvestment Company

FEDERATED AGGRESSIVE GROWTH FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the prospectus
of Federated Aggressive Growth Fund (the "Fund"), dated December 31, 1997. This
Statement is not a prospectus. You may request a copy of a prospectus or a paper
copy of this Statement if you have received it electronically, free of charge by
calling 1-800-341-7400.

FEDERATED AGGRESSIVE GROWTH FUND
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PENNSYLVANIA 15237-7000
Statement dated December 31, 1997

[GRAPHIC OMITTED]

Cusip 314172875
Cusip 314172867
Cusip 314172859
G01925-02(12/97)

<PAGE>

TABLE OF CONTENTS
- ------------------------------------------------------------------------------

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVE AND POLICIES 1

Types of Investments 1
Temporary Investments 2
When-Issued and Delayed Delivery
Transactions 3
Lending of Portfolio Securities 3
Repurchase Agreements 3
Reverse Repurchase Agreements 3
Futures Transactions 4
Portfolio Turnover 5
Investment Limitations 5
FEDERATED EQUITY FUNDS MANAGEMENT 8

Share Ownership 12
Trustees Compensation 13
Trustee Liability 13
INVESTMENT ADVISORY SERVICES 14

Adviser to the Fund 14
Advisory Fees 14
Other Related Services 14
BROKERAGE TRANSACTIONS 14

OTHER SERVICES 15

Fund Administration 15
Custodian 15
Transfer Agent 15
Independent Auditors 15
PURCHASING SHARES 15

Quantity Discounts and Accumulated
Purchases 15
Concurrent Purchases 16
Letter of Intent 16
Reinvestment Privilege 16
Conversion of Class B Shares 16
Distribution Plan and Shareholder
Services Agreement 17
Purchases by Sales Representatives,
Fund Trustees, and Employees 17

DETERMINING NET ASSET VALUE 17

Determining Market Value of Securities
18
REDEEMING SHARES 18

Redemption in Kind 18
Contingent Deferred Sales Charge 18
MASSACHUSETTS PARTNERSHIP LAW 19

EXCHANGING SECURITIES FOR SHARES 19

Tax Consequences 19
TAX STATUS 20

The Fund's Tax Status 20
Shareholders' Tax Status 20
TOTAL RETURN 20

YIELD 21

PERFORMANCE COMPARISONS 21

ABOUT FEDERATED INVESTORS 23

Mutual Fund Market 23
Institutional Clients 23
Bank Marketing 23
Broker/Dealers and Bank
Broker/Dealer Subsidiaries 23
FINANCIAL STATEMENTS 24

APPENDIX 25

Standard & Poor's Ratings Services Corporate
and Municipal Bond Rating Definitions
25
Moody's Investors Service, Inc. Corporate
and Municipal Bond Rating Definitions
25
Fitch Investors Service, L.P. Long-Term Debt
Ratings 25
Fitch Investors Service, L.P. Short-Term Debt
Ratings 26
Standard and Poor's Ratings Services
Commercial Paper Rating Definitions
26
Moody's Investors Service, Inc.
Commercial Paper Rating Definitions
26

<PAGE>

GENERAL INFORMATION ABOUT THE FUND

The Fund is a portfolio of Federated Equity Funds (the "Trust"). The Fund was
established under the laws of Massachusetts on April 17, 1984.

Shares of the Fund are offered in three classes known as Class A Shares, Class B
Shares, and Class C Shares (individually and collectively referred to as
"Shares" as the context may require). This Statement of Additional Information
relates to all three classes of the above-mentioned Shares.

INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide appreciation of capital.

TYPES OF INVESTMENTS

The Fund may invest in common stocks, corporate securities other than common
stock, corporate debt securities, including notes and debentures, and other
corporate securities, including preferred stocks, warrants and convertible
securities.

CORPORATE SECURITIES OTHER THAN COMMON STOCK

CORPORATE DEBT SECURITIES

Corporate debt securities may bear fixed, fixed and contingent, or
variable rates of interest. They may involve equity features such as
conversion or exchange rights, warrants for the acquisition of common
stock of the same or a different issuer, participations based on revenues,
sales, or profits, or the purchase of common stock in a unit transaction
(where corporate debt securities and common stock are offered as a unit).
The corporate debt securities (excluding convertible securities) in
which the Fund normally invests will be rated investment grade, i.e., Baa
or better by Moody's Investors Service, Inc. ("Moody's"), or BBB or better
by Standard & Poor's Ratings Services ("S&P") or Fitch Investors Service,
L.P. ("Fitch") (or, if unrated, are deemed to be of comparable quality by
the Fund's investment adviser). It should be noted that securities
receiving the lowest investment grade rating are considered to have some
speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to weakened capacity to make
principal and interest payments than higher rated securities. In the event
that a security which had an eligible rating when purchased is downgraded
below Baa or BBB, the investment adviser will promptly reassess whether
continued holding of the security is consistent with the Fund's objective.
However, the Fund may invest up to 5% of its assets in corporate debt
obligations that are not investment-grade bonds (excluding securities
convertible into equity securities) during the current fiscal year.

OTHER CORPORATE SECURITIES

The Fund may invest in preferred stocks, warrants, and convertible
securities, rated investment grade, i.e., Baa or better by Moody's, or BBB
or better by S&P or Fitch (or, if unrated, are deemed to be of comparable
quality by the adviser), and warrants of these companies. Corporate fixed
income securities are subject to market and credit risks. The prices of
fixed income securities fluctuate inversely to the direction of interest
rates. In the event that a security which had an eligible rating when
purchased is downgraded below Baa or BBB, the adviser will promptly
reassess whether continued holding of the security is consistent with the
Fund's objective. The Fund may invest in corporate debt obligations that
are not investment grade bonds or are not rated but are determined by the
adviser to be of comparable quality.

Securities which are rated BBB or lower by S&P, or Baa or lower by Moody's
either have speculative characteristics or are speculative with respect to
capacity to pay interest and repay principal in accordance with the terms
of the obligations. A description of the rating categories is contained in
the Appendix to the Statement of Additional Information. There is no lower
limit with respect to rating categories for securities in which the Fund
may invest.

Corporate debt obligations that are not determined to be investment grade
are high-yield, high-risk bonds, typically subject to greater market
fluctuations and greater risk of loss of income and principal due to an
issuer's default. Lower-rated bonds or unrated bonds are commonly referred
to as "junk bonds." To a greater extent than investment grade bonds, lower
rated bonds tend to reflect short-term corporate, economic and market
developments, as well as investor perceptions of the issuer's credit
quality. In addition, lower rated bonds may be more difficult to dispose
of or to value than high-rated, lower-yielding bonds.

The Fund's adviser attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer as
well as by monitoring broad economic trends and corporate and legislative
developments.

RESTRICTED SECURITIES

The Fund expects that any restricted securities would be acquired either
from institutional investors who originally acquired the securities in
private placements or directly from the issuers of the securities in
private placements. Restricted securities and securities that are not
readily marketable may sell at a discount from the price they would bring
if freely marketable.

The Board of Trustees (the "Trustees") may consider the following criteria
in determining the liquidity of certain restricted securities:

o the frequency of trades and quotes for the security;

o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;

o dealer undertakings to make a market in the security; and

o the nature of the security and the nature of the marketplace trades.

TEMPORARY INVESTMENTS

The Fund may also invest in temporary investments from time to time for
defensive purposes.

MONEY MARKET INSTRUMENTS

The Fund may invest in the following money market instruments:

o instruments of domestic and foreign banks and savings associations if
they have capital, surplus, and undivided profits of over $100,000,000,
or if the principal amount of the instrument is insured in full by the
Bank Insurance Fund, which is administered by the Federal Deposit
Insurance Corporation ("FDIC"), or the Savings Association Insurance
Fund, which is administered by the FDIC; and

o prime commercial paper (rated A-1 by S&P, Prime-1 by Moody's, or F-1 by
Fitch).

U.S. GOVERNMENT OBLIGATIONS

The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S. Treasury
bills, notes, and bonds) and obligations issued or guaranteed by U.S. government
agencies or instrumentalities. These securities are backed by:

o the full faith and credit of the U.S. Treasury;

o the issuer's right to borrow from the U.S. Treasury;

o the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or

o the credit of the agency or instrumentality issuing the obligations.

Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:

o Federal Home Loan Banks;

o Federal National Mortgage Association;

o Student Loan Marketing Association; and

o Federal Home Loan Mortgage Corporation.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.

LENDING OF PORTFOLIO SECURITIES

The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.

REPURCHASE AGREEMENTS

The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. In
the event that a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Fund might be delayed pending court
action. The Fund believes that under the regular procedures normally in effect
for custody of the Fund's portfolio securities subject to repurchase agreements,
a court of competent jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker/dealers, which are found by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Trustees.

REVERSE REPURCHASE AGREEMENTS

The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future, the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.

When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.

PUT AND CALL OPTIONS

The Fund may purchase listed put options on stocks or write covered call
options to protect against price movements in particular securities in its
portfolio and generate income. A put option gives the Fund, in return for
a premium, the right to sell the underlying security to the writer
(seller) at a specified price during the term of the option. As writer of
a call option, the Fund has the obligation upon exercise of the option
during the option period to deliver the underlying security upon payment
of the exercise price.

The Fund may only: (1) buy put options which are listed on a recognized
options exchange and which are on securities held in its portfolio; and
(2) sell listed call options either on securities held in its portfolio or
on securities which it has the right to obtain without payment of further
consideration (or has segregated cash in the amount of any such additional
consideration). The Fund will maintain its positions in securities, option
rights, and segregated cash subject to puts and calls until the options
are exercised, closed, or expire. An option position may be closed out
only on an exchange which provides a secondary market for an option of the
same series. Although the adviser will consider liquidity before entering
into option transactions, there is no assurance that a liquid secondary
market on an exchange will exist for any particular option or at any
particular time. The Fund reserves the right to hedge the portfolio by
buying financial futures and put options on stock index futures and
financial futures.

FUTURES TRANSACTIONS

FINANCIAL FUTURES CONTRACTS

A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in the
contract ("going short") and the buyer who agrees to take delivery of the
security ("going long") at a certain time in the future.

In the fixed-income securities market, price moves inversely to interest
rates. A rise in rates means a drop in price. Conversely, a drop in rates
means a rise in price. In order to hedge its holdings of fixed-income
securities against a rise in market interest rates, the Fund could enter
into contracts to deliver securities at a predetermined price (i.e., "go
short") to protect itself against the possibility that the prices of its
fixed-income securities may decline during the Fund's anticipated holding
period. The Fund would "go long" (agree to purchase securities in the
future at a predetermined price) to hedge against a decline in market
interest rates.

Stock index futures contracts are based on indices that reflect the market
value of common stock of the firms included in the indices. An index
futures contract is an agreement pursuant to which two parties agree to
take or make delivery of an amount of cash equal to the differences
between the value of the index at the close of the last trading day of the
contract and the price at which the index contract was originally written.

"MARGIN" IN FUTURES TRANSACTIONS

A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as "marking
to market." Variation margin does not represent a borrowing or loan by the
Fund but is instead settlement between the Fund and the broker of the
amount one would owe the other if the futures contract expired. In
computing its daily net asset value, the Fund will mark to market its open
futures positions.

The Fund is also required to deposit and maintain margin when it writes call
options on futures contracts.

PORTFOLIO TURNOVER

The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. Portfolio turnover will tend to rise during
periods of economic turbulence and decline during periods of stable growth. A
higher turnover rate (100% or more) increases transaction costs (e.g. brokerage
commissions) and increases realized gains and losses. For the period from
November 25, 1996 (date of initial public investment) to October 31, 1997, the
Fund's portfolio turnover rate was 97%.

INVESTMENT LIMITATIONS

The following limitations are fundamental, except that no investment limitation
of the Fund shall prevent the Fund from investing substantially all of its
assets (except for assets which are not considered "investment securities" under
the Investment Company Act of 1940, or assets exempted by the Securities and
Exchange Commission) in an open-end investment company with substantially the
same investment objectives:

CONCENTRATION OF INVESTMENTS

The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry. However, the Fund may at times invest 25% or more of the value
of its total assets in cash or cash items (not including certificates of
deposit), securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, or repurchase agreements secured by such
instruments.

INVESTING IN COMMODITIES

The Fund will not purchase or sell commodities. The Fund reserves the
right to purchase financial futures and put options on stock index futures
and on financial futures.

INVESTING IN REAL ESTATE

The Fund will not purchase or sell real estate, although it may invest in
the securities of companies whose business involves the purchase or sale
of real estate, or in securities which are secured by real estate or
interests in real estate.

BUYING ON MARGIN

The Fund will not purchase any securities on margin but may obtain such
short-term credits as may be necessary for the clearance of transactions
and may make margin payments in connection with buying financial futures,
put options on stock index futures, and put options on financial futures.

SELLING SHORT

The Fund will not sell securities short unless at all times when a short
position is open, it owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further
consideration, for securities of the same issuer as, and equal in amount
to, the securities sold short; and unless not more than 10% of the value
of the Fund's net assets (taken at current value) is held as collateral
for such sales at any one time.

ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Fund will not issue senior securities, except as permitted by its
investment objective and policies, and except that the Fund may borrow
money and engage in reverse repurchase agreements only in amounts up to
one-third of the value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure, or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests where the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while any such borrowings (including
reverse repurchase agreements) are outstanding.

LENDING CASH OR SECURITIES

The Fund will not lend any of its assets except portfolio securities. This
shall not prevent the purchase or holding of corporate or government
bonds, debentures, notes, certificates of indebtedness, or other debt
securities of an issuer, repurchase agreements, or other transactions
which are permitted by the Fund's investment objective and policies or
Declaration of Trust.

UNDERWRITING

The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.

INVESTING IN MINERALS

The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs, although it may purchase the
securities of issuers which invest in or sponsor such programs.

DIVERSIFICATION OF INVESTMENTS

With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase the securities of any issuer (other
than cash, cash items, or securities issued or guaranteed by the U.S.
government, its agencies, or instrumentalities, securities of other
investment companies and repurchase agreements collateralized by such
securities) if, as a result, more than 5% of the value of its total assets
would be invested in the securities of such issuer and will not acquire
more than 10% of the outstanding voting securities of any issuer. For
these purposes, the Fund takes all common stock and all preferred stock of
an issuer each as a single class, regardless of priorities, series,
designations, or other differences.

The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Trustees without
shareholder approval, except that no investment limitation of the Fund shall
prevent the Fund from investing substantially all of its assets (except for
assets which are not considered "investment securities" under the Investment
Company Act of 1940, or assets exempted by the Securities and Exchange
Commission) in an open-end investment company with substantially the same
investment objective. Shareholders will be notified before any material changes
in these limitations become effective.

INVESTING IN ILLIQUID SECURITIES

The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including certain restricted securities not
determined by the Trustees to be liquid, over-the-counter options, and
repurchase agreements providing for settlement in more than seven days
after notice.

PLEDGING ASSETS

The Fund will not mortgage, pledge, or hypothecate any assets, except to
secure permitted borrowings. In those cases, it may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or
10% of the value of its total assets at the time of the borrowing.

PURCHASING PUT OPTIONS

The Fund will not purchase put options on securities unless the securities
are held in the Fund's portfolio and not more than 5% of the value of the
Fund's total assets would be invested in premiums on open put options.

WRITING COVERED CALL OPTIONS

The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the
amount of any further payment.

ACQUIRING SECURITIES

The Fund will not purchase securities of a company for the purpose of
exercising control or management. However, the Fund may invest in up to
10% of the voting securities of any one issuer and may exercise its voting
powers consistent with the best interests of the Fund. In addition, the
Fund, other companies advised by the Fund's adviser, and other affiliated
companies may together buy and hold substantial amounts of voting stock of
a company and may vote together in regard to such company's affairs. In
some such cases, the Fund and its affiliates might collectively be
considered to be in control of such company. In some cases, Trustees and
other persons associated with the Fund and its affiliates might possibly
become directors of companies in which the Fund holds stock.

INVESTING IN WARRANTS

The Fund will not invest more than 5% of its net assets in warrants. No
more than 2% of the Fund's net assets, to be included within the overall
5% limit on investments in warrants, may be warrants which are not listed
on the New York or American Stock Exchanges. Warrants acquired in units or
attached to securities may be deemed to be without value for purposes of
this policy.

For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."

Except with respect to borrowing money, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction. The Fund has no intent to borrow money, sell securities
short, or invest in reverse repurchase agreements in excess of 5% of the value
of its total assets in the coming fiscal year. Short selling may accelerate the
recognition of gains.

<PAGE>

FEDERATED EQUITY FUNDS MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Equity Funds, and principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924

Chairman and Trustee

Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director or Trustee of the Funds. Mr. Donahue is the
father of J. Christopher Donahue, Executive Vice President of the Company.

Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934

Trustee

Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937

Trustee

President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918

Trustee

Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922

Trustee

Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932

Trustee

Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924

Trustee

Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942

Trustee

Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932

Trustee

President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925

Trustee

Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; Director or Trustee of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935

Trustee

Public relations/Marketing/Conference Planning; Director or Trustee of the
Funds.

Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929

President

Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.

J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949

Executive Vice President

President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Chairman and Trustee of the Company.

<PAGE>

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930

Executive Vice President

Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938

Executive Vice President , Secretary and Treasurer

Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923

Vice President

Executive Vice President and Trustee, Federated Investors; Chairman and
Director,
Federated Securities Corp.; President or Vice President of some of the Funds;
Director or Trustee of some of the Funds.

* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.

@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.

<PAGE>

As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Automated Government Money Trust;
Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II;
Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; WesMark Funds; WCT Funds; and World Investment Series,
Inc.

SHARE OWNERSHIP

Officers and Trustees own less than 1% of the Fund's outstanding Shares.

As of December 1, 1997, the following shareholder of record owned 5% or
more of the outstanding Class A Shares of the Fund: BHC Securities Inc.,
Philadelphia, Pennsylvania, owned approximately 28,276 Shares (8.16%).

As of December 1, 1997, the following shareholder of record owned 5% or more of
the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner & Smith,
for the sole benefit of its customers, Jacksonville, Florida, owned
approximately 8,679 Shares (9.68%).

TRUSTEES COMPENSATION

AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX
<S> <C> <C>

John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the
Complex

Thomas G. Bigley $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the
Complex

John T. Conroy, Jr. $1,600 $119,615 for the Trust and
Trustee 56 other investment companies in the
Complex

William J. Copeland $1,600 $119,615 for the Trust and
Trustee 56 other investment companies in the
Complex

James E. Dowd $1,454 $119,615 for the Trust and
Trustee 56 other investment companies in the
Complex

Lawrence D. Ellis, M.D. $1,600 $108,725 for the Trust and
Trustee 56 other investment companies in the
Complex

Edward L. Flaherty, Jr. $1,600 $119,615 for the Trust and
Trustee 56 other investment companies in the
Complex

Peter E. Madden $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the
Complex

John E. Murray $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the
Complex

Wesley W. Posvar $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the Complex

Marjorie P. Smuts $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the Complex

</TABLE>

* Information is furnished for the fiscal year ended October 31, 1997.

# The aggregate compensation is provided for the Trust which is comprised of 4
portfolios.

The information is provided for the last calendar year.

TRUSTEE LIABILITY

The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.

<PAGE>

INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND

The Fund's investment adviser is Federated Management (the "Adviser"). It
is a subsidiary of Federated Investors. All the voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue, his
wife, and his son, J. Christopher Donahue.

The Adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.

ADVISORY FEES

For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus. For the period from November 25, 1996 (date
of initial public investment) to October 31, 1997, the Adviser earned management
and advisory fees of $43,174, all of which was waived.

OTHER RELATED SERVICES

Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of shares of funds offered by Federated Securities Corp.

BROKERAGE TRANSACTIONS
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include: advice as to the advisability of investing in securities;
security analysis and reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the Adviser or its affiliates in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The Adviser and its
affiliates exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.

For the period from November 25, 1996 (date of initial public
investment) to October 31, 1997, the Fund paid brokerage commissions in the
amount of $18,366.

Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.

OTHER SERVICES
FUND ADMINISTRATION

Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994, to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the period from
November 25, 1996 to October 31,1997, the Administrators earned $175,867.

CUSTODIAN

State Street Bank and Trust Company ("State Street Bank"), Boston, MA is
custodian for the securities and cash of the Fund. Federated Services Company,
Pittsburgh, PA, provides certain accounting and recordkeeping services with
respect to the Fund's portfolio investments. The fee paid for this service is
based upon the level of the Fund's average net assets for the period, plus
out-of-pocket expenses.

TRANSFER AGENT

Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based upon the size, type, and
number of accounts and transactions made by shareholders. Federated Services
Company also maintains the Fund's accounting records. The fee paid for this
service is based upon the level of the Fund's average net assets for the period
plus out-of-pocket expenses.

INDEPENDENT AUDITORS

The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh, PA.

PURCHASING SHARES
Except under certain circumstances described in the prospectus, Shares are
sold at their net asset value (plus a sales charge on Class A Shares only) on
days the New York Stock Exchange is open for business. The procedure for
purchasing Shares is explained in the prospectus under "Investing in the Fund"
and "Purchasing Shares."

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES

As described in the prospectus, larger purchases reduce the sales charge paid.
The Fund will combine purchases of Class A Shares made on the same day by the
investor, the investor's spouse, and the investor's children under age 21 when
it calculates the sales charge. In addition, the sales charge, if applicable, is
reduced for purchases made at one time by a trustee or fiduciary for a single
trust estate or a single fiduciary account.

If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $90,000 and he purchases $10,000 more at the current public offering price,
the sales charge on the additional purchase according to the schedule now in
effect would be 3.75%, not 4.50%.

To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial intermediary at the
time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce or eliminate the sales charge
after it confirms the purchases.

CONCURRENT PURCHASES

For purposes of qualifying for a sales charge reduction, a shareholder has the
privilege of combining concurrent purchases of Class A Shares of two or more
funds for which affiliates of Federated Investors serve as investment adviser
and principal underwriter (the "Federated Funds"), the purchase price of which
includes a sales charge. For example, if a shareholder concurrently invested
$30,000 in the Class A Shares of one of the other Federated Funds with a sales
charge, and $70,000 in this Fund, the sales charge would be reduced.

To receive this sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial intermediary at the
time the concurrent purchases are made. The Fund will reduce the sales charge
after it confirms the purchases.

LETTER OF INTENT

If a shareholder intends to purchase at least $50,000 of Class A Shares of
Federated Funds (excluding money market funds) over the next 13 months, the
sales charge may be reduced by signing a letter of intent to that effect. This
letter of intent includes a provision for a sales charge adjustment depending on
the amount actually purchased within the 13-month period and a provision for the
custodian to hold up to 5.50% of the total amount intended to be purchased in
escrow (in Shares) until such purchase is completed.

The Shares held in escrow in the shareholder's account will be released upon
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed Shares may be redeemed in order to realize the
difference in the sales charge.

While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any Federated
Funds, excluding money market accounts, will be aggregated to provide a purchase
credit towards fulfillment of the letter of intent. Prior trade prices will not
be adjusted.

REINVESTMENT PRIVILEGE

The reinvestment privilege is available for all Shares of the Fund. If Class A
Shares in the Fund have been redeemed, the shareholder has the privilege, within
120 days, to reinvest the redemption proceeds at the next-determined net asset
value without any sales charge. Similarly, shareholders who redeem Class B
Shares or Class C Shares may be reinvested in the same Share class within 120
days but would not be entitled to a reimbursement of the contingent deferred
sales charge if paid at the time of redemption. However, such reinvested shares
would not be subject to a contingent deferred sales charge upon later
redemption. In addition, if the Class B or Class C Shares were reinvested
through a financial intermediary, the financial intermediary would not be
entitled to an advanced payment from Federated Securities Corp. on the
reinvested Shares. Federated Securities Corp. must be notified by the
shareholder in writing or by his financial intermediary of the reinvestment in
order to eliminate a sales charge or a contingent deferred sales charge. If the
shareholder redeems Shares in the Fund, there may be tax consequences.

CONVERSION OF CLASS B SHARES

Class B Shares will automatically convert into Class A Shares on or around the
15th of the month eight full years from the purchase date and will no longer be
subject to a fee under the distribution plan. For purposes of conversion to
Class A Shares, Shares purchased through the reinvestment of dividends and
distributions paid on Class B Shares will be considered to be held in a separate
sub-account. Each time any Class B Shares in the shareholder's account (other
than those in the sub-account) convert to Class A Shares, an equal pro rata
portion of the Class B Shares in the sub-account will also convert to Class A
Shares. The conversion of Class B Shares to Class A Shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that such conversions will not constitute taxable events for
federal tax purposes. There can be no assurance that such ruling or opinion will
be available, and the conversion of Class B Shares to Class A Shares will not
occur if such a ruling or opinion is not available. In such event, Class B
Shares would continue to be subject to higher expenses than Class A Shares for
an indefinite period.

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT

By adopting the Distribution Plan the Trustees expect that the Class A Shares,
Class B Shares and Class C Shares of the Fund will be able to achieve a more
predictable flow of cash for investment purposes and to meet redemptions. This
will facilitate more efficient portfolio management and assist the Fund in
pursuing its investment objective. By identifying potential investors whose
needs are served by the Fund's objective, and properly servicing these accounts,
it may be possible to curb sharp fluctuations in rates of redemptions and sales.

Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.

For the fiscal year ended October 31, 1997, the Fund paid shareholder service
fees for Class A Shares, Class B Shares, and Class C Shares in the amounts of
$4,239, $5,992, and $562, respectively.

For the fiscal year ended October 31, 1997, the Class B Shares and Class C
Shares of the Fund paid distribution services fees in the amounts of $17,975,
and $1,686, respectively.

Federated Investors and its subsidiaries may benefit from arrangements where the
Rule 12b-1 Plan fees related to Class B Shares may be paid to third-party
financial providers who have advanced commissions to financial intermediaries.

PURCHASES BY SALES REPRESENTATIVES, FUND TRUSTEES, AND EMPLOYEES

The following individuals and their immediate family members may buy Class A
Shares at net asset value without a sales charge:

o Trustees, employees, and sales representatives of the Fund, Federated
Management, and Federated Securities Corp. and its affiliates;

o Federated Life Members (Class A Shares Only);

o any associated person of an investment dealer who has a sales agreement with
Federated Securities Corp.; and

o trusts, pensions, or profit-sharing plans for these individuals.

These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund.

DETERMINING NET ASSET VALUE
The Fund's net asset value per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The net asset value for
each class of Shares may differ due to the variance in daily net income realized
by each class.

Net asset value is not determined on (i) days on which there are not sufficient
changes in the value of the Fund's portfolio securities that its net asset value
might be materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; or (iii) the following
holidays: New Year's Day, Martin Luther King Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities, other than options, are
determined as follows:

o according to the last sale price on a national securities exchange, if
available;

o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices and for bonds and other
fixed income securities as determined by an independent pricing service for
unlisted equity securities, the latest bid prices; or

o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service or at fair value as
determined in good faith by the Trustees. Options are valued at the market
values established by the exchanges at the close of option trading unless
the Trustees determine in good faith that another method of valuing option
positions is necessary.

REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions may be subject to a
contingent deferred sales charge. Redemption procedures are explained in the
prospectus under "Redeeming and Exchanging Shares." Although the transfer agent
does not charge for telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than $5,000.

REDEMPTION IN KIND

Although the Fund intends to redeem Shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio.

Redemption in kind will be made in conformity with applicable SEC rules, taking
such securities at the same value employed in determining net asset value and
selecting the securities in a manner the Trustees determine to be fair and
equitable.

The Fund has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Fund is obligated to redeem Shares for any shareholder
in cash up to the lesser of $250,000 or 1% of the Fund's net asset value during
any 90-day period.

Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.

CONTINGENT DEFERRED SALES CHARGE

In computing the amount of the applicable Contingent Deferred Sales Charge,
redemptions are deemed to have occurred in the following order: (1) Shares
acquired through the reinvestment of dividends and long-term capital gains; (2)
Shares held for more than six full years from the date of purchase with respect
to Class B Shares and one full year from the date of purchase with respect to
Class C Shares; (3) Shares held for fewer than six years with respect to Class B
Shares and for less than one full year from the date of purchase with respect to
Class C Shares on a first-in, first-out basis.

ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES

To qualify for elimination of the contingent deferred sales charge through
a Systematic Withdrawal Program, the redemptions of Class B Shares must be
from an account that is at least 12 months old, has all Fund distributions
reinvested in Fund Shares, and has an account value of at least $10,000
when the Systematic Withdrawal Program is established. Qualifying
redemptions may not exceed 1.00% monthly of the account value as
periodically determined by the Fund. The amounts that a shareholder may
withdraw under a Systematic Withdrawal Program that qualify for
elimination of the Contingent Deferred Sales Charge may not exceed 12%
annually with reference initially to the value of the Class B Shares upon
establishment of the Systematic Withdrawal Program and then as calculated
at the annual valuation date. Redemptions on a qualifying Systematic
Withdrawal Program can be made at a rate of 1.00% monthly, 3.00%
quarterly, or 6.00% semi-annually with reference to the applicable account
valuation amount. Amounts that exceed the 12.00% annual limit for
redemption, as described, may be subject to the Contingent Deferred Sales
Charge. To the extent that a shareholder exchanges Shares for Class B
Shares of other Federated Funds, the time for which the exchanged-for
Shares are to be held will be added to the time for which exchanged-from
Shares were held for purposes of satisfying the 12-month holding
requirement. However, for purposes of meeting the $10,000 minimum account
value requirement, Class B Share accounts will be not be aggregated. Any
Shares purchased prior to the termination of this program would have the
contingent deferred sales charge eliminated as provided in the Fund's
prospectus at the time of the purchase of the Shares.

MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.

In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them.

EXCHANGING SECURITIES FOR SHARES
Investors may exchange securities they already own for Shares, or they may
exchange a combination of securities and cash for Shares. An investor should
forward the securities in negotiable form with an authorized letter of
transmittal to Federated Securities Corp. The Fund will notify the investor of
its acceptance and valuation of the securities within five business days of
their receipt by State Street Bank.

The Fund values securities in the same manner as the Fund values its assets. The
basis of the exchange will depend upon the net asset value of Shares on the day
the securities are valued. One Share of the Fund will be issued for each
equivalent amount of securities accepted.

Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription, or other
rights attached to the securities become the property of the Fund, along with
the securities.

TAX CONSEQUENCES

Exercise of this exchange privilege is treated as a sale for federal income tax
purposes. Depending upon the cost basis of the securities exchanged for Shares,
a gain or loss may be realized by the investor.

TAX STATUS
THE FUND'S TAX STATUS

The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Fund
must, among other requirements:

o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;

o invest in securities within certain statutory limits; and

o distribute to its shareholders at least 90% of its net income earned during
the year.

SHAREHOLDERS' TAX STATUS

Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. No portion of any income dividend paid by
the Fund is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are taxable as
ordinary income.

CAPITAL GAINS

Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
the Fund Shares.

TOTAL RETURN
The Fund's cumulative total returns based on offering price for the period
between November 25, 1996 (date of initial public investment) and October 31,
1997 were:

SHARE CLASSSINCE INCEPTION

Class A 25.91%
Class B 27.25%
Class C 31.04%

The average annual total return for all classes of Shares of the Fund is the
average compounded rate of return for a given period that would equate a $1,000
initial investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of Shares owned at the
end of the period by the offering price per Share at the end of the period. The
number of Shares owned at the end of the period is based on the number of Shares
purchased at the beginning of the period with $1,000, less any applicable sales
charge, adjusted over the period by any additional Shares, assuming a
reinvestment of all dividends and distributions. Any applicable contingent
deferred sales charge is deducted from the ending value of the investments based
on the lesser of the original purchase price or the offering price of Shares
redeemed.

Cumulative total return reflects total performance over a specified period of
time. This total return assumes and is reduced by the payment of the maximum
sales charge and/or the contingent deferred sales charge, if applicable.

<PAGE>

YIELD
The Fund's yields for the thirty-day period ended October 31, 1997 were:

SHARE CLASSYIELD

Class A 0%
Class B 0%
Class C 0%

The yield for all classes of Shares of the Fund is determined by dividing the
net investment income per Share (as defined by the SEC) earned by any class of
Shares over a thirty-day period by the maximum offering price per Share of any
class of Shares on the last day of the period. This value is then annualized
using semi-annual compounding. This means that the amount of income generated
during the thirty-day period is assumed to be generated each month over a
twelve-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by any class of Shares because of
certain adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.

To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any class
of Shares, the performance will be reduced for those shareholders paying those
fees.

PERFORMANCE COMPARISONS
The performance of each of the classes of Shares depends upon such variables as:

o portfolio quality;

o average portfolio maturity;

o type of instruments in which the portfolio is invested;

o changes in interest rates and market value of portfolio securities;

o changes in the Fund's or any class of Shares' expenses; and

o various other factors.

The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per Share fluctuate daily. Both net earnings and offering
price per Share are factors in the computation of yield and total return.

Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:

o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and
takes into account any change in net asset value over a specified period of
time. From time to time, the Fund will quote its Lipper ranking in
advertising and sales literature.

o DOW JONES INDUSTRIAL AVERAGE is an unmanaged index representing share prices
of major industrial corporations, public utilities, and transportation
companies. Produced by the Dow Jones & Company, it is cited as a principal
indicator of market conditions.

o STANDARD & POOR'S LOW-PRICED INDEX compares a group of approximately twenty
actively traded stocks priced under $25 for one month periods and
year-to-date.

o STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS ("S&P 500"),
a composite index of common stocks in industry, transportation, and
financial and public utility companies, can be used to compare to the total
returns of funds whose portfolios are invested primarily in common stocks.
In addition, the S&P 500 assumes reinvestments of all dividends paid by
stocks listed on its index. Taxes due on any of these distributions are not
included, nor are brokerage or other fees calculated in the S&P figures.

oMORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for one
month.

o VALUE LINE MUTUAL FUND SURVEY, published by Value Line Publishing, Inc.,
analyzes price, yield, risk, and total return for equity and fixed income
mutual funds. The highest rating is One, and ratings are effective for one
month.

o CDA MUTUAL FUND REPORT, published by CDA Investment Technologies, Inc.,
analyzes price, current yield, risk, total return, and average rate of
return (average annual compounded growth rate) over specified time periods
for the mutual fund industry.

o STRATEGIC INSIGHT MUTUAL FUND RESEARCH AND CONSULTING, ranks funds in
various fund categories by making comparative calculations using total
return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time. From time to time, the Fund
will quote its Strategic Insight ranking in the "growth funds" category in
advertising and sales literature.

o MUTUAL FUND SOURCE BOOK, published by Morningstar, Inc., analyzes price,
yield, risk, and total return for equity and fixed income funds.

o VALUE LINE COMPOSITE INDEX consists of approximately 1,700 common equity
securities. It is based on a geometric average of relative price changes of
the component stocks and does not include income.

o FINANCIAL PUBLICATIONS: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money Magazines, among
others--provide performance statistics over specified time periods.

Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in any
class of Shares based on quarterly reinvestment of dividends over a specified
period of time.

Advertisements may quote performance information which does not reflect the
effect of the sales charge on Class A Shares.

Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.

ECONOMIC AND MARKET INFORMATION

Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.

ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making--structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.

The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume.

In the equity sector, Federated Investors has more than 26 years' experience. As
of December 31, 1996, Federated managed 31 equity funds totaling approximately
$7.6 billion in assets across growth, value, equity income, international, index
and sector (i.e. utility) styles. Federated Investors' value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.

J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.

MUTUAL FUND MARKET

Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 funds available.*

Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:

INSTITUTIONAL CLIENTS

Federated meets the needs of more than 4,000 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
applications, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisors. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division.

BANK MARKETING

Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country -- supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high rankings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for the service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.

* source: Investment Company Institute

FINANCIAL STATEMENTS
The financial statements for Federated Aggressive Growth Fund for the fiscal
year ended October 31, 1997 are incorporated herein by reference to the Annual
Report to Shareholders of Federated Aggressive Growth Fund dated October 31,
1997 (File No. 811-4017). A copy of the Annual Report may be obtained without
charge by contacting the Fund.

<PAGE>

APPENDIX
STANDARD & POOR'S RATINGS SERVICES CORPORATE AND MUNICIPAL BOND RATING
DEFINITIONS

AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy. S&P's may apply a plus (+)
or minus (-) to the above rating classifications to show relative standing
within the classifications.

MOODY'S INVESTORS SERVICE, INC. CORPORATE AND MUNICIPAL BOND RATING DEFINITIONS

Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.

Baa--Bonds which are rated Baa are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

NR--Not rated by Moody's.

Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

FITCH INVESTORS SERVICE, L.P. LONG-TERM DEBT RATINGS

AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.

A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

FITCH INVESTORS SERVICE, L.P. SHORT-TERM DEBT RATINGS

F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment only slightly less in degree than issues rated
F-1+.

STANDARD AND POOR'S RATINGS SERVICES COMMERCIAL PAPER RATING DEFINITIONS

A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus sign (+).

A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS

P-1--Issuers (or supporting institutions) rated Prime-1 (P-1) have a superior
capacity for repayment of senior short-term promissory obligations. P-1
repayment capacity will often be evidenced by many of the following
characteristics:

o Leading market positions in well-established industries.

o High rates of return on funds employed.

o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

Well-established access to a range of financial markets and assured sources of
alternate liquidity.

P-2--Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong
capacity for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Federated Capital Appreciation Fund
Appreciation Fund
(A Portfolio of Federated Equity Funds)

Class A Shares, Class B Shares, Class C Shares

Prospectus

The shares of Federated Capital Appreciation Fund (the "Fund") represent
interests in a diversified investment portfolio of Federated Equity Funds (the
"Trust"), an open-end management investment company (a mutual fund). The Fund
invests primarily in equity securities that offer opportunities for capital
appreciation.

This prospectus contains the information you should read and know before you
invest in Class A Shares, Class B Shares, and Class C Shares of the Fund. Keep
this prospectus for future reference.

The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information or to make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

Prospectus dated December 31, 1997

TABLE OF CONTENTS

<TABLE>
<S> <C>
Summary of Fund Expenses...................... 1
Financial Highlights.......................... 2
Class A Shares............................... 2
Class B Shares............................... 3
Class C Shares............................... 4
General Information........................... 5
Calling the Fund............................. 5
Investment Information........................ 5
Investment Objective......................... 5
Investment Policies.......................... 5
Investment Limitations....................... 11
Net Asset Value............................... 11
Investing in the Fund......................... 12

Purchasing Shares............................. 12
Purchasing Shares Through a
Financial Intermediary....................... 12
Purchasing Shares by Wire.................... 13
Purchasing Shares by Check................... 13
Systematic Investment Program................ 13
Retirement Plans............................. 13

Class A Shares............................... 13
Class B Shares............................... 13

Class C Shares............................... 14
Redeeming and Exchanging Shares............... 14

Redeeming Intermediary Shares Through a
Financial Intermediary....................... 14

Redeeming or Exchanging Shares by Telephone.. 14
Redeeming or Exchanging Shares by Mail....... 14

Requirements for Redemption.................. 15
Requirements for Exchange.................... 15
Systematic Withdrawal Program................ 15
Contingent Deferred Sales Charge............. 15
Account and Share Information................. 16
Confirmations and Account Statements......... 16
Dividends and Distributions.................. 16
Accounts with Low Balances................... 16

Trust Information............................. 16

Management of the Corporation................ 16
Distribution of Shares....................... 17
Administration of the Fund................... 18

Brokerage Transactions........................ 18

Shareholder Information....................... 18
Tax Information............................... 19
Federal Income Tax............................ 19
State and Local Taxes........................ 19
Performance Information...................... 19

Appendix...................................... 20

</TABLE>

SUMMARY OF FUND EXPENSES

Shareholder Transaction Expenses
<TABLE>
<CAPTION>

Class A Class B Class C
<S>
<C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)
5.50% None None Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None None None Contingent Deferred Sales Charge
(as a percentage of original purchase price or redemption proceeds, as
applicable) None 5.50%(1) 1.00%(1) Redemption Fee (as a percentage of amount
redeemed, if applicable) None None None Exchange Fee None None None </TABLE>
Annual Operating Expenses
(As a percentage of average net assets)
<TABLE>
<S> <C> <C> <C>
Management Fee (after waiver)(2) 0.68% 0.68% 0.68%
12b-1 Fee 0.00%(3) 0.75% 0.75%
Total Other Expenses 0.55% 0.55% 0.55%
Shareholder Services Fee (after waiver) 0.25% 0.25% 0.25%
Total Operating Expenses(4) 1.23% 1.98%(5) 1.98%
</TABLE>

(1) For shareholders of Class B Shares, the contingent deferred sales charge is
5.50% in the first year declining to 1.00% in the sixth year and 0.00%
thereafter. For shareholders of Class C Shares, the contingent deferred
sales charge assessed is 1.00% of the lesser of the original purchase price
or the net asset value of Shares redeemed within one year of their purchase
date. For a more complete description, see "Contingent Deferred Sales
Charge."
(2) The management fee for all classes has been reduced to reflect the voluntary
waiver of a portion of the management fee. The adviser can terminate this
voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.75%.
(3) The Class A Shares has no present intention of paying or accruing the 12b-1
fee during the period ending October 31, 1998. If Class A Shares were paying
or accruing the 12b-1 fee, the Class A Shares would be able to pay up to
0.25% of its average daily net assets for the 12b-1 fee. See "Fund
Information."
(4) The total operating expenses for Class A Shares, Class B Shares, and Class C
Shares would have been 1.30%, 2.04%, and 2.04% respectively, absent the
voluntary waiver described in note 2 above.
(5) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.

Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.

<TABLE>
<CAPTION>
Example
Class A Class B Class C
<S>
<C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return, (2) redemption at the end of each time period, and (3) payment of
the maximum
sales charge.
1
Year................................................................................
$ 67 $ 77 $ 30
3
Years...............................................................................
$ 92 $106 $ 62
5
Years...............................................................................
$119 $130 $107
10
Years..............................................................................
$196 $210 $231

You would pay the following expenses on the same investment, assuming no
redemption.

1
Year................................................................................
$ 67 $ 58 $ 58
3
Years...............................................................................
$ 92 $ 62 $ 62
5
Years...............................................................................
$119 $107 $107
10
Years..............................................................................
$196 $210 $231
</TABLE>

The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.

FINANCIAL HIGHLIGHTS--CLASS A SHARES

(For a share outstanding throughout each period)**

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated December 12, 1997, on the Fund's
financial statements for the year ended October 31, 1997, and on the following
table for the periods presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.

Year
Period
Ended
Ended
October 31, October 31,
Year Ended December 31,(a)
1997 1996(b) 1995 1994
1993 1992 1991 1990 1989 1988
Net asset
value,
<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) (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.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1997, which can be obtained free of charge.

FINANCIAL HIGHLIGHTS--CLASS B SHARES

(For a share outstanding throughout each period)**.

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated December 12, 1997, on the Fund's
financial statements for the year ended October 31, 1997, and on the following
table for the periods presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.

<TABLE>
<CAPTION>
Year Ended Period
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 (loss) 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.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1997, which can be obtained free of charge.

FINANCIAL HIGHLIGHTS--CLASS C SHARES

(For a share outstanding throughout each period)**

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated December 12, 1997, on the Fund's
financial statements for the year ended October 31, 1997, and on the following
table for the periods presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.

<TABLE>
<CAPTION>
Year Ended Period
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 (loss) 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>
* 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.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1997, which can be obtained free of charge.

GENERAL INFORMATION

The Fund was established under the laws of the Commonwealth of Massachusetts on
April 17, 1984. Class A Shares, Class B Shares and Class C Shares of the Fund
("Shares") are designed for individuals as a convenient means of accumulating an
interest in a professionally managed, diversified portfolio of equity
securities.

The Fund's current net asset value and offering price may be found in the mutual
funds section of local newspapers under "Federated" and the appropriate class
designation listing.

Calling the Fund Call the Fund at 1-800-341-7400.

INVESTMENT INFORMATION

Investment Objective

The investment objective of the Fund is to provide capital appreciation. The
investment objective cannot be changed without approval of shareholders. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.

Investment Policies

The investment policies described below may be changed by the Board of Trustees
(the "Trustees") without shareholder approval. Shareholders will be notified
before any material change in these policies becomes effective.

Acceptable Investments

The Fund attempts to achieve its objectives by investing at least 65% of its
assets in equity securities. Equity securities include common stocks, preferred
stocks, and securities (including debt securities) that are convertible into
common stocks. The portion of the Fund's total assets invested in common stocks,
preferred stocks, and convertible securities will vary according to the Fund's
assessment of market and economic conditions and outlook.

The Fund's stock selection emphasizes those common stocks in each industry
sector that offer significant potential for capital appreciation based upon
factors such as price/cash flow, price/book value, and projected earnings
growth. The Fund may also invest in the securities of companies involved in
mergers or restructuring, and may invest up to 20% of its total assets in
foreign securities.

Common Stock

Corporate Securities

The Fund may invest in preferred stocks, convertible securities, notes or
debentures rated investment grade, i.e., Baa or better by Moody's Investors
Service, Inc. ("Moody's"), or BBB or better by Standard & Poor's Ratings
Services ("S&P") or Fitch Investors Service, L.P. ("Fitch") (or, if unrated, are
deemed to be of comparable quality by Federated Management, the Fund's
investment adviser (the "Adviser"), and warrants of these companies. Corporate
fixed income securities are subject to market and credit risks. In addition, the
prices of fixed income securities fluctuate inversely to the direction of
interest rates. It should be noted that securities receiving the lowest
investment grade rating are considered to have some speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than higher rated
securities. In the event that a security which had an eligible rating when
purchased is downgraded below Baa or BBB, the Adviser will promptly reassess
whether continued holding of the security is consistent with the Fund's
objective.

Convertible Securities

The Fund may invest up to, but not including, 35% of the value of its total
assets in convertible securities that are not investment grade bonds or are not
rated but are determined by the Adviser to be of comparable quality. Convertible
securities are fixed-income securities which may be exchanged or converted into
a predetermined number of the issuer's underlying common stock at the option of
the holder during a specified time period. Accordingly, the Fund considers
convertible securities to be equity securities. Convertible securities may take
the form of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities. The investment characteristics of each convertible
security vary widely, which allows convertible securities to be employed for
different investment objectives. The Fund invests in convertible securities
irrespective of their ratings. Therefore, the convertible securities in which
the Fund invests may be rated below investment grade and considered speculative.
Convertible bonds and convertible preferred stocks are fixed-income securities
that generally retain the investment characteristics of fixed-income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed-income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. In
general, the market value of a convertible security is at least the higher of
its "investment value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e. its value upon conversion into its underlying common
stock). As a fixed-income security, a convertible security tends to increase in
market value when interest rates decline and tends to decrease in value when
interest rates rise. However, the price of a convertible security is also
influenced by the market value of the security's underlying common stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.

The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which, in
the Adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objectives. Otherwise,
the Fund will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the Adviser evaluates the investment characteristics of
the convertible security as a fixed-income instrument, and the investment
potential of the underlying equity security for capital appreciation. In
evaluating these matters with respect to a particular convertible security, the
Adviser considers numerous factors, including the economic and political
outlook, the value of the security relative to other investment alternatives,
trends in the determinants of the issuer's profits, and the issuer's management
capability and practices.

Synthetic Convertibles

A "synthetic convertible" is created by combining distinct securities that
possess the two principal characteristics of a true convertible: a fixed-income
component and a convertibility component. This combination is achieved by
investing in nonconvertible fixed-income securities (nonconvertible bonds,
preferred stocks, and money market instruments) and in warrants or call options
traded on U. S. of foreign exchanges or in the over-the-counter markets granting
the holder the right to purchase a specified quantity of securities within a
specified period of time at a specified price or to receive cash in the case of
stock index options.

Synthetic convertibles differ from true convertible securities in several
respects. Unlike a true convertible, which is a single security having a unitary
market value, a synthetic convertible is comprised of two distinct securities,
each with its own market value. Therefore, the "market value" of a synthetic
convertible is the sum of the values of its fixed-income component and its
separate convertibility component. For this reason, the values of a synthetic
convertible and a true convertible security will respond differently to market
fluctuations.

A synthetic convertible may be more flexible than a convertible security. For
example, a synthetic convertible may offer different issuers in the fixed-income
component than are offered in the stock underlying the convertibility component.
A synthetic convertible allows the Adviser to combine components representing
distinct issuers, or to combine a fixed-income security with a call option on a
stock index, when it determines that such a combination would better promote the
Fund's investment objective and diversification. A synthetic convertible may
also offer flexibility in that its two components may be purchased separately.
For example, the Adviser may purchase a listed call option for inclusion in a
synthetic convertible, but temporarily hold short-term investments while
postponing purchase of a corresponding bond pending development of more
favorable market conditions.

A holder of a synthetic convertible faces the risk that the price of the stock,
or the level of the market index underlying the convertibility component, will
decline, causing a decline in the value of the call option or warrant. Should
the price of the stock or the level of the index fall below the exercise period,
the entire amount paid for the call option or warrant would be lost. Since a
synthetic convertible includes a fixed-income component, the holder of a
synthetic convertible also faces the risk that interest rates will rise, causing
a decline in the value of the fixed-income instrument. Finally, a synthetic
convertible can be expected to have greater transaction costs than a true
convertible security.

A combination of convertible securities and synthetic convertibles may offer
certain advantages over an investment policy that allows for only one of these
investment vehicles. Since convertible securities and synthetic convertibles may
respond differently to varying market conditions, the ability to invest in both
types of securities should afford greater flexibility in managing the Fund's
portfolio.

Zero Coupon Convertible Securities

Zero coupon convertible securities are debt securities which are issued at a
discount to their face amount and do not entitle the holder to any periodic
payments of interest prior to maturity. Rather, interest earned on zero coupon
convertible securities accretes at a stated yield until the security reaches its
face amount at maturity. Zero coupon convertible securities are convertible into
a specific number of shares of the issuer's common stock. In addition, zero
coupon convertible securities usually have put features that provide the holder
with the opportunity to sell the bonds back to the issuer at a stated price
before maturity. Generally, the prices of zero coupon convertible securities may
be more sensitive to market interest rate fluctuations than conventional
convertible securities.

Federal income tax law requires the holder of a zero coupon convertible security
to recognize income from the security prior to the receipt of cash payments. To
maintain its qualification as a regulated investment company and avoid liability
of federal income taxes, the Fund will be required to distribute income accrued
from zero coupon convertible securities which it owns, and may have to sell
portfolio securities (perhaps at disadvantageous times) in order to generate
cash to satisfy these distribution requirements.

Risk Factors Relating to Investing in High Yield Securities

The convertible, synthetic, and zero convertible securities in which the Fund
invests are usually not in the three highest rating categories of a nationally
recognized statistical rating organization (AAA, AA, or A for S&P or Fitch and
Aaa, Aa, or A for Moody's), but are in the lower rating categories or are
unrated, but are of comparable quality and have speculative characteristics or
are speculative Lower-rated bonds or unrated bonds are commonly referred to as
"junk bonds." There is no minimal acceptable rating for a security to be
purchased or held in the Fund's portfolio, and the Fund may, from time to time,
purchase or hold convertible and synthetic securities rated in the lowest rating
category. A description of the rating categories is contained in the Appendix to
the prospectus.

Debt obligations that are not determined to be investment grade are high-yield,
high-risk bonds, typically subject to greater market fluctuations and greater
risk of loss of income and principal due to an issuer's default. To a greater
extent than investment-grade bonds, lower-rated bonds tend to reflect short-term
corporate, economic, and market developments, as well as investor perceptions of
the issuer's credit quality.

In addition, lower-rated bonds may be more difficult to dispose of or to value
than higher-rated, lower yielding bonds.

The Adviser attempts to reduce the risks described above through diversification
of the portfolio and by credit analysis of each issuer as well as by monitoring
broad economic trends and corporate and legislative developments.

Foreign Securities

The Fund reserves the right to invest up to 20% of its assets in foreign debt
and equity securities. These securities may be either dollar-denominated or
denominated in foreign currencies. Investments in foreign securities,
particularly those of non-governmental issuers, involve considerations which are
not ordinarily associated with investments in domestic issuers. These
considerations include the possibility of expropriation, confiscatory taxation,
currency fluctuations, the unavailability of financial information or the
difficulty of interpreting financial information prepared under foreign
accounting standards, less liquidity and more volatility in foreign securities
markets, the impact of political, social, or diplomatic developments, and the
difficulty of assessing economic trends in foreign countries. It may also be
more difficult to enforce contractual obligations abroad than would be the case
in the United States because of differences in the legal systems. Transaction
costs in foreign securities may be higher. The Adviser will consider these and
other factors before investing in foreign securities and will not make such
investments unless, in its opinion, such investments will meet the Fund's
standards and objectives.

Foreign Currency Transactions

The Fund may enter into foreign currency transactions to obtain the necessary
currencies to settle securities transactions. Currency transactions may be
conducted either on a spot or cash basis at prevailing rates or through forward
foreign currency exchange contracts.

The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against a decline
in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund.

Currency Risks

To the extent that debt securities purchased by the Fund are denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the Fund's net asset value; the value of interest earned;
gains and losses realized on the sale of securities; and net investment income
and capital gain, if any, to be distributed to shareholders by the Fund. If the
value of a foreign currency rises against the U.S.dollar, the value of the
Fund's assets denominated in that currency will increase; correspondingly, if
the value of a foreign currency declines against the U.S. dollar, the value of
the Fund's assets denominated in that currency will decrease.

Forward Foreign Currency Exchange Contracts

A forward foreign currency exchange contract ("forward contract") is an
obligation to purchase or sell an amount of a particular currency at a specific
price and on a future date agreed upon by the parties. Generally no commission
charges or deposits are involved. At the time the Fund enters into a forward
contract, Fund assets with a value equal to the Fund's obligation under the
forward contract are segregated and are maintained until the contract has been
settled. The Fund will not enter into a forward contract with a term of more
than one year.

The Fund will generally enter into a forward contract to provide the proper
currency to settle a securities transaction at the time the transaction occurs
("trade date"). The period between trade date and settlement date will vary
between 24 hours and 30 days, depending upon local custom.

The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the Adviser
will consider the likelihood of changes in currency values when making
investment decisions, the Adviser believes that it is important to be able to
enter into forward contracts when it believes the interests of the Fund will be
served. The Fund will not enter into forward contracts for hedging purposes in a
particular currency in an amount in excess of the Fund's assets denominated in
that currency. The Fund will not invest more than 20% of its total assets in
forward foreign currency exchange contracts.

Put and Call Options

The Fund may purchase put options on its portfolio securities. These options
will be used as a hedge to attempt to protect securities which the Fund holds
against decreases in value. The Fund may also write call options on all or any
portion of its portfolio to generate income for the Fund. The Fund will write
call options on securities either held in its portfolio or for which it has the
right to obtain without payment of further consideration or for which it has
segregated cash in the amount of any additional consideration.

The Fund may generally purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the options
since options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings associations)
deemed creditworthy by the Adviser.

Financial Futures and Options on Futures

The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its portfolio
against decreases in value. When the Fund writes a call option on a futures
contract, it is undertaking the obligation of selling a futures contract at a
fixed price at any time during a specified period if the option is exercised.
Conversely, as purchaser of a put option on a futures contract, the Fund is
entitled (but not obligated) to sell a futures contract at the fixed price
during the life of the option.

Stock index futures contracts are based in indices that reflect the market value
of common stock of the firms included in the indices. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.

The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases futures
contracts, an amount of cash and U.S. Treasury securities, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the Fund's custodian
(or the broker, if legally permitted) to collateralize the position and thereby
insure that the use of such futures contract is unleveraged.

Risks
When the Fund uses financial futures and options on financial futures as hedging
devices, much depends on the ability of the Adviser to predict market conditions
based upon certain economic analysis and factors. There is a risk that the
prices of the securities subject to the futures contracts may not correlate
perfectly with the prices of the securities in the Fund's portfolio. This may
cause the futures contract and any related options to react differently than the
portfolio securities to market changes. In addition, the Adviser could be
incorrect in its expectations about the direction or extent of market factors
such as interest rate movements. In these events, the Fund may lose money on the
futures contract or option.

It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Adviser will consider
liquidity before entering into options transactions, there is no assurance that
a liquid secondary market on an exchange or otherwise will exist for any
particular futures contract or option at any particular time. The Fund's ability
to establish and close out futures and options positions depends on this
secondary market.

Restricted and Illiquid Securities

The Fund may invest in restricted securities. This restriction is not applicable
to commercial paper issued under Section 4(2) of the Securities Act of 1933, as
amended. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objectives and policies but which
are subject to restriction on resale under federal securities law. The Fund will
limit investments in illiquid securities, including certain restricted
securities determined by the Trustees not to be liquid, non-negotiable time
deposits and repurchase agreements providing for settlement in more than seven
days after notice, to15% of its net assets. The Fund may invest in
commercial paper issued in reliance on the exemption from registration afforded
by Section 4(2) of the Securities Act of 1933, as amended. Section 4(2)
commercial paper is restricted as to disposition under federal securities law
and is generally sold to institutional investors, such as the Fund, who agree
that they are purchasing the paper for investment purposes and not with a view
to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity.

Temporary Investments

The Fund may also invest temporarily, in amounts of 35% or less of the Fund's
assets, in cash and cash items during times of unusual market conditions to
maintain liquidity. Cash items may include the following short-term obligations:

. commercial paper and Europaper (dollar denominated commercial paper issued
outside the United States);

. instruments of domestic and foreign banks and savings associations (such as
certificates of deposit, demand and time deposits, savings shares, and
bankers' acceptances);

. obligations of the U.S. government or its agencies
or instrumentalities;

. repurchase agreements; and

. other short-term instruments.

Repurchase Agreements

Repurchase agreements are arrangements in which banks, broker/dealers, and other
recognized financial institutions sell U.S. government or other securities to
the Fund and agree at the time of sale to repurchase them at a mutually agreed
upon time and price.

When-Issued and Delayed Delivery Transactions

The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. The Fund may dispose of a
commitment prior to settlement, if the Adviser deems it appropriate to do so. In
addition, the Fund may enter in transactions to sell its purchase commitments to
third parties at current market values and simultaneously acquire other
commitments to purchase similar securities at later dates. The Fund may realize
short-term profits or losses upon the sale of such commitments. Investing in
Securities of Other Investment Companies the Fund may invest its assets in
securities of other investment companies as an efficient means of carrying out
its investment policies. It should be noted that investment companies incur
certain expenses, such as management fees, and, therefore, any investment by the
Fund in shares of other investment companies may be subject to such duplicate
expenses.

Investing in Securities of Other Investment Companies

Lending of Portfolio Securities

In order to generate additional income, the Fund may lend portfolio securities,
on a short-term or a long-term basis, up to one-third of the value of its total
assets to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Adviser has determined are creditworthy under
guidelines established by the Trustees and will receive collateral in the form
of cash or U.S. government securities equal to at least 100% of the value of the
securities loaned.

Derivative Contracts and Securities

The term "derivative" has traditionally been applied to certain contract
(including future, forward, option, and swap contracts) that "derive" their
value from changes in the value of an underlying security, currency, commodity,
or index. Certain types of securities that incorporate the performance
characteristics of these contracts are also referred to as "derivatives." The
term has also been applied to securities "derived" from the cash flows from
underlying securities, mortgages or other obligations.

Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the response of
certain derivative contracts and securities to market changes may differ from
traditional investments, such as stock and bonds, derivatives do not necessarily
present greater market risks than traditional investments. The Fund will only
use derivative contracts for the purposes disclosed in the applicable prospectus
sections above. To the extent that the Fund invests in securities that could be
characterized as derivatives, it will only do so in a manner consistent with its
investment objectives, policies, and limitations.

Portfolio Turnover

Securities in the Fund's portfolio will be sold whenever the Adviser believes it
is appropriate to do so in light of the Fund's investment objective, without
regard to the length of time a particular security may have been held. The
Adviser to the Fund does not anticipate that portfolio turnover will result in
adverse tax consequences. Any such trading will increase the Fund's portfolio
turnover rate and transaction costs.

Investment Limitations
The Fund will not:

. borrow money directly or through reverse repurchase agreements (arrangements
in which the Fund sells a portfolio instrument for a percentage of its cash
value with an agreement to buy it back on a set date) or pledge securities
except that the Fund may borrow up to one-third of the value of its total
assets and pledge up to 10% of the value of those assets to secure such
borrowings;

. sell securities short except, under strict limitations, it may maintain open
short positions so long as not more than 10% of the value of its net assets
is held as collateral for those positions;

. lend any of its assets except portfolio securities up to one-third of the
value of its total assets;

. underwrite any issue of securities, except as it may be deemed to be an
underwriter under the Securities Act of 1933, as amended, in connection with
the sale of restricted securities which the Fund may purchase pursuant to its
investment objectives, policies, and limitations;

. with respect to 75% of its total assets, invest more than 5% of the value of
its total assets in securities of any one issuer (other than cash, cash
items, or securities issued or guaranteed by the U.S. government, its
agencies, or instrumentalities, and repurchase agreements collateralized by
such securities); or

. acquire more than 10% of any class of voting securities of any one issuer.

For these purposes, the Fund takes all common stock and all preferred stock of
an issuer each as a single class, regardless of priorities, series,
designations, or other differences. The above investment limitations cannot
be changed without shareholder approval.

NET ASSET VALUE

This prospectus offers three classes of Shares each with the characteristics
described below.

Class A Class
B Class C
<S> <C>
<C> <C>
Minimum and
Subsequent
Investment Amounts $500/$100
$1500/$100 $1500/$100
Minimum and
Subsequent
Investment Amount
for Retirement Plans $ 50 $
50 $ 50
Maximum Sales Charge 5.50%*
None None
Maximum Contingent
Deferred Sales
Charge** None
5.50% 1.00%#
Conversion Feature No
Yes No
</TABLE>

* Class A Shares are sold at NAV, plus a sales charge as follows:

Sales
Charge
as a
Percentage Concession as

Public Net a Percentage of

Offering Amount Public Offering
Amount of Transaction Price
Invested Price
<S> <C>
<C> <C>
Less than $50,000
5.50% 5.82% 5.00%
$50,000 but
less
than $100,000
4.50% 4.71% 4.00%
$100,000 but
less
than $250,000
3.75% 3.90% 3.25%
$250,000 but
less
than $500,000
2.50% 2.56% 2.25%
$500,000 but
less
than $1 million
2.00% 2.04% 1.80%
$1 million or greater
0.00% 0.00% 0.25%

</TABLE>

** Computed on the lesser of the NAV of the redeemed Shares at the time of
purchase or the NAV of the redeemed Shares at the time of redemption.

The following contingent deferred sales charge schedule applies to Class B
Shares:

Year of Redemption Contingent Deferred
After Purchase Sales Charge
- ------------------- -------------------
<S> <C>
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>

Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase. See "Conversion of Class B Shares."
The contingent deferred sales charge is assessed on Shares redeemed within one
year of their purchase date

PURCHASING SHARES

In connection with any sale, Federated Securities Corp. may, from time to time,
offer certain items of nominal value to any shareholder or investor.

Purchasing Shares Through a Financial Intermediary

Purchasing Shares by Wire

Shares may be purchased by Federal Reserve wire by calling the Fund. All
information needed will be taken over the telephone, and the order is considered
received when State Street Bank receives payment by wire. Federal funds should
be wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA 02266-8600; Attention; EDGEWIRE; For Credit
to: (Fund Name) (Fund Class); (Fund Number--this number can be found on the
account statement or by contacting the Fund); Account Number; Trade Date and
"Order Number; Group Number or Dealer Number; Nominee or Institution Name; and
ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted.

Purchasing Shares by Check

Shares may be purchased by mailing a check made payable to the name of the Fund
(designate class of Shares and account number) to: Federated Shareholder
Services Company, P.O.Box 8600, Boston, MA 02266-8600. Orders by mail are
considered received when payment by check is converted into federal funds
(normally the business day after the check is received).

Systematic Investment Program

Retirement Plans
Fund Shares can be purchased as an investment for retirement plans or Individual
Retirement Accounts ("IRA"). For further details, contact the Fund and consult a
tax adviser.

Class A Shares
Class A Shares are sold at NAV, plus a sales charge. However:

No sales charge is imposed for Class A Shares purchased:

. through financial intermediaries that do not receive sales charge dealer
concessions;

. by Federated Life Members who maintain a $500 minimum balance in at least one
of the Federated Funds; or

. through "wrap accounts" or similar programs under which clients pay a fee for
services.

In addition, the sales charge can be reduced or eliminated by:

. purchasing in quantity and accumulating purchases at the levels in the table
under "Investing in the Fund";

. combining concurrent purchases of two or more funds;

. signing a letter of intent to purchase a specific quantity of shares within
13 months; or

. using the reinvestment privilege.

Dealer Concession

For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid to a
dealer will be retained by the distributor. However, the distributor may offer
to pay dealers up to 100% of the sales charge retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at recreational-
type facilities, or items of material value. In some instances, these incentives
will be made available only to dealers whose employees have sold or may sell a
significant amount of Shares. On purchases of $1 million or more, the investor
pays no sales charge; however, the distributor will make twelve monthly payments
to the dealer totaling 0.25% of the public offering price over the first year
following the purchase. Such payments are based on the original purchase price
of Shares outstanding at each month end. The sales charge for Shares sold other
than through registered broker/dealers will be retained by Federated Securities
Corp.

Class B Shares

Conversion of Class B Shares

Class C Shares
Class C Shares are sold at NAV. A contingent deferred sales charge of 1.00% will
be charged on assets redeemed within the first full 12 months following
purchase.

REDEEMING AND EXCHANGING SHARES

Redeeming or Exchanging Shares Through a Financial Intermediary

Redeeming or Exchanging Shares by Telephone

Redeeming or Exchanging Shares by Mail

Requirements for Redemption

Requirements for Exchange

Systematic Withdrawal Program

Contingent Deferred Sales Charge

Eliminating the Contingent Deferred Sales Charge
Upon written notification to Federated Securities Corp. or the transfer agent,
no contingent deferred sales charge will be imposed on redemptions:

. following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder;
. representing minimum required distributions from an IRA or other retirement
plan to a shareholder who has attained the age of 70 1/2;
. which are involuntary redemptions of shareholder accounts that do not
comply with the minimum balance requirements;
. which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;
. which are reinvested in the Fund under the reinvestment privilege;

. of Shares held by Trustees, employees and sales representatives of the
Fund, the distributor, or affiliates of the Fund or distributor, employees
of any financial intermediary that sells Shares of the Fund pursuant to a
sales agreement with the distributor, and their immediate family members to
the extent that no payments were advanced for purchases made by these
persons; and

. of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of 1940 or
retirement plans where the third party administrator has entered into
certain arrangements with Federated Securities Corp. or its affiliates, or
any other financial intermediary, to the extent that no payments were
advanced for purchases made through such entities.

ACCOUNT AND SHARE INFORMATION

Confirmations and Account Statements

Dividends and Distributions

Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Net long-term capital gains realized by the Fund, if
any, will be distributed at least once every twelve months. Dividends and
distributions are automatically reinvested in additional Shares of the Fund on
payment dates at the ex-dividend date without a sales charge, unless
shareholders request cash payments on the new account form or by contacting the
transfer agent.

Accounts with Low Balances

TRUST INFORMATION

Management of the Trust
Board of Trustees

The Trust is managed by a Board of Trustees. The Trustees are responsible for
managing the Trust's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.

Investment Adviser

Advisory Fees

The Adviser receives an annual investment advisory fee equal to 0.75% of the
Fund's average daily net assets. The Adviser may voluntarily waive a portion of
its fee or reimburse the Fund for certain operating expenses. The Adviser can
terminate this voluntary waiver at any time in its sole discretion.

Adviser's Background

Federated Management, a Delaware business trust organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.

Arthur J. Barry has been the Fund's portfolio manager since March 1997. Mr.
Barry joined Federated Investors in 1994 as an Investment Analyst for the Fund's
investment adviser. From 1990 to 1992, Mr. Barry served as a Financial Service
Specialist for AT&T - Bell Laboratories. Mr. Barry is a Chartered Financial
Analyst and attended Carnegie Mellon University where he earned his M.S.I.A.
with a concentration in finance and accounting.

James E. Grefenstette has been the Fund's portfolio manager since November 1997.
Mr. Grefenstette joined Federated Investors in 1992 and has been a Vice
President of the Fund's investment adviser since 1996. From 1994 until 1996,
Mr.Grefenstette acted as an Assistant Vice President of the Fund's investment
adviser, and served as an Investment Analyst of the investment advisor from 1992
to 1994. Mr. Grefenstette was a credit analyst at Westinghouse Credit Corp. from
1990 until 1992. Mr. Grefenstette is a Chartered Financial Analyst and received
his M.S. in Industrial Administration from Carnegie Mellon University.

J. Thomas Madden has been the Fund's portfolio manager since the Fund's
inception date. Mr. Madden joined Federated Investors in 1977, and has been an
Executive Vice President of the Fund's investment adviser since 1994. Mr. Madden
served as a Senior Vice President of the Fund's investment adviser from 1989 to
1993. Mr. Madden is a Chartered Financial Analyst and received his M.B.A. with a
concentration in Finance from the University of Virginia.

Both the Trust and the Adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees" own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Board of Trustees,
and could result in severe penalties.

Distribution of Shares

The distributor will pay dealers an amount equal to 5.50% of the NAV of Class B
Shares purchased by their clients or customers. These payments will be made
directly by the distributor from its assets, and will not be made from the
assets of the Fund. Dealers may voluntarily waive receipt of all or any portion
of these payments. The distributor may pay a portion of the distribution fee
discussed below to financial institutions that waive all or any portion of the
advance payments.

