FEDERATED EQUITY FUNDS, N-30D, 1998-12-28

FEDERATED EQUITY FUNDS
N-30D, 1998-12-28

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Federated Investors

[Graphic]

Federated Growth Strategies Fund

14th Annual Report

October 31, 1998

ESTABLISHED 1984

PRESIDENT'S MESSAGE

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Dear Valued Shareholder:

Federated Growth Strategies Fund was created in 1984, and I am pleased to
present its 14th Annual Report. This report covers the 12-month reporting period
from November 1, 1997 through October 31, 1998. It begins with an interview with
the fund's portfolio manager, James E. Grefenstette, Vice President of Federated
Management. Following his discussion are three additional items of shareholder
interest. First is a series of graphs showing the fund's long-term investment
performance. Second is a complete listing of the fund's stock holdings, and
third is the publication of the fund's financial statements.

Federated Growth Strategies Fund is managed to pursue long-term growth through a
highly diversified portfolio of mid-cap and large-cap stocks selected for their
strong price and earnings momentum. The fund's portfolio includes common stocks
and convertible securities representing 12 key business sectors with many names
that you will recognize immediately, such as America Online, Inc., BankAmerica
Corp., Clorox Co., Dell Computer Corp., HBO & Co., Home Depot, Inc., Merck &
Co., Inc., Microsoft Corp., and Yahoo, Inc.

Though this report focuses on the past 12 months, the true measure of the
performance potential of stocks, and of Federated Growth Strategies Fund, is
over the long term. I want to remind you of the fund's long-term performance
record. As of October 31, 1998, the average annual total returns,* based on net
asset value, for each share class since inception were:

Class A Shares (August 23, 1984), 15.33%

Class B Shares (August 16, 1995), 15.34%

Class C Shares (August 16, 1995), 15.51%

After many years of very positive returns, the U.S. stock market faltered in
July and August of this year, as the market reacted to concerns over the
potential impact of the Asian and Russian economic difficulties.

* Performance quoted is based on net asset value, reflects past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. As of October 31, 1998, the average annual
total returns, based on offering price (i.e., less any applicable sales charge),
for each share class since inception were: Class A Shares, 14.87%; Class B
Shares, 14.72%; and Class C Shares, 15.51%. Total returns for the one-year
period ended October 31, 1998, based on offering price (i.e., less any
applicable sales charge), for Class A, B, and C Shares were (11.30%), (10.83%),
and (7.48%), respectively.

As a result, stocks-and growth stocks in particular-suffered a broad-based
decline, and the fund's portfolio of growth stocks produced a negative 12-month
total return. Individual share class total return performance for the 12-month
reporting period, including realized gains, follows.

TOTAL CAPITAL
RETURN GAINS NET ASSET VALUE CHANGE
<S> <C> <C> <C>
Class A Shares (6.12%) $6.39 $31.54 to $23.53 = (25%)
Class B Shares (6.78%) $6.39 $31.02 to $22.88 = (26%)
Class C Shares (6.74%) $6.39 $31.16 to $23.02 = (26%)

</TABLE>

The annual and semi-annual reports to shareholders remind our investors that
stocks are priced daily on various stock exchanges and change daily in price.
There have been numerous periods when stock prices have declined and
subsequently risen. Periods of price declines have proven to be good buying
opportunities, and I would strongly recommend adding to your account on a
regular basis.

Thank you for participating in the growth and earnings opportunities of
over 120 dynamic U.S. companies. As always, we welcome your comments
and suggestions.

Sincerely,

[Graphic]

Glen R. Johnson
President
December 15, 1998

INVESTMENT REVIEW

[Graphic]

James E. Grefenstette, CFA
Vice President
Federated Management

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WHAT IS YOUR REVIEW OF THE PAST FISCAL YEAR, WHICH HAS BEEN
PARTICULARLY VOLATILE FOR INVESTORS IN THE SMALL-CAP AND MID-CAP AREAS
OF THE STOCK MARKET?

During the last two weeks of October 1997, the financial markets suddenly
realized that near-term economic growth in the southeast Asian countries was
more problematic than certain. This led to a dramatic downward revaluation of
the affected countries' currencies and capital markets. Concurrently, the new
realization also generated material uncertainty with regard to how fast U.S.
companies could grow earnings over the next year or two. This doubt was caused
by fears that U.S. exports to Asia would likely slow (thanks to moderating local
demands and a stronger dollar), and that cheaper Asian imports to the U.S. would
threaten domestically produced goods.

The Asian turmoil caused investors to rapidly migrate toward the stability of
larger stocks. After that fretful fourth quarter of 1997, we returned to
business as usual in the first quarter of 1998 with positive returns across
large-cap, mid-cap, and small-cap stocks.*

In the second quarter of 1998, we saw a market with three distinct
personalities. From the beginning of April to early May, most sectors of the
market traded in line with each other and were generally unchanged. Around the
second week in May, the Asian markets began to weaken considerably. This caused
investors to move from value stocks to growth stocks and from smaller stocks to
larger stocks. Within growth stocks, capital moved from the Technology sector
(seen as risky and leveraged to the state of the economy) into the Health Care
and Consumer Non-Durables sectors. Concerns over Asia also put more pressure on
oil prices and caused long-term Treasuries to rally. The end of the second
quarter of 1998 saw technology stocks, and to a lesser degree small-cap stocks,
snap back. This came after high- profile technology conferences reassured
investors that near-term earnings for most technology companies were still going
to be decent, and that there were signs of bottoming in some Asian markets.

The third quarter of 1998 provided little relief for investors and was
particularly difficult for mid-cap and growth-oriented funds-and Federated
Growth Strategies Fund in particular. The threat of weakening foreign economies
grew as Asian problems intensified, Russia defaulted and its markets sank, and
Latin American markets began to decline.

* Small cap stocks have historically experienced greater volatility than
average.

U.S. equities markets traded off under the pressure of announced
earnings misses and the prospects of moderating earnings growth rates.
As general uncertainty increased, investors sought safe haven in U.S.
Treasuries, rallying the long-term bond to yield levels not seen in
decades.

The fund's fiscal year ended with a surprise lowering of interest rates by the
Federal Reserve Board (the "Fed"). This buoyed equity markets around the world
and brought breadth back to the market as small-cap and mid-cap stocks markedly
outpaced large-cap stocks during the last three weeks of October 1998.

Overall, for the 12-month reporting period ended October 31, 1998, the Standard
& Poor's ("S&P") 500 Index (large-cap stocks) returned 21.90%, and the NASDAQ
100 Index (dominated by large technology stocks) was up 11.16%. On the other
hand, the S&P 600 Small Cap Index recorded a return of (11.14%).*

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IN THE PREVIOUS FISCAL YEAR, FEDERATED GROWTH STRATEGIES FUND OUTPERFORMED THE
S&P 500 INDEX AND SIGNIFICANTLY OUTPERFORMED THE AVERAGE GROWTH FUND. THE
RECENTLY COMPLETED FISCAL YEAR SAW THAT TREND HALT AS GROWTH-ORIENTED MID-CAP
STOCKS FELL OUT OF FAVOR. HOW DID THE FUND'S TOTAL RETURN COMPARE TO THAT OF THE
S&P 500 INDEX AND THE LIPPER GROWTH FUNDS AVERAGE FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1998?

For the 12-month reporting period ended October 31, 1998, the fund's Class A, B,
and C Shares produced total returns of (6.12%), (6.78%), and (6.74%),
respectively, based on net asset value.** These returns lagged the 21.90% return
of the S&P 500 Index and the 9.61% return of the Lipper Growth Funds Average.***
However, the Lipper Growth Funds universe contains a large percentage of funds
with much higher average market capitalizations than Federated Growth Strategies
Fund.

* S&P 500 Index is comprised of common stocks in industry, transportation,
finance, and public utilities. NASDAQ 100 Index is the National Association of
Securities Dealers Automated Quotation System, which lists price information for
a broad spectrum of large, medium, and small stocks . The S&P 600 Small Cap
Index consists of 600 domestic stocks that represent the small-cap stock market.
These indexes are unmanaged and investments cannot be made in an index.

** Performance quoted is based on net asset value, reflects past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period, based on
offering price (i.e., less any applicable sales charge), for Class A, B, and C
Shares were (11.30%), (10.83%), and (7.48%), respectively.

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

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WHAT ACCOUNTED FOR THE FUND'S SHORT-TERM UNDERPERFORMANCE?

As it has had for most of the last three years, Federated Growth Strategies Fund
has a mid-cap focus because we believe that is where we can find much faster
growing companies at better prices. During the past 12 months, the market placed
a much higher value on the consistency of earnings and the trading liquidity of
stocks. Both of those attributes are more readily found in large-cap stocks.
While the second and third quarters of 1998 have been particularly difficult, we
believe the market is beginning to recognize that the premium currently being
paid for consistency and liquidity is excessive, and that investor sentiment
will swing back toward mid-cap stocks.

[Graphic]

WHAT WERE SOME OF THE FUND'S RECENT PORTFOLIO ADDITIONS?

Our recent purchases include the following:

ABERCROMBIE & FITCH CO. (ANF) (0.81% of net assets): ANF is a fast- growing,
Generation-X retailer with superior same-store sales growth and aggressive store
expansion plans, including stores targeting kids. ANF's exceptional internal
design team is the key to its ongoing success in attaining superior sales
growth.

BIOGEN, INC. (BGEN) (0.68% of net assets): BGEN is one of the most successful
biotechnology companies developing products for multiple sclerosis, kidney
disease, inflammatory diseases, and other maladies. It has a strong pipeline of
new products that should allow it to be a fast-growing company for years to
come.

CAPSTAR BROADCASTING CORP. (CRB) (0.56% of net assets): CRB is a large
consolidator in the radio industry concentrating on mid-sized markets.
Operational efficiencies versus its peers should be attained through its new
on-line ad purchasing management system and through its "Star System" which
allows it to digitally deliver area-specific programming to multiple listening
areas from one site.

EARTHGRAINS CO. (EGR) (0.87% of net assets): EGR produces and
distributes packaged bakery goods to supermarkets and food service
companies in the U.S and Europe. They are a leading consolidator of the
fragmented food-goods industry.

IDX SYSTEMS CORP. (IDXC) (0.58% of net assets): IDXC sells health care
information systems to hospitals, physician groups, health plans, and insurance
companies. The company will participate in the long-term trend of moving the
health care industry from paper to more efficient computer systems.

INKTOMI CORP. (INKT) (0.56% of net assets): INKT develops and markets
search engine software and software designed to enhance the
performance of large-scale networks. The company is seen as one of the
highest quality providers of Internet software.

WINSTAR COMMUNICATIONS, INC. (WCII) (0.48% of net assets): WCII is a
telecommunications service company that offers the usual fare of local and
long-distance services. The company differs from most of its peers in that its
networks are wireless. As a result, they can build out at a fraction of the cost
and time typically associated with comparably sized wired networks.

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WHAT IS YOUR CURRENT STRATEGY IN TERMS OF THE FUND'S SECTOR WEIGHTINGS?