The distributor may offer to pay financial institutions an amount equal to 1% of
the NAV of Class C Shares purchased by their clients or customers at the time of
purchase. These payments will be made directly by the distributor from its
assets, and will not be made from assets of the Fund. Financial institutions may
elect to waive the initial payment described above; such waiver will result in
the waiver by the Fund of the otherwise applicable contingent deferred sales
charge.

Distribution Plan and Shareholder Services

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), the distributor may be paid a fee in an amount
computed at an annual rate of up to 0.25% for Class A Shares and up to 0.75% for
Class B Shares and Class C Shares of the average daily net assets of each class
of Shares to finance any activity which is principally intended to result in the
sale of Shares subject to the Distribution Plan. The Fund does not currently
make payments to the distributor or charge a fee under the Distribution Plan for
Class A Shares, and shareholders of Class A Shares will be notified if the Fund
intends to charge a fee under the Distribution Plan. For Class A Shares and
Class C Shares, the distributor may select financial institutions such as banks,
fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers. With respect to Class B
Shares, because distribution fees to be paid by the Fund to the distributor may
not exceed an annual rate of 0.75% of each class of Shares' average daily net
assets, it will take the distributor a number of years to recoup the expenses it
has incurred for its sales services and distribution-related services pursuant
to the Distribution Plan.

The Distribution Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying, or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Distribution Plan.

The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
may make payments of up to 0.25% of the average daily NAV of Class A Shares,
Class B Shares, and Class C Shares to obtain certain personal services for
shareholders and for the maintenance of shareholder accounts ('shareholder
services"). Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon Shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.

Supplemental Payments to Financial Institutions

Federated Securities Corp. will pay financial institutions, at the time of
purchase, an amount equal to 0.50% of the NAV of Shares purchased by their
clients or customers under certain qualified retirement plans as approved by
Federated Securities Corp. (Such payments are subject to a reclaim from the
financial institution should the assets leave the program within 12months after
purchase.)

Furthermore, in addition to payments made pursuant to the Shareholder Services
Agreement, Federated Securities Corp. and Federated Shareholder Services, from
their own assets, may pay financial institutions supplemental fees for the
performance of substantial sales services, distribution-related support
services, or shareholder services. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's Adviser or its
affiliates.

Administration of the Fund
Administrative Services

Maximum Average Aggregate
Fee Daily Net Assets
- ------- -----------------------------------
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million

BROKERAGE TRANSACTIONS

TAX INFORMATION

Federal Income Tax

The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to receive the special tax treatment afforded to such
companies.

State and Local Taxes

In the opinion of Houston, Donnelly & Meck, counsel to the Trust, Trust shares
may be subject to personal property taxes imposed by counties, municipalities,
and school districts in Pennsylvania to the extent that the portfolio securities
in the Trust would be subject to such taxes if owned directly by residents of
those jurisdictions.

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

PERFORMANCE INFORMATION

From time to time, the Fund advertises its total return and yield for each class
of Shares.

Total return and yield will be calculated separately for Class A Shares, Class B
Shares, and Class C Shares. Expense differences among Class A Shares, Class B
Shares, and Class C Shares may affect the performance of each class.

From time to time, advertisements for Class A Shares, Class B Shares, and Class
C Shares of the Fund may refer to ratings, rankings, and other information in
certain financial publications and/or compare the performance of Class A Shares,
Class B Shares, and Class C Shares to certain indices.

APPENDIX

Description of Bond Ratings

A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer.

Consequently, the Adviser believes that the quality of fixed income securities
in which the Fund invests should be continuously reviewed and that individual
analysts give different weightings to the various factors involved in credit
analysis. A rating is not a recommendation to purchase, sell, or hold a
security, because it does not take into account market value or suitability for
a particular investor. When a security has received a rating from more than one
service, each rating is evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.

Standard and Poor's Ratings Services Corporate Bond Ratings AAA--Debt rated
"AAA" has the highest rating assigned by Standard & Poor's Ratings Services.
Capacity to pay interest and repay principal is extremely strong.

AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB--Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.

B--Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.

CCC--Debt rated "CCC" has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.

CC--The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" debt rating.

C--The rating "C" typically is applied to debt subordinated to senior debt which
is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.

CI--The rating "CI" is reserved for income bonds on which no interest is being
paid.

D--Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

Moody's Investors Service, Inc., Corporate Bond Ratings

Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

Baa--Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Of ten the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Fitch Investors Service, L.P., Long-Term Debt Ratings

AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."

A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered strong, but
may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.

B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C--Bonds are in imminent default in payment of interest or principal.

DDD, DD, and D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.

[LOGO] FEDERATED INVESTORS

Federated Capital Federated Capital
Appreciation Fund Appreciation Fund

Federated Investors Funds (A Portfolio of Federated
5800 Corporate Drive Equity Funds)
Pittsburgh, PA 15237-7000 Class A Shares, Class B Shares,
Class C Shares

Distributor
Federated Securities Corp. Prospectus
Federated Investors Tower December 31, 1997
Pittsburgh, PA 15222-3779
An Open-End, Diversified
Investment Adviser
Federated Management Management Investment Company
Federated Investors Tower
Pittsburgh, PA 15222-3779

Custodian
State Street Bank and
Trust Company
P.O. Box 8600
Boston, MA 02266-8600

Transfer Agent and
Dividend Disbursing
Agent
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600

Independent Auditors
Ernst & Young LLP
One Oxford Centre
Pittsburgh, PA 15219

Federated Securities Corp., Distributor

1-800-341-7400

www.federatedinvestors.com

Cusip 314172701
Cusip 314728800
Cusip 314172883
G01489-01 (12/97)

FEDERATED CAPITAL APPRECIATION FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the prospectus
of Federated Capital Appreciation Fund (the "Fund"), dated December 31, 1997.
This Statement is not a prospectus. You may request a copy of a prospectus or a
paper copy of this Statement, if you have received it electronically, free of
charge by calling 1-800-341-7400.

FEDERATED CAPITAL APPRECIATION FUND
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PENNSYLVANIA 15237-7000

Statement dated December 31, 1997

[GRAPHIC OMITTED]

Cusip 314172701
Cusip 314172800
Cusip 314172883
G01489-02 (12/97)

<PAGE>

GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of Federated Equity Funds (the "Trust"). The Fund was
established under the laws of Massachusetts on April 17, 1984. The Fund was
created for the purpose of soliciting the shareholders of Federated Exchange
Fund, Ltd., a California Limited Partnership, to exchange their partnership
interests for shares of beneficial interest in the Class A Shares of the Fund.
Until this transaction is completed, or until management of the Fund determines
that it will abandon its plan to acquire the assets of Federated Exchange Fund,
Ltd. in a reorganization transaction, shares of the Fund will not be available
for public investment.

INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide capital appreciation. The
investment objective cannot be changed without approval of shareholders.

CONVERTIBLE SECURITIES

As with all fixed-income securities, various market forces influence the market
value of convertible securities, including changes in the level of interest
rates. As the level of interest rates increases, the market value of convertible
securities may decline and, conversely, as interest rates decline, the market
value of convertible securities may increase. The unique investment
characteristic of convertible securities, the right to be exchanged for the
issuer's common stock, causes the market value of convertible securities to
increase when the underlying common stock increases. However, since securities
prices fluctuate, there can be no assurance of capital appreciation, and most
convertible securities will not reflect quite as much capital appreciation as
their underlying common stocks. When the underlying common stock is experiencing
a decline, the value of the convertible security tends to decline to a level
approximating the yield-to maturity basis of straight nonconvertible debt of
similar quality, often called "investment value," and may not experience the
same decline as the underlying common stock. Many convertible securities sell at
a premium over their conversion values (i.e., the number of shares of common
stock to be received upon conversion multiplied by the current market price of
the stock). This premium represents the price investors are willing to pay for
the privilege of purchasing a fixed-income security with a possibility of
capital appreciation due to the conversion privilege. If this appreciation
potential is not realized, the premium may not be recovered.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.

TEMPORARY INVESTMENTS

The temporary investments in which the Fund may invest include, but are not
limited to:

o commercial paper rated A-1 or A-2 by Standard & Poor's Ratings
Services, Prime-1 or Prime-2 by Moody's Investors Service, Inc., or F-1
or F-2 by Fitch Investors Service, L.P., and Europaper rated A-1, A-2,
Prime-1, or Prime-2. In the case where commercial paper or Europaper has
received different ratings from different rating services, such
commercial paper or Europaper is an acceptable temporary investment so
long as at least one rating is one of the preceding high-quality ratings
and provided the Fund's investment adviser, Federated Management (the
"Adviser"), has determined that such investment presents minimal credit
risks;

o instruments of domestic and foreign banks and savings and loans if they
have capital, surplus, and undivided profits of over $100,000,000, or if
the principal amount of the instrument is insured by the Federal Deposit
Insurance Corporation. These instruments may include Eurodollar
Certificates of Deposits ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs"), and Eurodollar Time Deposits ("ETDs");

o obligations of the U.S. government or its agencies or instrumentalities;

o repurchase agreements; and

o other short-term instrument which are not rated but are determined by
the Adviser to be of comparable quality to the other temporary
obligations in which the Fund may invest.

INVESTMENT RISKS

ECDs, ETDs, Yankee CDs, and Europaper are subject to somewhat different
risks than domestic obligations of domestic banks or corporations.
Examples of these risks include international, economic and political
developments, foreign governmental restrictions that may adversely affect
the payment of principal or interest, foreign withholding or other taxes
on interest income, difficulties in obtaining or enforcing a judgment
against the issuing entity, and the possible impact of interruptions in
the flow of international currency transactions. Different risks may also
exist for ECDs, ETDs, and Yankee CDs because the banks issuing these
instruments, or their domestic or foreign branches, are not necessarily
subject to the same regulatory requirements that apply to domestic banks,
such as reserve requirements, loan limitations, examinations, accounting,
auditing and recordkeeping, and the public availability of information.
These factors will be carefully considered by the Adviser in selecting
investments for the Fund.

WARRANTS

Warrants are basically options to purchase common stock at a specific price
(usually at a premium above the market value of the optioned common stock at
issuance) valid for a specific period of time. Warrants may have a life ranging
from less than a year to twenty years or may be perpetual. However, most
warrants have expiration dates after which they are worthless. In addition, if
the market price of the common stock does not exceed the warrant's exercise
price during the life of the warrant, the warrant will expire as worthless.
Warrants have no voting rights, pay no dividends, and have no rights with
respect to the assets of the corporation issuing them. The percentage increase
or decrease in the market price of the warrant may tend to be greater than the
percentage increase or decrease in the market price of the optioned common
stock.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

REPURCHASE AGREEMENTS

The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Adviser to be
creditworthy pursuant to guidelines established by the Board of Trustees (the
"Trustees").

FUTURES AND OPTIONS TRANSACTIONS

The Fund may attempt to hedge all or a portion of its portfolio by buying and
selling financial futures contracts, buying put options on portfolio securities
and put options on financial futures contracts, and writing call options on
futures contracts. The Fund may also write covered call options on portfolio
securities to attempt to increase its current income.

FINANCIAL FUTURES CONTRACTS

In the fixed-income securities market, price moves inversely to interest
rates. A rise in rates means a drop in price. Conversely, a drop in rates
means a rise in price. In order to hedge its holdings of fixed-income
securities against a rise in market interest rates, the Fund could enter
into contracts to deliver securities at a predetermined price (i.e., "go
short") to protect itself against the possibility that the prices of its
fixed income securities may decline during the Fund's anticipated holding
period. The Fund would "go long" (agree to purchase securities in the
future at a predetermined price) to hedge against a decline in market
interest rates.

Stock index futures contracts are based on indices that reflect the market
value of common stock of the firms included in the indices. An index
futures contract is an agreement pursuant to which two parties agree to
take or make delivery of an amount of cash equal to the differences
between the value of the index at the close of the last trading day of the
contract and the price at which the index contract was originally written.

PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS

The Fund may purchase listed put options on financial futures contracts.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified
price, the purchase of a put option on a futures contract entitles (but
does not obligate) its purchaser to decide on or before a future date
whether to assume a short position at the specified price.

The Fund would purchase put options on futures contracts to protect
portfolio securities against decreases in value resulting from an
anticipated increase in market interest rates. Generally, if the hedged
portfolio securities decrease in value during the term of an option, the
related futures contracts will also decrease in value and the option will
increase in value. In such an event, the Fund will normally close out its
option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be
large enough to offset both the premium paid by the Fund for the original
option plus the decrease in value of the hedged securities.

Alternatively, the Fund may exercise its put option. To do so, it would
simultaneously enter into a futures contract of the type underlying the
option (for a price less than the strike price of the option) and exercise
the option. The Fund would then deliver the futures contract in return for
payment of the strike price. If the Fund neither closes out nor exercises
an option, the option will expire on the date provided in the option
contract, and only the premium paid for the contract will be lost.

CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS

In addition to purchasing put options on futures, the Fund may write
listed call options on futures contracts to hedge its portfolio against an
increase in market interest rates. When the Fund writes a call option on a
futures contract, it is undertaking the obligation of assuming a short
futures position (selling a futures contract) at the fixed strike price at
any time during the life of the option if the option is exercised. As
market interest rates rise, causing the prices of futures to go down, the
Fund's obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the Fund's call
option position to increase.

In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that
the Fund keeps the premium received for the option. This premium can
offset the drop in value of the Fund's fixed-income portfolio which is
occurring as interest rates rise.

Prior to the expiration of a call written by the Fund, or exercise of it
by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be
less than the premium received by the Fund for the initial option. The net
premium income of the Fund will then offset the decrease in value of the
hedged securities.

The Fund will not maintain open positions in futures contracts it has sold
or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current
market value of its securities portfolio plus or minus the unrealized gain
or loss on those open positions, adjusted for the correlation of
volatility between the hedged securities and the futures contracts. If
this limitation is exceeded at any time, the Fund will take prompt action
to close out a sufficient number of open contracts to bring its open
futures and options positions within this limitation.

"MARGIN" IN FUTURES TRANSACTIONS

The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.

PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES

The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put
option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specifies price during the
term of the option.

WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES

The Fund may also write covered call options to generate income. As writer
of a call option, the Fund has the obligation upon exercise of the option
during the option period to deliver the underlying security upon payment
of the exercise price. The Fund may only sell call options either on
securities held in its portfolio or on securities which it has the right
to obtain without payment of further consideration (or has segregated cash
in the amount of any additional consideration).

FOREIGN CURRENCY TRANSACTIONS

CURRENCY RISKS

The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the Fund
values its assets daily in U.S. dollars, the Fund may not convert its
holdings of foreign currencies to U.S. dollars daily. The Fund may incur
conversion costs when it converts its holdings to another currency.
Foreign exchange dealers may realize a profit on the difference between
the price at which the Fund buy and sell currencies.

The Fund will engage in foreign currency exchange transactions in
connection with their investments in the securities. The Fund will conduct
their foreign currency exchange transactions either on a spot (i.e. cash)
basis at the spot rate prevailing in the foreign currency exchange market
or through forward contracts to purchase or sell foreign currencies.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

The Fund may enter into forward foreign currency exchange contracts in
order to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and a foreign currency
involved in an underlying transaction. However, forward foreign currency
exchange contracts may limit potential gains which could result from a
positive change in such currency relationships. The Adviser believes that
it is important to have the flexibility to enter into forward foreign
currency exchange contracts whenever it determines that it is in the
Fund's best interest to do so.

The Fund will not speculate in foreign currency exchange.

The Fund will not enter into forward foreign currency exchange
contracts or maintain a net exposure in such contracts when the Fund would
be obligated to deliver an amount of foreign currency in excess of the
value of their portfolio securities or other assets denominated in that
currency or, in the case of a "cross-hedge" denominated in a currency or
currencies that the Adviser believes will tend to be closely correlated
with that currency with regard to price movements. Generally, the Fund
does not enter into a forward foreign currency exchange contract with a
term longer than one year.

FOREIGN CURRENCY OPTIONS

A foreign currency option provides the option buyer with the right to buy
or sell a stated amount of foreign currency at the exercise price on a
specified date or during the option period. The owner of a call option has
the right, but not the obligation, to buy the currency. Conversely, the
owner of a put option has the right, but not the obligation to sell the
currency.

When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the
seller or the buyer may, in the secondary market, close its position
during the option period at any time prior to expiration.

A call option on foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on foreign
currency generally falls in value if the underlying currency depreciates
in value. Although purchasing a foreign currency option can protect the
Fund against an adverse movement in the value of a foreign currency, the
option will not limit the movement in the value of such currency. For
example, if the Fund were holding securities denominated in a foreign
currency that was appreciating and had purchased a foreign currency put to
hedge against a decline in the value of the currency, the Fund would not
have to exercise its put option. Likewise, if the Fund were to enter into
a contract to purchase a security denominated in foreign currency and, in
conjunction with that purchase, were to purchase a foreign currency call
options to hedge against a rise in value of the currency, and if the value
of the currency instead depreciated between the date of purchase and the
settlement date, the Fund would not have to exercise its call. Instead,
the Fund could acquire in the spot market the amount of foreign currency
needed for settlement.

SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS

Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally. In addition, there are certain
additional risks associated with foreign currency options. The markets in
foreign currency options are relatively new, and the Fund's ability to
establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Fund will not
purchase or write such options unless and until, in the opinion of the
Adviser , the market for them has developed sufficiently to ensure that
the risks in connection with such options are not greater than the risks
in connection with the underlying currency, there can be no assurance that
a liquid secondary market will exist for a particular option at any
specific time.

In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.

The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of
the option position may vary with changes in the value of either or both
currencies and may have no relationship to the investment merits of a
foreign security. Because foreign currency transactions occurring in the
interbank market involve substantially larger amounts than those that may
be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally consisting
of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (i.e. less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that the U.S. option markets are
closed while the markets for the underlying currencies remain open,
significant price and rate movements may take place in the underlying
markets that cannot be reflected in the options markets until they reopen.

FOREIGN CURRENCY FUTURES TRANSACTIONS

By using foreign currency futures contracts and options on such contracts,
the Fund may be able to achieve many of the same objectives as it would
through the use of forward foreign currency exchange contracts. The Fund
may be able to achieve these objectives possibly more effectively and at a
lower cost by using futures transactions instead of forward foreign
currency exchange contracts.

SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED
OPTIONS

Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. In addition,
there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies, as described above.

Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. To
reduce this risk, the Fund will not purchase or write options on foreign
currency futures contracts unless and until, in the opinion of the
Adviser, the market for such options has developed sufficiently that the
risks in connection with such options are not greater than the risks in
connection with transactions in the underlying foreign currency futures
contracts. Compared to the purchase or sale of foreign currency futures
contracts, the purchase of call or put options on futures contracts
involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the option (plus transaction costs). However,
there may be circumstances when the purchase of a call or put option on a
futures contract would result in a loss, such as when there is no movement
in the price of the underlying currency or futures contract.

RESTRICTED AND ILLIQUID SECURITIES

The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under an Securities and Exchange Commission staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933, as amended, (the "Rule"). The Rule is a non-exclusive safe-harbor
for certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under Rule
144A. The Fund believes that the staff of the Securities and Exchange Commission
has left the question of determining the liquidity of all restricted securities
(eligible for resale under Rule 144A) for determination of the Trustees. The
Trustees consider the following criteria in determining the liquidity of certain
restricted securities:

o the frequency of trades and quotes for the security;

o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;

o dealer undertakings to make a market in the security; and

o the nature of the security and the nature of the marketplace trades.

LENDING OF PORTFOLIO SECURITIES

REVERSE REPURCHASE AGREEMENTS

PORTFOLIO TURNOVER

The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. Securities in the Fund's portfolio will be sold
whenever the Adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular security
may have been held. The Adviser does not anticipate that portfolio turnover will
result in adverse tax consequences. Any such trading will increase the Fund's
portfolio turnover rate and transaction costs. It is not anticipated that the
portfolio trading engaged in by the Fund will result in its annual rate of
portfolio turnover exceeding 100%.

During the period from January 1, 1996 (start or business) to October 31, 1996,
the Fund's portfolio turnover rate was 79%. For the fiscal year ended October
31, 1997 the portfolio turnover rate was 85%.

INVESTMENT LIMITATIONS

ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amounts
borrowed.

The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure, or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests where the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while any such borrowings are
outstanding.

PLEDGING ASSETS

The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or
10% of the value of total assets at the time of the borrowing. Margin
deposits for the purchase and sale of financial futures contracts and
related options are not deemed to be a pledge.

UNDERWRITING

The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933, as
amended, in connection with the sale of restricted securities which the
Fund may purchase pursuant to its investment objective, policies, and
limitations.

LENDING CASH OR SECURITIES

The Fund will not lend any of its assets, except portfolio securities
up to one-third of the value of its total assets. This shall not prevent
the purchase or holding of corporate bonds, debentures, notes,
certificates of indebtedness, or other debt securities of an issuer,
repurchase agreements, or other transactions which are permitted by the
Fund's investment objective and policies.

DIVERSIFICATION OF INVESTMENTS

With respect to securities comprising 75% of the value of its total
assets, the Fund will not invest more than 5% of the value of its total
assets in securities of any one issuer (other than cash, cash items, or
securities issued or guaranteed by the U.S. government, its agencies, or
instrumentalities, and repurchase agreements collaterized by such
securities) or acquire more than 10% of any class of voting securities of
any one issuer.
For these purposes, the Fund takes all common stock and all preferred
stock of an issuer each as a single class, regardless of priorities,
series, designations, or other differences.

INVESTING IN REAL ESTATE

The Fund will not buy or sell real estate, including limited partnership
interests, although it may invest in the securities of companies whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.

SELLING SHORT

The Fund will not sell securities short except, under strict limitations,
it may maintain open short positions so long as not more than 10% of the
value of its net assets is held as collateral for those positions.

The above investment limitations cannot be changed without shareholder
approval.

For purposes of its policies and limitations, the Fund considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash items."

The Fund has no present intent to borrow money or sell securities short
in excess of 5% of the value of its total assets in the coming fiscal year.
Short selling may accelerate the recognition of gains.

<PAGE>

FEDERATED EQUITY FUNDS MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Equity Funds, and principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924

Chairman and Trustee

Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937

Trustee

<PAGE>

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918

Trustee

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922

Trustee

Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932

Trustee

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924

Trustee

Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942

Trustee

Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932

Trustee

President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925

Trustee

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935

Trustee

Public relations/Marketing/Conference Planning; Director or Trustee of the
Funds.

Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929

President

Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.

<PAGE>

J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949

Executive Vice President

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930

Executive Vice President

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938

Executive Vice President , Secretary and Treasurer

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923

Vice President

Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.

* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.

@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.

SHARE OWNERSHIP

Officers and Trustees own less than 1% of the Fund's outstanding Shares.

As of December 1, 1997, the following shareholder of record owned 5% or more of
the outstanding Class A Shares of the Fund: Paulette M. Boiardi, New York, NY,
owned approximately 548,140 Shares (7.42%).

As of December 1, 1997, the following shareholders of record owned 5% or more of
the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner & Smith
for the sloe benefit of its customers, Jacksonville, Florida, owned
approximately 20,435 Shares (15.78%), and Painewebber for the sole benefit of
David A. Garza & Stephanie K. Garza, Austin, Texas, owned approximately 6,561
Shares (5.07%).

<PAGE>

TRUSTEES COMPENSATION
<TABLE>
<CAPTION>

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
<S> <C> <C>

John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the
Fund Complex

Thomas G. Bigley $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex

John T. Conroy, Jr. $1,600 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex

William J. Copeland $1,600 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex

James E. Dowd $1,600 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex

Lawrence D. Ellis, M.D. $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex

Edward L. Flaherty, Jr. $1,600 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex

Peter E. Madden $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex

John E. Murray, Jr. $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund
Complex

Wesley W. Posvar $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund
Complex

Marjorie P. Smuts $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
</TABLE>

* Information is furnished for the fiscal year ended October 31, 1997.

# The aggregate compensations is provided for the Trust which is comprised of 4
portfolios.

The information is provided for the last calendar year.

TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.

<PAGE>

INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND

The Fund's investment adviser is Federated Management . It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are owned
by a trust, the trustees of which are John F. Donahue, his wife, and his son, J.
Christopher Donahue.

ADVISORY FEES

For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus.

During the fiscal year ended October 31, 1997, for the period from January 1,
1996 to October 31, 1996, and for the fiscal year ended December 31, 1995, the
Adviser earned $1,072,874, $671,263 and $605,742, respectively, of which
$98,874, $244,717, and $0, respectively, were voluntarily waived.

OTHER RELATED SERVICES

For the fiscal year ended October 31, 1997, the Fund paid total brokerage
commissions in the amount of $241,524.

Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Adviser, investments of the type the Fund may
make may also be make by those other accounts. When the Fund and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of , the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.

OTHER SERVICES
FUND ADMINISTRATION

Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994, to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
October 31, 1997, 1996, and December 31, 1995, the Administrators earned
$185,000, $154,165, and $125,000, respectively.

CUSTODIAN

State Street Bank and Trust Company ("State Street Bank"), Boston, MA, is
custodian for the securities and cash of the Fund. Federated Services Company,
Pittsburgh, PA, provides certain accounting and recordkeeping services with
respect to the Fund's portfolio investments. The fee paid for this service is
based upon the level of the Fund's average net assets for the period plus
out-of-pocket expenses.

TRANSFER AGENT

Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records and
receives a fee based on the size, type, and number of accounts and transactions
made by shareholders.

INDEPENDENT AUDITORS

The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh, PA.

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES

CONCURRENT PURCHASES

LETTER OF INTENT

REINVESTMENT PRIVILEGE

CONVERSION OF CLASS B SHARES

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT

These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services as appropriate, to stimulate
distribution activities and to cause services to be provided to shareholders by
a representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses. By
adopting the Distribution Plan, the Trustees expect that the Class A Shares,
Class B Shares and Class C Shares of the Fund will be able to achieve a more
predictable flow of cash for investment purposes and to meet redemptions. This
will facilitate more efficient portfolio management and assist the Fund in
pursuing its investment objectives. By identifying potential investors whose
needs are served by the Fund's objectives, and properly servicing these
accounts, it may be possible to curb sharp fluctuations in rates of redemptions
and sales. Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.

For the fiscal year ended October 31, 1997, the Fund paid distribution fees for
Class B Shares and Class C Shares in the amounts of $95,395 and $10,975,
respectively.

For the fiscal year ended October 31, 1997, the Fund paid shareholder service
fees for Class A Shares, Class B Share and Class C Shares in the amounts of
$322,170, $31,798 and $3,658, respectively.

PURCHASES BY SALES REPRESENTATIVES, FUND TRUSTEES, AND EMPLOYEES

The following individuals and their immediate family members may buy Class A
Shares at net asset value without a sales charge:

o Trustees, employees, and sales representatives of the Fund, Federated
Management, and Federated Securities Corp. and its affiliates;

o Federated Life Members (Class A Shares Only);

o any associated person of an investment dealer who has a sales agreement with
Federated Securities Corp.; and

o trusts, pensions, or profit-sharing plans for these individuals.

These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities, other than options, are
determined as follows: o according to the last sale price on a national
securities exchange, if available;

o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices and for bonds and
other fixed income securities as determined by an independent pricing
service;

o for unlisted equity securities, the latest bid prices; or

o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service or at fair value
as determined in good faith by the Trustees.

Options are valued at the market values established by the exchanges at the
close of option trading unless the Trustees determine in good faith that another
method of valuing option positions is necessary.

REDEMPTION IN KIND

CONTINGENT DEFERRED SALES CHARGE

ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES

TAX CONSEQUENCES

TAX STATUS
THE FUND'S TAX STATUS

o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;

o invest in securities within certain statutory limits; and

o distribute to its shareholders at least 90% of its net income earned during
the year.

SHAREHOLDERS' TAX STATUS

CAPITAL GAINS

Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
the Fund Shares.

TOTAL RETURN
The Fund's average annual total returns based on offering price for the
following periods ended October 31, 1997 were:

SHARE CLASSINCEPTION DATEONE-YEAR SINCE INCEPTION

Class A January 1, 199624.84% 14.49%
Class B January 4, 199625.80% 21.30%
Class C January 4, 199629.85% 23.33%

YIELD
The Fund's yields for the thirty-day period ended October 31, 1997 were:

SHARE CLASSYIELD

Class A .21%
Class B 0%
Class C 0%

PERFORMANCE COMPARISONS
The performance of each of the classes of Shares depends upon such variables as:

o portfolio quality;

o average portfolio maturity;

o type of instruments in which the portfolio is invested;

o changes in interest rates and market value of portfolio securities;

o changes in the Fund's or any class of Shares' expenses; and

o various other factors.

o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories
by making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends and
takes into account any change in net asset value over a specified period of
time. From time to time, the Fund will quote its Lipper ranking in the
"convertible securities" and "fixed income funds" categories in advertising
and sales literature.

o DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected
blue-chip industrial corporations as well as public utility and
transportation companies. The DJIA indicates daily changes in the average
price of stocks in any of its categories. It also reports total sales for
each group of industries. Because it represents the top corporations of
America, the DJIA index is a leading economic indicator for the stock market
as a whole.

o STANDARD & POOR'S RATINGS GROUP DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS
(S&P 500), is a composite index of common stocks in industry,
transportation, and financial and public utility companies, which compares
total returns of funds whose portfolios are invested primarily in common
stocks. In addition, the S&P 500 assumes reinvestments of all dividends paid
by stocks listed on its index. Taxes due on any of these distributions are
not included, nor are brokerage or other fees calculated in the Standard &
Poor's figures.

o LIPPER GROWTH FUND AVERAGE is an average of the total returns for 580 growth
funds tracked by Lipper Analytical Services, Inc., an independent mutual
fund rating service.

o LIPPER GROWTH FUND INDEX is an average of the net asset-valuated total
returns for the top 30 growth funds tracked by Lipper Analytical Services,
Inc., an independent mutual fund rating service.

o MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.

o MUTUAL FUND SOURCE BOOK, published by Morningstar, Inc., analyzes price,
yield, risk, and total return for equity and fixed income funds.

o STRATEGIC INSIGHT GROWTH FUNDS INDEX consists of mutual funds that invest in
well-established companies primarily for long-term capital gains rather than
current income.

In addition, the Fund will, from time to time, use the following standard
convertible securities indices against which it will compare its performance:
Goldman Sachs Convertible 100; Kidder Peabody Convertible Bond Index; Value Line
Convertible Bond Index; and Dow Jones Utility Index.

The Fund may compare the performance of equity funds to other types of stock
funds and indices.

From time to time, the Fund may advertise the performance of any class of Shares
using charts, graphs, and descriptions, compared to federally insured bank
products, including certificates of deposit and time deposits and to money
market funds using the Lipper Analytical Services money market instruments
average. In addition, advertising and sales literature for the Fund may use
charts and graphs to illustrate the principles of dollar-cost averaging and may
disclose the amount of dividends paid by the Fund over certain periods of time.

Advertisements may quote performance information which does not reflect the
effect of the sales charge or contingent deferred sales charge, as applicable.

Advertising and other promotional literature may include charts, graphs, and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance of the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.

ECONOMIC AND MARKET INFORMATION

Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by the Fund portfolio managers and their views and analysis on how
such developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.

In the equity sector, Federated Investors has more than 26 years' experience.
As of December 31, 1996, Federated managed 31 equity funds totaling
approximately $7.6 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated Investors'
value-oriented management style combines quantitative and qualitative analysis
and features a structured, computer-assisted composite modeling system that was
developed in the 1970s.

MUTUAL FUND MARKET

Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:

INSTITUTIONAL CLIENTS

Federated meets the needs of more than 4,000 institutional clients nationwide by
managing and servicing separate accounts and mutual funds for a variety of
applications, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisors. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division.

* SOURCE: INVESTMENT COMPANY INSTITUTE

<PAGE>

BANK MARKETING

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the county -supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high rankings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.

FINANCIAL STATEMENTS
The financial statements for Federated Capital Appreciation Fund for the
fiscal year ended October 31, 1997 are incorporated herein by reference to the
Annual Report to Shareholders of Federated Capital Appreciation Fund dated
October 31, 1997 (File No. 811-4017). A copy of the Annual Report may be
obtained without charge by contacting the Fund.

<PAGE>

APPENDIX
STANDARD AND POOR'S RATINGS SERVICES COMMERCIAL PAPER RATING DEFINITIONS
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus sign (+).

A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS P-1--Issuers
(or supporting institutions) rated Prime-1 (P-1) have a superior capacity for
repayment of senior short-term promissory obligations. P-1 repayment capacity
will often be evidenced by many of the following characteristics: leading market
positions in well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.

FITCH INVESTORS SERVICE, L.P., SHORT-TERM DEBT RATINGS
F-1+-- Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1-- Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issued rated F-1+.

F-2-- Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment.

Federated Growth Strategies Fund
(A Portfolio of Federated Equity Funds)

Class A Shares, Class B Shares, Class C Shares

Prospectus

The shares of Federated Growth Strategies Fund (the "Fund") represent interests
in a diversified portfolio of Federated Equity Funds (the "Trust"), an open-end
management investment company (a mutual fund). The Fund seeks appreciation of
capital by investing primarily in equity securities of companies with prospects
for above-average growth in earnings and dividends.

This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference..

The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information or to make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

Prospectus dated December 31, 1997

TABLE OF CONTENTS

<TABLE>
<S> <C>
Summary of Fund Expenses............................. 1
Financial Highlights................................. 2
Class A Shares....................................... 2
Class B Shares....................................... 4
Class C Shares....................................... 5
General Information.................................. 6
Investment Information............................... 6
Investment Objective................................ 6
Investment Policies................................. 6
Investment Limitations.............................. 8
Net Asset Value...................................... 8
Investing in the Fund................................ 9
Purchasing Shares.................................... 9
Purchasing Shares Through a Financial Intermediary.. 9
Purchasing Shares by Wire........................... 10
Purchasing Shares by Check.......................... 10
Systematic Investment Program....................... 10
Retirement Plans.................................... 10
Class A Shares...................................... 10
Class B Shares...................................... 10
Class C Shares...................................... 11
Redeeming and Exchanging Shares...................... 11
Redeeming or Exchanging Shares Through a
Financial Intermediary.............................. 11
Redeeming or Exchanging Shares by Telephone......... 11
Redeeming or Exchanging Shares by Mail.............. 11
Requirements for Redemption......................... 12
Requirements for Exchange........................... 12
Systematic Withdrawal Program....................... 12
Contingent Deferred Sales Charge.................... 12
Account and Share Information........................ 13
Confirmations and Account Statements................ 13
Dividends and Distributions......................... 13
Accounts with Low Balances.......................... 13
Trust Information.................................... 13
Management of the Trust............................. 13
Distribution of Shares.............................. 14
Administration of the Fund.......................... 15
Brokerage Transactions............................... 15
Shareholder Information.............................. 15
Tax Information...................................... 16
Federal Income Tax.................................. 16
State and Local Taxes............................... 16
Performance Information............................. 16
</TABLE>

SUMMARY OF FUND EXPENSES

Shareholder Transaction Expenses
<TABLE>
<CAPTION>

Class A Class B Class C
<S>
<C> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)
5.50% None None Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None None None Contingent Deferred Sales Charge
(as a percentage of original purchase price or redemption proceeds, as
applicable) None 5.50%(1) 1.00%(1) Redemption Fee (as a percentage of amount
redeemed, if applicable) None None None Exchange Fee None None None </TABLE>
Annual Operating Expenses
(As a percentage of average net assets)
<TABLE>
<S>
<C> <C> <C>
Management Fee
0.75% 0.75% 0.75%
12b-1 Fee
None 0.75% 0.75%
Total Other Expenses
0.39% 0.49% 0.40%
Shareholder Services Fee (after waiver)
0.15%(2) 0.25% 0.16%(2)
Total Operating Expenses
1.14%(3) 1.99%(4) 1.90%(3)
</TABLE>

(1) For shareholders of Class B Shares, the contingent deferred sales charge is
5.50% in the first year declining to 1.00% in the sixth year and 0.00%
thereafter. For shareholders of Class C Shares, the contingent deferred
sales charge assessed is 1.00% of the lesser of the original purchase price
or the net asset value of Shares redeemed within one year of their purchase
date. For a more complete description, see "Contingent Deferred Sales
Charge."
(2) The shareholder services fees for Class A and Class C Shares have been
reduced to reflect the voluntary waiver of a portion of the shareholders
services fee. The shareholder service provider can terminate this voluntary
waiver at any time at its sole discretion. The maximum shareholder services
fee is 0.25%.
(3) The total operating expenses for Class A Shares and Class C Shares would
have been 1.24% and 1.99% respectively, absent the voluntary waiver
described in note 2 above.
(4) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.

Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.

<TABLE>
<CAPTION>
Example
Class A Class B Class C
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return, (2) redemption at the end of each time period, and (3) payment of
the maximum
sales charge.
<S>
<C> <C> <C>
1
Year
$ 66 $ 77 $ 30
3
Years
$ 89 $106 $ 60
5
Years
$114 $130 $103
10
Years
$186 $209 $222
You would pay the following expenses on the same investment, assuming no redemption.
1
Year
$ 66 $ 20 $ 19
3
Years
$ 89 $ 62 $ 60
5
Years
$114 $107 $103
10
Years
$186 $209 $222
</TABLE>

The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.

FINANCIAL HIGHLIGHTS_CLASS A SHARES

(For a share outstanding throughout each period)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated December 12, 1997, on the Fund's
financial statements for the year ended October 31, 1997, and on the following
table for the periods presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.

<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%
N N N 1.10% 0.22%
Supplemental data
Net assets, end of period (000 omitted) $ 509,678 $307,882 $249,110
$320,630 $460,811 $391,655 $275,561 $138,407
Average commission rate paid(d) $ 0.0571 $ 0.0566 N
N N N N N
Portfolio turnover 146% 89% 125%
59% 57% 46% 54% 67%
</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.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1997, which can be obtained free of charge.

FINANCIAL HIGHLIGHTS_CLASS A SHARES CONTINUED

(For a share outstanding throughout each period)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated December 12, 1997, on the Fund's
financial statements for the year ended October 31, 1997, and on the following
table for the periods presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.

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)
N N N
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.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1997, which can be obtained free of charge.

FINANCIAL HIGHLIGHTS_CLASS B SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated December 12, 1997, on the Fund's
financial statements for the year ended October 31, 1997, and on the following
table for the periods presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.

<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 15, 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.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1997, which can be obtained free of charge.

FINANCIAL HIGHLIGHTS_CLASS C SHARES

(For a share outstanding throughout each period)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated December 12, 1997, on the Fund's
financial statements for the year ended October 31, 1997, and on the following
table for the periods presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.

<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 15, 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.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1997, which can be obtained free of charge.

GENERAL INFORMATION

The Fund was established under the laws of the Commonwealth of Massachusetts on
April 17, 1984. Class A Shares, Class B Shares and Class C Shares of the Fund
("Shares") are designed for individuals as a convenient means of accumulating an
interest in a professionally managed, diversified portfolio of equity
securities.

The Fund's current net asset value and offering price may be found in the mutual
funds section of local newspapers under "Federated" and the appropriate class
designation listing.

Calling the Fund Call the Fund at 1-800-341-7400.

INVESTMENT INFORMATION

Investment Objective

The investment objective of the Fund is appreciation of capital. The investment
objective cannot be changed without approval of shareholders. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus.

Investment Policies

The Fund pursues this investment objective by investing primarily in equity
securities of companies with prospects for above-average growth in earnings and
dividends. Unless indicated otherwise, the investment policies of the Fund may
be changed by the Board of Trustees (the "Trustees") without the approval of
shareholders. Shareholders will be notified before any material changes in these
policies become effective.

Acceptable Investments

The Fund invests primarily in equity securities of companies selected by the
investment adviser on the basis of traditional research techniques, including
assessment of earnings and dividend growth prospects and of the risk and
volatility of each company's business. The Fund generally invests in companies
with market capitalization of $100,000,000 or more. The Fund may invest in
common and preferred stocks, corporate bonds, debentures, notes, warrants, and
put and call options on stocks.

Securities of Foreign Issuers and Risk Considerations

Convertible Securities

Convertible securities are fixed income securities which may be exchanged or
converted into a predetermined number of the issuer's underlying common stock at
the option of the holder during a specified time period. Accordingly, the Fund
considers convertible securities to be equity securities. Convertible securities
may take the form of convertible preferred stock, convertible bonds or
debentures, units consisting of "usable" bonds and warrants, or a combination of
the features of several of these securities. The investment characteristics of
each convertible security vary widely, which allows convertible securities to be
employed for different investment objectives. The Fund invests in convertible
securities irrespective of their ratings. Therefore, the convertible securities
in which the Fund invests may be rated below investment grade and considered
speculative.

Convertible bonds and convertible preferred stocks are fixed income securities
that generally retain the investment characteristics of fixed income securities
until they have been converted, but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used, in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than nonconvertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in the investment
adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objectives. Otherwise,
the Fund will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the investment adviser evaluates the investment
characteristics of the convertible security as a fixed income instrument, and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, the investment adviser considers numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.

Restricted and Illiquid Securities

The Fund may acquire securities which are subject to legal or contractual
delays, restrictions, and costs on resale. Because of time limitations, the Fund
might not be able to dispose of these securities at reasonable prices or at
times advantageous to the Fund. The Fund intends to limit the purchase of
restricted securities which have not been determined by the Trustees to be
liquid, together with other securities considered to be illiquid, including
repurchase agreements providing for settlement in more than seven days after
notice, to not more than 15% of its net assets.

When-Issued and Delayed Delivery Transactions

The Fund may dispose of a commitment prior to settlement if the investment
adviser deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current market
values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Fund may realize short-term profits or losses
upon the sale of such commitments.

Temporary Investments

In such proportions as, in the judgment of its investment adviser, prevailing
market conditions warrant, the Fund may, for temporary defensive purposes,
invest in:

. short-term money market instruments;

. securities issued and/or guaranteed as to payment of principal and interest
by the U.S. government, its agencies or instrumentalities; and

. repurchase agreements.

Repurchase Agreements

Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from the Fund, the Fund could
receive less than the repurchase price on any sale of such securities.

Put and Call Options

The Fund may purchase put options on stocks. These options will be used only as
a hedge to attempt to protect securities which the Fund holds against decreases
in value. The Fund may purchase these put options as long as they are listed on
a recognized options exchange and the underlying stocks are held in its
portfolio.

The Fund may also write call options on securities either held in its portfolio,
or which it has the right to obtain without payment of further consideration, or
for which it has segregated cash in the amount of any additional consideration.
The call options which the Fund writes and sells must be listed on a recognized
options exchange. Writing of calls by the Fund is intended to generate income
for the Fund and, thereby, protect against price movements in particular
securities in the Fund's portfolio.

Risks

Prior to exercise or expiration, an option position can only be terminated by
entering into a closing purchase or sale transaction. This requires a secondary
market on an exchange which may or may not exist for any particular call or put
option at any specific time. The absence of a liquid secondary market also may
limit the Fund's ability to dispose of the securities underlying an option. The
inability to close options also could have an adverse impact on the Fund's
ability to effectively hedge its portfolio.

Investing in Securities of Other Investment Companies

The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.

Lending of Portfolio Securities

In order to generate additional income, the Fund may lend portfolio securities
on a short-term or a long-term basis, up to one-third of the value of its total
assets to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the investment adviser has determined are creditworthy
under guidelines established by the Trustees and will receive collateral equal
to at least 100% of the value of the securities loaned.

Equity Investment Risk Considerations

Portfolio Turnover

Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
investment adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular security
may have been held. The Fund's rate of portfolio turnover may exceed that of
certain other mutual funds with the same investment objective. A higher rate of
portfolio turnover involves correspondingly greater transaction expenses which
must be borne directly by the Fund and, thus, indirectly by its shareholders. In
addition, a high rate of portfolio turnover may result in the realization of
larger amounts of capital gains which, when distributed to the Fund's
shareholders, are taxable to them. (Further information is contained in the
Fund's Statement of Additional Information within the sections "Brokerage
Transactions" and "Tax Status".) Nevertheless, transactions for the Fund's
portfolio will be based only upon investment considerations and will not be
limited by any other considerations when the investment adviser deems it
appropriate make changes in the Fund's portfolio.

Investment Limitations

The Fund will not:

. invest more than 5% of its total assets in securities of one issuer (except
cash and cash items, repurchase agreements, and U.S. government obligations)
or acquire more than 10% of any class of voting securities of any one issuer.

The above investment limitations cannot be changed without shareholder approval.

NET ASSET VALUE

INVESTING IN THE FUND

This prospectus offers three classes of Shares each with the characteristics
described below.

<TABLE>
<CAPTION>
Class A Class B
Class C
<S> <C> <C> <C>
Minimum and
Subsequent
Investment Amounts $500/$100 $1500/$100
$1500/$100
Minimum and
Subsequent
Investment Amount
for Retirement Plans $50 $50 $50
Maximum Sales Charge 5.50%* None None
Maximum Contingent
Deferred Sales Charge** None 5.50%+
1.00%#
Conversion Feature No Yes No
</TABLE>
* Class A Shares are sold at NAV, plus a sales charge as follows:

<PAGE>

<TABLE>
<CAPTION>
Sales Charge Dealer
as a Percentage of Concession as
Public Net a Percentage of
Offering Amount Public Offering
Amount of Transaction Price Invested Price
<S> <C> <C>
<C>
Less than $50,000 5.50% 5.82%
5.00%
$50,000 but
less
than $100,000 4.50% 4.71%
4.00%
$100,000 but
less
than $250,000 3.75% 3.90%
3.25%
$250,000 but
less
than $500,000 2.50% 2.56%
2.25%
$500,000 but
less
than $1 million 2.00% 2.04%
1.80%
$1 million or greater 0.00% 0.00%
0.25%
</TABLE>

** Computed on the lesser of the NAV of the redeemed Shares at the time of
purchase or the NAV of the redeemed Shares at the time of redemption.

+ The following contingent deferred sales charge schedule applies to Class B
Shares:

Year of Redemption Contingent Deferred
After Purchase Sales Charge
<S> <C>
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%

</TABLE>

++ Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase. See "Conversion of Class B
Shares."
# The contingent deferred sales charge is assessed on Shares redeemed within
one year of their purchase date.

PURCHASING SHARES

In connection with any sale, Federated Securities Corp. may, from time to time,
offer certain items of nominal value to any shareholder or investor.

Purchasing Shares Through a
Financial Intermediary

Purchasing Shares by Wire

Shares may be purchased by Federal Reserve wire by calling the Fund. All
information needed will be taken over the telephone, and the order is considered
received when State Street Bank receives payment by wire. Federal funds should
be wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA 02266-8600; Attention; EDGEWIRE; For Credit
to: (Fund Name) (Fund Class); (Fund Number,,this number can be found on the
account statement or by contacting the Fund); Account Number; Trade Date and
Order Number; Group Number or Dealer Number; Nominee or Institution Name; and
ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted.

Purchasing Shares by Check

Systematic Investment Program

Retirement Plans

Fund Shares can be purchased as an investment for retirement plans or Individual
Retirement Accounts ("IRA"). For further details, contact the Fund and consult a
tax adviser.

Class A Shares

Class A Shares are sold at NAV, plus a sales charge. However:

No sales charge is imposed for Class A Shares purchased:

. through financial intermediaries that do not receive sales charge dealer
concessions;

. by Federated Life Members who maintain a $500 minimum balance in at least one
of the Federated Funds; or

. through "wrap accounts" or similar programs under which clients pay a fee for
services.

In addition, the sales charge can be reduced or eliminated by:

. purchasing in quantity and accumulating purchases at the levels in the table
under "Investing in the Fund";

. combining concurrent purchases of two or more funds;

. signing a letter of intent to purchase a specific quantity of shares within
13 months; or

. using the reinvestment privilege.

Dealer Concession

For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid to a
dealer will be retained by the distributor. However, the distributor may offer
to pay dealers up to 100% of the sales charge retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at recreational-
type facilities, or items of material value. In some instances, these incentives
will be made available only to dealers whose employees have sold or may sell a
significant amount of Shares. On purchases of $1 million or more, the investor
pays no sales charge; however, the distributor will make twelve monthly payments
to the dealer totaling 0.25% of the public offering price over the first year
following the purchase. Such payments are based on the original purchase price
of Shares outstanding at each month end. The sales charge for Shares sold other
than through registered broker/dealers will be retained by Federated Securities
Corp.

Class B Shares

Conversion of Class B Shares

Class C Shares

Class C Shares are sold at NAV. A contingent deferred sales charge of 1.00% will
be charged on assets redeemed within the first full 12 months following
purchase.

REDEEMING AND EXCHANGING SHARES

Redeeming or Exchanging Shares Through a Financial Intermediary

Redeeming or Exchanging Shares by Telephone

Redeeming or Exchanging Shares by Mail

Requirements for Redemption

Requirements for Exchange

Systematic Withdrawal Program

Contingent Deferred Sales Charge

Eliminating the Contingent Deferred Sales Charge

Upon written notification to Federated Securities Corp. or the transfer agent,
no contingent deferred sales charge will be imposed on redemptions:

. following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder;

. representing minimum required distributions from an IRA or other retirement
plan to a shareholder who has attained the age of 70 1/2;

. which are involuntary redemptions of shareholder accounts that do not comply
with the minimum balance requirements;

. which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;

. which are reinvested in the Fund under the reinvestment privilege;

Confirmations and Account Statements

Dividends and Distributions

Accounts with Low Balances

TRUST INFORMATION

Management of the Trust
Board of Trustees

Investment Adviser

Investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser (the "Adviser"), subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the Fund.

Advisory Fees

The Adviser receives an annual investment advisory fee equal to 0.75% of the
Fund's average daily net assets. Under the investment advisory contract, which
provides for the voluntary waiver of the advisory fee by the Adviser, the
Adviser may voluntarily waive some or all of its fee. This does not include
reimbursement to the Fund of any expenses incurred by shareholders who use the
transfer agent's subaccounting facilities. The Adviser can terminate this
voluntary waiver at any time in its sole discretion.

Adviser's Background

Federated Management, a Delaware business trust organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It
is a subsidiary of Federated Investors. All of the Class A (voting) Shares of
Federated Investors are owned by a trust, the Trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.

Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than 300
funds under management and/or administration by its subsidiaries, as of
December 31, 1996, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 2,000 employees,
Federated continues to be led by the management who founded the company in
1955. Federated funds are presently at work in and through 4,500 financial
institutions nationwide.

James E. Grefenstette has been the Fund's portfolio manager since December,
1994. Mr. Grefenstette joined Federated Investors in 1992 as an Investment
Analyst and has been a Vice President of the Fund's investment adviser since
July 1996. From 1994 until 1996, Mr. Grefenstette acted as an Assistant Vice
President of the Fund's investment adviser. Mr. Grefenstette was a credit
analyst at Westinghouse Credit Corp. from 1990 until 1992. Mr.Grefenstette is a
Chartered Financial Analyst and received his M.S. in Industrial Administration
from Carnegie Mellon University.

Salvatore Esposito has been the Fund's portfolio manager since November 1997.
Mr. Esposito joined Federated Investors in 1995 as an Investment Analyst of the
Fund's adviser and has been an Assistant Vice President of the Fund's adviser
since October 1997. From 1987 to 1995, Mr. Esposito served in various positions
at PNC Bank, culminating in that of Vice President/Lead Reviewer. Mr.Esposito
earned his M.B.A., concentrating in Finance, from Duquesne University.

Distribution of Shares

The distributor will pay dealers an amount equal to 5.50% of the NAV of Class B
Shares purchased by their clients or customers. These payments will be made
directly by the distributor from its assets, and will not be made from the
assets of the Fund. Dealers may voluntarily waive receipt of all or any portion
of these payments. The distributor may pay a portion of the distribution fee
discussed below to financial institutions that waive all or any portion of the
advance payments.

Distribution Plan (Class B Shares and Class C Shares Only) and Shareholder
Service

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), Class B Shares and Class C Shares will pay a
fee to the distributor in an amount computed at an annual rate of 0.75% of the
average daily net assets of each class of Shares to finance any activity which
is principally intended to result in the sale of Shares subject to the
Distribution Plan. For Class C Shares, the distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers. With respect to Class
B Shares, because distribution fees to be paid by the Fund to the distributor
may not exceed an annual rate of 0.75% of each class of Shares average daily net
assets, it will take the distributor a number of years to recoup the expenses it
has incurred for its sales services and distribution-related support services
pursuant to the Distribution Plan.

In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily NAV of Class A
Shares, Class B Shares, and Class C Shares to obtain certain personal services
for shareholders and for the maintenance of shareholder accounts ("Shareholder
Services"). Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon Shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.

Supplemental Payments to Financial Institutions

Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to 0.50% of the NAV of Class A
Shares purchased by their clients or customers under certain qualified
retirement plans as approved by Federated Securities Corp. (Such payments are
subject to a reclaim from the financial institution should the assets leave the
program within 12 months after purchase.)

Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
in addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of sales services, distribution-related support
services, or shareholder services. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Adviser or its
affiliates.

Administration of the Fund
Administrative Services

Maximum Average Aggregate
Fee Daily Net Assets
0.150% on the first $250 million 0.125% on the next $250 million 0.100% on the
next $250 million 0.075% on assets in excess of $750 million

BROKERAGE TRANSACTIONS

SHAREHOLDER INFORMATION

TAX INFORMATION

Federal Income Tax

State and Local Taxes

In the opinion of Houston, Donnelly and Meck, counsel to the Trust, Trust shares
may be subject to personal property taxes imposed by counties, municipalities,
and school districts in Pennsylvania to the extent that the portfolio securities
in the Trust would be subject to such taxes if owned directly by residents of
those jurisdictions.

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws..

PERFORMANCE INFORMATION

From time to time, the Fund advertises its total return and yield for each class
of Shares.

Total return and yield will be calculated separately for Class A Shares, Class B
Shares, and Class C Shares.

From time to time, advertisements for Class A Shares, Class B Shares, and Class
C Shares of the Fund may refer to ratings, rankings, and other information in
certain financial publications and/or compare the performance of Class A Shares,
Class B Shares, and Class C Shares to certain indices.

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

Distributor
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, PA 15222-3779

Investment Adviser
Federated Management
Federated Investors Tower
Pittsburgh, PA 15222-3779

Custodian
State Street Bank and
Trust Company
P.O. Box 8600
Boston, MA 02266-8600

Transfer Agent
and Dividend
Disbursing Agent
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600

Independent Auditors
Ernst & Young LLP
One Oxford Centre
Pittsburgh, PA 15219

Federated Securities Corp., Distributor

1-800-341-7000

www.federated investors.com

Cusip 314172107
Cusip 314172206
Cusip 314172305
G01228-01 (12/97)

Federated Growth
Strategies Fund

(A Portfolio of Federated Equity Funds)

Class A Shares, Class B Shares,
Class C Shares

Prospectus
December 31, 1997

An Open-End, Diversified
Management Investment Company

FEDERATED GROWTH STRATEGIES FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the prospectus
of Federated Growth Strategies Fund (the "Fund"), dated December 31, 1997. This
Statement is not a prospectus. You may request a copy of a prospectus or a paper
copy of this Statement, if you have received it electronically, free of charge
by calling 1-800-341-7400.

FEDERATED GROWTH STRATEGIES FUND
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PENNSYLVANIA 15237-7000
Statement dated December 31, 1997

[GRAPHIC OMITTED]

Cusip 314172107
Cusip 314172206
Cusip 314172305
G01228-02 (12/97)

<PAGE>

GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of Federated Equity Funds (the "Trust"). The Fund was
established under the laws of Massachusetts on April 17, 1984.

INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is appreciation of capital. The Fund pursues
this investment objective by investing primarily in equity securities of
companies with prospects for above-average growth in earnings and dividends. The
investment objective cannot be changed without approval of shareholders.

TYPES OF INVESTMENTS

The Fund may invest in common stocks, preferred stocks, corporate bonds,
debentures, notes, warrants, and put options on stocks.

CORPORATE DEBT SECURITIES

The corporate debt securities (excluding convertible securities) in
which the Fund may invest will be rated investment grade, i.e., Baa or
better by Moody's Investors Service, Inc. ("Moody's"), or BBB or better by
Standard & Poor's Ratings Services ("S&P") or Fitch Investors Service,
L.P. ("Fitch") (or, if unrated, are deemed to be of comparable quality by
the Fund's investment adviser). It should be noted that securities
receiving the lowest investment grade rating are considered to have some
speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to weakened capacity to make
principal and interest payments than higher rated securities. In the event
that a security which had an eligible rating when purchased is downgraded
below Baa or BBB, the investment adviser will promptly reassess whether
continued holding of the security is consistent with the Fund's objective.

RESTRICTED SECURITIES

PUT AND CALL OPTIONS

The Fund may only: (1) buy put options which are listed on a recognized
options exchange and which are on securities held in its portfolio; and
(2) sell listed call options either on securities held in its portfolio or
on securities which it has the right to obtain without payment of further
consideration (or has segregated cash in the amount of any such additional
consideration). The Fund will maintain its positions in securities, option
rights, and segregated cash subject to puts and calls until the options
are exercised, closed, or expire. An option position may be closed out
only on an exchange which provides a secondary market for an option of the
same series. Although the investment adviser will consider liquidity
before entering into option transactions, there is no assurance that a
liquid secondary market on an exchange will exist for any particular
option or at any particular time. The Fund reserves the right to hedge the
portfolio by buying financial futures and put options on stock index
futures and financial futures.

However, the Fund will not engage in these transactions until (1) an
amendment to its Registration Statement is filed with the Securities and
Exchange Commission and becomes effective; and (2) ten days after a
supplement to the prospectus disclosing this change in policy has been
mailed to the shareholders.

TEMPORARY INVESTMENTS

The Fund may also invest in temporary investments from time to time for
defensive purposes.

MONEY MARKET INSTRUMENTS

The Fund may invest in the following money market instruments:

* instruments of domestic and foreign banks and savings associations if
they have capital, surplus, and undivided profits of over $100,000,000,
or if the principal amount of the instrument is insured in full by the
Bank Insurance Fund, which is administered by the Federal Deposit
Insurance Corporation ("FDIC"), or the Savings Association Insurance
Fund, which is administered by the FDIC; and

* prime commercial paper (rated A-1 by S&P , Prime-1 by Moody's, or F-1 by
Fitch).

U.S. GOVERNMENT OBLIGATIONS

the full faith and credit of the U.S. Treasury;

the issuer's right to borrow from the U.S. Treasury;

the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or

the credit of the agency or instrumentality issuing the obligations.

Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:

Farm Credit Banks;

Federal Home Loan Banks;

Federal National Mortgage Association;

Student Loan Marketing Association; and

Federal Home Loan Mortgage Corporation.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.

LENDING OF PORTFOLIO SECURITIES

REPURCHASE AGREEMENTS

The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. In
the event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures normally in
effect for custody of the Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the Fund
and allow retention or disposition of such securities. The Fund will only enter
into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are found by the Fund's investment
adviser to be creditworthy pursuant to guidelines established by the Board of
Trustees (the "Trustees").

REVERSE REPURCHASE AGREEMENTS

PORTFOLIO TURNOVER

The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. For the fiscal years ended October 31, 1997 and
1996, the portfolio turnover rates were 146%, and 89%, respectively.
INVESTMENT LIMITATIONS

CONCENTRATION OF INVESTMENTS

INVESTING IN COMMODITIES

The Fund will not purchase or sell commodities. The Fund reserves the
right to purchase financial futures and put options on stock index futures
and on financial futures.

INVESTING IN REAL ESTATE

BUYING ON MARGIN

SELLING SHORT

ISSUING SENIOR SECURITIES AND BORROWING MONEY

LENDING CASH OR SECURITIES

UNDERWRITING

INVESTING IN MINERALS

The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs, although it may purchase the
securities of issuers which invest in or sponsor such programs.

DIVERSIFICATION OF INVESTMENTS

The Fund will not purchase the securities of any issuer (other than
securities of the U.S. government, its agencies, or instrumentalities, or
instruments secured by securities of such issuers, such as repurchase
agreements) if, as a result, more than 5% of the value of its total assets
would be invested in the securities of such issuer or acquire more than
10% of any class of voting securities of any issuer. For these purposes,
the Fund takes all common stock and all preferred stock of an issuer each
as a single class, regardless of priorities, series, designations, or
other differences.

INVESTING IN ILLIQUID SECURITIES

The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice and certain restricted
securities not determined by the Trustees to be liquid.

PLEDGING ASSETS

WRITING COVERED CALL OPTIONS

ACQUIRING SECURITIES

The Fund will not purchase securities of a company for the purpose of
exercising control or management. However, the Fund may invest in up to
10% of the voting securities of any one issuer and may exercise its voting
powers consistent with the best interests of the Fund. In addition, the
Fund, other companies advised by the Fund's investment adviser, and other
affiliated companies may together buy and hold substantial amounts of
voting stock of a company and may vote together in regard to such
company's affairs. In some such cases, the Fund and its affiliates might
collectively be considered to be in control of such company. In some
cases, Trustees and other persons associated with the Fund and its
affiliates might possibly become directors of companies in which the Fund
holds stock.

For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S. branch
of a domestic bank or savings association having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items."

Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction. The Fund did not borrow money, sell
securities short, or invest in reverse repurchase agreements in excess of 5%
of the value of its total assets during the last fiscal year and has no
present intent to do so in the coming fiscal year. Short selling may
accelerate the recognition of gains.

FEDERATED EQUITY FUNDS MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Equity Funds, and principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924

Chairman and Trustee

Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937

Trustee

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918

Trustee

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922

Trustee

Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932

Trustee

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924

Trustee

Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942

Trustee

Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932

Trustee

President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925

Trustee

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935

Trustee

Public relations/Marketing/Conference Planning; Director or Trustee of the
Funds.

Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929

President

Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.

J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949

Executive Vice President

<PAGE>

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930

Executive Vice President

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938

Executive Vice President , Secretary and Treasurer

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923

Vice President

Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.

* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.

@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.

<PAGE>

SHARE OWNERSHIP

Officers and Trustees own less than 1% of the Fund's outstanding Shares.

As of December 1, 1997, the following shareholder of record owned 5% or more of
the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner & Smith
for the sole benefit of its customers, Jacksonville, Florida, owned
approximately 24,875 Shares (10.22%).

<PAGE>

TRUSTEES COMPENSATION
<TABLE>
<CAPTION>

AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX
<S> <C> <C>

John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund
Complex

Thomas G. Bigley $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund
Complex

John T. Conroy, Jr. $1,600 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund
Complex

William J. Copeland $1,600 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund
Complex

James E. Dowd $1,600 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund
Complex

Lawrence D. Ellis, M.D. $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund
Complex

Edward L. Flaherty, Jr. $1,600 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund
Complex

Peter E. Madden $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund
Complex

John E. Murray $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund
Complex

Wesley W. Posvar $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund
Complex

Marjorie P. Smuts $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund
Complex

</TABLE>

* Information is furnished for the fiscal year ended October 31, 1997.

# The aggregate compensation is provided for the Trust which is comprised of 4
portfolios.

The information is provided for the last calendar year.

TRUSTEE LIABILITY

<PAGE>

INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND

ADVISORY FEES

For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus. During the fiscal years ended October 31,
1997, 1996, and 1995, the Fund's Adviser earned $3,438,932, $2,042,918, and
$1,958,826, respectively.

OTHER RELATED SERVICES

For the fiscal years ended October 31, 1997, 1996, and 1995, the Fund paid total
brokerage commissions in the amount of $1,166,954, $532,694, and $1,002,791,
respectively.

OTHER SERVICES
FUND ADMINISTRATION

Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994, to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services, may
hereinafter collectively be referred to as the "Administrators." For the fiscal
years ended October 31, 1997, 1996, and December 31, 1995, the Administrators
earned $346,201, $205,948, and $197,711, respectively.

CUSTODIAN

TRANSFER AGENT

INDEPENDENT AUDITORS

The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
PA.

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES

CONCURRENT PURCHASES

LETTER OF INTENT

REINVESTMENT PRIVILEGE

CONVERSION OF CLASS B SHARES

DISTRIBUTION PLAN (CLASS B SHARES AND CLASS C SHARES ONLY) AND SHAREHOLDER
SERVICES AGREEMENT

By adopting the Distribution Plan (Class B Shares and Class C Shares only), the
Trustees expect that the Class B Shares and Class C Shares of the Fund will be
able to achieve a more predictable flow of cash for investment purposes and to
meet redemptions. This will facilitate more efficient portfolio management and
assist the Fund in pursuing its investment objectives. By identifying potential
investors whose needs are served by the Fund's objectives, and properly
servicing these accounts, it may be possible to curb sharp fluctuations in rates
of redemptions and sales.

For the fiscal year ended October 31, 1997, the Fund paid shareholder service
fees for Class A Shares, Class B Shares, and Class C Shares in the amounts of
$1,81,072 , $54,008, and $11,231, respectively, of which $431,425, $0, and
$4,025, respectively, were voluntarily waived.

For the fiscal year ended October 31, 1997, the Class B Shares and Class C
Shares of the Fund paid distribution services fees in the amounts of $162,025,
and $33,692, respectively.

PURCHASES BY SALES REPRESENTATIVES, FUND TRUSTEES, AND EMPLOYEES

The following individuals and their immediate family members may buy Class A
Shares at net asset value without a sales charge:

o Trustees, employees, and sales representatives of the Fund, Federated
Management, and Federated Securities Corp. and its affiliates;

o Federated Life Members (Class A Shares Only);

o any associated person of an investment dealer who has a sales agreement with
Federated Securities Corp.; and

o trusts, pensions, or profit-sharing plans for these individuals.

These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund.

<PAGE>

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities, other than options, are
determined as follows:

according to the last sale price on a national securities exchange, if
available;

inthe absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices and for bonds and other fixed
income securities as determined by an independent pricing service for
unlisted equity securities, the latest bid prices; or

for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service or at fair value as
determined in good faith by the Trustees.

REDEMPTION IN KIND

CONTINGENT DEFERRED SALES CHARGE

ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES

The Fund values securities in the same manner as the Fund values its assets. The
basis of the exchange will depend upon the net asset value of Shares on the day
the securities are valued. One share of the Fund will be issued for each
equivalent amount of securities accepted.

TAX CONSEQUENCES

Exercise of this exchange privilege is treated as a sale for federal income tax
purposes. Depending upon the cost basis of the securities exchanged for shares,
a gain or loss may be realized by the investor.

TAX STATUS
THE FUND'S TAX STATUS

The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:

derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;

invest in securities within certain statutory limits; and

distribute to its shareholders at least 90% of its net income earned during the
year.

SHAREHOLDERS' TAX STATUS

CAPITAL GAINS

Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
the Fund Shares.

TOTAL RETURN
The Fund's average annual total returns based on offering price for the
following periods ended October 31, 1997 were:

SHARE CLASSINCEPTION DATEONE-YEARFIVE-YEARSTEN-YEARSSINCE INCEPTION

Class A August 23, 198428.88% 16.63% 16.83% 16.64%
Class B August 15, 199529.08% 25.11%
Class C August 15, 199534.53% 27.27%

<PAGE>

YIELD
The Fund's yields for the thirty-day period ended October 31, 1997 were:

SHARE CLASSYIELD

Class A (1.12%)
Class B 0%
Class C 0%

PERFORMANCE COMPARISONS
The performance of each of the classes of Shares depends upon such variables as:

portfolio quality;

average portfolio maturity;

type of instruments in which the portfolio is invested;

changes in interest rates and market value of portfolio securities;

changes in the Fund's or any class of Shares' expenses; and

various other factors.

The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and offering
price per share are factors in the computation of yield and total return.

LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and
takes into account any change in net asset value over a specified period of
time. From time to time, the Fund will quote its Lipper ranking in the
"growth funds" category in advertising and sales literature.

DOW JONES INDUSTRIAL AVERAGE is an unmanaged index representing share prices
of major industrial corporations, public utilities, and transportation
companies. Produced by the Dow Jones & Company, it is cited as a principal
indicator of market conditions.

STANDARD & POOR'S LOW-PRICED INDEX compares a group of approximately twenty
actively traded stocks priced under $25 for one month periods and
year-to-date.

STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS (S&P 500), a
composite index of common stocks in industry, transportation, and financial
and public utility companies, can be used to compare to the total returns of
funds whose portfolios are invested primarily in common stocks. In addition,
the S&P 500 assumes reinvestments of all dividends paid by stocks listed on
its index. Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in the Standard & Poor's figures.

LIPPER GROWTH FUND AVERAGE is an average of the total returns for 580 growth
funds tracked by Lipper Analytical Services, Inc., an independent mutual
fund rating service.

LIPPER GROWTH FUND INDEX is an average of the net asset-valuated total returns
for the top 30 growth funds tracked by Lipper Analytical Services, Inc., an
independent mutual fund rating service.

MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.

VALUE LINE MUTUAL FUND SURVEY, published by Value Line Publishing, Inc.,
analyzes price, yield, risk, and total return for equity and fixed income
mutual funds. The highest rating is One, and ratings are effective for two
weeks.

CDA MUTUAL FUND REPORT, published by CDA Investment Technologies, Inc.,
analyzes price, current yield, risk, total return, and average rate of
return (average annual compounded growth rate) over specified time periods
for the mutual fund industry.

STRATEGIC INSIGHT MUTUAL FUND RESEARCH AND CONSULTING, ranks funds in
various fund categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains distributions and
income dividends and takes into account any change in net asset value over a
specified period of time. From time to time, the Fund will quote its Strategic
Insight ranking in the "growth funds" category in advertising and sales
literature.