We will maintain our heaviest weightings in the sectors where our disciplines
tell us we can get the most growth at the best prices. These sectors include
Technology, Health Care, and Consumer Cyclicals (within that sector,
concentrations are in Retail and Services). Other larger sectors include Finance
and Consumer Staples. Our smallest weightings are in the more economically
cyclical sectors which include Basic Materials, Utilities, and Transportation.

[Graphic]

WHAT WERE THE FUND'S TOP 10 HOLDINGS AND WHAT WERE THE SECTOR WEIGHTINGS AS OF
OCTOBER 31, 1998?

PERCENTAGE OF
NAME NET ASSETS
<S> <C>
Schering Plough Corp. 1.66%
Warner-Lambert Co. 1.59%
EMC Corp. 1.58%
Microsoft Corp. 1.56%
MCI Worldcom, Inc. 1.54%
Safeway, Inc. 1.47%
America Online, Inc. 1.42%
Tyco International, Ltd. 1.37%
MBNA Corp. 1.35%
Clorox Co. 1.22%
Total 14.76%

<CAPTION>
PERCENTAGE OF PERCENTAGE OF
SECTOR NET ASSETS S&P 500 INDEX
<S> <C> <C>
Technology 29.70% 17.10%
Health Care 16.00% 13.00%
Finance 11.30% 15.20%
Utilities 6.50% 11.20%
Retail Trade 6.40% 5.90%
Services 6.30% 4.90%
Consumer Non-Durables 5.30% 10.50%
Energy/Minerals 4.60% 7.10%
Producer Manufacturing 4.60% 7.10%
Basic Materials 1.90% 4.00%
Consumer Durables 1.70% 3.00%
Transportation 1.40% 1.00%

</TABLE>

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WHAT IS YOUR OUTLOOK FOR MID-CAP STOCKS, WHICH HAVE EXPERIENCED A REBOUND
RECENTLY?

In early October 1998, the Fed surprised the investment community by lowering
short-term interest rates for the second time in a month. This sent a signal
that the Fed was going to use monetary policy to help stave off economic
weakness and accompanying credit issues. The move also sparked a rally across
most global equity markets, with small-cap and mid-cap stocks materially
outperforming large-cap stocks.

Interest rate cuts have, historically, signaled the beginning of periods of
smaller cap stock outperformance. This is probably due to the fact that interest
rate cuts are economically stimulative and periods of above-average economic
growth tend to disproportionately benefit smaller companies and, hence, smaller
cap stocks. Also helping mid-caps was the fact that relative to large-cap
stocks, mid-cap stocks were about as cheap as they have been in more than a
decade. We believe that as long as the economy does not suffer a considerable
growth slowdown or another fundamental shock, mid-cap stocks are poised to do
well for some time.

TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN

FEDERATED GROWTH STRATEGIES FUND

INITIAL INVESTMENT:

IF YOU HAD MADE AN INITIAL INVESTMENT OF $15,000 IN THE CLASS A SHARES OF
FEDERATED GROWTH STRATEGIES FUND ON 8/31/84, REINVESTED DIVIDENDS AND CAPITAL
GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH
$107,358 ON 10/31/98. YOU WOULD HAVE EARNED A 14.90%* AVERAGE ANNUAL TOTAL
RETURN FOR THE INVESTMENT LIFE SPAN.

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

As of 9/30/98, the Class A Shares' average annual 1-year, 5-year, and 10-year
total returns were (18.73%), 11.38%, and 12.54%, respectively. Class B Shares'
1-year and since-inception (8/16/95) total returns were (19.29%) and 13.30%,
respectively. Class C Shares' 1-year and since-inception (8/16/95) total returns
were (15.30%) and 14.56%, respectively.**

[Graphic representation omitted; see Appendix A.]

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

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

** The total return stated takes into account the 5.50% sales charge for Class
A Shares, the 5.50% contingent deferred sales charge for Class B Shares, and the
1.00% contingent deferred sales charge for Class C Shares.

FEDERATED GROWTH STRATEGIES FUND

ONE STEP AT A TIME:

$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH
YEAR FOR 14 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO
$41,709.

With this approach, the key is consistency.

If you had started investing $1,000 annually in the Class A Shares of Federated
Growth Strategies Fund on 8/31/84, reinvested your dividends and capital gains
and did not redeem any shares, you would have invested only $15,000, but your
account would have reached a total value of $41,709* by 10/31/98. You would have
earned an average annual total return of 13.13%.

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

[Graphic representation omitted; see Appendix B.]

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

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

FEDERATED GROWTH STRATEGIES FUND

HYPOTHETICAL INVESTOR PROFILE: INVESTING FOR A COLLEGE EDUCATION

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

David and Joan are planning for the college education of their children. On
October 31, 1988, they invested $5,000 in the Class A Shares of Federated Growth
Strategies Fund. Since then, David and Joan have made additional investments of
$250 every month.

As this chart shows, over 10 years, the original $5,000 investment along with
their additional monthly $250 investments totaling $35,000 has grown to $72,447.
This represents a 12.33% average annual total return. For the Rices, a dedicated
program of monthly investments really paid off.

[Graphic representation omitted; see Appendix C.]

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

FEDERATED GROWTH STRATEGIES FUND

CLASS A SHARES

GROWTH OF $10,000 INVESTED IN FEDERATED GROWTH STRATEGIES FUND (CLASS A
SHARES)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Growth Strategies Fund (Class A Shares) (the "Fund") from October 31, 1988 to
October 31, 1998, compared to the Standard and Poor's 500 Index (S&P 500)+ and
the Lipper Growth Fund Index (LGFI).+

[Graphic representation omitted; see Appendix D.]

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.

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

** Total return quoted reflects all applicable sales charges.

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

FEDERATED GROWTH STRATEGIES FUND

CLASS B SHARES

GROWTH OF $10,000 INVESTED IN FEDERATED GROWTH STRATEGIES FUND (CLASS B
SHARES)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Growth Strategies Fund (Class B Shares) (the "Fund") from August 16, 1995 (start
of performance) to October 31, 1998, compared to the Standard & Poor's 500 Index
(S&P 500)+ and the Lipper Growth Fund
Index (LGFI).+

[Graphic representation omitted; see Appendix E.]

* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 3.00% contingent deferred sales charge on any redemption
less than four years from the purchase date. The maximum contingent deferred
sales charge is 5.50% on any redemption less than one year from the purchase
date. The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 and the LGFI have been adjusted to reflect
reinvestment of dividends on securities in the indices.

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

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

FEDERATED GROWTH STRATEGIES FUND

CLASS C SHARES

GROWTH OF $10,000 INVESTED IN FEDERATED GROWTH STRATEGIES FUND (CLASS C
SHARES)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Growth Strategies Fund (Class C Shares) (the "Fund") from August 16, 1995 (start
of performance) to October 31, 1998, compared to the Standard & Poor's 500 Index
(S&P 500)+ and the Lipper Growth Fund
Index (LGFI).+

[Graphic representation omitted; see Appendix F.]

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

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

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

FEDERATED GROWTH STRATEGIES FUND

PORTFOLIO OF INVESTMENTS

OCTOBER 31, 1998

SHARES VALUE
<C> <S> <C>
COMMON STOCKS-95.7%
BASIC INDUSTRY-1.9%
53,300 Lafarge Corp. $ 1,795,544
91,900 Monsanto Co. 3,733,437
87,600 Premark International, Inc. 2,775,825
59,000 Southdown, Inc. 3,211,812
Total 11,516,618
CONSUMER DURABLES-1.7%
132,200 Centex Corp. 4,428,700
125,500 (a) Champion Enterprises, Inc. 2,494,312
145,700 (a) Furniture Brands International, Inc. 3,132,550
Total 10,055,562
CONSUMER NON-DURABLES-5.3%
113,000 (a) American Italian Pasta Co., Class A 2,599,000
67,300 Clorox Co. 7,352,525
53,700 Colgate-Palmolive Co. 4,745,737
175,300 Earthgrains Co. 5,259,000
106,900 (a) Keebler Foods Co. 3,073,375
76,400 Quaker Oats Co. 4,512,375
97,500 (a) Tommy Hilfiger Corp. 4,527,656
Total 32,069,668
ENERGY/MINERALS-4.6%
149,800 (a) BJ Services Co. 3,061,537
76,500 Elf Aquitaine SA, ADR 4,437,000
206,800 (a) Friede Goldman International, Inc. 3,463,900
126,700 Halliburton Co. 4,553,281
112,700 (a) J. Ray McDermott, SA 3,535,962
198,500 (a) Nabors Industries, Inc. 3,672,250
132,700 Transocean Offshore, Inc. 4,901,606
Total 27,625,536
</TABLE>
FEDERATED GROWTH STRATEGIES FUND
<TABLE>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-CONTINUED
FINANCE-11.3%
125,800 Allstate Corp. $ 5,417,262
60,100 American International Group, Inc. 5,123,525
71,856 BankAmerica Corp. 4,127,229
156,600 (a) Century Business Services, Inc. 2,182,612
152,300 Conseco, Inc. 5,282,906
113,400 Dime Bancorp, Inc. 2,700,337
128,800 Equitable Cos., Inc. 6,311,200
53,200 Fremont General Corp. 2,626,750
129,500 (a) Golden State Bancorp, Inc. 2,484,781
148,600 (a) Knight/Trimark Group, Inc. 1,207,375
356,830 MBNA Corp. 8,140,184
49,500 Mellon Bank Corp. 2,976,187
95,305 Morgan Stanley, Dean Witter & Co. 6,170,999
172,500 Old Republic International Corp. 3,277,500
90,400 Providian Financial Corp. 7,175,500
116,550 Raymond James Financial, Inc. 2,673,366
Total 67,877,713
HEALTH CARE-16.0%
58,600 (a) Biogen, Inc. 4,072,700
42,900 Guidant Corp. 3,281,850
240,700 HBO & Co. 6,318,375
82,800 (a) IDX Systems Corp. 3,508,650
87,900 Lilly (Eli) & Co. 7,114,406
53,400 Merck & Co., Inc. 7,222,350
110,900 Mylan Laboratories, Inc. 3,819,119
246,800 (a) PSS World Medical, Inc. 5,460,450
59,600 Pfizer, Inc. 6,395,825
98,100 (a) Quintiles Transnational Corp. 4,439,025
156,500 (a) Rexall Sundown, Inc. 2,807,219
118,200 (a) Safeskin Corp. 2,615,175
96,900 Schering Plough Corp. 9,968,587
</TABLE>
FEDERATED GROWTH STRATEGIES FUND
<TABLE>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-CONTINUED
HEALTH CARE-CONTINUED
115,300 Smithkline Beecham Corp., ADR $ 7,350,375
128,600 (a) Total Renal Care Holdings, Inc. 3,150,700
53,900 (a) VISX, Inc. 2,701,737
122,100 Warner-Lambert Co. 9,569,587
118,900 (a) Watson Pharmaceuticals, Inc. 6,613,812
Total 96,409,942
PRODUCER MANUFACTURING-4.6%
311,400 (a) Gentex Corp. 4,573,687
85,900 (a) Lexmark Intl. Group, Class A 6,007,631
177,400 Miller Herman, Inc. 3,913,887
68,900 Precision Castparts Corp. 3,031,600
105,000 (a) SLI, Inc. 1,758,750
132,800 Tyco International, Ltd. 8,225,300
Total 27,510,855
RETAIL TRADE-6.4%
122,300 (a) Abercrombie & Fitch Co., Class A 4,853,781
136,100 (a) Dollar Tree Stores, Inc. 5,248,356
148,200 Home Depot, Inc. 6,446,700
126,200 (a) Restoration Hardware, Inc. 2,539,775
184,800 (a) Safeway, Inc. 8,835,750
138,900 (a) Staples, Inc. 4,531,613
303,500 TJX Cos., Inc. 5,747,531
Total 38,203,506
SERVICES-6.3%
129,400 (a) ACNielsen Corp. 3,461,450
204,900 (a) Allied Waste Industries, Inc. 4,430,963
144,900 CKE Restaurants, Inc. 3,812,681
192,600 (a) Capstar Broadcasting Corp., Class A 3,346,425
82,700 (a) Chancellor Media Corp. 3,173,613
159,750 (a) Liberty Media Group, Class A, Series A(LBTYA) 6,080,484
91,300 (a) Pixar, Inc. 4,336,750
</TABLE>
FEDERATED GROWTH STRATEGIES FUND
<TABLE>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-CONTINUED
SERVICES-CONTINUED
80,400 (a) Robert Half International, Inc. $ 3,226,050
127,500 (a) Snyder Communications, Inc. 4,550,156
50,400 (a) United Stationers, Inc. 1,335,600
Total 37,754,172
TECHNOLOGY-29.7%
67,000 (a) America Online, Inc. 8,513,188
150,700 (a) Apple Computer, Inc. 5,594,738
113,200 (a) Applied Materials, Inc. 3,926,625
78,800 (a) Ascend Communications 3,802,100
54,500 (a) At Home Corp., Class A 2,411,625
151,300 (a) BE Aerospace, Inc. 3,252,950
91,300 (a) BMC Software, Inc. 4,388,106
22,900 (a) Broadcast.com, Inc. 1,142,138
46,000 (a) Broadcom Corp., Class A 3,815,125
134,300 (a) Cadence Design Systems, Inc. 2,870,663
101,700 (a) Cisco Systems, Inc. 6,407,100
81,000 (a) Citrix Systems Inc. 5,740,875
200,400 Compaq Computer Corp. 6,337,650
120,800 (a) Computer Horizons Corp. 2,778,400
114,600 (a) Compuware Corp. 6,209,888
91,800 (a) Dell Computer Corp. 6,012,900
105,000 (a) DoubleClick, Inc. 3,465,000
147,500 (a) EMC Corp. Mass 9,495,313
144,100 (a) Echostar Communications Corp., Class A 3,890,700
62,200 (a) Excite, Inc. 2,398,588
178,800 (a) FORE Systems, Inc. 2,793,750
94,100 (a) Gemstar International Group Ltd. 5,140,213
129,900 (a) Gulfstream Aerospace Corp. 5,748,075
121,300 (a) HNC Software, Inc. 4,078,713
39,800 (a) Inktomi Corp. 3,355,638
115,600 (a) International Network Services 4,913,000
</TABLE>
FEDERATED GROWTH STRATEGIES FUND
<TABLE>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-CONTINUED
TECHNOLOGY-CONTINUED
46,300 (a) Intuit, Inc. $ 2,338,150
120,800 (a) Keane, Inc. 4,016,600
75,300 Lucent Technologies, Inc. 6,038,119
272,400 (a) Mastech Corp. 6,401,400
88,100 (a) Microsoft Corp. 9,327,588
154,600 (a) Platinum Technology, Inc. 2,541,238
22,800 (a) Qlogic Corp. 2,106,150
59,050 (a) Rambus, Inc. 3,862,239
87,800 (a) Sportsline USA, Inc. 1,234,688
59,600 Symbol Technologies, Inc. 2,667,100
102,900 (a) Tellabs, Inc. 5,659,500
196,900 (a) Unisys Corp. 5,242,463
96,100 (a) Vitesse Semiconductor Corp. 3,099,225
42,600 (a) Yahoo, Inc. 5,573,944
Total 178,591,465
TRANSPORTATION-1.4%
74,000 Expeditors International Washington, Inc. 2,506,750
289,350 Southwest Airlines Co. 6,130,603
Total 8,637,353
UTILITIES-6.5%
64,700 Century Telephone Enterprises, Inc. 3,675,769
138,800 (a) Globalstar Telecommunications Ltd. 2,324,900
82,200 (a) ITC DeltaCom, Inc. 1,448,775
167,400 (a) IXC Communications, Inc. 6,486,750
167,026 (a) MCI Worldcom, Inc. 9,228,187
89,100 (a) McLeodUSA, Inc., Class A 3,257,719
138,700 (a) MetroNet Communications Corp., Class B 3,190,100
110,900 (a) Pacific Gateway Exchange, Inc. 3,202,238
93,100 (a) Qwest Communications International, Inc. 3,642,538
106,600 (a) WinStar Communications, Inc. 2,878,200
Total 39,335,176
TOTAL COMMON STOCKS (IDENTIFIED COST $480,279,546) 575,587,566
</TABLE>
FEDERATED GROWTH STRATEGIES FUND
<TABLE>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. TREASURY OBLIGATION-0.8%
$ 4,600,000 United States Treasury Bond, 5.50%, 8/15/2028
(IDENTIFIED COST $4,968,719) $ 4,837,912
(B)REPURCHASE AGREEMENT-2.3%
13,730,000 Westdeutsche Landesbank Girozentrale, 5.42%, dated 10/30/
1998, due 11/2/1998 (AT AMORTIZED COST) 13,730,000
TOTAL INVESTMENTS (IDENTIFIED COST $498,978,265)(C) $ 594,155,478

</TABLE>

(a) Non-income producing security.

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

(c) The cost of investments for federal tax purposes amounts to $501,217,891.
The net unrealized appreciation of investments on a federal tax basis amounts to
$92,937,587 which is comprised of $133,693,325 appreciation and $40,755,738
depreciation at October 31, 1998.

Note: The categories of investments are shown as a percentage of net
assets ($601,180,707) at October 31, 1998.

The following acronyms are used throughout this portfolio:

ADR -American Depositary Receipt
SA -Support Agreement

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

FEDERATED GROWTH STRATEGIES FUND

STATEMENT OF ASSETS AND LIABILITIES

OCTOBER 31, 1998

<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost
$498,978,265 and tax cost $501,217,891) $ 594,155,478
Income receivable 188,675
Receivable for investments sold 15,676,939
Receivable for shares sold 1,443,023
Total assets 611,464,115
LIABILITIES:
Payable for investments purchased $ 8,810,977
Payable for shares redeemed 784,249
Payable to Bank 494,530
Payable for taxes withheld 4,638
Accrued expenses 189,014
Total liabilities 10,283,408
NET ASSETS for 25,656,520 shares outstanding $ 601,180,707
NET ASSETS CONSIST OF:
Paid in capital $ 518,057,250
Net unrealized appreciation of investments 95,177,213
Accumulated net realized loss on investments (12,053,756)
Total net assets $ 601,180,707
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER
SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($510,551,652 / 21,698,833 shares
outstanding) $23.53
Offering Price Per Share (100/94.50 of $23.53)* $24.90
Redemption Proceeds Per Share $23.53
CLASS B SHARES:
Net Asset Value Per Share ($77,974,964 / 3,407,883 shares
outstanding) $22.88
Offering Price Per Share $22.88
Redemption Proceeds Per Share (94.50/100 of $22.88)* $21.62
CLASS C SHARES:
Net Asset Value Per Share ($12,654,091 / 549,804 shares
outstanding) $23.02
Offering Price Per Share $23.02
Redemption Proceeds Per Share (99.00/100 of $23.02)* $22.79

</TABLE>

* See "What do Shares Cost?" in the Prospectus.

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

FEDERATED GROWTH STRATEGIES FUND

STATEMENT OF OPERATIONS

YEAR ENDED OCTOBER 31, 1998

<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $21,113) $ 2,819,463
Interest 1,192,701
Total income 4,012,164
EXPENSES:
Investment advisory fee $ 4,546,048
Administrative personnel and services fee 457,074
Custodian fees 54,419
Transfer and dividend disbursing agent fees and expenses 391,838
Directors'/Trustees' fees 7,556
Auditing fees 16,192
Legal fees 4,168
Portfolio accounting fees 135,102
Distribution services fee-Class B Shares 490,096
Distribution services fee-Class C Shares 75,712
Shareholder services fee-Class A Shares 1,326,747
Shareholder services fee-Class B Shares 163,366
Shareholder services fee-Class C Shares 25,237
Share registration costs 57,365
Printing and postage 108,852
Insurance premiums 6,201
Miscellaneous 16,878
Total expenses 7,882,851
Waivers-
Waiver of shareholder services fee-Class A Shares $ (16,805)
Waiver of shareholder services fee-Class C Shares (2,168)
Total waivers (18,973)
Net expenses 7,863,878
Net operating loss (3,851,714)
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments (10,057,424)
Net change in unrealized depreciation of investments (26,112,888)
Net realized and unrealized loss on investments (36,170,312)
Change in net assets resulting from operations $ (40,022,026)

</TABLE>

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

FEDERATED GROWTH STRATEGIES FUND

STATEMENT OF CHANGES IN NET ASSETS

YEAR ENDED OCTOBER 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS-
Net operating loss $ (3,851,714) $ (882,924)
Net realized (loss)/gain on investments (($9,726,866) and
$114,090,561, respectively, as computed for federal tax
purposes) (10,057,424) 113,887,481
Net change in unrealized appreciation/(depreciation) of
investments (26,112,888) 58,806,461
Change in net assets resulting from operations (40,022,026) 171,811,018
DISTRIBUTIONS TO SHAREHOLDERS-
Distributions from net investment income
Class A Shares - (15,300)
Distributions in excess of net investment income
Class A Shares - (11,686)
Distributions from net realized gains on investments
Class A Shares (103,524,864) (32,989,453)
Class B Shares (8,434,003) (1,366,243)
Class C Shares (1,228,553) (434,938)
Change in net assets resulting from distributions
to shareholders (113,187,420) (34,817,620)
SHARE TRANSACTIONS-
Proceeds from sale of shares 718,975,850 345,861,726
Proceeds from shares issued in connection with the
acquisition 74,233,048
Net asset value of shares issued to shareholders in payment
of distributions declared 85,299,452 22,808,813
Cost of shares redeemed (605,010,967) (347,178,563)
Change in net assets resulting from share transactions 199,264,335 95,725,024
Change in net assets 46,054,889 232,718,422
NET ASSETS:
Beginning of period 555,125,818 322,407,396
End of period $ 601,180,707 $ 555,125,818

</TABLE>

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

FEDERATED GROWTH STRATEGIES FUND

FINANCIAL HIGHLIGHTS-CLASS A SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 32.