MUTUAL FUND SOURCE BOOK, published by Morningstar, Inc., analyzes price,
yield, risk, and total return for equity and fixed income funds.

VALUE LINE COMPOSITE INDEX consists of approximately 1,700 common equity
securities. It is based on a geometric average of relative price changes of the
component stocks and does not include income.

STRATEGIC INSIGHT GROWTH FUNDS INDEX consists of mutual funds that invest
in well-established companies primarily for long-term capital gains rather than
current income.

FINANCIAL PUBLICATIONS: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money Magazines, among
others--provide performance statistics over specified time periods.

Advertisements and other sales literature for any class of shares may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in any
class of shares based on quarterly reinvestment of dividends over a specified
period of time.

From time to time as it deems appropriate, the Fund may advertise the
performance of any class of shares using charts, graphs, and descriptions,
compared to federally insured bank products including certificates of deposit
and time deposits and to money market funds using the Lipper Analytical Services
money market instruments average. In addition, advertising and sales literature
for the Fund may use charts and graphs to illustrate the principles of
dollar-cost averaging and may disclose the amount of dividends paid by the Fund
over certain periods of time.

Advertisements may quote performance information which does not reflect the
effect of the sales charge on Class A Shares.

Advertising and other promotional literature may include charts, graphs, and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.

ECONOMIC AND MARKET INFORMATION

Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by the Fund portfolio managers and their views and analysis on how
such developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.

ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making -- structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.

In the equity sector, Federated Investors has more than 26 years' experience.
As of December 31, 1996, Federated Investors managed 31 equity funds totaling
approximately $7.6 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated Investors'
value-oriented management style combines quantitative and qualitative analysis
and features a structured, computer-assisted composite modeling system that was
developed in the 1970s.

MUTUAL FUND MARKET

Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:

INSTITUTIONAL CLIENTS

Federated meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division. *source: Investment Company
Institute

BANK MARKETING

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country-- supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high rankings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.

FINANCIAL STATEMENTS
The financial statements for Federated Growth Strategies Fund for the fiscal
year ended October 31, 1997 are incorporated herein by reference to the Annual
Report to Shareholders of Federated Growth Strategies Fund dated October 31,
1997 (File No. 811-4017). A copy of the Annual Report may be obtained without
charge by contacting the Fund.

<PAGE>

APPENDIX
STANDARD & POOR'S RATINGS SERVICES CORPORATE AND MUNICIPAL BOND RATING
DEFINITIONS

AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy. S&P may apply a plus (+) or
minus (-) to the above rating classifications to show relative standing within
the classifications.

MOODY'S INVESTORS SERVICE, INC. CORPORATE AND MUNICIPAL BOND RATING

Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its corporate bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.

FITCH INVESTORS SERVICE, L.P. LONG-TERM DEBT RATINGS

FITCH INVESTORS SERVICE, L.P. SHORT-TERM DEBT RATINGS

F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment only slightly less in degree than issues rated
F-1+.

STANDARD AND POOR'S RATINGS SERVICES COMMERCIAL PAPER RATING DEFINITIONS

A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS

Leading market positions in well-established industries.

High rates of return on funds employed.

Conservative capitalization structure with moderate reliance on debt and ample
asset protection.

Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

Well-established access to a range of financial markets and assured sources of
alternate liquidity.

Federated Small Cap Strategies Fund

(A Portfolio of Federated Equity Funds)
Class A Shares, Class B Shares, Class C Shares

Prospectus

The shares of Federated Small Cap Strategies Fund (the "Fund") represent
interests in a diversified portfolio of Federated Equity Funds (the "Trust"), an
open-end management investment company (a mutual fund). The investment objective
of the Fund is to provide capital appreciation. Any income received from the
portfolio is entirely incidental. The Fund pursues its investment objective by
investing primarily in a portfolio of common stocks of small capitalization
companies.

This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.

The Fund has also filed a Statement of Additional Information dated December 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information or to make inquiries about the Fund, contact your
financial institution. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Fund is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

Prospectus dated December 31, 1997

TABLE OF CONTENTS

<TABLE>

<S> <C>
Summary of Fund Expenses......................................... 1

Financial Highlights............................................. 2
Class A Shares.................................................. 2
Class B Shares.................................................. 3
Class C Shares.................................................. 4

General Information.............................................. 5

Investment Information........................................... 5
Investment Objective............................................ 5
Investment Policies............................................. 5
Investment Limitations.......................................... 10

Net Asset Value.................................................. 11

Investing in the Fund............................................ 11

Purchasing Shares................................................ 11
Purchasing Shares Through a Financial Intermediary.............. 11
Purchasing Shares by Wire....................................... 12
Purchasing Shares by Check...................................... 12
Systematic Investment Program................................... 12
Retirement Plans................................................ 12
Class A Shares.................................................. 12
Class B Shares.................................................. 13
Class C Shares.................................................. 13

Redeeming and Exchanging Shares.................................. 13
Redeeming or Exchanging Shares Through a Financial Intermediary. 13
Redeeming or Exchanging Shares by Telephone..................... 13
Redeeming or Exchanging Shares by Mail.......................... 13
Requirements for Redemption..................................... 14
Requirements for Exchange....................................... 14
Systematic Withdrawal Program................................... 14
Contingent Deferred Sales Charge................................ 14

Account and Share Information.................................... 15
Confirmations and Account Statements............................ 15
Dividends and Distributions..................................... 15
Accounts with Low Balances...................................... 15

Trust Information................................................ 15
Management of the Trust......................................... 15
Distribution of Shares.......................................... 16
Administration of the Fund...................................... 17

Brokerage Transactions........................................... 17

Shareholder Information.......................................... 17

Tax Information.................................................. 18
Federal Income Tax.............................................. 18
State and Local Taxes........................................... 18

Performance Information.......................................... 18
</TABLE>

SUMMARY OF FUND EXPENSES

Shareholder Transaction Expenses
<TABLE>
<CAPTION>

Class A Class B Class C

- ------- ------- -------
<S>
<C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)...........................................
5.50% None None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)...........................................
None None None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable)........................................
None 5.50%(1) 1.00%(1)
Redemption Fee (as a percentage of amount redeemed, if applicable).............
None None None
Exchange Fee...................................................................
None None None
</TABLE>
Annual Operating Expenses
(As a percentage of average net assets)
<TABLE>
<S>
<C> <C> <C>
Management Fee.................................................................
0.75% 0.75% 0.75%
12b-1 Fee......................................................................
0.00%(2) 0.75% 0.75%
Total Other Expenses...........................................................
0.54% 0.54% 0.54%
Shareholder Services Fee (after waiver)........................................
0.25% 0.25% 0.25%
Total Operating Expenses(3)....................................................
1.29% 2.04%(4) 2.04%
</TABLE>
(1) For shareholders of Class B Shares, the contingent deferred sales charge is
5.50% in the first year declining to 1.00% in the sixth year and 0.00%
thereafter. For shareholders of Class C Shares, the contingent deferred
sales charge assessed is 1.00% of the lesser of the original purchase price
or the net asset value of Shares redeemed within one year of their purchase
date. For a more complete description, see "Contingent Deferred Sales
Charge."
(2) The Class A Shares has no present intention of paying or accruing the 12b-1
fee during the period ending October 31, 1998. If Class A Shares were paying
or accruing the 12b-1 fee, the Class A Shares would be able to pay up to
0.25% of its average daily net assets for the 12b-1 fee. See "Trust
Information."
(3) The total operating expenses for all classes in the table above are based on
expenses expected during fiscal year ending October 31, 1998. The total
Class A Shares, Class B Shares, and Class C Shares, operating expenses were
1.44%, 2.19%, and 2.19% respectively, for the fiscal year ended October 31,
1997.
(4) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.

Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.

<TABLE>
<CAPTION>
Example
Class A Class B Class C
- -------------------------------------------------------------------------------
- ------- ------- -------
<S>
<C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return, (2) redemption at the end of each time period, and (3) payment
of the maximum sales charge.
1 Year.........................................................................
$ 67 $ 77 $ 31
3 Years........................................................................
$ 94 $108 $ 64
5 Years........................................................................
$122 $133 $110
10 Years.......................................................................
$202 $217 $237
You would pay the following expenses on the same investment, assuming
no redemption.
1 Year.........................................................................
$ 67 $ 21 $ 21
3 Years........................................................................
$ 94 $ 64 $ 64
5 Years........................................................................
$122 $110 $110
10 Years.......................................................................
$202 $217 $237
</TABLE>
The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.

FINANCIAL HIGHLIGHTS--CLASS A SHARES

(For a share outstanding throughout each period)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated December 12, 1997, on the Fund's
financial statements for the year ended October 31, 1997, and on the following
table for the periods presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.

<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 (loss) on investments 4.33 4.75
Total from investment operations 4.29 4.70
Less distributions
Distributions in excess from 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>

(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

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1997, which can be obtained free of charge.

FINANCIAL HIGHLIGHTS--CLASS B SHARES

(For a share outstanding throughout each period)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated December 12, 1997, on the Fund's
financial statements for the year ended October 31, 1997, and on the following
table for the periods presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.

<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 (loss) 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>

(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

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1997, which can be obtained free of charge.

FINANCIAL HIGHLIGHTS--CLASS C SHARES

(For a share outstanding throughout each period)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated December 12, 1997, on the Fund's
financial statements for the year ended October 31, 1997, and on the following
table for the periods presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.

<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 (loss) 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

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1997, which can be obtained free of charge.

GENERAL INFORMATION

The Fund was established under the laws of the Commonwealth of Massachusetts on
April 17, 1984. Class A Shares, Class B Shares and Class C Shares of the Fund
("Shares") are designed for individuals as a convenient means of accumulating an
interest in a professionally managed, diversified portfolio of equity
securities.

The Fund's current net asset value and offering price may be found in the mutual
funds section of local newspapers under "Federated" and the appropriate class
designation listing.

Calling the Fund Call the Fund at 1-800-341-7400.

INVESTMENT INFORMATION

Investment Objective

The investment objective of the Fund is to provide capital appreciation. Any
income received from the portfolio is entirely incidental. The investment
objective cannot be changed without approval of shareholders. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus.

Investment Policies

The Fund pursues its investment objective by investing primarily in a portfolio
of common stocks of small capitalization companies. Under normal market
conditions, the Fund will invest at least 65% of its total assets in common
stocks of small capitalization companies. Unless indicated otherwise, the
investment policies of the Fund may be changed by the Board of Trustees (the
"Trustees") without the approval of shareholders. Shareholders will be notified
before any material changes in these policies become effective.

Acceptable Investments

The securities in which the Fund invests include, but are not limited to:

. common stock of U.S. companies which are either listed on the New York or
American Stock Exchange or traded in over-the-counter markets and are
considered by Federated Management, the Fund's investment adviser (the
"Adviser"), to have potential for above-average appreciation;

. corporate securities and convertible securities;

. securities of foreign issuers;

. restricted and illiquid securities;

. securities of other investment companies; and

. securities issued or guaranteed by the U.S. government, its agencies, or
instrumentalities.

Small Capitalization Companies

Under normal market conditions, the Fund invests in small capitalization
companies that fall within the capitalization parameters of the S&P Small Cap
600 Index at the time of purchase. As of 10/31/97, the S&P Small Cap 600 Index
parameters ranged from $40 million to $2.8 billion, respectively. Small
capitalization companies are positioned for rapid growth in revenues or earnings
and assets, characteristics which may provide for significant capital
appreciation. Small companies often pay no dividends and current income is not a
factor in the selection of stocks. Smaller companies often have limited product
lines, markets, or financial resources, and they may be dependent upon one or a
few key people for management. (See "Equity Investment Risk Considerations.")
Many small capitalization companies tend to have operating histories of less
than three years.

Corporate Securities

The Fund may invest in preferred stocks, convertible securities, notes or
debentures rated investment grade, i.e., Baa or better by Moody's Investors
Service, Inc. ("Moody's"), or BBB or better by Standard & Poor's Ratings
Services ("S&P") or Fitch Investors Service, L.P. ("Fitch") (or, if unrated, are
deemed to be of comparable quality by the Adviser), and warrants of these
companies. Corporate fixed income securities are subject to market and credit
risks. In addition, the prices of fixed income securities fluctuate inversely to
the direction of interest rates. It should be noted that securities receiving
the lowest investment grade rating are considered to have some speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to weakened capacity to make principal and interest payments than
higher rated securities. In the event that a security which had an eligible
rating when purchased is downgraded below Baa or BBB, the Adviser will promptly
reassess whether continued holding of the security is consistent with the Fund's
objective.

Convertible Securities

Convertible securities are fixed-income securities which may be exchanged or
converted into a predetermined number of the issuer's underlying common stock at
the option of the holder during a specified time period. Accordingly, the Fund
considers convertible securities to be equity securities. Convertible securities
may take the form of convertible preferred stock, convertible bonds or
debentures, units consisting of "usable" bonds and warrants or a combination of
the features of several of these securities. The investment characteristics of
each convertible security vary widely, which allows convertible securities to be
employed for different investment objectives. The Fund invests in securities
irrespective of their ratings. Therefore, the convertible securities in which
the Fund invests may be rated below investment grade and considered speculative.

Convertible bonds and convertible preferred stocks are fixed-income securities
that generally retain the investment characteristics of fixed-income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed-income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than nonconvertible securities of similar quality. In general,
the market value of a convertible security is at least the higher of its
"investment value" (i.e., its value as a fixed-income security) or its
"conversion value" (i.e. its value upon conversion into its underlying common
stock). As a fixed-income security, a convertible security tends to increase in
market value when interest rates decline and tends to decrease in value when
interest rates rise. However, the price of a convertible security is also
influenced by the market value of the security's underlying common stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.

Synthetic Convertibles

A "synthetic convertible" is created by combining distinct securities that
possess the two principal characteristics of a true convertible: a fixed-income
component and a convertibility component. This combination is achieved by
investing in nonconvertible fixed-income securities (nonconvertible bonds,
preferred stocks, and money market instruments) and in warrants or call options
traded on U.S. or foreign exchanges or in the over-the-counter markets granting
the holder the right to purchase a specified quantity of securities within a
specified period of time at a specified price or to receive cash in the case of
stock index options.

A holder of a synthetic convertible faces the risk that the price of the stock,
or the level of the market index underlying the convertibility component, will
decline, causing a decline in the value of the call option or warrant. Should
the price of the stock or the level of the index fall below the exercise price,
and remain there throughout the exercise period, the entire amount paid for the
call option or warrant would be lost. Since a synthetic convertible includes a
fixed-income component, the holder of a synthetic convertible also faces the
risk that interest rates will rise, causing a decline in the value of the
fixed-income instrument. Finally, a synthetic convertible can be expected to
have greater transaction costs than a true convertible security.

Risk Factors Relating to Investing in High Yield Securities

The convertible and synthetic convertible securities in which the Fund invests
are usually not in the three highest rating categories of a nationally
recognized statistical rating organization (AAA, AA, or A for S&P or Fitch and
Aaa, Aa, or A for Moody's), but are in the lower rating categories or are
unrated, but are of comparable quality and have speculative characteristics or
are speculative. Lower-rated bonds or unrated bonds are commonly referred to as
"junk bonds. There is no minimal acceptable rating for a security to be
purchased or held in the Fund's portfolio, and the Fund may, from time to time,
purchase or hold convertible and synthetic convertible securities rated in the
lowest rating category. A description of the rating categories is contained in
the Appendix to the Fund's Statement of Additional Information.

Securities of Foreign Issuers

The Fund may invest in the securities of foreign issuers which are freely traded
on United States securities exchanges or in the over-the-counter market in the
form of depositary receipts ("American Depositary Receipts' or "ADRs"). In
addition, the Fund may invest in other securities of foreign issuers. There may
be certain risks associated with investing in foreign securities. These include
risks of adverse political and economic developments (including possible
governmental seizure or nationalization of assets), the possible imposition of
exchange controls or other governmental restrictions, less uniformity in
accounting and reporting requirements, and the possibility that there will be
less information on such securities and their issuers available to the public.
In addition, there are restrictions on foreign investments in other
jurisdictions and there tends to be difficulty in obtaining judgments from
abroad and affecting repatriation of capital invested abroad. Delays could occur
in settlement of foreign transactions, which could adversely affect shareholder
equity. Foreign securities may be subject to foreign taxes, which reduce yield,
and may be less marketable than comparable United States securities. As a matter
of practice, the Fund will not invest in the securities of a foreign issuer if
any risk identified above appears to the Adviser to be substantial. The Fund
will not invest more than 20% of its assets in foreign securities.

Put and Call Options

The Fund may purchase put options on its portfolio securities. A put option
gives the Fund, in return for a premium, the right to sell the underlying
security to the writer (seller) at a specified price during the term of the
option. These options will be used as a hedge to attempt to protect securities
which the Fund holds against decreases in value. The Fund may also write covered
call options on all or any portion of its portfolio to generate income. As a
writer of a call option, the Fund has the obligation upon exercise of the option
during the option period to deliver the underlying security upon payment of the
exercise price. The Fund will write call options on securities either held in
its portfolio, or which it has the right to obtain without payment of further
consideration, or for which it has segregated cash or U.S. government securities
in the amount of any additional consideration.

The Fund may purchase and write over-the-counter options on portfolio securities
in negotiated transactions with the buyers or writers of the options when
options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings associations)
deemed creditworthy by the Adviser.

Over-the-counter options are two-party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not. The Fund will not buy call
options or write put options, other than to close out open option positions,
without further notification to shareholders.

Futures and Options on Futures

The Fund may purchase and sell 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. Futures contracts call for the delivery of
particular instruments at a certain time in the future. The seller of the
contract agrees to make delivery of the type of instrument called for in the
contract, and the buyer agrees to take delivery of the instrument at the
specified future time.

The Fund may also write call options and purchase put options on futures
contracts as a hedge to attempt to protect its portfolio securities against
decreases in value. When the Fund writes a call option on a futures contract, it
is undertaking the obligation of selling a futures contract at a fixed price at
any time during a specified period if the option is exercised. Conversely, as
purchaser of a put option on a futures contract, the Fund is entitled (but not
obligated) to sell a futures contract at the fixed price during the life of the
option.

The Fund may also write put options and purchase call options on futures
contracts as a hedge against rising purchase prices of portfolio securities. The
Fund will use these transactions to attempt to protect its ability to purchase
portfolio securities in the future at price levels existing at the time it
enters into the transactions. When the Fund writes a put option on a futures
contract, it is undertaking to buy a particular futures contract at a fixed
price at any time during a specified period if the option is exercised. As a
purchaser of a call option on a futures contract, the Fund is entitled (but not
obligated) to purchase a futures contract at a fixed price at any time during
the life of the option.

The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases futures
contracts, an amount of cash and cash equivalents, equal to the underlying
commodity value of the futures contracts (less any related margin deposits),
will be deposited in a segregated account with the custodian (or the broker, if
legally permitted) to collateralize the position and thereby insure that the use
of such futures contracts are unleveraged. When the Fund sells futures
contracts, it will either own or have the right to receive the underlying future
or security, or will make deposits to collateralize the position as discussed
above.

Risks

When the Fund uses financial futures and options on futures as hedging devices,
there is a risk that the prices of the securities subject to the futures
contracts may not correlate perfectly with the prices of the securities in the
Fund's portfolio. This may cause the futures contract and any related options
to react differently than the portfolio securities to market changes. In
addition, the Adviser could be incorrect in its expectations about the
direction or extent of market factors such as stock price movements. In these
events, the Fund may lose money on the futures contract or option.

It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Adviser will consider
liquidity before entering into these transactions, there is no assurance that a
liquid secondary market on an exchange or otherwise will exist for any
particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on
this secondary market.

Restricted and Illiquid Securities

The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its investment
objective and policies, but which are subject to restrictions on resale under
federal securities law. However, the Fund will limit investments in illiquid
securities, including certain restricted securities not determined by the
Trustees to be liquid, non-negotiable time deposits, over-the-counter options,
and repurchase agreements providing for settlement in more than seven days after
notice, to 15% of its net assets.

When-Issued and Delayed Delivery Transactions

The Fund may dispose of a commitment prior to settlement if the Adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities s at
later dates. The Fund may realize short-term profits or losses upon the sale of
such commitments.

Temporary Investments

In such proportions as, in the judgment of its Adviser, prevailing market
conditions warrant, the Fund may, for temporary defensive purposes, invest in:

. short-term money market instruments;

. securities issued and/or guaranteed as to payment of principal and interest
by the U.S. government, its agencies or instrumentalities; and

. repurchase agreements.

Repurchase Agreements

Repurchase agreements are arrangements in which banks, broker/dealers, and other
recognized financial institutions sell U.S. government securities or other
securities to the Fund and agree at the time of sale to repurchase them at a
mutually agreed upon time and price. To the extent that the original seller does
not repurchase the securities from the Fund, the Fund could receive less than
the repurchase price on any sale of such securities.

Investing in Securities of Other Investment Companies

Lending of Portfolio Securities

In order to generate additional income, the Fund may lend portfolio securities
on a short-term or a long-term basis, to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the Adviser
has determined are creditworthy under guidelines established by the Trustees and
will receive collateral equal to at least 100% of the value of the securities
loaned at all times.

Derivative Contracts and Securities

The term "derivative" has traditionally been applied to certain contracts
(including futures, forward, option, and swap contracts) that "derive" their
value from changes in the value of an underlying security, currency, commodity,
or index. Certain types of securities that incorporate the performance
characteristics of these contracts are also referred to as "derivatives." The
term has also been applied to securities "derived" from the cash flows from
underlying securities, mortgages, or other obligations.

Equity Investment Risk Considerations

As with other mutual funds that invest primarily in equity securities, the Fund
is subject to market risks. That is, the possibility exists that common stocks
will decline over short or even extended periods of time, and the United States
equity market tends to be cyclical, experiencing both periods when stock prices
generally increase and periods when stock prices generally decrease. However,
because the Fund invests primarily in small capitalization stocks, there are
some additional risk factors associated with investments in the Fund. In
particular, stocks in the small capitalization sector of the United States
equity market have historically been more volatile in price than larger
capitalization stocks, such as those included in the Standard & Poor's 500
Composite Stock Price Index ("Standard & Poor's 500 Index"). This is because,
among other things, small companies have less certain growth prospects than
larger companies; have a lower degree of liquidity in the equity market; and
tend to have a greater sensitivity to changing economic conditions. Further, in
addition to exhibiting greater volatility, the stocks of small companies may, to
some degree, fluctuate independently of the stocks of large companies. That is,
the stocks of small companies may decline in price as the prices of large
company stocks rise or vice versa. Therefore, investors should expect that the
Fund will be more volatile than, and may fluctuate independently of, broad stock
market indices such as the Standard & Poor's 500 Index.

Portfolio Turnover

Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the
Adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. A higher rate of portfolio turnover involves correspondingly greater
transaction expenses which must be borne directly by the Fund and, thus,
indirectly by its shareholders. In addition, a high rate of portfolio turnover
may result in the realization of larger amounts of capital gains which, when
distributed to the Fund's shareholders, are taxable to them. Nevertheless,
transactions for the Fund's portfolio will be based only upon investment
considerations and will not be limited by any other considerations when the
Adviser deems it appropriate to make changes in the Fund's portfolio.

Investment Limitations

The Fund will not:

. borrow money directly or through reverse repurchase agreements (arrangements
in which the Fund sells a portfolio instrument for a percentage of its cash
value with an agreement to buy it back on a set date) or pledge securities
except, under certain circumstances, the Fund may borrow up to one-third of
the value of its total assets and pledge its assets to secure such
borrowings; or

. with respect to 75% of its total assets, invest more than 5% of the value of
its total assets in securities of any one issuer (other than cash, cash
items, or securities issued or guaranteed by the U.S. government and its
agencies or instrumentalities, and repurchase agreements collateralized by
such securities) or acquire more than 10% of the outstanding voting
securities of any one issuer.

The above investment limitations cannot be changed without shareholder approval.

NET ASSET VALUE

INVESTING IN THE FUND

This prospectus offers three classes of Shares each with the characteristics
described below.

<TABLE>
<CAPTION>
Class A Class B Class C
----------- ------------ -------------
<S> <C> <C> <C>
Minimum and
Subsequent
Investment Amounts $500/$100 $1500/$100 $1500/$100
Minimum and
Subsequent
Investment Amount for
Retirement Plans $50 $50 $50
Maximum Sales Charge 5.50%* None None
Maximum Contingent
Deferred Sales Charge** None 5.50%+ 1.00%#
Conversion Feature No Yes No
</TABLE>

* Class A Shares are sold at NAV, plus a sales charge as follows:

<TABLE>
<CAPTION> Sales Charge
as a Percentage of Dealer
---------------------- Concession as
Public Net a Percentage of
Offering Amount Public Offering
Amount of Transaction Price Invested Price
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less
than $100,000 4.50% 4.71% 4.00%
$100,000 but less
than $250,000 3.75% 3.90% 3.25%
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
$500,000 but less
than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%
</TABLE>

** Computed on the lesser of the NAV of the redeemed Shares at the time of
purchase or the NAV of the redeemed Shares at the time of redemption.

+ The following contingent deferred sales charge schedule applies to Class B
Shares:

++ Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase. See "Conversion of Class B
Shares."

# The contingent deferred sales charge is assessed on Shares redeemed within
one year of their purchase date.

PURCHASING SHARES

In connection with any sale, Federated Securities Corp. may, from time to time,
offer certain items of nominal value to any shareholder or investor.

Purchasing Shares Through a Financial Intermediary

Purchasing Shares by Wire

Shares may be purchased by Federal Reserve wire by calling the Fund. All
information needed will be taken over the telephone, and the order is considered
received when State Street Bank receives payment by wire. Federal funds should
be wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA 02266-8600; Attention; EDGEWIRE; For Credit
to: (Fund Name) (Fund Class); (Fund Number--this number can be found on the
account statement or by contacting the Fund); Account Number; Trade Date and
Order Number; Group Number or Dealer Number; Nominee or Institution Name; and
ABA Number 011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted.

Purchasing Shares by Check

Systematic Investment Program

Retirement Plans
Fund Shares can be purchased as an investment for retirement plans or Individual
Retirement Accounts("IRA"). For further details, contact the Fund and consult a
tax adviser.

Class A Shares
Class A Shares are sold at NAV, plus a sales charge. However:

No sales charge is imposed for Class A Shares purchased:

. through financial intermediaries that do not receive sales charge dealer
concessions;

. by Federated Life Members who maintain a $500 minimum balance in at least
one of the Federated Funds; or

. through "wrap accounts" or similar programs under which clients pay a fee for
services.

In addition, the sales charge can be reduced or eliminated by:

. purchasing in quantity and accumulating purchases at the levels in the table
under "Investing in the Fund";

. combining concurrent purchases of two or more funds;

. signing a letter of intent to purchase a specific quantity of shares within
13 months; or

. using the reinvestment privilege.

Dealer Concession

For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid to a
dealer will be retained by the distributor. However, the distributor may offer
to pay dealers up to 100% of the sales charge retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at recreational-
type facilities, or items of material value. In some instances, these incentives
will be made available only to dealers whose employees have sold or may sell a
significant amount of Shares. On purchases of $1 million or more, the investor
pays no sales charge; however, the distributor will make twelve monthly payments
to the dealer totaling 0.25% of the public offering price over the first year
following the purchase. Such payments are based on the original purchase price
of Shares outstanding at each month end. The sales charge for Shares sold other
than through registered broker/dealers will be retained by Federated Securities
Corp.

Class B Shares

Conversion of Class B Shares

Class C Shares
Class C Shares are sold at NAV. A contingent deferred sales charge of 1.00% will
be charged on assets redeemed within the first full 12 months following
purchase.

REDEEMING AND EXCHANGING SHARES

Redeeming or Exchanging Shares Through a Financial Intermediary

Redeeming or Exchanging Shares by Telephone

Redeeming or Exchanging Shares by Mail

Requirements for Redemption

Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record, must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution, as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.

Requirements for Exchange

Systematic Withdrawal Program

Contingent Deferred Sales Charge

Eliminating the Contingent Deferred Sales Charge

Upon written notification to Federated Securities Corp. or the transfer agent,
no contingent deferred sales charge will be imposed on redemptions:

. following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder;

. representing minimum required distributions from an IRA or other retirement
plan to a shareholder who has attained the age of 70 1/2;

. which are involuntary redemptions of shareholder accounts that do not comply
with the minimum balance requirements;

. which are qualifying redemptions of Class B Shares under a Systematic
Withdrawal Program;

. which are reinvested in the Fund under the reinvestment privilege;

ACCOUNT AND SHARE INFORMATION

Confirmations and Account Statements

Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In additions, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.

Dividends and Distributions

Accounts with Low Balances

TRUST INFORMATION

Management of the Trust
Board of Trustees
The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. An Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.

Investment Adviser

Advisory Fees

Adviser's Background

Federated Management, a Delaware business trust organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors. All of the Class A (voting) Shares of
Federated Investors are owned by a trust, the Trustees of which are John F..
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.

Keith J. Sabol has been the Fund's portfolio manager since December 1997. Mr.
Sabol joined Federated Investors in 1994 and has been an Assistant Vice
President of the Fund's investment adviser since January 1997. Mr. Sabol was an
Investment Analyst, and then Equity Research Coordinator for the Fund's
investment adviser from 1994 to 1996. During 1992 and 1993, Mr. Sabol earned his
M.S. in Industrial Administration from Carnegie Mellon University.

Distribution of Shares

The distributor will pay dealers an amount equal to 5.50% of the NAV of Class B
Shares purchased by their clients or customers. These payments will be made
directly by the distributor from its assets, and will not be made from the
assets of the Fund. Dealers may voluntarily waive receipt of all or any portion
of these payments. The distributor may pay a portion of the distribution fee
discussed below to financial institutions that waive all or any portion of the
advance payments.

Distribution Plan and Shareholder Services

In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25% of the average daily NAV of Class A
Shares, Class B Shares, and Class C Shares to obtain certain personal services
for shareholders and for the maintenance of shareholder accounts ("Shareholder
Services"). Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon Shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Fund and Federated Shareholder Services.

Supplemental Payments to Financial Institutions

Federated Securities Corp. will pay financial institutions, at the time of
purchase, an amount equal to 0.50% of the NAV of shares purchased by their
clients or customers under certain qualified retirement plans as approved by
Federated Securities Corp. (Such payments are subject to a reclaim from the
financial institution should the assets leave the program within 12 months after
purchase.)

Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
the distributor may offer to pay a fee from its own assets to financial
institutions as financial assistance for providing substantial marketing and
sales support. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of Shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's Adviser or its affiliates.

Administration of the Fund
Administrative Services

Maximum Average Aggregate
Fee Daily Net Assets
- ------- -----------------------------------
<S> <C>

0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>

BROKERAGE TRANSACTIONS

As of December 1, 1997, the following shareholder of record owned 25% or more of
the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner & Smith
(as record owner holding Class C Shares for its clients), owned approximately
487,467 Shares (33.13%) and, therefore, may, for certain purposes, be deemed to
control the Fund and be able to affect the outcome of certain matters presented
for a vote of shareholders.

TAX INFORMATION

Federal Income Tax

State and Local Taxes

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

PERFORMANCE INFORMATION

From time to time, the Fund advertises its total return and yield for each class
of Shares.

Total return and yield will be calculated separately for Class A Shares, Class B
Shares, and Class C Shares. Expense differences among Class A Shares, Class B
Shares, and Class C Shares may affect the performance of each class.

From time to time, advertisements for Class A Shares, Class B Shares, and Class
C Shares of the Fund may refer to ratings, rankings, and other information in
certain financial publications and/or compare the performance of Class A Shares,
Class B Shares, and Class C Shares to certain indices.

[LOGO] FEDERATED INVESTORS

Federated Small Cap Federated Small Cap
Strategies Fund Strategies Fund
Federated Investors Funds
5800 Corporate Drive (A Portfolio of Federated Equity
Pittsburgh, PA 15237-7000 Funds)

Class A Shares, Class B Shares,
Distributor Class C Shares
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Prospectus
Investment Adviser December 31, 1997
Federated Management
Federated Investors Tower
Pittsburgh, PA 15222-3779 An Open-End, Diversified
Management Investment Company
Custodian
State Street Bank and
Trust Company
P.O. Box 8600
Boston, MA 02266-8600

Transfer Agent
and Dividend
Disbursing Agent
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600

Independent Auditors

Ernst & Young LLP

One Oxford Centre
Pittsburgh, PA 15219

Federated Securities Corp., Distributor

1-800-341-7400

www.federatedinvestors.com

Cusip 314172404
Cusip 314172503 [LOGO]
Cusip 314172602 RECYCLED
G01228-04 (12/97) PAPER

FEDERATED SMALL CAP STRATEGIES FUND
(A PORTFOLIO OF FEDERATED EQUITY FUNDS)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the prospectus
of Federated Small Cap Strategies Fund, (the "Fund"), dated December 31, 1997.
This Statement is not a prospectus. You may request a copy of a prospectus or a
paper copy of this Statement, if you have received it electronically, free of
charge by calling 1-800-341-7400.

FEDERATED SMALL CAP STRATEGIES FUND
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PENNSYLVANIA 15237-7000
Statement dated December 31, 1997

[GRAPHIC OMITTED]

Cusip 314172404
Cusip 314172503
Cusip 314172602
G01228-06 (12/97)

<PAGE>

TABLE OF CONTENTS
General Information About the Fund 1

Investment Objective and Policies 1

Corporate Debt Securities 1
Warrants 1
Restricted and Illiquid Securities1
Futures and Options Transactions 2
Futures Contracts 2
"Margin" in Futures Transactions 2
Put Options on Financial Futures Contracts
3
Stock Index Options 3
Call Options on Financial and Stock Index Futures Contracts
3
Purchasing Put and Call Options on Portfolio Securities
4
Writing Covered Put and Call Options on Portfolio Securities
4
Over-the-Counter Options 4
When-Issued and Delayed Delivery
Transactions 4
Lending of Portfolio Securities 4
Repurchase Agreements 5
Reverse Repurchase Agreements 5
Portfolio Turnover 5
Investment Limitations 5
Federated Equity Funds Management 8

Share Ownership 12
Trustees Compensation 13
Trustee Liability 13
Investment Advisory Services 14

Adviser to the Fund 14
Advisory Fees 14
Other Related Services 14
Brokerage Transactions 14

Other Services 14

Fund Administration 14
Custodian 15
Transfer Agent 15
Independent Auditors 15
Purchasing Shares 15

Quantity Discounts and Accumulated
Purchases 15
Concurrent Purchases 15
Letter of Intent 15
Reinvestment Privilege 16
Conversion of Class B Shares 16
Distribution Plan and Shareholder Services Agreement
17
Purchases by Sales Representatives, Fund Trustees, and Employees
17
Determining Net Asset Value 17

Determining Market Value of Securities
18
Redeeming Shares 18

Redemption in Kind 18
Contingent Deferred Sales Charge 18
Massachusetts Partnership Law 19

Exchanging Securities for Shares 19

Tax Consequences 19
Tax Status 20

The Fund's Tax Status 20
Shareholders' Tax Status 20
Total Return 20

Yield 21

Performance Comparisons 21

Economic and Market Information 23
About Federated Investors 23

Mutual Fund Market 23
Institutional Clients 24
Bank Marketing 24
Broker/Dealers and Bank Broker/Dealer Subsidiaries
24
Financial Statements 24

Appendix 25

Standard and Poor's Ratings Services Long
Term Debt Rating Definitions 25
Moody's Investors Service, Inc. Long Term Bond Rating Definitions
25
Fitch Investors Service, Inc. Long-Term Debt Rating Definitions
26
Moody's Investors Service, Inc. Commercial Paper Ratings
27
Standard and Poor's Ratings Services Commercial Paper Ratings
27
Fitch Investors Service, L.P. Commercial Paper Rating
27

<PAGE>

GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio of Federated Equity Funds (the "Trust"). The Fund was
established under the laws of Massachusetts on April 17, 1984.

INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide capital appreciation. Any
income realized from the portfolio is entirely incidental. The Fund pursues its
investment objective by investing primarily in a portfolio of common stocks of
small capitalization companies. The investment objective cannot be changed
without approval of shareholders.

CORPORATE DEBT SECURITIES

WARRANTS

The Fund may invest in warrants. Warrants are basically options to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to twenty years or may be
perpetual. However, most warrants have expiration dates after which they are
worthless. In addition, if the market price of the common stock does not exceed
the warrant's exercise price during the life of the warrant, the warrant will
expire as worthless. Warrants have no voting rights, pay no dividends, and have
no rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned common stock.

RESTRICTED AND ILLIQUID SECURITIES

The ability of the Board of Trustees (the "Trustees") to determine the liquidity
of certain restricted securities is permitted under a Securities and Exchange
Commission ("SEC") staff position set forth in the adopting release for Rule
144A under the Securities Act of 1933, as amended (the "Rule"). The Rule is a
non-exclusive safe-harbor for certain secondary market transactions involving
registration for resales of otherwise restricted securities to qualified
institutional buyers. The Rule was expected to further enhance the liquidity of
the secondary market for securities eligible for resale under the Rule. The Fund
believes that the staff of the SEC has left the question of determining the
liquidity of all restricted securities to the Trustees. The Trustees may
consider the following criteria in determining the liquidity of certain
restricted securities: o the frequency of trades and quotes for the security;

o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;

o dealer undertakings to make a market in the security; and

o the nature of the security and the nature of the marketplace trades.

The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as amended,
and treats such commercial paper as liquid. Section 4(2) commercial paper is
restricted as to disposition under federal securities law and is generally sold
to institutional investors, such as the Fund, who agree that they are purchasing
the paper for investment purposes and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors like the
Fund through or with the assistance of the issuer or investment dealers who make
a market in Section 4(2) commercial paper, thus providing liquidity.

FUTURES AND OPTIONS TRANSACTIONS

As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge all or a portion of its portfolio by buying
and selling financial futures contracts, buying put and call options on
portfolio securities and put options on financial futures contracts, and writing
call options on futures contracts. The Fund may also write covered call options
on its portfolio securities and covered put options to attempt to increase its
current income. The Fund will maintain its positions in securities, option
rights, and segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position on financial futures
contracts may be closed out over-the-counter or on a nationally recognized
exchange which provides a secondary market for options of the same series.

FUTURES CONTRACTS

The Fund may purchase and sell financial 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 without necessarily buying or
selling the securities. The Fund also may purchase and sell stock index futures
to hedge against changes in prices. The Fund will not engage in futures
transactions for speculative purposes. A futures contract is a firm commitment
by two parties: the seller who agrees to make delivery of the specific type of
security called for in the contract ("going short") and the buyer who agrees to
take delivery of the security ("going long") at a certain time in the future.
For example, in the fixed income securities market, prices move inversely to
interest rates. A rise in rates means a drop in price. Conversely, a drop in
rates means a rise in price. In order to hedge its holdings of fixed income
securities against a rise in market interest rates, the Fund could enter into
contracts to deliver securities at a predetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period. The Fund
would "go long" (agree to purchase securities in the future at a predetermined
price) to hedge against a decline in market interest rates. Stock index futures
contracts are based on indices that reflect the market value of common stock of
the firms included in the indices. An index futures contract is an agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash equal to the differences between the value of the index at the close of the
last trading day of the contract and the price at which the index contract was
originally written.

"MARGIN" IN FUTURES TRANSACTIONS

Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with its custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that initial margin in futures transactions does not involve the
borrowing of funds by the Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. A futures contract held by the Fund
is valued daily at the official settlement price of the exchange on which it is
traded. Each day the Fund pays or receives cash, called "variation margin,"
equal to the daily change in value of the futures contract. This process is
known as "marking to market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund and the broker of
the amount one would owe the other if the futures contract expired. In computing
its daily net asset value, the Fund will mark to market its open futures
positions. The Fund is also required to deposit and maintain margin when it
writes call options on futures contracts.

PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS

The Fund may purchase listed put options on financial futures contracts to
protect portfolio securities against decreases in value resulting from market
factors, such as an anticipated increase in interest rates. Unlike entering
directly into a futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the purchase of a put
option on a futures contract entitles (but does not obligate) its purchaser to
decide on or before a future date whether to assume a short position at the
specified price.

Generally, if the hedged portfolio securities decrease in value during the term
of an option, the related futures contracts will also decrease in value and the
option will increase in value. In such an event, the Fund will normally close
out its option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be large
enough to offset both the premium paid by the Fund for the original option plus
the decrease in value of the hedged securities. Alternatively, the Fund may
exercise its put option to close out the position. To do so, it would
simultaneously enter into a futures contract of the type underlying the option
(for a price less than the strike price of the option) and exercise the option.
The Fund would then deliver the futures contract in return for payment of the
strike price. If the Fund neither closes out nor exercises an option, the option
will expire on the date provided in the option contract, and only the premium
paid for the contract will be lost.

STOCK INDEX OPTIONS

The Fund may purchase put options on stock indices listed on national securities
exchanges or traded in the over-the-counter market. A stock index fluctuates
with changes in the market values of the stocks included in the index. The
effectiveness of purchasing stock index options will depend upon the extent to
which price movements in the Fund's portfolio correlate with price movements of
the stock index selected. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular stock,
whether the Fund will realize a gain or loss from the purchase of options on an
index depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use by the Fund of options on stock indices will be subject to the
ability of the Adviser to predict correctly movements in the directions of the
stock market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual stocks.

CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS

In addition to purchasing put options on futures, the Fund may write listed and
over-the-counter call options on financial and stock index futures contracts
(including cash-settled stock index options) to hedge its portfolio against an
increase in market interest rates or a decrease in stock prices. When the Fund
writes a call option on a futures contract, it is undertaking the obligation of
assuming a short futures position (selling a futures contract) at the fixed
strike price at any time during the life of the option if the option is
exercised. As stock prices fall or market interest rates rise, causing the
prices of futures to go down, the Fund's obligation under a call option on a
future (to sell a futures contract) costs less to fulfill, causing the value of
the Fund's call option position to increase. In other words, as the underlying
futures price goes down below the strike price, the buyer of the option has no
reason to exercise the call, so that the Fund keeps the premium received for the
option. This premium can substantially offset the drop in value of the Fund's
portfolio securities. Prior to the expiration of a call written by the Fund, or
exercise of it by the buyer, the Fund may close out the option by buying an
identical option. If the hedge is successful, the cost of the second option will
be less than the premium received by the Fund for the initial option. The net
premium income of the Fund will then substantially offset the decrease in value
of the hedged securities. The Fund will not maintain open positions in futures
contracts it has sold or call options it has written on futures contracts if, in
the aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus or minus the unrealized
gain or loss on those open positions, adjusted for the correlation of volatility
between the hedged securities and the futures contracts. If this limitation is
exceeded at any time, the Fund will take prompt action to close out a sufficient
number of open contracts to bring its open futures and options positions within
this limitation.

PURCHASING PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES

The Fund may purchase put and call options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put option
gives the Fund, in return for a premium, the right to sell the underlying
security to the writer (seller) at a specified price during the term of the
option. A call option gives the Fund, in return for a premium, the right to buy
the underlying securities from the seller.

WRITING COVERED PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES

The Fund may also write covered put and call options to generate income and
thereby protect against price movements in particular securities in the Fund's
portfolio. As the writer of a call option, the Fund has the obligation upon
exercise of the option during the option period to deliver the underlying
security upon payment of the exercise price. As the writer of a put option, the
Fund has the obligation to purchase a security from the purchaser of the option
upon the exercise of the option. The Fund may only write call options either on
securities held in its portfolio or on securities which it has the right to
obtain without payment of further consideration (or has segregated cash in the
amount of any additional consideration). In the case of put options, the Fund
will segregate cash or U.S. Treasury obligations with a value equal to or
greater than the exercise price of the underlying securities.

OVER-THE-COUNTER OPTIONS

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.

LENDING OF PORTFOLIO SECURITIES

REPURCHASE AGREEMENTS

REVERSE REPURCHASE AGREEMENTS

PORTFOLIO TURNOVER

The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. It is not anticipated that the portfolio
trading engaged in by the Fund will result in its annual rate of portfolio
turnover exceeding 200%.

FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997, THE PORTFOLIO TURNOVER RATE WAS
118%. INVESTMENT LIMITATIONS

SELLING SHORT AND BUYING ON MARGIN

The Fund will not sell any securities short or purchase any securities on
margin, other than in connection with buying stock index futures
contracts, put options on stock index futures, put options on financial
futures and portfolio securities, and writing covered call options, but
may obtain such short-term credits as are necessary for the clearance of
purchases and sales of portfolio securities. The deposit or payment by the
Fund of initial or variation margin in connection with financial futures
contracts or related options transactions is not considered the purchase
of a security on margin.

ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Fund will not issue senior securities, except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding.

PLEDGING ASSETS

The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. For purposes of this limitation, the
following will not be deemed to be pledges of the Fund's assets: margin
deposits for the purchase and sale of financial futures contracts and
related options, and segregation or collateral arrangements made in
connection with options activities or the purchase of securities on a
when-issued basis.

CONCENTRATION OF INVESTMENTS

The Fund will not invest 25% or more of the value of its total assets in
any one industry, except that the Fund may invest 25% or more of the value
of its total assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities.

INVESTING IN COMMODITIES

The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts. However, the Fund may purchase put options on
stock index futures, put options on financial futures, stock index futures
contracts, and put options on portfolio securities, and may write covered
call options.

INVESTING IN REAL ESTATE

LENDING CASH OR SECURITIES

The Fund will not lend any of its assets, except portfolio securities.
This shall not prevent the Fund from purchasing or holding U.S. government
obligations, money market instruments, variable rate demand notes, bonds,
debentures, notes, certificates of indebtedness, or other debt securities,
entering into repurchase agreements, or engaging in other transactions
where permitted by the Fund's investment objective, policies, and
limitations or the Trust's Declaration of Trust.

UNDERWRITING

DIVERSIFICATION OF INVESTMENTS

With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items, or securities issued or guaranteed by the
U.S. government, its agencies, or instrumentalities, and repurchase
agreements collateralized by such securities) if, as a result, more than
5% of the value of its total assets would be invested in the securities of
that issuer, and will not acquire more than 10% of the outstanding voting
securities of any one issuer. For these purposes, the Fund takes all
common stock and all preferred stock of an issuer each as a single class,
regardless of priorities, series, designations, or other differences.

INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed time
deposits with maturities over seven days, over-the-counter options, and
certain restricted securities not determined by the Trustees to be liquid.

PURCHASING SECURITIES TO EXERCISE CONTROL

The Fund will not purchase securities of a company for the purpose of
exercising control or management.

WRITING COVERED CALL OPTIONS

For purposes of its policies and limitations, the Fund considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings and loan having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash items."

The Fund has no present intent to borrow money, pledge securities, or invest
in reverse repurchase agreements in excess of 5% of the value of its total
assets in the coming fiscal year. In addition, the Fund expects to lend not
more than 5% of its total assets in the coming fiscal year.

<PAGE>

FEDERATED EQUITY FUNDS MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Equity Funds, and principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924

Chairman and Trustee

Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937

Trustee

<PAGE>

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918

Trustee

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922

Trustee

Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932

Trustee

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924

Trustee

Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942

Trustee

Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932

Trustee

President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925

Trustee

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935

Trustee

Public relations/Marketing/Conference Planning; Director or Trustee of the
Funds.

Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929

President

Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.

<PAGE>

J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949

Executive Vice President

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930

Executive Vice President

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938

Executive Vice President , Secretary and Treasurer

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923

Vice President

Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.

* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.

@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.

SHARE OWNERSHIP

Officers and Trustees own less than 1% of the Fund's outstanding Shares.

As of December 1, 1997, the following shareholders of record owned 5% or more of
the outstanding Class A Shares of the Fund: Frojack Co., Grand Forks, North
Dakota, owned approximately 600,556 Shares (7.91%), FNB Nominee Co., First
Commonwealth Trust Co., Indiana, Pennsylvania, owned approximately 551,668
Shares, and Merrill Lynch Pierce Fenner & Smith, Jacksonville, Florida, for the
sole benefit of its customers, owned approximately 423,891 Shares (5.58%).

As of December 1, 1997, the following shareholder of record owned 5% or more of
the outstanding Class B Shares of the Fund: Merrill Lynch Pierce Fenner & Smith
, Jacksonville, Florida, for the sole benefit of its customers, owned
approximately 825,384 Shares (7.92%).

As of December 1, 1997, the following shareholders of record owned 5% or more of
the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner & Smith,
Jacksonville, Florida, for the sole benefit of its customers, owned
approximately 487,467 Shares (33.13%) and Keith Co., Regions Bank, Monroe,
Louisiana, owned approximately 119,429 Shares (8.12%).

<PAGE>

TRUSTEES COMPENSATION

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +

John F. Donahue $ 0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund
Complex

Thomas G. Bigley $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex

John T. Conroy, Jr. $1,600 $119,615 115,760 for the Trust and
Trustee 56 other investment companies in the
Fund Complex

William J. Copeland $1,600 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex

James E. Dowd $1,600 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex

Lawrence D. Ellis, M.D. $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex

Edward L. Flaherty, Jr. $1,600 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex

Peter E. Madden $ 1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex

John E. Murray, Jr. $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex

Wesley W. Posvar $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex

Marjorie P. Smuts $1,454 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex

</TABLE>

* Information is furnished for the fiscal year ended October 31, 1997.

# The aggregate compensations is provided for the Trust which is comprised of 4
portfolios.

+ The information is provided for the last calendar year.

TRUSTEE LIABILITY

INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND

ADVISORY FEES

For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus. During the fiscal year ended October 31,
1997, 1996, the Fund's Adviser earned $1,283,451, $155,023, all of which was
waived for the fiscal year ended October 31, 1996.

OTHER RELATED SERVICES

For the fiscal year ended October 31, 1997, the Fund paid total brokerage
commissions of $474,382.

OTHER SERVICES
FUND ADMINISTRATION

Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. From March 1, 1994, to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
October 31, 1997 and 1996, the Administrators earned $195,031 and $184,493,
respectively.

CUSTODIAN

State Street Bank and Trust Company (State Street Bank"), Boston, MA, is
custodian for the securities and cash of the Fund. Federated Services Company,
Pittsburgh, PA, provides certain accounting and recordkeeping services with
respect to the Fund's portfolio investments. The fee paid for this service is
based upon the level of the Fund's average net assets for the period plus
out-of-pocket expenses.

TRANSFER AGENT

INDEPENDENT AUDITORS

The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
PA.

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES

CONCURRENT PURCHASES

LETTER OF INTENT

REINVESTMENT PRIVILEGE

CONVERSION OF CLASS B SHARES

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT

These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services as appropriate, to stimulate
distribution activities and to cause services to be provided to shareholders by
a representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses. By
adopting the Distribution Plan, the Trustees expect that the Class A Shares,
Class B Shares, and Class C Shares of the Fund will be able to achieve a more
predictable flow of cash for investment purposes and to meet redemptions. This
will facilitate more efficient portfolio management and assist the Fund in
pursuing its investment objectives. By identifying potential investors whose
needs are served by the Fund's objectives, and properly servicing these
accounts, it may be possible to curb sharp fluctuations in rates of redemptions
and sales. Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.

For the fiscal year ended October 31, 1997, the Fund paid distribution service
fees for Class A Shares, Class B Shares, and Class C Shares in amounts of $0,
$672,399 and $109,541, respectively. For the fiscal year ended October 31, 1997,
the Fund paid shareholder service fees for Class A Shares, Class B Shares, and
Class C Shares in the amounts of $167,166, $224,133 and $36,514, respectively.

PURCHASES BY SALES REPRESENTATIVES, FUND TRUSTEES, AND EMPLOYEES

The following individuals and their immediate family members may buy Class A
Shares at net asset value without a sales charge:

o Trustees, employees, and sales representatives of the Fund, Federated
Management, and Federated Securities Corp. and its affiliates;

o Federated Life Members (Class A Shares Only);

o any associated person of an investment dealer who has a sales agreement with
Federated Securities Corp.; and

o trusts, pensions, or profit-sharing plans for these individuals.

These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities, other than options, are
determined as follows:

o according to the last sale price on a national securities exchange, if
available;

o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices and for bonds and
other fixed income securities as determined by an independent pricing
service;

o for unlisted equity securities, the latest bid prices; or

o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service or at fair value
as determined in good faith by the Board of Trustees.

REDEMPTION IN KIND

CONTINGENT DEFERRED SALES CHARGE

ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES

TAX CONSEQUENCES

TAX STATUS
THE FUND'S TAX STATUS

o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;

o invest in securities within certain statutory limits; and

o distribute to its shareholders at least 90% of its net income earned
during the year.

SHAREHOLDERS' TAX STATUS

CAPITAL GAINS

Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
the Fund Shares.

TOTAL RETURN
The Fund's average annual total returns based on offering price for the
following periods ended October 31, 1997 were:

SHARE CLASSINCEPTION DATEONE-YEAR SINCE INCEPTION

Class A November 1, 199522.46% 34.19%
Class B November 1, 199523.01% 35.35%
Class C November 1, 199527.56% 37.03%

<PAGE>

YIELD
The Fund's yields for the thirty-day period ended October 31, 1997 were:

SHARE CLASSYIELD

Class A (11.85%)
Class B (11.92%)
Class C (7.71%)

PERFORMANCE COMPARISONS
The performance of each of the classes of Shares depends upon such variables as:

o portfolio quality;

o average portfolio maturity;

o type of instruments in which the portfolio is invested;

o changes in interest rates and market value of portfolio securities;

o changes in the Fund's or any class of Shares' expenses; and

o various other factors.

o RUSSELL 2000 SMALL STOCK INDEX is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used to
compare to the total returns of funds whose portfolios are invested
primarily in small capitalization common stocks.

o STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS (S&P 500), a
composite index of common stocks in industry, transportation, and financial
and public utility companies, can be used to compare to the total returns of
funds whose portfolios are invested primarily in common stocks. In addition,
the S & P 500 assumes reinvestments of all dividends paid by stocks listed
on its index. Taxes due on any of these distributions are not included, nor
are brokerage or other fees calculated in the Standard & Poor's figures.

o STANDARD & POOR'S 600 SMALL CAPITALIZATION INDEX S&P SMALL CAP 600 is an
unmanaged index of 600 small capitalization common stocks with a market
capitalization generally ranging between $80 million and $600 million. The
index, monitored by Standard & Poor's Corporation, is cited as an indicator
of small capitalization stock performance.

o LIPPER SMALL COMPANY GROWTH FUND AVERAGE is an average of the total returns
for 312 growth funds tracked by Lipper Analytical Services, Inc., an
independent mutual fund rating service.

o LIPPER SMALL COMPANY GROWTH FUND INDEX is an average of the net
asset-valuated total returns for the top 30 small company growth funds
tracked by Lipper Analytical Services, Inc., an independent mutual fund
rating service.

o MORNINGSTAR, INC. , an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings arc effective for two
weeks.

o WILSHIRE 5000 EQUITY INDEX consists of nearly 5,000 common equity
securities, covering all stocks in the U.S. for which daily pricing is
available, and can be used to compare to the total returns of funds whose
portfolios are invested primarily in common stocks.

o STRATEGIC INSIGHT SMALL COMPANY GROWTH FUNDS INDEX consists of mutual funds
that invest primarily in companies below $750 million in total market
capitalization.

o MUTUAL FUND SOURCE BOOK, published by Morningstar, Inc., analyzes price,
yield, risk, and total return for equity and fixed income funds.

o STRATEGIC INSIGHT MUTUAL FUND RESEARCH AND CONSULTING, ranks funds in
various fund categories by making comparative calculations using total
return. Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any change in net
asset value over a specified period of time. From time to time, the Fund
will quote its Strategic Insight ranking in the "small company growth funds"
category in advertising and sales literature.

From time to time as it deems appropriate, the Fund may advertise the
performance of any class of Shares using charts, graphs, and descriptions,
compared to federally insured bank products including certificates of deposit
and time deposits and to money market funds using the Lipper Analytical Services
money market instruments average. In addition, advertising and sales literature
for the Fund may use charts and graphs to illustrate the principles of
dollar-cost averaging and may disclose the amount of dividends paid by the Fund
over certain periods of time.

Advertisements may quote performance information which does not reflect the
effect of the sales charge on Class A Shares.

Advertising and other promotional literature may include charts, graphs, and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.

ECONOMIC AND MARKET INFORMATION

Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by the Fund portfolio managers and their views and analysis on how
such developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.

In the equity sector, Federated Investors has more than 26 years' experience.
As of December 31, 1996, Federated managed 31 equity funds totaling
approximately $7.6 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated Investors'
value-oriented management style combines quantitative and qualitative analysis
and features a structured, computer-assisted composite modeling system that was
developed in the 1970s.

MUTUAL FUND MARKET

Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:

* source: Investment Company Institute
INSTITUTIONAL CLIENTS

Federated meets the needs of more than 4,000 institutional clients nationwide by
managing and servicing separate accounts and mutual funds for a variety of
applications, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisors. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division.

BANK MARKETING

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country-- supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high rankings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.

FINANCIAL STATEMENTS
The financial statements for Federated Small Cap Strategies Fund for the fiscal
year ended October 31, 1997 are incorporated herein by reference to the Annual
Report to Shareholders of Federated Small Cap Strategies Fund dated October 31,
1997 (File No. 811-4017). A copy of the Annual Report may be obtained without
charge by contacting the Fund.

<PAGE>

APPENDIX
STANDARD AND POOR'S RATINGS SERVICES ("S&P") LONG TERM DEBT RATING
DEFINITIONS

AAA--Debt rated AAA has the highest rating assigned by S&P Capacity to pay
interest and repay principal is extremely strong.

AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.

B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.

CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.

CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.

C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

CI--The rating CI is reserved for income bonds on which no interest is being
paid.

D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's Ratings Group
believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.

MOODY'S INVESTORS SERVICE, INC. LONG TERM BOND RATING DEFINITIONS

Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future. Baa--Bonds which
are rated Baa are considered as medium grade obligations, (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

Ba--Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well assured. Of ten the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class. B--Bonds which are rated B generally lack characteristics
of a desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATING DEFINITIONS

CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C--Bonds are in imminent default in payment of interest or principal.

DDD, DD, and D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS

Prime-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:

o Leading market positions in well established industries.

o High rates of return on funds employed.

o Conservative capitalization structure with moderate reliance on debt and
ample asset protection. - Broad margins in earning coverage of fixed
financial charges and high internal cash generation. - Well established
access to a range of financial markets and assured sources of alternate
liquidity. Prime-2--Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is
maintained.

STANDARD AND POOR'S RATINGS SERVICES COMMERCIAL PAPER RATINGS

A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

FITCH INVESTORS SERVICE, L.P. COMMERCIAL PAPER RATING

FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.

FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.

PART C. OTHER INFORMATION.

Item 24. FINANCIAL STATEMENTS AND EXHIBITS:

(a) Financial Statements (Filed in the Annual Reports to Shareholders
dated October 31, 1997); (b) Exhibits: (1) Conformed copy of
Declaration of Trust of the Registrant; (11) (i) Conformed copy of
Amended and Restated Declaration of Trust; (12) (2) Copy of By-Laws of
the Registrant as amended; (11) (i) Copy of Amendment No. 2 to By-Laws
effective February 2, 1987; (11) (ii) Copy of Amendment No. 3 to
By-Laws effective August 25, 1988; (11) (iii) Copy of Amended and
Restated By-Laws effective August 15, 1995; (12) (3) Not applicable;
(4) (i) Copy of Specimen Certificate for Shares of Beneficial Interest
of the Registrant (Federated Small Cap Strategies Fund); (7) (ii) Copy
of Specimen Certificate for Shares of Beneficial Interest of the
Registrant (Federated Growth Strategies Fund); (8) (iii) Copy of
Specimen Certificate for Shares of Beneficial Interest of the
Registrant (Federated Capital Appreciation Fund); (9) (iv) Copy of
Specimen Certificate for Shares of Beneficial Interest of the
Registrant (Federated Aggressive Growth Fund); (13) (5) (i) Conformed
copy of Investment Advisory Contract on behalf of the Registrant; (6)
(ii) Conformed copy of Investment Advisory Contract on behalf of the
Registrant, which includes Exhibits A and B for Federated Small Cap
Strategies Fund and Federated Capital Appreciation Fund, respectively;
(10) ...... 6. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 20 on Form N-1A filed December 29, 1994.
(File Nos. 2-91090 and 811-4017)

7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 on Form N-1A filed June 30, 1995. (File Nos. 2-91090
and 811-4017)

8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed July 17, 1995. (File Nos. 2-91090
and 811-4017)

9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 on Form N-1A filed August 31, 1995. (File Nos.
2-91090 and 811-4017)

10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed September 12, 1995. (File Nos. 2-
91090 and 811-4017)

11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 31 on Form N-1A filed June 11, 1996. (File Nos. 2-91090
and 811-4017)

12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 30 on Form N-1A filed May 31, 1996. (File Nos. 2-91090
and 811-4017)

13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 34 on Form N-1A filed December 30, 1996. (File Nos.
2-91090 and 811-4017)

<PAGE>

(iii) Conformed copy of Exhibit C to the Investment Advisory
Contract for Federated Aggressive Growth Fund; (14)
(6) Conformed copy of Distributor's Contract; (10)
(i) Conformed copy of Exhibit A to the Distributor's
Contract for Federated Small Cap Strategies Fund, Class A
Shares; (10) (ii) Conformed copy of Exhibit B to the
Distributor's Contract for Federated Small Cap Strategies
Fund, Class B Shares; (10)
(iii) Conformed copy of Exhibit C to the Distributor's
Contract for Federated Small Cap Strategies Fund, Class C
Shares; (10) (iv) Conformed copy of Exhibit D to the
Distributor's Contract for Federated Growth Strategies Fund,
Class A Shares; (10)
(v) Conformed copy of Exhibit E to the Distributor's
Contract for Federated Growth Strategies Fund, Class B
Shares; (10) (vi) Conformed copy of Exhibit F to the
Distributor's Contract for Federated Growth Strategies Fund,
Class C Shares; (10)
(vii) Conformed copy of Exhibit G to the Distributor's
Contract for Federated Capital Appreciation Fund, Class A
Shares; (10) (viii) Conformed copy of Exhibit H to the
Distributor's Contract for Federated Capital Appreciation Fund,
Class B Shares; (10)
(ix) Conformed copy of Exhibit I to the Distributor's
Contract for Federated Capital Appreciation Fund, Class C
Shares; (10) (x) Conformed copy of Exhibit J to the
Distributor's Contract for Federated Aggressive Growth Fund,
Class A Shares; (14)
(xi) Conformed copy of Exhibit K to the Distributor's
Contract for Federated Aggressive Growth Fund, Class B Shares;
(14) (xii) Conformed copy of Exhibit L to the Distributor's
Contract for Federated Aggressive Growth Fund, Class C Shares;
(14)
(xiii) Conformed copy of Distributor's Contract (Class B
Shares); + (xiv) Conformed copy of Amendment to the
Distribution Plan (Class B Shares); +
(xv) The Registrant hereby incorporates the conformed copy of
the specimen Mutual Funds Sales and Service Agreement;
Mutual Funds Service Agreement; and Plan Trustee/Mutual
Funds Service Agreement from Item 24(b)(6) of the Cash
Trust Series II Registration Statement on Form N-1A,
filed with the Commission on July 24, 1995. (File No.
33-38550 and 811-6269)
(7) Not applicable;
(8) (i) Conformed Copy of the Custodian Agreement of the
Registrant; (6)

+ All exhibits have been filed electronically.
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed December 29, 1994. (File Nos. 2-
91090 and 811-4017)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed September 12, 1995. (File Nos. 2-
91090 and 811-4017)
14. Response is incorporated by reference to Registrant's Post Effective
Amendment No. 29 on Form N-1A filed May 29, 1997. (File Nos. 2-
910090 and 811-4017)

<PAGE>

(ii) Conformed copy of Custodian Fee Schedule; (15)
(9) (i) Conformed copy of Amended and Restated Shareholder
Services Agreement; (15)
(ii) Conformed Copy of Agreement for Fund Accounting
Services, Administrative Services, Transfer Agency
Services, and Custody Services Procurement; (15)
(iii) Conformed copy of Principal Shareholder Servicer's
Agreement (Class B Shares); + (iv) Conformed copy of
Shareholder Services Agreement (Class B Shares); + (v) The
Registrant hereby incorporates by reference the conformed copy
of the Shareholder Services Sub-Contract between Fidelity
and Federated Shareholder Services from Item 24(b)(9)(iii)
of the Federated GNMA Trust Registration Statement on
Form N-1A, filed with the Commission on March 25, 1996
(File Nos. 2-75670 and 811-3375);
(iv) The responses and exhibits described in Item 24(b)(6)
are hereby incorporated by reference.
(10) Conformed copy of the Opinion and Consent of Counsel
regarding legality of shares being registered; (6)
(11) Conformed Copy of Consent of Independent Auditors; (+)
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding; (2)
(14) Not applicable;
(15) Conformed Copy of Distribution Plan; (10)
(i) Conformed copy of Exhibit A to the Distribution Plan for
Federated Small Cap Strategies Fund, Class A Shares; (10)
(ii) Conformed copy of Exhibit B to the Distribution Plan for
Federated Small Cap Strategies Fund, Class B Shares; (10)
(iii) Conformed copy of Exhibit C to the Distribution Plan for
Federated Small Cap Strategies Fund, Class C Shares; (10)
(iv) Conformed copy of Exhibit D to the Distribution Plan for
Federated Growth Strategies Fund, Class B Shares; (10)
(v) Conformed copy of Exhibit E to the Distribution Plan
for Federated Growth Strategies Fund, Class C Shares;
(10)
(vi) Conformed copy of Exhibit F to the Distribution Plan for
Federated Capital Appreciation Fund, Class A Shares; (10)
(vii) Conformed copy of Exhibit I to the Distribution Plan for
Federated Aggressive Growth Fund, Class A Shares; (14)
(viii) Conformed copy of Exhibit J to the Distribution Plan for
Federated Aggressive Growth Fund, Class B Shares;(14)

+ All exhibits have been filed electronically.

2. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed February 28, 1985. (File Nos.
2-91090 and 811-4017)

6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed December 29, 1994. (File Nos.
2-91090 and 811-4017)

10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 26 on Form N-1A filed September 12, 1995. (File Nos.
2-91090 and 811-4017)

14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 29 on Form N-1A filed May 29, 1997. (File Nos. 2- 910090
and 811-4017)

15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 31 on Form N-1A filed October 30, 1997. (File Nos. 2-
91090 and 811-4017)

<PAGE>

(ix) Conformed copy of Exhibit K to the Distribution Plan for
Federated Aggressive Growth Fund, Class C Shares; (14) (x)
The responses described in Item 24(b)(xiii) are hereby
incorporated by reference;
(16) (i) Copy of Schedule for Computation of Fund Performance
Data for Federated Growth Strategies Fund; (6)
(ii) Copy of Schedule for Computation of Fund Performance
Data for the Federated Aggressive Growth Fund; (14)
(17) Copy of Financial Data Schedules; (+)
(18) The Registrant hereby incorporates the conformed copy of the
specimen Multiple Class Plan from Item 24(b)(18) of the World
Investment Series, Inc. Registration Statement on Form N-1A,
filed with the Commission on January 26, 1996. (File Nos.
33-52149 and 811-07141);
(19) Conformed copy of Power of Attorney; (13)

Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT:

None

Item 26. NUMBER OF HOLDERS OF SECURITIES:

Number of Record Holders
TITLE OF CLASS AS OF DECEMBER 1, 1997
-------------- ----------------------

Shares of Beneficial Interest
(no par value)

Federated Growth Strategies Fund
Class A Shares 17,939
Class B Shares 4,229
Class C Shares 731

Federated Small Cap Strategies Fund
Class A Shares 8,334
Class B Shares 19,494
Class C Shares 1,968

Federated Capital Appreciation Fund
Class A Shares 2,230
Class B Shares 2,385
Class C Shares 573

Federated Aggressive Growth Fund
Class A Shares 1,688
Class B Shares 1,848
Class C Shares 1,155

Item 27. INDEMNIFICATION: (1)

+ All exhibits have been filed electronically.

1. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed July 9, 1984. (File Nos. 2-91090
and 811-4017)

6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed December 29, 1994. (File Nos.
2-91090 and 811-4017)

13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 34 on Form N-1A filed December 30, 1996. (File Nos.
2-91090 and 811-4017)

14. Response is incorporated by reference to Registrant's Post Effective
Amendment No. 29 on Form N-1A filed May 29, 1997. (File Nos. 2- 910090
and 811-4017)

<PAGE>

Item 28. Business and Other Connections of Investment Adviser:

(a) For a description of the other business of the investment adviser, see
the section entitled "Trust Information - Management of the Trust" in
Part A. The affiliations with the Registrant of four of the Trustees
and one of the Officers of the investment adviser are included in Part
B of this Registration Statement under "Federated Equity Funds
Management." The remaining Trustee of the investment adviser, his
position with the investment adviser, and, in parentheses, his
principal occupation is: Mark D. Olson (Partner, Wilson, Halbrook &
Bayard), 107 W. Market Street, Georgetown, Delaware 19947.