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $31.54 $25.84 $26.22 $21.28 $23.92
INCOME FROM INVESTMENT OPERATIONS
Net investment income/
(net operating loss) (0.14)(a) (0.04) 0.04 0.24 0.21
Net realized and unrealized gain (loss) on investments (1.48) 8.56 5.01 5.64 (2.18)
Total from investment operations (1.62) 8.52 5.05 5.88 (1.97)
LESS DISTRIBUTIONS
Distributions from net investment income - (0.00)* (0.04) (0.26) (0.19)
Distributions from net realized gain on
investment transactions (6.39) (2.82) (5.39) (0.68) (0.48)
Total distributions (6.39) (2.82) (5.43) (0.94) (0.67)
NET ASSET VALUE, END OF PERIOD $23.53 $31.54 $25.84 $26.22 $21.28
TOTAL RETURN(B) (6.12%) 36.37% 23.16% 29.03% (8.43%)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.20% 1.14% 1.13% 1.10% 0.99%
Net investment income/
(net operating loss ) (0.54%) (0.14%) 0.15% 1.05% 0.89%
Expense waiver/reimbursement(c) 0.00%** 0.10% 0.15% 0.16% -
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $510,552 $509,678 $307,382 $249,110 $320,630
Portfolio turnover 119% 146% 89% 125% 59%

</TABLE>

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

** Amount waived less than 0.01%.

(a) Per share numbers have been calculated using the average shares method,
which more appropriately represents the per share data for the period since the
use of the undistributed income method did not accord with the results of
operations.

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

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

FEDERATED GROWTH STRATEGIES FUND

FINANCIAL HIGHLIGHTS-CLASS B SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 32.

YEAR ENDED OCTOBER 31,
1998 1997 1996 1995(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $31.02 $25.65 $26.23 $25.51
INCOME FROM INVESTMENT OPERATIONS
Net operating loss (0.34)(b) (0.10) (0.10) (0.02)
Net realized and unrealized gain/(loss) on investments (1.41) 8.29 4.91 0.74
Total from investment operations (1.75) 8.19 4.81 0.72
LESS DISTRIBUTIONS
Distributions from net realized gain on
investment transactions (6.39) (2.82) (5.39) -
NET ASSET VALUE, END OF PERIOD $22.88 $31.02 $25.65 $26.23
TOTAL RETURN(C) (6.78%) 35.23% 22.03% 2.82%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.96% 1.99% 2.03% 2.04%*
Net operating loss (1.34%) (1.04%) (0.79%) (0.66%)*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $77,975 $39,588 $10,858 $1,345
Portfolio turnover 119% 146% 89% 125%

</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from August 16, 1995 (date of initial
public investment) to October 31, 1995.

(b) Per share numbers have been calculated using the average shares method,
which more appropriately represents the per share data for the period since the
use of the undistributed income method did not accord with the results of
operations.

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

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

FEDERATED GROWTH STRATEGIES FUND

FINANCIAL HIGHLIGHTS-CLASS C SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 32.

YEAR ENDED OCTOBER 31,
1998 1997 1996 1995(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $31.16 $25.68 $26.22 $25.51
INCOME FROM INVESTMENT OPERATIONS
Net operating loss (0.34)(b) (0.20) (0.05) (0.02)
Net realized and unrealized gain/(loss) on investments (1.41) 8.50 4.90 0.73
Total from investment operations (1.75) 8.30 4.85 0.71
LESS DISTRIBUTIONS
Distributions from net realized gain on
investment transactions (6.39) (2.82) (5.39) -
NET ASSET VALUE, END OF PERIOD $23.02 $31.16 $25.68 $26.22
TOTAL RETURN(C) (6.74%) 35.66% 22.12% 2.78%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.94% 1.90% 1.92% 2.05%*
Net operating loss (1.34%) (0.91%) (0.72%) (0.71%)*
Expense waiver/reimbursement(d) 0.02% 0.09% 0.12% -
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $12,654 $5,860 $3,667 $57
Portfolio turnover 119% 146% 89% 125%

</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from August 16, 1995 (date of initial
public investment) to October 31, 1995.

(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.

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

FEDERATED GROWTH STRATEGIES FUND

NOTES TO FINANCIAL STATEMENTS

OCTOBER 31, 1998

1. ORGANIZATION

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

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

2. SIGNIFICANT ACCOUNTING POLICIES

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

INVESTMENT VALUATIONS-Listed equity securities are valued at the last sale price
reported on a national securities exchange. U.S. government securities are
generally valued at the mean of the latest bid and asked price as furnished by
an independent pricing service. Short-term securities are valued at the prices
provided by an independent pricing service. However, short-term securities with
remaining maturities of 60 days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.

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

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

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

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

INCREASE (DECREASE)
ACCUMULATED
DISTRIBUTIONS
IN EXCESS OF NET ACCUMULATED NET
INVESTMENT INCOME REALIZED LOSS PAID IN CAPITAL
$3,863,400 $(1,251,228) $(2,612,172)

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

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

At October 31, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $9,726,866 which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire in
2006.

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

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

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

3. SHARES OF BENEFICIAL INTEREST

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

Transactions in shares were as follows:

YEAR ENDED OCTOBER 31,
1998 1997
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 25,071,328 $ 645,857,373 12,275,128 $ 315,683,919
Shares issued in connection with the acquisition - - 3,104,686 74,233,048
Shares issued to shareholders in payment of
distributions declared 3,075,195 76,080,478 878,652 21,166,808
Shares redeemed (22,609,750) (586,682,842) (12,012,363) (340,958,561)
Net change resulting from Class A Share transactions 5,536,773 $ 135,255,009 4,246,103 $ 70,125,214
<CAPTION>
YEAR ENDED OCTOBER 31,
1998 1997
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,280,389 $ 58,695,285 954,973 $ 27,222,810
Shares issued to shareholders in payment of
distributions declared 336,440 8,148,608 53,641 1,280,406
Shares redeemed (485,257) (11,921,023) (155,624) (4,220,243)
Net change resulting from Class B Share transactions 2,131,572 $ 54,922,870 852,990 $ 24,282,973
<CAPTION>
YEAR ENDED OCTOBER 31,
1998 1997
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 589,924 $ 14,423,192 106,759 $ 2,954,997
Shares issued to shareholders in payment of
distributions declared 43,940 1,070,366 15,123 361,599
Shares redeemed (272,103) (6,407,102) (76,646) (1,999,759)
Net change resulting from Class C Share transactions 361,761 $ 9,086,456 45,236 $ 1,316,837
Net change resulting from share transactions 8,030,106 $ 199,264,335 5,144,329 $ 95,725,024

</TABLE>

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

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

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

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

PERCENTAGE OF
AVERAGE DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
Class B Shares 0.75%
Class C Shares 0.75%

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

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES-FServ, through its
subsidiary, FSSC serves as transfer and dividend disbursing agent for the Fund.
The fee paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.

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

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

5. INVESTMENT TRANSACTIONS

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

PURCHASES $759,998,293
SALES $689,232,888

6. YEAR 2000 (UNAUDITED)

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

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

To the Trustees and Shareholders of

FEDERATED EQUITY FUNDS:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Growth Strategies Fund (a portfolio
of Federated Equity Funds), as of October 31, 1998, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1998, by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Growth Strategies Fund of Federated Equity Funds at October 31, 1998,
and the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented therein, in conformity with
generally accepted accounting principles.

ERNST & YOUNG LLP

Boston, Massachusetts

December 21, 1998

TRUSTEES

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

OFFICERS

John F. Donahue
Chairman

Glen R. Johnson
President

J. Christopher Donahue
Executive Vice President

Edward C. Gonzales
Executive Vice President

John W. McGonigle
Executive Vice President, Treasurer, and Secretary

Richard B. Fisher
Vice President

Matthew S. Hardin
Assistant Secretary

Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.

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

[Graphic]

Federated Investors

Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM

Cusip 314172107

Cusip 314172206

Cusip 314172305

G01228-08 (12/98)

[Graphic]

[Graphic]
Federated Investors
[Graphic]

Federated Small Cap Strategies Fund

3rd Annual Report

October 31, 1998

ESTABLISHED 1995

PRESIDENT'S MESSAGE

Dear Valued Shareholder:

Federated Small Cap Strategies Fund was created in 1995, and I am pleased to
present its third Annual Report. This report covers the 12- month reporting
period from November 1, 1997 through October 31, 1998. It begins with an
interview with Aash M. Shah, Vice President, who co- manages the fund with Keith
J. Sabol, Vice President, both with Federated Management. Following their
discussion are two additional items of shareholder interest. First is a complete
listing of the fund's stock holdings in small capitalized companies, and second
is the publication of the fund's financial statements.

Federated Small Cap Strategies Fund is managed to help your money grow over time
by investing in a highly diversified portfolio of small-cap stocks issued by
U.S. companies. The market capitalization of these companies is within the range
of the Standard & Poor's ("S&P") 600 Small Cap Index ($46 million to $2.8
billion).* These 135 small-cap stocks offer the potential for high returns over
time, though they are more volatile than stocks issued by larger,
well-established companies.+ To help reduce risk in this dynamic market, the
fund's portfolio is carefully selected and diversified with 135 stocks across 12
industry sectors.

Though this report focuses on the past 12 months, the true measure of the
performance potential of small-cap stocks, and of Federated Small Cap Strategies
Fund, is over the long term. I want to remind you of the fund's solid long-term
performance record. As of October 31, 1998, the average annual total returns,**
based on net asset value, for each share class since the fund's November 1, 1995
inception date were:

Class A Shares, 15.75% Class B Shares, 14.92% Class C Shares, 14.90%

* The S&P 600 Small Cap Index is comprised of 600 domestic stocks chosen to
represent the industry sectors of the small-cap market. This index is unmanaged
and investments cannot be made in an index.

** Performance quoted is based on net asset value, reflects past performance and
is not indicative of future results. Investment return and principal value will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost. As of October 31, 1998, the average annual total
returns, based on offering price (i.e., less any applicable sales charge), for
each share class since inception were: Class A Shares, 13.59%; Class B Shares,
13.90%; Class C Shares, 14.90%. Total returns for the one-year period ended
October 31, 1998, based on offering price (i.e., less any applicable sales
charge), for Class A, B, and C Shares were (23.07%), (23.69%), and (20.03%),
respectively.

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

After three years of very positive returns, the U.S. stock market faltered in
July and August of this year, as the market reacted to concerns over the
potential impact of the Asian and Russian economic difficulties. As a result,
stocks suffered a broad-based decline, small-cap stocks were hit particularly
hard, and the fund's portfolio of small-cap stocks produced a negative 12-month
total return. Individual share class total return performance, including
realized gains, for the 12-month period follows.

TOTAL CAPITAL NET ASSET
RETURN GAIN VALUE CHANGE
Class A Shares (18.60%) $0.0028 $18.75 to $15.26 = (19%)
Class B Shares (19.25%) $0.0028 $18.53 to $14.96 = (19%)
Class C Shares (19.22%) $0.0028 $18.51 to $14.95 = (19%)

In any 5-, 10-, 15-, or 20-year period of investing in small-caps stocks, there
have been many periods when prices have declined, and these same periods were
then followed by periods of very positive investment returns. Currently,
small-cap stocks appear extremely undervalued from a historical perspective as
they are as low in price as they have been in over 20 years, even though their
prices have recovered from their October 8, 1998 low. I would strongly recommend
adding to your account on a regular basis.

Thank you for participating in the growth and earnings opportunities of
over 120 dynamic U.S. companies. As always, we welcome your comments
and suggestions.

Sincerely,
[Graphic]
Glen R. Johnson

President

December 15, 1998

INVESTMENT REVIEW

Aash M. Shah, CFA

Vice President

Federated Management

Keith J. Sabol

Vice President

Federated Management

[Graphic]

WHAT ARE YOUR COMMENTS ON THE PAST 12 MONTHS, WHICH WAS A DIFFICULT ENVIRONMENT
FOR SMALL-CAP STOCK INVESTORS?

November 1, 1997 through October 31, 1998 was a very difficult 12- month
reporting period for small-cap stocks. While the large-cap stock market recorded
slightly positive-to-flat returns in the fourth quarter of 1997, which was the
beginning of the fund's fiscal year, small-cap stocks decreased. The Lipper
Small Cap Funds Index* was down 5.90%, the S&P 600 Small Cap Index was down
3.10%, and the Russell 2000 Index was down 3.40%.** Small-cap growth stocks
greatly underperformed, declining by 11.33% during the quarter. That is the bad
news.

The good news is that the performance picture has brightened considerably over
the first four months of 1998, when small-cap indexes recorded positive,
double-digit performance. However, the equity market began to weaken, with
small-cap stocks once again significantly underperforming large-cap stocks.

Yes, bad news again...the third quarter of 1998 was one of the worst on record
for the small-cap stock market. The average small-cap fund tracked by Lipper
Analytical Services, Inc.* was down 21.50%, the S&P 600 Small Cap Index was down
21.10%, and the Russell 2000 Index was down 20.50%. As had been the trend,
small-cap "growth" stocks underperformed small-cap "value" stocks.

Overall, for the 12-month reporting period ended October 31, 1998, small-cap
stocks recorded negative performance as measured by the (11.14%) total return of
the S&P 600 Small Cap Index and the (11.90%) return of the Russell 2000 Index.
The total return of the average small company mutual fund as tracked by Lipper
Analytical Services, Inc. was (13.76%).

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

** The Russell 2000 Index is a broadly diversified index consisting of
approximately 2,000 small-capitalization common stocks that can be used to
compare the total returns of funds whose portfolios are invested primarily in
small-capitalization common stocks. This index is unmanaged and investments
cannot be made in an index.

[Graphic]

WITH ALL THE BAD NEWS, SMALL-CAP STOCKS HAVE STAGED A STRONG RALLY VERY
LATE IN THE REPORTING PERIOD. CAN WE BE OPTIMISTIC?

Very much so. After the small-cap market's low on October 8, 1998, we have seen
a significant rally, as the Russell 2000 Index rose 22% through October 31,
1998, producing a one-month return of 4.01% for the month of October. Small-cap
stocks, especially small-cap growth stocks, remain very attractive for long-term
investors.

For investors, there are two powerful long-term reasons to be optimistic: 1)
valuation levels of small-cap stocks are extremely attractive versus large-cap
stocks; and 2) earnings growth in the small-cap market is expected to outpace
large-cap stocks over the next 3-5 years. Our analysis reveals numerous
opportunities for finding companies with rapidly growing revenues and earnings
at very attractive prices. Growth companies in the small-cap sector still appear
very reasonably priced relative to large-cap companies.

[Graphic]

HOW DID FEDERATED SMALL CAP STRATEGIES FUND PERFORM OVER THE 12-MONTH REPORTING
PERIOD?

The fund's total return performance reflected the small-cap market's
difficulties-and in particular the underperformance of small-cap growth stocks.
For the fiscal year ended October 31, 1998, the fund's total returns were
(18.60%) for Class A Shares, (19.25%) for Class B Shares, and (19.22%) for Class
C Shares.+

+ Performance quoted is based on net asset value, reflects past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period, based on
offering price (i.e., less any applicable sales charge), for Class A, B, and C
Shares were (23.07%), (23.69%), and (20.03%), respectively.

[Graphic]

WHY DO YOU LIKE THIS ASSET CLASS OF STOCKS?

This fund offers investors a pure approach to the small-cap stock market, and
the fund remains invested in all 12 economic sectors with appropriate
overweighted and underweighted positions. This fund is a "true" small-cap fund
because we have maintained its median capitalization below $600 million. History
has shown that small-cap stocks have been an excellent long-term investment.
Based on monthly historical data from 1946 to 1998, given a 15-year holding
period, small-cap stocks outperformed large-cap stocks 85% of the time.*

[Graphic]

WHAT INDUSTRY SECTORS ARE YOU FOCUSING ON?

We currently have overweighted positions in the Services and Retail sectors and
underweighted positions in Health Care, Transportation, Energy, and Utilities.
In our two largest sectors, Technology and Finance, we are overweighted and
underweighted, respectively. Our goal is to remain fully invested in the best 2%
of small companies that we can find across a universe of over 5000 small
companies in the U.S. We are maintaining our cash position below 3%, effectively
being fully invested. Under low inflation and weakening economic growth
conditions, we expect small-cap stocks to do very well only after the bear
market has run its course.

* Source: Ibbotson & Associates

[Graphic]

WHAT WERE THE FUND'S TOP 10 HOLDINGS AND WHAT WERE THE SECTOR WEIGHTINGS AS OF
OCTOBER 31, 1998?

PERCENTAGE OF
NAME NET ASSETS
ProBusiness
Services, Inc. 1.37%
Atlantic Data
Services, Inc. 1.31%
CSG Systems
International, Inc. 1.31%
AVT Corp. 1.29%
Medicis
Pharmaceutical Corp. 1.28%
Express Scripts Inc. 1.26%
SEI Investments Co. 1.26%
BARRA, Inc. 1.24%
Cybex Computer
Products Corp. 1.23%
CDW Computer
Centers, Inc. 1.18%
Total 12.73%
PERCENTAGE PERCENTAGE OF
SECTOR OF NET ASSETS S&P 600 INDEX
Technology 23.60% 17.20%
Services 18.50% 11.80%
Finance 10.70% 16.10%
Health Care 9.40% 11.50%
Retail Trade 6.30% 6.30%
Producer Manufacturing 5.90% 7.00%
Consumer Durables 5.10% 6.90%
Basic Industry 4.90% 7.20%
Utilities 3.20% 5.20%
Consumer Non-Durables 2.20% 4.30%
Transportation 2.10% 3.00%
Energy/Minerals 1.40% 3.50%
Other 3.30% -

[Graphic]

DO YOU SEE CONTINUED VOLATILITY IN THE SMALL-CAP STOCK ARENA?

Yes! The chart below indicates just how volatile investing in small-cap stocks
can be by showing the total returns produced by the Class A Shares of the fund
over various time periods since inception.

BOOM BUST
11/1/95 - 12/29/95 17.6% 2 months
12/29/95 - 1/16/96 (7.7%) 1/2 month
1/16/96 - 5/24/96 39.5% 4 months
5/24/96 - 7/24/96 (14.8%) 2 months
7/24/96 - 1/22/97 27.5% 6 months
1/22/97 - 4/25/97 (17.6%) 3 months
4/25/97 - 10/10/97 54.7% 6 months
10/10/97 - 1/12/98 (20.2%) 3 months
1/12/98 - 4/21/98 26.1% 3 months
4/21/98 - 10/8/98 (41.7%) 5 1/2 months
10/8/98 - 10/31/98 26.0% 23 days

Past performance is not indicative of future results. These figures do not take
into account the maximum 5.50% sales charge applicable to an initial investment
in Class A Shares.

This calendar of market actions on fund share prices may be helpful to
shareholders who want to add to their accounts on a regular basis. From November
1, 1995 to the present, share prices have been volatile, however, the price of
fund shares has risen. One investment strategy is to buy, hold, and buy again
and again. Of course, no method of investing ensures a profit or protects
against loss in declining markets. It has been said that time in the market may
help long-term investment results.

FEDERATED SMALL CAP STRATEGIES FUND

CLASS A SHARES

GROWTH OF $10,000 INVESTED IN FEDERATED SMALL CAP STRATEGIES FUND
(CLASS A SHARES)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Small Cap Strategies Fund (Class A Shares) (the "Fund") from November 1, 1995
(start of performance) to October 31, 1998 compared to the Russell 2000 Index
(RUS2).+

[Graphic representation omitted; see Appendix G.]

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

** Total return quoted reflects all applicable sales charges.

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

FEDERATED SMALL CAP STRATEGIES FUND

CLASS B SHARES

GROWTH OF $10,000 INVESTED IN FEDERATED SMALL CAP STRATEGIES FUND
(CLASS B SHARES)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Small Cap Strategies Fund (Class B Shares) (the "Fund") from November 1, 1995
(start of performance) to October 31, 1998 compared to the Russell 2000 Index
(RUS2).+

[Graphic representation omitted; see Appendix H.]

* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 4.00% contingent deferred sales charge on any redemption
less than three years from the purchase date. The maximum contingent deferred
sales charge is 5.50% on any redemption less than one year from the purchase
date. The Fund's performance assumes the reinvestment of all dividends and
distributions. The RUS2 has been adjusted to reflect reinvestment of dividends
on securities in the index.

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

+ The RUS2 is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. The
index is unmanaged.

FEDERATED SMALL CAP STRATEGIES FUND

CLASS C SHARES

GROWTH OF $10,000 INVESTED IN FEDERATED SMALL CAP STRATEGIES FUND
(CLASS C SHARES)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Small Cap Strategies Fund (Class C Shares) (the "Fund") from November 1, 1995
(start of performance) to October 31, 1998 compared to the Russell 2000 Index
(RUS2).+

[Graphic representation omitted; see Appendix I.]