The remaining Officers of the investment adviser are:

Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden

Senior Vice Presidents: Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson

Vice Presidents: J. Scott Albrecht
Joseph M. Balestrino
Randall S. Bauer
David A. Briggs
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Marian R. Marinack
Sandra L. McInerney
Robert J. Ostrowski
Charles A. Ritter
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
William F. Stotz
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka

<PAGE>

Assistant Vice Presidents: Todd A. Abraham
Stefanie L. Bachhuber
Arthur J. Barry
Micheal W. Casey
Robert E. Cauley
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
Robert M. Marsh
Joseph M. Natoli
Keith J. Sabol
Michael W. Sirianni
Gregg S. Tenser

Secretary: Stephen A. Keen

Treasurer: Thomas R. Donahue

Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle

Assistant Treasurer: Richard B. Fisher

The business address of each of the Officers of the investment adviser
is Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
These individuals are also officers of a majority of the investment
advisers to the Funds listed in Part B of this Registration Statement.

ITEM 29. PRINCIPAL UNDERWRITERS:

(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following
open-end investment companies, including the Registrant:

111 Corcoran Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund,
Inc.; Federated ARMs Fund; Federated Equity Income Fund, Inc.; Federated Fund
for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government
Income Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds;
Fixed Income Securities, Inc.; High Yield Cash Trust; Independence One Mutual
Funds; Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust; Marshall Funds, Inc.;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; SouthTrust Vulcan Funds;
Star Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters
Funds; The Virtus Funds; The Wachovia Funds; The Wachovia Municipal Funds; Tower
Mutual Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Vision Group of Funds, Inc.; and World Investment Series,
Inc.

Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.

(b)

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary and Asst.
Treasurer, Federated
Securities Corp.

Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.

Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp.

James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Brian G. Kelly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

George D. Riedel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT

John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

<PAGE>

Item 30. LOCATION OF ACCOUNTS AND RECORDS:

All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:

Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Services Company Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779

Federated Management Federated Investors Tower
("Adviser") Pittsburgh, PA 15222-3779

Federated Shareholder Services Company Federated Investors Tower
("Transfer Agent and Dividend Pittsburgh, PA 15222-3779
Disbursing Agent")

State Street Bank and Trust Company P.O. Box 8600
("Custodian") Boston, MA 02266-8600

Item 31. MANAGEMENT SERVICES: Not applicable.

Item 32. UNDERTAKINGS:

Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.

Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant, FEDERATED EQUITY FUNDS,
certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on the
30th day of December, 1997.

FEDERATED EQUITY FUNDS

BY: /s/ Matthew S. Hardin
Matthew S. Hardin, Assistant Secretary
Attorney in Fact for John F. Donahue
December 30, 1997

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:

NAME TITLE DATE

By: /s/ Matthew S. Hardin Attorney In Fact December 30, 1997
Matthew S. Hardin For the Persons
ASSISTANT SECRETARY Listed Below

John F. Donahue* Chairman and Trustee
(Chief Executive Officer)

Glen R. Johnson* President

John W. McGonigle* Executive Vice President,
Treasurer and Secretary
(Principal Financial and
Accounting Officer)

Thomas G. Bigley* Trustee

John T. Conroy, Jr.* Trustee

William J. Copeland* Trustee

James E. Dowd* Trustee

Lawrence D. Ellis, M.D.* Trustee

Edward L. Flaherty, Jr.* Trustee

Peter E. Madden* Trustee

John E. Murray, Jr.* Trustee

Wesley W. Posvar* Trustee

Marjorie P. Smuts* Trustee

* By Power of Attorney

Exhibit (11) under N-1A
Exhibit 23 under 601/Reg SK

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the references to our firm under the captions "Financial
Highlights" and to the use of our report dated December 12, 1997, in
Post-Effective Amendment Number 38 to the Registration Statement (Form N-1A No.
2-91090) and the related Annual Reports and Prospectuses of Federated Equity
Funds (comprising respectively, Federated Growth Strategies Fund, Federated
Small Cap Strategies Fund, Federated Capital Appreciation Fund, and Federated
Aggressive Growth Fund) dated December 31, 1997.

/s/Ernst & Young, LLP
Ernst & Young, LLP

Pittsburgh, Pennsylvania
December 22, 1997

Exhibit 6(xiii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

DISTRIBUTOR'S CONTRACT

AGREEMENT made this 24th day of October, 1997, by and between those
Investment Companies on behalf of the Portfolios and Classes of Shares
listed on Schedule A to Exhibit 1, as may be amended from time to time,
having their principal place of business at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779, and who have approved this form of
Agreement, and FEDERATED SECURITIES CORP. ("FSC"), a Pennsylvania
Corporation. Each of the Exhibits hereto is incorporated herein in its
entirety and made a part hereof. In the event of any inconsistency between
the terms of this Agreement and the terms of any applicable Exhibit, the
terms of the applicable Exhibit shall govern.

In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:

1. Each of the Investment Companies hereby appoint FSC as agent to sell and
distribute shares of the Investment Companies which may be offered in
one or more series (the "Funds") consisting of one or more classes (the
"Classes") of shares (the "Shares"), as described and set forth on one
or more exhibits to this Agreement, at the current offering price
thereof as described and set forth in the current Prospectuses of the
Funds. FSC hereby accepts such appointment and agrees to provide such
other services for the Investment Companies, if any, and accept such
compensation from the Investment Companies, if any, as set forth in the
applicable exhibits to this Agreement.

2. The sale of any Shares may be suspended without prior notice whenever in
the judgment of the applicable Investment Company it is in its best
interest to do so.

3. Neither FSC nor any other person is authorized by the Investment Companies
to give any information or to make any representation relative to any
Shares other than those contained in the Registration Statement,
Prospectuses, or Statements of Additional Information ("SAIs") filed with
the Securities and Exchange Commission, as the same may be amended from
time to time, or in any supplemental information to said Prospectuses or
SAIs approved by the Investment Companies. FSC agrees that any other
information or representations other than those specified above which it or
any dealer or other person who purchases Shares through FSC may make in
connection with the offer or sale of Shares, shall be made entirely without
liability on the part of the Investment Companies. No person or dealer,
other than FSC, is authorized to act as agent for the Investment Companies
for any purpose. FSC agrees that in offering or selling Shares as agent of
the Investment Companies, it will, in all respects, duly conform to all
applicable state and federal laws and the rules and regulations of the
National Association of Securities Dealers, Inc., including its Rules of
Fair Practice. FSC will submit to the Investment Companies copies of all
sales literature before using the same and will not use such sales
literature if disapproved by the Investment Companies.

4. This Agreement is effective with respect to each Class as of the date of
execution of the applicable exhibit and shall continue in effect with
respect to each Class presently set forth on an exhibit and any subsequent
Classes added pursuant to an exhibit during the initial term of this
Agreement for one year from the date set forth above, and thereafter for
successive periods of one year if such continuance is approved at least
annually by the Trustees/Directors of the Investment Companies including a
majority of the members of the Board of Trustees/Directors of the
Investment Companies who are not interested persons of the Investment
Companies and have no direct or indirect financial interest in the
operation of any Distribution Plan relating to the Investment Companies or
in any related documents to such Plan ("Disinterested Trustees/Directors")
cast in person at a meeting called for that purpose. If a Class is added
after the first annual approval by the Trustees/Directors as described
above, this Agreement will be effective as to that Class upon execution of
the applicable exhibit and will continue in effect until the next annual
approval of this Agreement by the Trustees/Directors and thereafter for
successive periods of one year, subject to approval as described above.

5. This Agreement may be terminated with regard to a particular Fund or
Class at any time, without the payment of any penalty, by the vote of a
majority of the Disinterested Trustees/Directors or by a majority of the
outstanding voting securities of the particular Fund or Class on not
more than sixty (60) days' written notice to any other party to this
Agreement.

6. This Agreement may not be assigned by FSC and shall automatically
terminate in the event of an assignment by FSC as defined in the
Investment Company Act of 1940, as amended, provided, however, that FSC
may employ such other person, persons, corporation or corporations as it
shall determine in order to assist it in carrying out its duties under
this Agreement.

7. FSC shall not be liable to the Investment Companies for anything done or
omitted by it, except acts or omissions involving willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties imposed
by this Agreement.

8. This Agreement may be amended at any time by mutual agreement in writing
of all the parties hereto, provided that such amendment is approved by
the Trustees/Directors of the Investment Companies including a majority
of the Disinterested Trustees/Directors of the Investment Companies cast
in person at a meeting called for that purpose.

9. This Agreement shall be construed in accordance with and governed by the
laws of the Commonwealth of Pennsylvania.

10. (a) Subject to the conditions set forth below, the Investment Companies
agree to indemnify and hold harmless FSC and each person, if any, who
controls FSC within the meaning of Section 15 of the Securities Act of 1933
and Section 20 of the Securities Act of 1934, as amended, against any and
all loss, liability, claim, damage and expense whatsoever (including but
not limited to any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement, any Prospectuses or SAIs (as from time to
time amended and supplemented) or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading, unless such statement or
omission was made in reliance upon and in conformity with written
information furnished to the Investment Companies about FSC by or on behalf
of FSC expressly for use in the Registration Statement, any Prospectuses
and SAIs or any amendment or supplement thereof.

If any action is brought against FSC or any controlling person
thereof with respect to which indemnity may be sought against any
Investment Company pursuant to the foregoing paragraph, FSC shall
promptly notify the Investment Company in writing of the
institution of such action and the Investment Company shall assume
the defense of such action, including the employment of counsel
selected by the Investment Company and payment of expenses. FSC or
any such controlling person thereof shall have the right to employ
separate counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of FSC or such controlling
person unless the employment of such counsel shall have been
authorized in writing by the Investment Company in connection with
the defense of such action or the Investment Company shall not
have employed counsel to have charge of the defense of such
action, in any of which events such fees and expenses shall be
borne by the Investment Company. Anything in this paragraph to the
contrary notwithstanding, the Investment Companies shall not be
liable for any settlement of any such claim of action effected
without their written consent. The Investment Companies agree
promptly to notify FSC of the commencement of any litigation or
proceedings against the Investment Companies or any of their
officers or Trustees/Directors or controlling persons in
connection with the issue and sale of Shares or in connection with
the Registration Statement, Prospectuses, or SAIs.

(b) FSC agrees to indemnify and hold harmless the Investment Companies,
each of its Trustees/Directors, each of its officers who have signed
the Registration Statement and each other person, if any, who controls
the Investment Companies within the meaning of Section 15 of the
Securities Act of 1933, but only with respect to statements or
omissions, if any, made in the Registration Statement or any
Prospectus, SAI, or any amendment or supplement thereof in reliance
upon, and in conformity with, information furnished to the Investment
Companies about FSC by or on behalf of FSC expressly for use in the
Registration Statement or any Prospectus, SAI, or any amendment or
supplement thereof. In case any action shall be brought against any
Investment Company or any other person so indemnified based on the
Registration Statement or any Prospectus, SAI, or any amendment or
supplement thereof, and with respect to which indemnity may be sought
against FSC, FSC shall have the rights and duties given to the
Investment Companies, and the Investment Companies and each other
person so indemnified shall have the rights and duties given to FSC by
the provisions of subsection (a) above.

(c) Nothing herein contained shall be deemed to protect any person
against liability to the Investment Companies or their
shareholders to which such person would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in
the performance of the duties of such person or by reason of the
reckless disregard by such person of the obligations and duties of
such person under this Agreement.

(d) Insofar as indemnification for liabilities may be permitted pursuant
to Section 17 of the Investment Company Act of 1940, as amended, for
Trustees/Directors, officers, FSC and controlling persons of the
Investment Companies by the Trustees/Directors pursuant to this
Agreement, the Investment Companies are aware of the position of the
Securities and Exchange Commission as set forth in the Investment
Company Act Release No. IC-11330. Therefore, the Investment Companies
undertakes that in addition to complying with the applicable
provisions of this Agreement, in the absence of a final decision on
the merits by a court or other body before which the proceeding was
brought, that an indemnification payment will not be made unless in
the absence of such a decision, a reasonable determination based upon
factual review has been made (i) by a majority vote of a quorum of
non-party Disinterested Trustees/Directors, or (ii) by independent
legal counsel in a written opinion that the indemnitee was not liable
for an act of willful misfeasance, bad faith, gross negligence or
reckless disregard of duties. The Investment Companies further
undertakes that advancement of expenses incurred in the defense of a
proceeding (upon undertaking for repayment unless it is ultimately
determined that indemnification is appropriate) against an officer,
Trustees/Directors, FSC or controlling person of the Investment
Companies will not be made absent the fulfillment of at least one of
the following conditions: (i) the indemnitee provides security for his
undertaking; (ii) the Investment Companies is insured against losses
arising by reason of any lawful advances; or (iii) a majority of a
quorum of non-party Disinterested Trustees/Directors or independent
legal counsel in a written opinion makes a factual determination that
there is reason to believe the indemnitee will be entitled to
indemnification.

"11.FSC is hereby expressly put on notice of the limitation of liability as
set forth in the Declaration of Trust and agrees that the obligations assumed by
the Trust pursuant to this Agreement shall be limited "

11. If at any time the Shares of any Fund are offered in two or more
Classes, FSC agrees to adopt compliance standards as to when a class of
shares may be sold to particular investors.

12. This Agreement will become binding on the parties hereto upon the
execution of the attached exhibits to the Agreement.

<PAGE>

Exhibit 1
to the
Distributor's Contract

The following provisions are hereby incorporated and made part of the
Distributor's Contract (the "Distributor's Contract") dated October 24, 1997,
between the Investment Companies and Federated Securities Corp. as principal
distributor (the "Principal Distributor") with respect to the Class B Shares of
the portfolios (the "Funds") set forth on the attached Schedule A. References
herein to this Distributor's Contract refer to the Distributor's Contract as
supplemented hereby and made applicable hereby to the Class B Shares of the
Funds. In the event of any inconsistency between the terms of this Exhibit and
the terms of the Distributor's Contract, the terms of this Exhibit will govern.
Once effective in respect of the Class of Shares of any Fund set forth above,
the Distributors Contract as amended by this Exhibit shall be effective in
respect of all shares of such class outstanding whether issued prior to or after
such effectiveness.

1. The Investment Companies hereby appoints the Principal Distributor to
engage in activities principally intended to result in the sale of Class B
Shares ("Class B Shares") of each Fund. Pursuant to this appointment, the
Principal Distributor is authorized to select a group of financial
institutions ("Financial Institutions") to sell Class B Shares of a Fund
at the current offering price thereof as described and set forth in the
respective prospectuses of the Fund.

2. (a) In consideration of the Principal Distributor's services under this
Distributor's Contract in respect of each Fund the Investment Companies
on behalf of the Fund agree: (I) to pay the Principal Distributor or at
its direction its "Allocable Portion" (as hereinafter defined) of a fee
(the "Distribution Fee") equal to 0.75 of 1% per annum of the average
daily net asset value of the Class B Shares of the Fund outstanding
from time to time, and (II) to withhold from redemption proceeds in
respect of Class B Shares of the Fund such Principal Distributor's
Allocable Portion of the Contingent Deferred Sales Charges ("CDSCs")
payable in respect of such redemption as provided in the Prospectus for
the Fund and to pay the same over to such Principal Distributor or at
its direction at the time the redemption proceeds in respect of such
redemption are payable to the holder of the Class B Shares redeemed.

(b)The Principal Distributor will be deemed to have performed all
services required to be performed in order to be entitled to receive
its Allocable Portion of the Distribution Fee payable in respect of the
Class B Shares of a Fund upon the settlement of each sale of a
"Commission Share" (as defined in the Allocation Schedule attached
hereto as Schedule B) of the Fund taken into account in determining
such Principal Distributor's Allocable Portion of such Distribution
Fees.

(c)Notwithstanding anything to the contrary set forth in this Exhibit,
the Distributor's Contract or (to the extent waiver thereof is
permitted thereby) applicable law, the Investment Companies' obligation
to pay the Principal Distributor's Allocable Portion of the
Distribution Fees payable in respect of the Class B Shares of a Fund
shall not be terminated or modified for any reason (including a
termination of this Distributor's Contract as it relates to Class B
Shares of a Fund) except to the extent required by a change in the
Investment Company Act of 1940 (the "Act") or the Conduct Rules of the
National Association of Securities Dealers, Inc., in either case
enacted or promulgated after May 1, 1997, or in connection with a
"Complete Termination" (as hereinafter defined) of the Distribution
Plan in respect of the Class B Shares of a Fund.

(d)The Investment Companies will not take any action to waive or change
any CDSC in respect of the Class B Shares of a Fund, except as provided
in the Investment Companies' prospectus or statement of additional
information as in effect as of the date hereof without the consent of
the Principal Distributor and the permitted assigns of all or any
portion of its right to its Allocable Portion of the CDSCs.

(e)Notwithstanding anything to the contrary set forth in this Exhibit,
the Distributor's Contract, or (to the extent waiver thereof is
permitted thereby) applicable law, neither the termination of the
Principal Distributor's role as principal distributor of the Class B
Shares of a Fund, nor the termination of this Distributor's Contract
nor the termination of the Distribution Plan will terminate such
Principal Distributor's right to its Allocable Portion of the CDSCs in
respect of the Class B Shares of a Fund.

(f)Notwithstanding anything to the contrary in this Exhibit, the
Distributor's Contract, or (to the extent waiver thereof is permitted
thereby) applicable law, the Principal Distributor may assign, sell or
pledge (collectively, a "Transfer") its rights to its Allocable Portion
of the Distribution Fees and CDSCs earned by it (but not its
obligations to the Investment Companies under this Distributor's
Contract) in respect of the Class B Shares of a Fund to raise funds to
make the expenditures related to the distribution of Class B Shares of
the Fund and in connection therewith upon receipt of notice of such
Transfer, the Investment Companies shall pay, or cause to be paid to
the assignee, purchaser or pledgee (collectively with their subsequent
transferees, "Transferees") such portion of the Principal Distributor's
Allocable Portion of the Distribution Fees and CDSCs in respect of the
Class B Shares of the Fund so Transferred. Except as provided in (c)
above and notwithstanding anything to the contrary set forth elsewhere
in this Exhibit, the Distributor's Contract, or (to the extent waiver
thereof is permitted thereby) applicable law, to the extent the
Principal Distributor has Transferred its rights thereto to raise funds
as aforesaid, the Investment Companies' obligation to pay to the
Principal Distributor's Transferees the Principal Distributor's
Allocable Portion of the Distribution Fees payable in respect of the
Class B Shares of each Fund shall be absolute and unconditional and
shall not be subject to dispute, offset, counterclaim or any defense
whatsoever, including without limitation, any of the foregoing based on
the insolvency or bankruptcy of the Principal Distributor (it being
understood that such provision is not a waiver of the Investment
Companies' right to pursue such Principal Distributor and enforce such
claims against the assets of such Principal Distributor other than the
Distributor's right to the Distribution Fees, CDSCs and servicing fees,
in respect of the Class B Shares of any Fund which have been so
transferred in connection with such Transfer). The Fund agrees that
each such Transferee is a third party beneficiary of the provisions of
this clause (f) but only insofar as those provisions relate to
Distribution Fees and CDSCs transferred to such Transferee.

(g)For purposes of this Distributor's Contract, the term Allocable
Portion of Distribution Fees payable in respect of the Class B Shares
of any Fund shall mean the portion of such Distribution Fees allocated
to such Principal Distributor in accordance with the Allocation
Schedule attached hereto as Schedule B.

(h)For purposes of this Distributor's Contract, the term "Complete
Termination" of the Plan in respect of any Fund means a termination of
the Plan involving the complete cessation of the payment of
Distribution Fees in respect of all Class B Shares of such Fund, and
the termination of the distribution plans and the complete cessation of
the payment of distribution fees pursuant to every other Distribution
Plan pursuant to rule 12b-1 of the Investment Companies in respect of
such Fund and any successor Fund or any Fund acquiring a substantial
portion of the assets of such Fund and for every future class of shares
which has substantially similar characteristics to the Class B Shares
of such Fund including the manner of payment and amount of sales
charge, contingent deferred sales charge or other similar charges borne
directly or indirectly by the holders of such shares.

3. The Principal Distributor may enter into separate written agreements with
various firms to provide certain of the services set forth in Paragraph 1
herein. The Principal Distributor, in its sole discretion, may pay
Financial Institutions a lump sum fee on the settlement date for the sale
of each Class B Share of the Fund to their clients or customers for
distribution of such share. The schedules of fees to be paid such firms or
Financial Institutions and the basis upon which such fees will be paid
shall be determined from time to time by the Principal Distributor in its
sole discretion.

4. The Principal Distributor will prepare reports to the Board of
Trustees/Directors of the Investment Companies on a quarterly basis
showing amounts expended hereunder including amounts paid to Financial
Institutions and the purpose for such expenditures.

In consideration of the mutual covenants set forth in the Distributor's
Contract between the Investment Companies and the Principal Distributor, the
Principal Distributor and the Investment Companies hereby execute and deliver
this Exhibit with respect to the Class B Shares of the Fund.

Witness the due execution hereof this 24th day of October, 1997.

ATTEST: INVESTMENT COMPANIES (listed on Schedule A)

By: /S/ S. ELLIOTT COHAN By: /S/ JOHN W. MCGONIGLE
Title: ASSISTANT SECRETARY` Title: EXECUTIVE VICE PRESIDENT

ATTEST: FEDERATED SECURITIES CORP.

By: /S/ LESLIE K. PLATT By: /S/ BYRON F. BOWMAN
Title: ASSISTANT SECRETARY Title: VICE PRESIDENT

<PAGE>

Schedule A

DISTRIBUTOR'S CONTRACT

FEDERATED EQUITY FUNDS

Federated Growth Strategies Fund
Class B Shares

Federated Small Cap Strategies Fund
Class B Shares

Federated Capital Appreciation Fund
Class B Shares

Federated Aggressive Growth Fund
Class B Shares

Exhibit 6(xiv) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

Exhibit 1
Amendment to the
Distribution Plan for
the Investment Companies
Class B Shares

1. This amendment to the Distribution Plan, ("Plan") is adopted by the
Board of Trustees/Directors of the Investment Companies with respect to the
Class of Shares of the portfolios ("Funds") of the Investment Companies set
forth on the attached Schedule A as to which the Plan has been adopted. This
Exhibit is hereby incorporated into the Plan in its entirety and made a part
thereof. In the event of any inconsistency between the terms of this Exhibit and
the terms of the Plan, the terms of this Exhibit shall govern. References herein
to the Plan shall mean the Plan as amended by this Exhibit. The terms of the
Plan as amended when effective in respect of the Class of Shares set forth above
shall apply to all amounts payable to the Principal Distributor in respect of
such Class of Shares whether arising out of sales of such Class of Shares before
or after such effective date.

2. In compensation for the services provided pursuant to this Plan, the
Investment Companies on behalf of the Fund shall pay the Principal Distributor
its "Allocable Portion" (as defined in its Distributor's Contract as it relates
to the Class B Shares of the Fund) of a fee (the "Distribution Fee") computed at
the annual rate of 0.75 of 1% per annum on the average daily aggregate net asset
value of the Class B Shares of those Funds listed on Schedule A outstanding,
which fee shall be paid monthly in arrears.

3. The Distributor's Contract in respect of the Class B Shares of each
Fund set forth above shall provide that: (I) the Principal Distributor in
respect of such Distributor's Contract will be deemed to have performed all
services required to be performed in order to be entitled to receive its
Allocable Portion of the Distribution Fees payable in respect of the Class B
Shares of such Fund upon the settlement date of each sale of a "Commission
Share" (as defined below) of such Fund taken into account in determining such
Principal Distributor's Allocable Portion of such Distribution Fees; (II) the
Investment Companies' obligation to pay such Principal Distributor its Allocable
Portion of the Distribution Fees payable in respect of the Class B Shares of
such Fund shall not be terminated or modified for any reason (including a
termination of the Distributor's Contract between such Principal Distributor and
such Fund) except to the extent required by a change in the Act or the Conduct
Rules of the National Association of Securities Dealers, Inc., in each case
enacted or promulgated after May 1, 1997, or in connection with a "Complete
Termination" (as hereinafter defined) of this Plan in respect of the Class B
Shares of such Fund; (III) the Investment Companies will not take any action to
waive or change any CDSC in respect of the Class B Shares of such Fund, except
as provided in the Funds' prospectus or statement of additional information
without the consent of the Principal Distributor and its assigns; (IV) neither
the termination of such Principal Distributor's role as Principal Distributor of
the Class B Shares of such Fund, nor the termination of such Distributor's
Contract nor the termination of this Plan will terminate such Principal
Distributor's right to its Allocable Portion of the CDSCs; and (V) such
Principal Distributor may assign, sell or pledge (collectively, "Transfer") its
rights to its Allocable Portion of the Distribution Fees and CDSCs (but not such
Principal Distributor's obligations to the Investment Companies under the
Distributor's Contract) to raise funds to make the expenditures related to the
distribution of Class B Shares of such Fund and in connection therewith, upon
receipt of notice of such Transfer, the Investment Companies shall pay to the
assignee, purchaser or pledgee (collectively with their subsequent transferees,
"Transferees") or third party beneficiaries such portion of the Principal
Distributor's Allocable Portion of the Distribution Fees or CDSCs in respect of
the Class B Shares of such Fund so sold or pledged and except as provided in
(II) above and notwithstanding anything of the contrary set forth in this
Exhibit or the Plan or in the Distributor's Contract, to the extent the
Principal Distributor has Transferred its right thereto as aforesaid, the
Investment Companies' obligation to pay to the Principal Distributor's
Transferee such Principal Distributor's Allocable Portion of the Distribution
Fees and CDSCs payable in respect of the Class B Shares of such Fund shall be
absolute and unconditional and shall not be subject to dispute, offset,
counterclaim or any defense whatsoever, including without limitation, any of the
foregoing based on the insolvency or bankruptcy of the Principal Distributor (it
being understood that such provision is not a waiver of the Investment
Companies' right to pursue such Principal Distributor and enforce such claims
against the assets of such Principal Distributor other than its right to the
Distribution Fees, CDSCs and servicing fees, in respect of the Class B Shares of
any Fund transferred in connection with such Transfer. For purposes of this
Plan, the term Allocable Portion of Distribution Fees or CDSCs payable in
respect of the Class B Shares of any Fund as applied to any Principal
Distributor shall mean the portion of such Distribution Fees or CDSCs payable in
respect of such Fund allocated to such Principal Underwriter in accordance with
the Allocation Schedule (as defined in the Distributor's Contract as it relates
to the Class B Shares of the Fund)). For purposes of this Plan, the term
"Complete Termination" of this Plan in respect of any Fund means a termination
of this Plan involving the complete cessation of the payment of Distribution
Fees in respect of all Class B Shares of such Fund, and the termination of the
distribution plans and the complete cessation of the payment of distribution
fees pursuant to every other Distribution Plan pursuant to rule 12b-1 of the
Investment Companies in respect of such Fund and any successor Fund or any Fund
acquiring a substantial portion of the assets of such Fund and for every future
class of shares which has substantially similar characteristics to the Class B
Shares of such Fund taking into account the manner of payment and amount of
sales charge, contingent deferred sales charge or other similar charges borne
directly or indirectly by the holders of such shares.

Witness the due execution hereof this execution date.

Investment Companies (listed on Schedule A)

By: /S/ JOHN W. MCGONIGLE
Title: EXECUTIVE VICE PRESIDENT
Date: OCTOBER 24,1997

<PAGE>

Schedule A

DISTRIBUTION PLAN

FEDERATED EQUITY FUNDS

Federated Growth Strategies Fund
Class B Shares

Federated Small Cap Strategies Fund
Class B Shares

Federated Capital Appreciation Fund
Class B Shares

Federated Aggressive Growth Fund
Class B Shares

Exhibit 9(iii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

PRINCIPAL SHAREHOLDER SERVICER'S AGREEMENT

THIS AGREEMENT, is made as of the 24th day of October, 1997, by and between
those Investment Companies on behalf of the Portfolios (individually referred to
herein as a "Fund" and collectively as "Funds") and Classes of Shares
("Classes") listed on Schedule A to Exhibit 1, as may be amended from time to
time, having their principal office and place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779, and who have approved this form of
Agreement and Federated Securities Corp. as the principal shareholder servicer
(the "Principal Servicer"). Each of the Exhibits hereto is incorporated herein
in its entirety and made a part hereof. In the event of any inconsistency
between the terms of this Agreement and the terms of any applicable Exhibit, the
terms of the applicable Exhibit shall govern.

In consideration of the mutual covenants hereinafter contained it is hereby
agreed by and between the parties hereto as follows.

1. The Investment Companies hereby appoint the Principal Servicer as
their agent to select, negotiate and contract for the performance of
and arrange for the rendition of personal services to shareholders
and/or the maintenance of accounts of shareholders of each Class of
the Funds as to which this Agreement is made applicable (The Principal
Servicer's duties hereunder are referred to as "Services"). The
Principal Servicer hereby accepts such appointment and agrees to
perform or cause to be performed the Services in respect of the
Classes of the Funds to which this Agreement has been made applicable
by an Exhibit. The Principal Servicer agrees to cause to be provided
shareholder services which, in its best judgment (subject to
supervision and control of the Investment Companies' Boards of
Trustees or Directors, as applicable), are necessary or desirable for
shareholders of the Funds. The Principal Servicer further agrees to
provide the Investment Companies, upon request, a written description
of the shareholder services for which the Principal Servicer is
arranging hereunder.

2. During the term of this Agreement, each Investment Company will pay the
Principal Servicer and the Principal Servicer agrees to accept as full
compensation for its services rendered hereunder a fee as set forth on the
Exhibit applicable to the Class of each Fund subject to this Agreement.

For the payment period in which this Agreement becomes effective or
terminates with respect to any Class of a Fund, there shall be an
appropriate proration of the monthly fee on the basis of the number of
days that this Agreement is in effect with respect to such Class of the
Fund during the month.

3. This Agreement is effective with respect to each Class of a Fund as of the
date of execution of the applicable Exhibit and shall continue in effect
for one year from the date of its execution, and thereafter for successive
periods of one year only if the form of this Agreement is approved at
least annually by the Board of each Investment Company, including a
majority of the members of the Board of the Investment Company who are not
interested persons of the Investment Company ("Independent Board Members")
cast in person at a meeting called for that purpose.

4. Notwithstanding paragraph 3, this Agreement may be terminated with regard to
a particular Class of a Fund as follows:

(a) at any time, without the payment of any penalty, by the vote of a
majority of the Independent Board Members of any Investment Company
or by a vote of a majority of the outstanding voting securities of
any Fund as defined in the Investment Company Act of 1940 on sixty
(60) days' written notice to the parties to this Agreement;

(b) automatically in the event of the Agreement's assignment as defined in
the Investment Company Act of 1940; and

5. The Principal Servicer agrees to arrange to obtain any taxpayer
identification number certification from each shareholder of the Funds to
which it provides Services that is required under Section 3406 of the
Internal Revenue Code, and any applicable Treasury regulations, and to
provide each Fund or its designee with timely written notice of any
failure to obtain such taxpayer identification number certification in
order to enable the implementation of any required backup withholding.

6. The Principal Servicer shall not be liable for any error of judgment
or mistake of law or for any loss suffered by any Investment Company
in connection with the matters to which this Agreement relates, except
a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this
Agreement. the Principal Servicer shall be entitled to rely on and may
act upon advice of counsel (who may be counsel for such Investment
Company) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. Any person, even
though also an officer, trustee, partner, employee or agent of the
Principal Servicer, who may be or become a member of such Investment
Company's Board, officer, employee or agent of any Fund, shall be
deemed, when rendering services to such Fund or acting on any business
of such Fund (other than services or business in connection with the
duties of the Principal Servicer hereunder) to be rendering such
services to or acting solely for such Fund and not as an officer,
trustee, partner, employee or agent or one under the control or
direction of the Principal Servicer even though paid by the Principal
Servicer.

This Section 6 shall survive termination of this Agreement.

7. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which an enforcement of the change, waiver, discharge or
termination is sought.

8. The Principal Servicer is expressly put on notice of the limitation of
liability as set forth in the Declaration of Trust of each Investment
Company that is a Massachusetts business trust and agrees that the
obligations assumed by each such Investment Company pursuant to this
Agreement shall be limited in any case to such Investment Company and its
assets and that the Principal Servicer shall not seek satisfaction of any
such obligations from the shareholders of such Investment Company, the
Trustees, Officers, Employees or Agents of such Investment Company, or any
of them.

9. The execution and delivery of this Agreement have been authorized by the
Directors of the Principal Servicer and signed by an authorized officer of
the Principal Servicer, acting as such, and neither such authorization by
such Directors nor such execution and delivery by such officer shall be
deemed to have been made by any of them individually or to impose any
liability on any of them personally, and the obligations of this Agreement
are not binding upon any of the Directors or shareholders of the Principal
Servicer, but bind only the property of the Principal Servicer as provided
in the Articles of Incorporation of the Principal Servicer.

10. Notices of any kind to be given hereunder shall be in writing (including
facsimile communication) and shall be duly given if delivered to any
Investment Company at the following address: Federated Investors Tower,
Pittsburgh, PA 15222-3779, Attention: President and if delivered to the
Principal Servicer at Federated Investors Tower, Pittsburgh, PA
15222-3779, Attention: President.

11. This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held
or made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Sections 3 and 4, hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective successors and shall be governed by Pennsylvania law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or
regulation promulgated by the Securities and Exchange Commission
thereunder.

12. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the
same instrument.

13. This Agreement shall not be assigned by any party without the prior
written consent of the Principal Servicer in the case of assignment by any
Investment Company, or of the Investment Companies in the case of
assignment by the Principal Servicer, except that any party may assign to
a successor all of or a substantial portion of its business to a party
controlling, controlled by, or under common control with such party.
Nothing in this Section 13 shall prevent the Principal Servicer from
delegating its responsibilities to another entity to the extent provided
herein.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.

Investment Companies (listed on Schedule
A)

Attest:/S/ S. ELLIOTT COHAN By: /S/ JOHN W. MCGONIGLE
Title: ASSISTANT SECRETARY Title: EXECUTIVE VICE PRESIDENT

Federated Securities Corp.

Attest:/S/ LESLIE K. PLATT By: /S/ BYRON F. BOWMAN
Title: ASSISTANT SECRETARY Title: VICE PRESIDENT

<PAGE>

Exhibit 1
to the
Principal Shareholder Servicer's Agreement
Related to Class B Shares of
the Funds

The following provisions are hereby incorporated and made part of the
Principal Shareholder Servicer's Agreement (the "Principal Shareholder
Servicer's Agreement") as of the 24th day of October, 1997, by and between those
Investment Companies on behalf of the Portfolios (individually referred to
herein as a "Fund" and collectively as "Funds") and Classes of Shares
("Classes") listed on Schedule A to Exhibit 1, as may be amended from time to
time, having their principal office and place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779, and who have approved this form of
Agreement and Federated Securities Corp. as the principal shareholder servicer
(the "Principal Servicer"). Each of the Exhibits hereto is incorporated herein
in its entirety and made a part hereof. In the event of any inconsistency
between the terms of this Exhibit and the terms of the Principal Shareholder
Servicer's Agreement, the terms of this Exhibit shall govern.