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

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

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

FEDERATED SMALL CAP STRATEGIES FUND

PORTFOLIO OF INVESTMENTS

OCTOBER 31, 1998

<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS-93.3%
<C> <S> <C>
BASIC INDUSTRY-4.9%
143,800 Cambrex Corp. $ 3,675,888
205,600 Furon Co. 3,263,900
50,000 Lone Star Industries, Inc. 3,521,875
129,800 Northland Cranberries, Inc., Class A 1,411,575
133,600 RPM, Inc. 2,246,150
222,300 Spartech Corp. 4,001,400
Total 18,120,788
CONSUMER DURABLES-5.1%
125,700 (a) Action Performance Cos., Inc. 3,755,288
77,200 (a) American Homestar Corp. 1,264,150
82,300 Carlisle Cos., Inc. 3,178,838
127,200 (a) Dura Automotive Systems, Inc. 3,036,900
193,300 (a) Helen of Troy Ltd. 2,875,338
202,000 (a) Stanley Furniture Co., Inc. 3,787,500
43,400 (a) Toll Brothers, Inc. 1,006,338
Total 18,904,352
CONSUMER NON-DURABLES-2.2%
131,200 (a) Blyth Industries, Inc. 3,624,400
133,900 (a) Smithfield Foods, Inc. 2,627,788
152,500 Wolverine World Wide, Inc. 1,992,031
Total 8,244,219
ENERGY/MINERALS-1.4%
51,500 Cross Timbers Oil Co. 740,313
35,400 Devon Energy Corp. 1,199,175
54,700 (a) Pride International, Inc. 635,888
45,300 (a) Tuboscope Inc. 560,588
147,200 Vintage Petroleum, Inc. 1,913,600
Total 5,049,564
</TABLE>
FEDERATED SMALL CAP STRATEGIES FUND
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS-CONTINUED
<C> <S> <C>
FINANCE-10.7%
102,800 City National Corp. $ 3,514,475
165,500 Community First Bankshares, Inc. 3,289,313
68,960 (a) Delphi Financial Group, Inc., Class A 3,215,260
115,700 Enhance Financial Services Group, Inc. 2,841,881
70,500 Executive Risk, Inc. 3,348,750
195,900 (a) FirstFed Financial Corp. 3,207,863
53,700 Fremont General Corp. 2,651,438
156,100 GBC Bancorp, Inc. 4,156,163
58,300 (a) HealthCare Financial Partners, Inc. 1,785,438
109,700 Hooper Holmes, Inc. 2,612,231
108,800 Mutual Risk Management Ltd. 3,678,800
161,500 North Fork Bancorp, Inc. 3,209,813
109,600 (a) Triad Guaranty, Inc. 2,329,000
Total 39,840,425
HEALTH CARE-9.4%
109,700 (a) Access Health, Inc. 3,935,488
132,800 (a) Alternative Living Services, Inc. 3,469,400
228,800 (a) Balanced Care Corp. 1,701,700
3,400 (a) Boron, LePore & Associates, Inc. 91,800
79,300 (a) Curative Health Services, Inc. 2,160,925
107,500 (a) Genesis Health Ventures, Inc. 1,451,250
74,800 (a) HCR Manor Care, Inc. 2,431,000
94,800 (a) Medicis Pharmaceutical Corp., Class A 4,751,850
25,700 (a) Medimmune, Inc. 1,728,325
201,000 (a) Prime Medical Services, Inc. 1,507,500
73,300 (a) Safeskin Corp. 1,621,763
162,400 (a) Sybron International Corp. 4,019,400
73,400 (a) Universal Health Services, Inc., Class B 3,766,338
41,100 (a) VISX, Inc. 2,060,138
Total 34,696,877
</TABLE>
FEDERATED SMALL CAP STRATEGIES FUND
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS-CONTINUED
<C> <S> <C>
PRODUCER MANUFACTURING-5.9%
140,700 (a) AFC Cable Systems, Inc. $ 3,464,738
142,400 Ametek, Inc. 3,017,100
118,800 Applied Power, Inc., Class A 3,274,425
60,000 Ballard Power Systems, Inc. 1,665,000
190,300 (a) Cable Design Technologies, Class A 3,139,950
164,900 (a) Gentex Corp. 2,421,969
103,800 (a) Rayovac Corp. 2,108,438
86,490 (a) Zebra Technologies Corp., Class B 2,832,548
Total 21,924,168
RETAIL TRADE-6.3%
44,400 (a) American Eagle Outfitters, Inc. 1,798,200
58,200 (a) CDW Computer Centers, Inc. 4,361,363
174,500 Claire's Stores, Inc. 2,955,594
47,700 (a) Express Scripts, Inc., Class A 4,659,694
57,000 (a) Linens 'N Things, Inc. 1,763,438
62,800 (a) O'Reilly Automotive, Inc. 2,457,050
66,300 (a) Pacific Sunwear of California 1,433,738
148,300 (a) Renters Choice, Inc. 3,679,694
11,500 (a) Trans World Entertainment Corp. 237,188
Total 23,345,959
SERVICES-18.5%
162,000 (a) ABR Information Services, Inc. 3,057,750
99,600 (a) Allied Waste Industries, Inc. 2,153,850
174,500 (a) BARRA, Inc. 4,602,438
132,000 (a) Billing Concepts Corp. 1,864,500
32,600 (a) CMG Information Services, Inc. 1,854,125
70,300 (a) Catalina Marketing Corp. 3,352,431
114,500 (a) Daisytek International Corp. 1,724,656
89,100 (a) DeVRY, Inc. 1,960,200
87,500 (a) Dycom Industries, Inc. 3,067,969
160,300 (a) Equity Corp. International 3,977,444
</TABLE>
FEDERATED SMALL CAP STRATEGIES FUND
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS-CONTINUED
<C> <S> <C>
SERVICES-CONTINUED
132,500 (a) FactSet Research Systems $ 3,975,000
92,700 (a) ITT Educational Services, Inc. 2,752,031
5,700 (a) Lason Holdings, Inc. 312,075
188,000 (a) Newpark Resources, Inc. 1,774,250
138,450 (a) ProBusiness Services, Inc. 5,062,062
56,200 SEI Investments Co. 4,657,575
43,600 (a) Snyder Communications, Inc. 1,555,975
137,700 (a) StaffMark, Inc. 2,418,356
100,800 Strayer Education, Inc. 3,427,200
130,600 (a) Sylvan Learning Systems, Inc. 4,032,275
136,125 (a) Tetra Tech, Inc. 2,765,039
106,000 Unifirst Corp. 2,948,125
162,100 (a) World Access, Inc. 3,464,888
61,600 (a) World Color Press 1,871,100
Total 68,631,314
TECHNOLOGY-23.6%
167,000 (a) ATMI, Inc. 2,296,250
218,100 (a) AVT Corp. 4,770,938
88,200 (a) Acxiom Corp. 2,216,025
160,700 (a) Apex PC Solutions, Inc. 4,198,288
75,700 (a) Aspect Development, Inc. 2,391,647
233,000 (a) Atlantic Data Services, Inc. 4,863,875
132,900 (a) Benchmark Electronics, Inc. 3,131,456
102,800 (a) Black Box Corp. 3,430,950
173,700 (a) CHS Electronics, Inc. 1,693,575
89,100 (a) CSG Systems International, Inc. 4,855,950
96,200 (a) Check Point Software Technologies Ltd. 2,188,550
121,500 (a) Ciber, Inc. 2,384,438
130,500 (a) Complete Business Solutions, Inc. 3,099,375
107,300 (a) Computer Horizons Corp. 2,467,900
80,200 (a) Comverse Technology, Inc. 3,689,200
</TABLE>
FEDERATED SMALL CAP STRATEGIES FUND
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS-CONTINUED
<C> <S> <C>
TECHNOLOGY-CONTINUED
143,800 (a) Cybex Computer Products Corp. $ 4,565,650
188,200 (a) DSP Group, Inc. 3,011,200
65,500 Dallas Semiconductor Corp. 2,423,500
139,000 (a) Ducommun, Inc. 2,224,000
60,200 (a) Etec Systems, Inc. 2,039,275
73,700 (a) HADCO Corp. 2,321,550
176,000 (a) Mastech Corp. 4,136,000
104,800 (a) Micrel, Inc. 3,445,300
58,300 (a) Orbotech, Ltd. 2,040,500
150,300 (a) SS&C Technologies, Inc. 1,690,875
101,800 (a) Sanmina Corp. 4,173,800
110,300 (a) Transaction Systems Architects, Inc., Class A 3,981,141
115,200 (a) Vitesse Semiconductor Corp. 3,715,200
Total 87,446,408
TRANSPORTATION-2.1%
54,000 Air Express International Corp. 1,134,000
77,000 Comair Holdings, Inc. 2,531,375
39,800 Expeditors International Washington, Inc. 1,348,225
39,300 (a) Heartland Express, Inc. 707,400
34,100 USFreightways Corp. 854,631
62,125 Werner Enterprises, Inc. 1,118,250
Total 7,693,881
UTILITIES-3.2%
23,200 Central Hudson Gas & Electric 939,600
27,000 (a) Century Communications, Corp., Class A 597,375
18,300 Cilcorp, Inc. 942,450
31,300 Commonwealth Energy System 1,167,881
24,100 New Jersey Resources Corp. 926,344
39,200 Piedmont Natural Gas, Inc. 1,362,200
39,500 Sierra Pacific Resources 1,439,281
</TABLE>
FEDERATED SMALL CAP STRATEGIES FUND
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
COMMON STOCKS-CONTINUED
<C> <S> <C>
UTILITIES-CONTINUED
32,600 Southwest Gas Corp. $ 772,213
93,700 (a) Transaction Network Services, Inc. 2,565,038
50,800 WICOR, Inc. 1,238,250
Total 11,950,632
TOTAL COMMON STOCKS (IDENTIFIED COST $334,805,535) 345,848,587
(D)U.S. TREASURY OBLIGATION-3.3%
$ 12,200,000 United States Treasury Bill, 12/17/1998
(IDENTIFIED COST $12,135,948) 12,146,259
(B)REPURCHASE AGREEMENT-3.8%
14,300,000 Westdeutsche Landesbank Girozentrale, 5.42%, dated 10/30/
1998, due 11/2/1998 (AT AMORTIZED COST) 14,300,000
TOTAL INVESTMENTS (IDENTIFIED COST $361,241,483)(C) $ 372,294,846
</TABLE>

(a) Non-income producing security.

(c) The cost of investments for federal tax purposes amounts to $361,488,869.
The net unrealized appreciation of investments on a federal tax basis amounts to
$10,805,977 which is comprised of $45,160,808 appreciation and $34,354,831
depreciation at October 31, 1998.

(d) Represents a security held as collateral which is used to ensure the Fund
is able to satisfy the obligations of its outstanding long futures contract. The
underlying face amount, at value, of open index futures contracts is $12,382,580
at October 31, 1998 which represents 3.3% of net assets.

Note: The categories of investments are shown as a percentage of net assets
($370,755,632) at October 31, 1998.

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

FEDERATED SMALL CAP STRATEGIES FUND

STATEMENT OF ASSETS AND LIABILITIES

OCTOBER 31, 1998

<TABLE>

<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost
$361,241,483 and tax cost $361,488,869) $ 372,294,846
Cash 4,181
Income receivable 89,393
Receivable for investments sold 17,331,325
Receivable for shares sold 2,069,371
Receivable for daily variation margin 104,000
Deferred organizational costs 37,190
Total assets 391,930,306
LIABILITIES:
Payable for investments purchased $ 19,463,567
Payable for shares redeemed 1,421,836
Accrued expenses 289,271
Total liabilities 21,174,674
NET ASSETS for 24,597,131 shares outstanding $ 370,755,632
NET ASSETS CONSIST OF:
Paid in capital $ 401,749,934
Net unrealized appreciation of investments and futures
contracts 11,320,818
Accumulated net realized loss on investments and futures
contracts (42,315,120)
Total net assets $ 370,755,632
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION, PROCEEDS
PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($142,250,177 / 9,324,439 shares
outstanding) $15.26
Offering Price Per Share (100/94.50 of $15.26)* $16.15
Redemption Proceeds Per Share $15.26
CLASS B SHARES:
Net Asset Value Per Share ($195,187,586 / 13,043,337 shares
outstanding) $14.96
Offering Price Per Share $14.96
Redemption Proceeds Per Share (94.50/100 of $14.96)* $14.14
CLASS C SHARES:
Net Asset Value Per Share ($33,317,869 / 2,229,355 shares
outstanding) $14.95
Offering Price Per Share $14.95
Redemption Proceeds Per Share (99.00/100 of $14.95)* $14.80
</TABLE>

* See "What Do Shares Cost?" in the Prospectus.

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

FEDERATED SMALL CAP STRATEGIES FUND

STATEMENT OF OPERATIONS

YEAR ENDED OCTOBER 31, 1998

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,013,307
Interest 796,824
Total income 1,810,131
EXPENSES:
Investment advisory fee $ 2,906,645
Administrative personnel and services fee 292,243
Custodian fees 22,387
Transfer and dividend disbursing agent fees and expenses 730,924
Directors'/Trustees' fees 6,170
Auditing fees 16,192
Legal fees 2,821
Portfolio accounting fees 113,636
Distribution services fee-Class B Shares 1,573,652
Distribution services fee-Class C Shares 237,848
Shareholder services fee-Class A Shares 365,048
Shareholder services fee-Class B Shares 524,551
Shareholder services fee-Class C Shares 79,283
Share registration costs 60,340
Printing and postage 119,515
Insurance premiums 503
Taxes 69
Miscellaneous 10,332
Total expenses 7,062,159
Waivers-
Waiver of investment advisory fee (254,218)
Net expenses 6,807,941
Net operating loss (4,997,810)
REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FUTURES
CONTRACTS:
Net realized loss on investments and futures contracts (42,268,177)
Net change in unrealized appreciation of investments and
futures contracts (35,042,376)
Net realized and unrealized loss on investments and
futures contracts (77,310,553)
Change in net assets resulting from operations $ (82,308,363)
</TABLE>

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

FEDERATED SMALL CAP STRATEGIES FUND

STATEMENT OF CHANGES IN NET ASSETS

YEAR ENDED OCTOBER 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS-
Net operating loss $ (4,997,810) $ (1,905,688)
Net realized (loss)/gain on investments and futures
contracts ($(41,800,279) and $1,368,031, respectively, as
computed for federal tax purposes) (42,268,177) 1,329,530
Net change in unrealized appreciation/(depreciation)
of investments (35,042,376) 44,425,343
Change in net assets resulting from operations (82,308,363) 43,849,185
DISTRIBUTIONS TO SHAREHOLDERS-
Distributions from net realized gains on investments and
futures contracts
Class A Shares (20,318) (479,065)
Class B Shares (28,368) (622,004)
Class C Shares (4,031) (97,800)
Change in net assets resulting from distributions to
shareholders (52,717) (1,198,869)
SHARE TRANSACTIONS-
Proceeds from sale of shares 810,112,441 316,254,217
Net asset value of shares issued to shareholders in payment
of distributions declared 58,240 1,012,743
Cost of shares redeemed (701,511,227) (76,309,740)
Change in net assets resulting from share transactions 108,659,454 240,957,220
Change in net assets 26,298,374 283,607,536
NET ASSETS:
Beginning of period 344,457,258 60,849,722
End of period (including undistributed net investment income
of $80 at October 31, 1997) $ 370,755,632 $ 344,457,258
</TABLE>

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

FEDERATED SMALL CAP STRATEGIES FUND

FINANCIAL HIGHLIGHTS-CLASS A SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 28.

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1998 1997 1996
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $18.75 $14.68 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net operating loss (0.14)(d) (0.04) (0.05)(c)
Net realized and unrealized (loss)/gain on investments and
futures contracts (3.35) 4.33 4.75
Total from investment operations (3.49) 4.29 4.70
LESS DISTRIBUTIONS
Distributions in excess of net investment income - - (0.02)
Distributions from net realized gain on investments and
futures contracts (0.00)* (0.22) -
Total distributions (0.00)* (0.22) (0.02)
NET ASSET VALUE, END OF PERIOD $15.26 $18.75 $14.68
TOTAL RETURN(A) (18.60%) 29.55% 47.06%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.28% 1.44% 1.35%
Net operating loss (0.82%) (0.65%) (0.39%)
Expense waiver/reimbursement(b) 0.07% 0.00% 1.70%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $142,250 $134,903 $23,242
Portfolio turnover 59% 118% 83%
</TABLE>

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

(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) 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.

(d) Per share numbers have been calculated using the average shares method,
which more appropriately represents the pershare data for the period since the
use of the undistributed income method did not accord with results of
operations.

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

FEDERATED SMALL CAP STRATEGIES FUND

FINANCIAL HIGHLIGHTS-CLASS B SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 28.

YEAR ENDED OCTOBER 31,
1998 1997 1996
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $18.53 $14.62 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net operating loss (0.28)(d) (0.09) (0.16)(c)
Net realized and unrealized (loss)/gain on investments and
futures contracts (3.29) 4.22 4.78
Total from investment operations (3.57) 4.13 4.62
LESS DISTRIBUTIONS
Distributions from net realized gain on investments and
futures contracts (0.00)* (0.22) -
NET ASSET VALUE, END OF PERIOD $14.96 $18.53 $14.62
TOTAL RETURN(A) (19.25%) 28.56% 46.20%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.03% 2.19% 2.10%
Net operating loss (1.57%) (1.40%) (1.27%)
Expense waiver/reimbursement(b) 0.07% 0.00% 1.70%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $195,188 $183,180 $32,112
Portfolio turnover 59% 118% 83%
</TABLE>

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

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

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

FEDERATED SMALL CAP STRATEGIES FUND

FINANCIAL HIGHLIGHTS-CLASS C SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 28.

YEAR ENDED OCTOBER 31,
1998 1997 1996
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $18.51 $14.60 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net operating loss (0.27)(d) (0.10) (0.16)(c)
Net realized and unrealized (loss)/gain on investments and
futures contracts (3.29) 4.23 4.76
Total from investment operations (3.56) 4.13 4.60
LESS DISTRIBUTIONS
Distributions from net realized gain on investments and
futures contracts (0.00)* (0.22) -
NET ASSET VALUE, END OF PERIOD $14.95 $18.51 $14.60
TOTAL RETURN(A) (19.22%) 28.60% 46.00%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.03% 2.19% 2.10%
Net operating loss (1.57%) (1.40%) (1.28%)
Expense waiver/reimbursement(b) 0.07% 0.00% 1.70%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $33,318 $26,375 $5,496
Portfolio turnover 59% 118% 83%
</TABLE>

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

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

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

FEDERATED SMALL CAP STRATEGIES FUND

NOTES TO FINANCIAL STATEMENTS

OCTOBER 31, 1998

1. ORGANIZATION

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

2. SIGNIFICANT ACCOUNTING POLICIES

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

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

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

INCREASE (DECREASE)
ACCUMULATED
ACCUMULATED NET DISTRIBUTIONS IN
REALIZED EXCESS OF NET
LOSS INVESTMENT INCOME PAID IN CAPITAL
$320 $4,997,730 $(4,998,050)

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

At October 31, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $41,800,279 which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire in
2006.

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

FUTURES CONTRACTS-The Fund purchases stock index futures contracts to hedge
against the effects of changes in the value of portfolio securities due to
anticipated changes in interest rates and market conditions. Upon entering into
a stock index futures contract with a broker, the Fund is required to deposit in
a segregated account a specified amount of cash or U.S. government securities.
Futures contracts are valued daily and unrealized gains or losses are recorded
in a "variation margin" account. Daily, the Fund receives from or pays to the
broker a specified amount of cash based upon changes in the variation margin
account. When a contract is closed, the Fund recognizes a realized gain or loss.
For the period ended October 31, 1998, the Fund had realized gains of $76,023 on
future contracts.

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

At October 31, 1998, the Fund had outstanding futures contracts as set forth
below:

CONTRACTS TO UNREALIZED
EXPIRATION DATE DELIVER/RECEIVE POSITION APPRECIATION
December 1998 65 Russell 2000 Futures Long $267,455

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

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

3. SHARES OF BENEFICIAL INTEREST

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

Transactions in shares were as follows:

YEAR ENDED OCTOBER 31,
1998 1997
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 37,888,409 673,621,012 8,939,852 $ 152,717,553
Shares issued to shareholders in payment of distributions
declared 765 14,034 22,727 351,365
Shares redeemed (35,758,633) (637,209,629) (3,351,598) (59,328,543)
Net change resulting from Class A Share transactions 2,130,541 $ 36,425,417 5,610,981 $ 93,740,375
<CAPTION>

YEAR ENDED OCTOBER 31,
1998 1997
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,918,299 $ 105,138,404 8,333,326 $ 140,776,114
Shares issued to shareholders in
payment of distributions declared 2,507 40,446 36,949 568,269
Shares redeemed (2,761,407) (47,086,005) (682,324) (11,279,092)
Net change resulting from Class B Share transactions 3,159,399 $ 58,092,845 7,687,951 $ 130,065,291
<CAPTION>

YEAR ENDED OCTOBER 31,
1998 1997
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,872,055 $ 31,353,025 1,377,339 $ 22,760,551
Shares issued to shareholders in
payment of distributions declared 208 3,760 6,061 93,109
Shares redeemed (1,068,067) (17,215,593) (334,548) (5,702,106)
Net change resulting from Class C Share transactions 804,196 $ 14,141,192 1,048,852 $ 17,151,554
Net change resulting from share transactions 6,094,136 $ 108,659,454 14,347,784 $ 240,957,220

</TABLE>

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

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

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

PERCENTAGE OF
AVERAGE DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%

For the period ended October 31, 1998, Class A did not incur a distribution
services fee.

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES-FServ, through its
subsidiary, FSSC, serves as transfer and dividend disbursing agent for the Fund.
The fee paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.

ORGANIZATIONAL EXPENSES-Organizational expenses of $45,877 were borne initially
by FServ. The Fund has reimbursed FServ for these expenses. These expenses have
been deferred and are being amortized over the five-year period following the
Fund's effective date. For the year ended October 31, 1998, the Fund expensed
$8,687 of organizational expenses.

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

5. INVESTMENT TRANSACTIONS

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

PURCHASES $ 311,661,624
SALES $ 223,916,386

6. YEAR 2000 (UNAUDITED)

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

To the Trustees and Shareholders of

FEDERATED EQUITY FUNDS:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Small Cap Strategies Fund (a
portfolio of Federated Equity Funds), as of October 31, 1998, the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the three years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Small Cap Strategies Fund of Federated Equity Funds at October 31,
1998, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for each of the three years in the period then ended in conformity
with generally accepted accounting principles.

ERNST & YOUNG LLP

Boston, Massachusetts

December 21, 1998

TRUSTEES

John F. Donahue

Thomas G. Bigley

John T. Conroy, Jr.

Nicholas P. Constantakis

William J. Copeland

James E. Dowd, Esq.