1. Each Investment Company hereby appoints the Principal Servicer to arrange
for the rendition of the shareholder services in respect of Class B Shares
("Class B Shares") of each Fund. Pursuant to this appointment, the
Principal Servicer is authorized to select various companies including but
not limited to Federated Shareholder Services ("Companies or a Company ")
to provide such services.

2. (a) In consideration of the Principal Servicer's Services under this
Agreement in respect of the Class B Shares each Fund agrees to pay the
Principal Servicer or at its direction its "Allocable Portion" (as
hereinafter defined) of a fee (the "Servicing Fee") equal to 0.25 of 1%
per annum of the average daily net asset value of the Class B Shares of
the Fund outstanding from time to time, PROVIDED HOWEVER, that in the
event the Fund operates as a fund of funds (a "FOF Fund") by investing
the proceeds of the issuance of its Class B Shares in Class A Shares of
another fund (the "Other Fund") and the Principal Shareholder Servicer
receives a servicing fee in respect of the Class A Shares of the Other
Fund so acquired by the FOF Fund, the Servicing Fee payable in respect
of such Class B Shares of the FOF Fund will be reduced by the amount of
the servicing fee actually received by the Principal Shareholder
Servicer or its assign from the Other Fund in respect of the Class A
Shares of the Other Fund acquired with the proceeds of such Class B
Shares of the FOF Fund.

(b)(i) The Principal Servicer will be deemed to have fully earned its
Allocable Portion (computed as of any date) of the Servicing Fee
payable in respect of the Class B Shares of a Fund (and to have
satisfied its obligation to arrange for shareholder services in respect
of such Class B Shares) on the date it has arranged for shareholder
services to be performed by Federated Shareholder Services by payment
of the lump sum contemplated by Alternative A to Exhibit 1 to the
Shareholder Services Agreement among the Principal Servicer, Federated
Shareholder Services and the Fund dated as of the date hereof (the
"Shareholder Services Agreement") to Federated Shareholder Services
(whose obligations are fully supported by its parent company) in
respect of each "Commission Share" (as defined in the Allocation
Schedule attached hereto in Schedule B) of the Fund, taken into account
in determining such Principal Servicer's Allocable Portion of such
Servicing Fees as of such date. The Principal Servicer shall not be
deemed to have any other duties in respect of the Shares and its
Allocable Portion of the Servicing Fees to which the preceding sentence
applies and such arrangements shall be deemed a separate and distinct
contractual arrangement from that described in clause (ii).

(ii) The Principal Servicer will be deemed to have fully earned any
Servicing Fees not included in its Allocable Portion (i.e., those
attributable to Shares in respect of which Alternative A under Exhibit
1 to the Shareholder Services Agreement is not applicable) as such
services are performed in respect of such Shares.

(c)Notwithstanding anything to the contrary set forth in this Exhibit,
the Principal Shareholder Agreement, or (to the extent waiver thereof
is permitted thereby) applicable law, each Investment Company's
obligation to pay the Principal Servicer's Allocable Portion of the
Servicing Fees payable in respect of the Class B Shares of a Fund shall
not be terminated or modified for any reason (including a termination
of this Principal Shareholder Servicer's Agreement as it relates to the
Fund) except to the extent required by a change in the Investment
Company Act of 1940 (the "Act") or the Conduct Rules of the National
Association of Securities Dealers, Inc., in either case enacted or
promulgated after May 1, 1997, or in connection with a "Complete
Termination" (as hereinafter defined) in respect of the Class B Shares
of such Fund.

(d)Notwithstanding anything to the contrary in this Exhibit, the
Principal Shareholder Agreement, or (to the extent waiver thereof is
permitted thereby) applicable law, the Principal Servicer may assign,
sell or pledge (collectively, "Transfer") its rights to its Allocable
Portion of the Servicing Fees (but not its obligations to the
Investment Companies under this Principal Shareholder Servicer's
Agreement) in respect of the Class B Shares of a Fund to raise funds to
make the expenditures related to the Services and in connection
therewith upon receipt of notice of such Transfer, the Investment
Company shall pay to the assignee, purchaser or pledgee (collectively
with their subsequent transferees, "Transferees") such portion of the
Principal Servicer's Allocable Portion of the Servicing Fees in respect
of the Class B Shares of the Fund so Transferred. Except as provided in
(c) above and notwithstanding anything to the contrary set forth
elsewhere in this Exhibit, the Principal Shareholder Agreement, or (to
the extent waiver thereof is permitted thereby) applicable law, to the
extent the Principal Servicer has Transferred its rights thereto to
raise funds as aforesaid, the Investment Companies' obligation to pay
to the Principal Servicer's Transferees the Principal Servicer's
Allocable Portion of the Servicing Fees payable in respect of the Class
B Shares of each Fund shall be absolute and unconditional and shall not
be subject to dispute, offset, counterclaim or any defense whatsoever,
including without limitation, any of the foregoing based on the
insolvency or bankruptcy of the Principal Servicer, Federated
Shareholder Services (or its parent) or the failure of Federated
Shareholder Services (or its parent) to perform its Irrevocable Service
Commitment (it being understood that such provision is not a waiver of
the Investment Companies' right to pursue such Principal Servicer and
enforce such claims against the assets of such Principal Servicer other
than the Principal Servicer's right to the Distribution Fees, Servicing
Fees and CDSCs in respect of the Class B Shares of the Fund which have
been so transferred in connection with such Transfer). The Fund agrees
that each such Transferee is a third party beneficiary of the
provisions of this clause (d) but only insofar as those provisions
relate to Servicing Fees transferred to such Transferee.

(e)For purposes of this Principal Shareholder Servicer's Agreement, the
term Allocable Portion of Servicing Fees payable in respect of the
Class B Shares of any Fund shall mean the portion of such Servicing
Fees allocated to such Principal Servicer in accordance with the
Allocation Schedule attached hereto as Schedule B.

(f)For purposes of this Principal Shareholder Servicer's Contract, the
term "Complete Termination" of shareholder servicing arrangements in
respect of Class B Shares of a Fund means a termination of shareholder
servicing arrangements involving the complete cessation of payments of
Servicing Fees in respect of all Class B Shares, and the complete
cessation of payments of servicing fees for every existing and future
class of shares of the Fund and any successor Fund or any Fund
acquiring a substantial portion of the assets of the Fund ,which has
substantially similar characteristics to the Class B Shares taking into
account the manner and amount of sales charge, servicing fee,
contingent deferred sales charge or other similar charge borne directly
or indirectly by the holders of such shares.

3. The Principal Servicer may enter into separate written agreements with
Companies to provide the services set forth in Paragraph 1 herein. The
schedules of fees to be paid such Companies and the basis upon which such
fees will be paid shall be determined from time to time by the Principal
Servicer in its sole discretion.

4. The Principal Servicer will prepare reports to the Board of
Trustees/Directors of the Investment Companies on a quarterly basis
showing amounts expended hereunder including amounts paid to Companies and
the purpose for such expenditures.

In consideration of the mutual covenants set forth in the Principal
Shareholder Servicer's Contract, the Principal Servicer and the Investment
Companies hereby execute and deliver this Exhibit with respect to the Class B
Shares of each Fund.

<PAGE>

Witness the due execution hereof this 24th day of October, 1997.

ATTEST: INVESTMENT COMPANIES (listed on Schedule A)

By: /S/ S. ELLIOTT COHAN By: /S/ JOHN W. MCGONIGLE
Title: ASSISTANT SECRETARY Title: EXECUTIVE VICE PRESIDENT

ATTEST: FEDERATED SECURITIES CORP.

By: /S/ LESLIE K. PLATT By: /S/ BYRON F. BOWMAN
Title: ASSISTANT SECRETARY Title: VICE PRESIDENT

<PAGE>

Schedule A

PRINCIPAL SHAREHOLDER SERVICER'S AGREEMENT

FEDERATED EQUITY FUNDS

Federated Growth Strategies Fund
Class B Shares

Federated Small Cap Strategies Fund
Class B Shares

Federated Capital Appreciation Fund
Class B Shares

Federated Aggressive Growth Fund
Class B Shares

Exhibit 9(iv) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

SHAREHOLDER SERVICES AGREEMENT

THIS AGREEMENT, is made as of the 24th day of October, 1997, by and between
those Investment Companies on behalf of the Portfolios (individually referred to
herein as a "Fund" and collectively as "Funds") and Classes of Shares
("Classes") listed on Schedule A to Exhibit 1, as it may be amended from time to
time, having their principal office and place of business at Federated Investors
Tower, Pittsburgh, PA 15222-3779 and who have approved this form of Agreement
and Federated Securities Corp.("FSC"), a Pennsylvania Corporation, having its
principal office and place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779 and Federated Shareholder Services, a Delaware business
trust, having its principal office and place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779 ("FSS"). Each of the Exhibits hereto
is incorporated herein in its entirety and made a part hereof. In the event of
any inconsistency between the terms of this Agreement and the terms of any
applicable Exhibit, the terms of the applicable Exhibit shall govern.

1. FSC as Principal Servicer (Principal Servicer") hereby contracts with
FSS to render or cause to be rendered personal services to
shareholders and/or the maintenance of accounts of shareholders of
each Class of the Funds to which this Agreement is made applicable by
an Exhibit hereto ("Services"). In addition to providing Services
directly to shareholders of the Funds, FSS is hereby appointed the
Investment Companies' agent to select, negotiate and subcontract for
the performance of Services. FSS hereby accepts such appointment. FSS
agrees to provide or cause to be provided Services which, in its best
judgment (subject to supervision and control of the Investment
Companies' Boards of Trustees or Directors, as applicable), are
necessary or desirable for shareholders of the Funds. FSS further
agrees to provide the Investment Companies, upon request, a written
description of the Services which FSS is providing hereunder. The
Investment Companies, on behalf of the Funds and each Class subject
hereto consents to the appointment of FSS to act in its capacity as
described herein and agrees to look solely to FSS for performance of
the Services.

2. The term of the undertaking of FSS to render services hereunder in respect
of any Class of any Fund and the manner and amount of compensation to be
paid in respect thereof shall be specified in respect of each Class of the
Funds to which this Agreement is made applicable by an Exhibit hereto. FSS
agrees to look solely to the Principal Servicer for its compensation
hereunder.

3. This Agreement shall become effective in respect of any Class of Shares of
a Fund upon execution of an Exhibit relating to such Class of the Fund.
Once effective in respect of any Class of shares, this Agreement shall
continue in effect for one year from the date of its execution, and
thereafter for successive periods of one year only if the form of this
Agreement is approved at least annually by the Board of each Investment
Company, including a majority of the members of the Board of the
Investment Company who are not interested persons of the Investment
Company ("Independent Board Members") cast in person at a meeting called
for that purpose.

4. Notwithstanding paragraph 3, this Agreement may be terminated as follows:

(a) By any Investment Company as to any Fund at any time, without the
payment of any penalty, by the vote of a majority of the Independent
Board Members of any Investment Company or by a vote of a majority of
the outstanding voting securities of any Fund as defined in the
Investment Company Act of 1940 on sixty (60) days' written notice to
the parties to this Agreement;

(b) automatically in the event of the Agreement's assignment as defined in
the Investment Company Act of 1940; and

5. FSS agrees to obtain any taxpayer identification number certification from
each shareholder of the Funds to which it provides Services that is
required under Section 3406 of the Internal Revenue Code, and any
applicable Treasury regulations, and to provide each Investment Company or
its designee with timely written notice of any failure to obtain such
taxpayer identification number certification in order to enable the
implementation of any required backup withholding.

6. FSS shall not be liable for any error of judgment or mistake of law or
for any loss suffered by any Investment Company in connection with the
matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. FSS shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for
such Investment Company) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such
advice. Any person, even though also an officer, trustee, partner,
employee or agent of FSS, who may be or become a member of such
Investment Company's Board, officer, employee or agent of any
Investment Company, shall be deemed, when rendering services to such
Investment Company or acting on any business of such Investment
Company (other than services or business in connection with the duties
of FSS hereunder) to be rendering such services to or acting solely
for such Investment Company and not as an officer, trustee, partner,
employee or agent or one under the control or direction of FSS even
though paid by FSS.

This Section 6 shall survive termination of this Agreement.

8. FSS is expressly put on notice of the limitation of liability as set forth
in the Declaration of Trust of each Investment Company that is a
Massachusetts business trust and agrees that the obligations assumed by
each such Investment Company pursuant to this Agreement shall be limited
in any case to such Investment Company and its assets and that FSS shall
not seek satisfaction of any such obligations from the shareholders of
such Investment Company, the Trustees, Officers, Employees or Agents of
such Investment Company, or any of them.

9. The execution and delivery of this Agreement have been authorized by the
Trustees of FSS and signed by an authorized officer of FSS, acting as
such, and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally,
and the obligations of this Agreement are not binding upon any of the
Trustees or shareholders of FSS, but bind only the trust property of FSS
as provided in the Declaration of Trust of FSS.

<PAGE>

10. Notices of any kind to be given hereunder shall be in writing (including
facsimile communication) and shall be duly given if delivered to any
Investment Company at the following address: Federated Investors Tower,
Pittsburgh, PA 15222-3779, Attention: President and if delivered to FSS at
Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President.

13. This Agreement shall not be assigned by any party without the prior
written consent of the parties hereto. Nothing in this Section 13 shall
prevent FSS from delegating its responsibilities to another entity to the
extent provided herein.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.

Investment Companies (listed on Schedule
A)

Attest: /S/ S. ELLIOTT COHAN By: /S/ JOHN W. MCGONIGLE
Title: ASSISTANT SECRETARY Title: EXECUTIVE VICE PRESIDENT

Federated Shareholder Services

Attest:/S/ LESLIE K. PLATT By: /S/ BYRON F. BOWMAN
Title: ASSISTANT SECRETARY Title: VICE PRESIDENT

Federated Securities Corp.

Attest: /S/ LESLIE K. PLATT By: /S/ BYRON F. BOWMAN
Title: ASSISTANT SECRETARY Title: VICE PRESIDENT

<PAGE>

EXHIBIT 1
TO SHAREHOLDER SERVICES AGREEMENT
FOR CLASS B SHARES OF
THE INVESTMENT COMPANIES

1. The Shareholder Services Agreement for Shares of the Investment
Companies on behalf of the portfolios (individually referred to as a "Fund" and
collectively as "Funds") and the classes of shares ("Classes") listed on the
attached Schedule A dated October 24, 1997 among Federated Securities Corp.
("Principal Servicer"), Federated Shareholder Services ("Class Servicer") and
the Investment Companies is hereby made applicable on the terms set forth herein
to the Class B Shares of the above-referenced Funds. In the event of any
inconsistency between the terms of this Exhibit and the Shareholder Services
Agreement, the terms of this Exhibit shall govern.

2. In connection with the Services to be rendered to holders of Class B
Shares of each Fund, the Principal Servicer and Class Servicer agree that the
Principal Servicer shall retain and compensate the Class Servicer for its
Services in respect of the Class B Shares of the Fund on one of the following
alternative basis as the Principal Servicer shall elect:

ALTERNATIVE A3: The Principal Servicer shall pay the Class Servicer
a dollar amount as set forth on Schedule A per Class B Commission Share
(as defined in the Principal Shareholder Servicer's Agreement) of the
Fund. Class Servicer agrees that upon receipt of such payment (which shall
be deemed to be full and adequate consideration for an irrevocable service
commitment (the "Irrevocable Service Commitment") of Class Servicer
hereunder), Class Servicer shall be unconditionally bound and obligated to
either: (1) provide the Services in respect of such Commission Share and
all other Shares derived therefrom via reinvestment of dividends, free
exchanges or otherwise for so long as the same is outstanding or (2) in
the event the Class Servicer for the Class B Shares is terminated by the
Investment Company, to arrange for a replacement Class Servicer
satisfactory to the Investment Company to perform such services, at no
additional cost to the Fund.

ALTERNATIVE B4: If Alternative A is not elected, the Principal
Servicer shall pay the Class Servicer twenty five basis points (0.25%) per
annum on the average daily net asset value of each Class B Share of the
Fund monthly in arrears. The Class Servicer agrees that such payment is
full and adequate consideration for the Services to be rendered by it to
the holder of such Class B Share.

3. In the event pursuant to paragraph 2 above, Alternative A has been
elected and the Class Servicer is terminated as Class Servicer for the Class B
Shares of the Fund, the Class Servicer agrees to pay to any successor Class
Servicer for the Class B Shares of the Fund any portion of the excess, if any,
of (A) the Servicing Fees received by it hereunder in respect of Class B Shares
of the Fund plus interest thereon at the percent as set forth on Schedule A per
annum minus (B) the costs it incurred hereunder in respect of the Class B Shares
of the Fund prior to such termination.

IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year first
above written.

Attest: FEDERATED SECURITIES CORP.

By: /S/ LESLIE K. PLATT By: /S/ BYRON F. BOWMAN
Title: ASSISTANT SECRETARY Title: VICE PRESIDENT

Attest: FEDERATED SHAREHOLDER SERVICES

By:/S/ LESLIE K. PLATT By: /S/ BYRON F. BOWMAN
Title: ASSISTANT SECRETARY Title: VICE PRESIDENT

Attest: INVESTMENT COMPANIES
(listed on Schedule A)

By: /S/ S. ELLIOTT COHAN By: /S/ JOHN W. MCGONIGLE
Title: ASSISTANT SECRETARY Title: EXECUTIVE VICE PRESIDENT

<PAGE>

Schedule A

DATE: 10/24/97
SHAREHOLDER SERVICES AGREEMENT

FEDERATED EQUITY FUNDS

Federated Growth Strategies Fund
Class B Shares

Federated Small Cap Strategies Fund
Class B Shares

Federated Capital Appreciation Fund
Class B Shares

Federated Aggressive Growth Fund
Class B Shares

- --------
3 [for Class B Shares where Financial Institution (i.e., Broker) is being paid
an extra 1.50 per share up front and no trailer) and Distribution Fees and
Servicing Fees are being sold by Principal Servicer] 4 [for Class B Shares where
Financial Institution (i.e., Broker) is being paid a trailer) and Distribution
Fees but not the Servicing fees are being sold by the Principal Servicer]

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> Federated Equity Funds
Federated Aggressive Growth Fund
Class A Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-END> Oct-31-1997
<INVESTMENTS-AT-COST> 10,653,114
<INVESTMENTS-AT-VALUE> 11,997,603
<RECEIVABLES> 630,950
<ASSETS-OTHER> 63,283
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,691,836
<PAYABLE-FOR-SECURITIES> 376,370
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26,744
<TOTAL-LIABILITIES> 403,114
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,940,913
<SHARES-COMMON-STOCK> 311,580
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (69,516)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 72,836
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,344,489
<NET-ASSETS> 4,147,931
<DIVIDEND-INCOME> 15,474
<INTEREST-INCOME> 12,326
<OTHER-INCOME> 0
<EXPENSES-NET> 95,386
<NET-INVESTMENT-INCOME> (67,586)
<REALIZED-GAINS-CURRENT> 72,836
<APPREC-INCREASE-CURRENT> 1,344,489
<NET-CHANGE-FROM-OPS> 1,349,739
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,722
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 656,969
<NUMBER-OF-SHARES-REDEEMED>345,408
<SHARES-REINVESTED> 19
<NET-CHANGE-IN-ASSETS> 12,288,722
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 43,174
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 437,432
<AVERAGE-NET-ASSETS> 4,939,674
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> (0.050)
<PER-SHARE-GAIN-APPREC> 3.370
<PER-SHARE-DIVIDEND> 0.010
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.310
<EXPENSE-RATIO> 1.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 042
<NAME> Federated Equity Funds
Federated Aggressive Growth Fund
Class B Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-END> Oct-31-1997
<INVESTMENTS-AT-COST> 10,653,114
<INVESTMENTS-AT-VALUE> 11,997,603
<RECEIVABLES> 630,950
<ASSETS-OTHER> 63,283
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,691,836
<PAYABLE-FOR-SECURITIES> 376,370
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26,744
<TOTAL-LIABILITIES> 403,114
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,940,913
<SHARES-COMMON-STOCK> 541,240
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (69,516)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 72,836
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,344,489
<NET-ASSETS> 7,183,598
<DIVIDEND-INCOME> 15,474
<INTEREST-INCOME> 12,326
<OTHER-INCOME> 0
<EXPENSES-NET> 95,386
<NET-INVESTMENT-INCOME> (67,586)
<REALIZED-GAINS-CURRENT> 72,836
<APPREC-INCREASE-CURRENT> 1,344,489
<NET-CHANGE-FROM-OPS> 1,349,739
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 165
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 582,846
<NUMBER-OF-SHARES-REDEEMED>41,623
<SHARES-REINVESTED> 17
<NET-CHANGE-IN-ASSETS> 12,288,722
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 43,174
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 437,432
<AVERAGE-NET-ASSETS> 4,939,674
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> (0.080)
<PER-SHARE-GAIN-APPREC> 3.350
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.270
<EXPENSE-RATIO> 2.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 043
<NAME> Federated Equity Funds
Federated Aggressive Growth Fund
Class C Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-END> Oct-31-1997
<INVESTMENTS-AT-COST> 10,653,114
<INVESTMENTS-AT-VALUE> 11,997,603
<RECEIVABLES> 630,950
<ASSETS-OTHER> 63,283
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,691,836
<PAYABLE-FOR-SECURITIES> 376,370
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26,744
<TOTAL-LIABILITIES> 403,114
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,940,913
<SHARES-COMMON-STOCK> 72,511
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (69,516)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 72,836
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,344,489
<NET-ASSETS> 957,193
<DIVIDEND-INCOME> 15,474
<INTEREST-INCOME> 12,326
<OTHER-INCOME> 0
<EXPENSES-NET> 95,386
<NET-INVESTMENT-INCOME> (67,586)
<REALIZED-GAINS-CURRENT> 72,836
<APPREC-INCREASE-CURRENT> 1,344,489
<NET-CHANGE-FROM-OPS> 1,349,739
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 43
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 89,902
<NUMBER-OF-SHARES-REDEEMED>17,395
<SHARES-REINVESTED> 4
<NET-CHANGE-IN-ASSETS> 12,288,722
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 43,174
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 437,432
<AVERAGE-NET-ASSETS> 4,939,674
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> (0.060)
<PER-SHARE-GAIN-APPREC> 3.260
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.200
<EXPENSE-RATIO> 2.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> Federated Equity Funds
Federated Capital Appreciation Fund
Class A Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-END> Oct-31-1997
<INVESTMENTS-AT-COST> 123,774,493
<INVESTMENTS-AT-VALUE> 169,688,486
<RECEIVABLES> 5,904,568
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 175,593,054
<PAYABLE-FOR-SECURITIES> 2,728,563
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 439,096
<TOTAL-LIABILITIES> 3,167,659
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 105,758,939
<SHARES-COMMON-STOCK> 7,378,301
<SHARES-COMMON-PRIOR> 1,121,562
<ACCUMULATED-NII-CURRENT> 439,979
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,312,484
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 45,913,993
<NET-ASSETS> 148,175,200
<DIVIDEND-INCOME> 2,336,634
<INTEREST-INCOME> 637,848
<OTHER-INCOME> 0
<EXPENSES-NET> 1,870,381
<NET-INVESTMENT-INCOME> 1,104,101
<REALIZED-GAINS-CURRENT> 20,317,712
<APPREC-INCREASE-CURRENT> 18,103,419
<NET-CHANGE-FROM-OPS> 39,525,232
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 745,779
<DISTRIBUTIONS-OF-GAINS> 6,319,819
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,341,131
<NUMBER-OF-SHARES-REDEEMED>108,343
<SHARES-REINVESTED> 23,951
<NET-CHANGE-IN-ASSETS> 56,542,220
<ACCUMULATED-NII-PRIOR> 81,626
<ACCUMULATED-GAINS-PRIOR> 6,790,026
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 1,072,874
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,969,255
<AVERAGE-NET-ASSETS> 142,310,769
<PER-SHARE-NAV-BEGIN> 16.170
<PER-SHARE-NII> 0.090
<PER-SHARE-GAIN-APPREC> 4.850
<PER-SHARE-DIVIDEND> 0.110
<PER-SHARE-DISTRIBUTIONS> 0.920
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 20.080
<EXPENSE-RATIO> 1.23
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> Federated Equity Funds
Federated Capital Appreciation Fund
Class B Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-END> Oct-31-1997
<INVESTMENTS-AT-COST> 123,774,493
<INVESTMENTS-AT-VALUE> 169,688,486
<RECEIVABLES> 5,904,568
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 175,593,054
<PAYABLE-FOR-SECURITIES> 2,728,563
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 439,096
<TOTAL-LIABILITIES> 3,167,659
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 105,758,939
<SHARES-COMMON-STOCK> 1,079,695
<SHARES-COMMON-PRIOR> 65,863
<ACCUMULATED-NII-CURRENT> 439,979
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,312,484
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 45,913,993
<NET-ASSETS> 21,635,776
<DIVIDEND-INCOME> 2,336,634
<INTEREST-INCOME> 637,848
<OTHER-INCOME> 0
<EXPENSES-NET> 1,870,381
<NET-INVESTMENT-INCOME> 1,104,101
<REALIZED-GAINS-CURRENT> 20,317,712
<APPREC-INCREASE-CURRENT> 18,103,419
<NET-CHANGE-FROM-OPS> 39,525,232
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 426,677
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,030,943
<NUMBER-OF-SHARES-REDEEMED>21,597
<SHARES-REINVESTED> 4,486
<NET-CHANGE-IN-ASSETS> 56,542,220
<ACCUMULATED-NII-PRIOR> 81,626
<ACCUMULATED-GAINS-PRIOR> 6,790,026
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 1,072,874
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,969,255
<AVERAGE-NET-ASSETS> 142,310,769
<PER-SHARE-NAV-BEGIN> 16.120
<PER-SHARE-NII> 0.120
<PER-SHARE-GAIN-APPREC> 4.720
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.920
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 20.040
<EXPENSE-RATIO> 1.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 033
<NAME> Federated Equity Funds
Federated Capital Appreciation Fund
Class C Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-END> Oct-31-1997
<INVESTMENTS-AT-COST> 123,774,493
<INVESTMENTS-AT-VALUE> 169,688,486
<RECEIVABLES> 5,904,568
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 175,593,054
<PAYABLE-FOR-SECURITIES> 2,728,563
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 439,096
<TOTAL-LIABILITIES> 3,167,659
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 105,758,939
<SHARES-COMMON-STOCK> 131,016
<SHARES-COMMON-PRIOR> 7,334
<ACCUMULATED-NII-CURRENT> 439,979
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,312,484
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 45,913,993
<NET-ASSETS> 2,614,419
<DIVIDEND-INCOME> 2,336,634
<INTEREST-INCOME> 637,848
<OTHER-INCOME> 0
<EXPENSES-NET> 1,870,381
<NET-INVESTMENT-INCOME> 1,104,101
<REALIZED-GAINS-CURRENT> 20,317,712
<APPREC-INCREASE-CURRENT> 18,103,419
<NET-CHANGE-FROM-OPS> 39,525,232
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 48,727
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 126,956
<NUMBER-OF-SHARES-REDEEMED>3,725
<SHARES-REINVESTED> 451
<NET-CHANGE-IN-ASSETS> 56,542,220
<ACCUMULATED-NII-PRIOR> 81,626
<ACCUMULATED-GAINS-PRIOR> 6,790,026
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 1,072,874
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,969,255
<AVERAGE-NET-ASSETS> 142,310,769
<PER-SHARE-NAV-BEGIN> 16.130
<PER-SHARE-NII> 0.130
<PER-SHARE-GAIN-APPREC> 4.610
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.920
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 19.950
<EXPENSE-RATIO> 1.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> Federated Equity Funds
Federated Growth Strategies Fund
Class A Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-END> Oct-31-1997
<INVESTMENTS-AT-COST> 433,591,463
<INVESTMENTS-AT-VALUE> 554,881,564
<RECEIVABLES> 13,528,790
<ASSETS-OTHER> 29,322
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 568,439,676
<PAYABLE-FOR-SECURITIES> 12,185,791
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,128,067
<TOTAL-LIABILITIES> 13,313,858
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 321,405,087
<SHARES-COMMON-STOCK> 16,162,060
<SHARES-COMMON-PRIOR> 11,915,957
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 894,610
<ACCUMULATED-NET-GAINS> 113,325,240
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 121,290,101
<NET-ASSETS> 509,678,049
<DIVIDEND-INCOME> 3,458,347
<INTEREST-INCOME> 1,122,643
<OTHER-INCOME> 0
<EXPENSES-NET> 5,463,914
<NET-INVESTMENT-INCOME> (882,924)
<REALIZED-GAINS-CURRENT> 113,887,481
<APPREC-INCREASE-CURRENT> 58,806,461
<NET-CHANGE-FROM-OPS> 171,811,018
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 26,986
<DISTRIBUTIONS-OF-GAINS> 32,989,453
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,379,814
<NUMBER-OF-SHARES-REDEEMED>12,012,363
<SHARES-REINVESTED> 878,686
<NET-CHANGE-IN-ASSETS> 232,718,422
<ACCUMULATED-NII-PRIOR> 15,300
<ACCUMULATED-GAINS-PRIOR> 34,228,393
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 3,438,932
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,899,364
<AVERAGE-NET-ASSETS> 454,664,301
<PER-SHARE-NAV-BEGIN> 25.840
<PER-SHARE-NII> (0.040)
<PER-SHARE-GAIN-APPREC> 8.560
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 2.820
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 31.540
<EXPENSE-RATIO> 1.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> Federated Equity Funds
Federated Growth Strategies Fund
Class B Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-END> Oct-31-1997
<INVESTMENTS-AT-COST> 433,591,463
<INVESTMENTS-AT-VALUE> 554,881,564
<RECEIVABLES> 13,528,790
<ASSETS-OTHER> 29,322
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 568,439,676
<PAYABLE-FOR-SECURITIES> 12,185,791
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,128,067
<TOTAL-LIABILITIES> 13,313,858
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 321,405,087
<SHARES-COMMON-STOCK> 1,276,311
<SHARES-COMMON-PRIOR> 423,321
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 894,610
<ACCUMULATED-NET-GAINS> 113,325,240
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 121,290,101
<NET-ASSETS> 39,587,893
<DIVIDEND-INCOME> 3,458,347
<INTEREST-INCOME> 1,122,643
<OTHER-INCOME> 0
<EXPENSES-NET> 5,463,914
<NET-INVESTMENT-INCOME> (882,924)
<REALIZED-GAINS-CURRENT> 113,887,481
<APPREC-INCREASE-CURRENT> 58,806,461
<NET-CHANGE-FROM-OPS> 171,811,018
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,366,243
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 954,973
<NUMBER-OF-SHARES-REDEEMED>155,624
<SHARES-REINVESTED> 53,641
<NET-CHANGE-IN-ASSETS> 232,718,422
<ACCUMULATED-NII-PRIOR> 15,300
<ACCUMULATED-GAINS-PRIOR> 34,228,393
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 3,438,932
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,899,364
<AVERAGE-NET-ASSETS> 454,664,301
<PER-SHARE-NAV-BEGIN> 25.650
<PER-SHARE-NII> (0.100)
<PER-SHARE-GAIN-APPREC> 8.290
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 2.820
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 31.020
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> Federated Equity Funds
Federated Growth Strategies Fund
Class C Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-END> Oct-31-1997
<INVESTMENTS-AT-COST> 433,591,463
<INVESTMENTS-AT-VALUE> 554,881,564
<RECEIVABLES> 13,528,790
<ASSETS-OTHER> 29,322
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 568,439,676
<PAYABLE-FOR-SECURITIES> 12,185,791
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,128,067
<TOTAL-LIABILITIES> 13,313,858
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 321,405,087
<SHARES-COMMON-STOCK> 188,043
<SHARES-COMMON-PRIOR> 142,807
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 894,610
<ACCUMULATED-NET-GAINS> 113,325,240
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 121,290,101
<NET-ASSETS> 5,859,876
<DIVIDEND-INCOME> 3,458,347
<INTEREST-INCOME> 1,122,643
<OTHER-INCOME> 0
<EXPENSES-NET> 5,463,914
<NET-INVESTMENT-INCOME> (882,924)
<REALIZED-GAINS-CURRENT> 113,887,481
<APPREC-INCREASE-CURRENT> 58,806,461
<NET-CHANGE-FROM-OPS> 171,811,018
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 434,938
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 106,759
<NUMBER-OF-SHARES-REDEEMED>76,646
<SHARES-REINVESTED> 15,123
<NET-CHANGE-IN-ASSETS> 232,718,422
<ACCUMULATED-NII-PRIOR> 15,300
<ACCUMULATED-GAINS-PRIOR> 34,228,393
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 3,438,932
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,899,364
<AVERAGE-NET-ASSETS> 454,664,301
<PER-SHARE-NAV-BEGIN> 25.680
<PER-SHARE-NII> (0.200)
<PER-SHARE-GAIN-APPREC> 8.500
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 2.820
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 31.160
<EXPENSE-RATIO> 1.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> Federated Equity Funds
Federated Small Cap Strategies Fund
Class A Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-END> Oct-31-1997
<INVESTMENTS-AT-COST> 306,884,537
<INVESTMENTS-AT-VALUE> 353,247,731
<RECEIVABLES> 8,970,533
<ASSETS-OTHER> 262,815
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 362,481,079
<PAYABLE-FOR-SECURITIES> 17,277,590
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 746,231
<TOTAL-LIABILITIES> 18,023,821
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 298,088,530
<SHARES-COMMON-STOCK> 7,193,898
<SHARES-COMMON-PRIOR> 1,582,917
<ACCUMULATED-NII-CURRENT> 80
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,454
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 46,363,194
<NET-ASSETS> 134,902,691
<DIVIDEND-INCOME> 429,016
<INTEREST-INCOME> 920,379
<OTHER-INCOME> 0
<EXPENSES-NET> 3,255,083
<NET-INVESTMENT-INCOME> (1,905,688)
<REALIZED-GAINS-CURRENT> 1,329,530
<APPREC-INCREASE-CURRENT> 44,425,343
<NET-CHANGE-FROM-OPS> 43,849,185
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 479,065
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,939,852
<NUMBER-OF-SHARES-REDEEMED>3,351,598
<SHARES-REINVESTED> 22,727
<NET-CHANGE-IN-ASSETS> 283,607,536
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,380,860
<OVERDISTRIB-NII-PRIOR> 190,753
<OVERDIST-NET-GAINS-PRIOR>0
<GROSS-ADVISORY-FEES> 1,283,451
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,255,083
<AVERAGE-NET-ASSETS> 173,067,246
<PER-SHARE-NAV-BEGIN> 14.680
<PER-SHARE-NII> (0.040)
<PER-SHARE-GAIN-APPREC> 4.330
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.220
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.750
<EXPENSE-RATIO> 1.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> Federated Equity Funds
Federated Small Cap Strategies Fund
Class B Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-END> Oct-31-1997
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</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 023
<NAME> Federated Equity Funds
Federated Small Cap Strategies Fund
Class C Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-END> Oct-31-1997
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</TABLE>