Lawrence D. Ellis, M.D.

Edward L. Flaherty, Jr., Esq.

Peter E. Madden

John E. Murray, Jr., J.D., S.J.D.

Wesley W. Posvar

Marjorie P. Smuts

OFFICERS

John F. Donahue
Chairman

Glen R. Johnson
President

J. Christopher Donahue
Executive Vice President

Edward C. Gonzales
Executive Vice President

John W. McGonigle
Executive Vice President, Treasurer, and Secretary

Richard B. Fisher
Vice President

Matthew S. Hardin
Assistant Secretary

[Graphic]

Federated Investors
Federated Securities Corp, Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM

Cusip 314172404
Cusip 314172503
Cusip 314172602
G01658-04 (12/98)

[Graphic]

Federated Capital Appreciation Fund

22nd Annual Report

October 31, 1998

ESTABLISHED 1977

PRESIDENT'S MESSAGE

Dear Fellow Shareholder:

Federated Capital Appreciation Fund was created in 1977, and I am pleased to
present its 22nd Annual Report. This report covers the 12-month reporting period
from November 1, 1997 through October 31, 1998. It begins with an interview with
the fund's portfolio manager, Arthur J. Barry, Vice President of Federated
Management. Following his discussion are three additional items of shareholder
interest. First is a series of graphs showing the fund's excellent long-term
investment performance. Second is a complete listing of the fund's high-quality
stock holdings, and third is the publication of the fund's financial statements.

Though this report focuses on the past 12 months, the true measure of the
performance potential of stocks, and of Federated Capital Appreciation Fund, is
over the long term. I want to remind you of the fund's strong long-term
performance record. As of October 31, 1998, the average annual total returns,*
based on net asset value, for each share class since inception were:

Class A Shares (January 1, 1977), 14.40% Class B Shares (January 4, 1996),
16.81% Class C Shares (January 4, 1996), 16.78%

After three years of very positive returns, the U.S. stock market faltered in
July and August of this year, as the market reacted to concerns over the
potential impact of the Asian and Russian economic difficulties. As a result,
stocks suffered a broad-based decline. The fund's portfolio of high-quality
common stocks-which included well-known names that you will recognize
immediately, such as America Online, Inc., American Express Co., Barnes & Noble,
Inc., Bristol-Myers Squibb Co., Chase Manhattan Corp., GTE Corp., Intel Corp.,
Mattel, Inc., PepsiCo, Inc., and Wells Fargo & Co.-produced a positive, yet
relatively weak 12-month total return.

* Performance quoted is based on net asset value, reflects past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. As of October 31, 1998, the average annual
total returns, based on offering price (i.e., less any applicable charge), for
each share class since inception were: Class A Shares, 14.11%; Class B Shares,
15.73%; and Class C Shares, 16.78%. Total returns for the one-year period ended
October 31, 1998, based on offering price (i.e., less any applicable sales
charge), for Class A, B, and C Shares were 0.38%, 0.09%, and 4.74%,
respectively.

Individual share class total return performance for the 12-month period,
including realized gains, follows.

TOTAL CAPITAL NET ASSET
RETURN GAINS VALUE CHANGE
Class A Shares 6.23% $2.33 $20.08 to $18.73 = (7%)
Class B Shares 5.20% $2.33 $20.04 to $18.62 = (7%)
Class C Shares 5.67% $2.33 $19.95 to $18.61 = (7%)

The annual and semi-annual reports to shareholders remind our investors that
stocks are priced daily on various stock exchanges and change daily in price.
There have been numerous periods when stock prices have declined and
subsequently risen. Periods of price declines have proven to be good buying
opportunities, and I recommend that you consider adding to your account.

Thank you for participating in the growth and earnings opportunities of
over 100 high-quality U.S. companies. As always, we welcome your
comments and suggestions.

Sincerely,

[Graphic]

Glen R. Johnson

President

December 15, 1998

INVESTMENT REVIEW

[Graphic]

Arthur J. Barry, CFA
Vice President
Federated Management

[Graphic]

AFTER MANY YEARS OF VERY STRONG RETURNS, A HIGHLY VALUED U.S. STOCK
MARKET FINALLY SUCCUMBED TO ECONOMIC PROBLEMS OVERSEAS. WHAT IS YOUR
REVIEW OF THE MARKET OVER THE 12-MONTH REPORTING PERIOD?

The beginning of the fund's fiscal year was a shaky period for the equity
markets. Uncertainty over the growth and stability of many Asian economies
roiled our equity market. A "flight to quality" followed that resulted in
large-cap stocks outperforming mid-cap and small-cap stocks.*

Then, in the first quarter of 1998, the Standard & Poor's ("S&P") 500 Index**
returned 13.90%-historically, a year's worth of returns-with large-cap stocks
continuing to outpace the returns of mid-cap and small-cap stocks. The market
did not seem to believe that Asia's economic troubles would impact U.S.
domiciled companies, or it at least decided to look beyond the Asian impact,
thinking it would be a short-term event. The second quarter of 1998 was
characterized by another flight to quality as large-cap stocks outperformed
smaller-cap stocks. The performance of large-cap stocks, however, was driven by
growth stocks, which implied the market was anticipating an economic slowdown.

Late in the fund's fiscal year, the deteriorating international economies landed
at our ports with a "thud." The equity market finally capitulated to the
plethora of worsening economic news. Over the past few quarters, stocks
suffering first were those facing increased foreign-based competition; these
stocks were in the Basic Industry, Durable, and Producer Manufacturing sectors.
Second, companies that relied on international infrastructure growth suffered
like those in machinery and technology. In the third quarter of 1998, nondurable
companies faltered as international consumers curtailed consumption of staples.
The resulting downturn in our equity markets had shaken consumer confidence and
had investors fearing that spending would start to weaken. The deteriorating
outlook for the economy led the market to believe that the Federal Reserve Board
would need to lower rates. Not until the final few weeks of the year did breadth
expand as mid-cap stocks outperformed large-cap stocks.

* Small cap stocks have historically experienced greater volatility than
average.

** The S&P 500 Index consists of stocks in industry, transportation, financial
and public utility companies. This index is unmanaged, and investments cannot be
made in an index.

Over the 12-month reporting period, despite the capitulation of many of the
multinationals, large-cap stocks as a group significantly outperformed mid-cap
and small-cap stocks. For the 12-month reporting period ended October 31, 1998,
the S&P 500 Index returned 21.90%, compared to the 6.57% return of the S&P 400
Index* (mid-caps) and the (11.14%) return of the S&P 600 Small Cap Index.*
Growth stocks performed better than value stocks.

[Graphic]

HOW DID FEDERATED CAPITAL APPRECIATION FUND PERFORM OVER THE 12-MONTH
REPORTING PERIOD?

For the fiscal year ended October 31, 1998, the fund's Class A Shares produced a
total return of 6.23%, based on net asset value. The fund's Class B and C Shares
delivered total returns of 5.20% and 5.67%, based on net asset value,
respectively.** The fund significantly outperformed the 0.86% total return of
the Lipper Capital Appreciation Funds Average but did not match the 9.61% return
of the Lipper Growth Funds Average for the same period.+

The fund's performance was impacted by its exposure to mid-cap stocks in general
and large-cap financial stocks in particular during the difficult third quarter
of 1998, when the specter of a global financial crisis sent financial stocks
reeling.

* The S&P 400 Index consists of 400 domestic stocks chosen to represent the
liquidity and industry groups of the mid-cap market. The S&P 600 Small Cap Index
consists of 600 domestic stocks chosen to represent the liquidity and industry
groups of the small-cap market. These indices are unmanaged and investments
cannot be made in an index.

** Performance quoted is based on net asset value, reflects past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the period, based on offering
price (i.e., less any applicable sales charge), for Class A, B, and C Shares
were 0.38%, 0.09%, and 4.74%, respectively.

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

[Graphic]

WHAT CHANGES HAVE YOU MADE TO THE FUND'S SECTOR WEIGHTINGS AND MARKET
CAPITALIZATION?

We became more defensive during the third quarter of 1998. We raised the fund's
average yield by increasing our exposure to the Utilities and Energy sectors.
Finance was the sector we trimmed the most. We maintained our weighting in the
Retail sector, but the composition of the sector changed as we added more
conservative stocks like FRED MEYER and SAFEWAY which should see steady demand
in an economic downturn. The portfolio ended its fiscal year with 58% of its
assets in large-cap stocks and 42% in mid-cap stocks. The fund also had 59% of
its assets invested in value stocks.

[Graphic]

WHAT WERE SOME OF THE FUND'S RECENT STOCK PURCHASES?

Our recent purchases included the following:

AMERICA ONLINE, INC. (AOL) (1.31% of net assets)-AOL has a dominant position as
an Internet service provider, and this position has allowed AOL to sign-up
hundreds of advertisers. In addition, the penetration rate of computers in the
home is increasing as computer prices fall. The result should be increased
subscribers for AOL.

APPLE COMPUTER, INC. (AAPL) (0.81% of net assets)-AAPL has finally introduced a
new product line that is being well received. This line runs the gamut of
offerings: the Imac (low price introductory model), the G3 (replaces the
Macintosh), and a new Powerbook (a notebook). Last quarter, AAPL showed unit
growth for the first time in two years, and the company is reining in operating
expenses.

DAL-TILE INTERNATIONAL, INC. (DTL) (0.64% of net assets)-DTL acquired American
Olean from Armstrong World three years ago for stock, and the integration was
poorly executed. New management has arrived to improve operations. Ceramic tile
has shown better than 7% growth in this economic expansion. Armstrong World
(ACK) wanted to acquire Dal-Tile, but was rebuffed by DTL's largest shareholder.
Therefore, ACK was selling its position in DTL in a secondary offering, which,
in our opinion, undeservedly punished DTL's stock and provided a seemingly good
entry point.

MARTIN MARIETTA MATERIALS (MLM) (1.22% of net assets)-This leading supplier of
aggregates used in construction should be a defensive holding. Aggregates are
supplied from local businesses as they are heavy and thus costly to transport.
In addition, with the recent passing of the new highway bill, funds will
continue to flow into infrastructure spending. A change in the allocation of
funds to states will allow MLM to witness above-industry spending in its
territory of the southeastern and north central United States.

USEC, INC. (USU) (1.51% of net assets)-USEC is the privatization of the U.S.
government's uranium enrichment processing operations. USEC is trading at a very
low price per earnings ratio and offers a 7% yield. It should prove to be a
defensive investment and have upside potential if cost savings above those
projected can be realized. Additionally, USEC has uranium inventories worth $8
per share above book value.

[Graphic]

WHAT WERE THE FUND'S TOP 10 HOLDINGS AND WHAT WERE THE SECTOR WEIGHTINGS AS OF
OCTOBER 31, 1998?

<TABLE>
<CAPTION>
NAME PERCENTAGE OF
NET ASSETS
<S> <C>
MCI Worldcom, Inc. 1.54%
USEC, Inc. 1.51%
Tyco International, Ltd. 1.48%
Texas Utilities Co. 1.44%
Morgan Stanley, Dean Witter Co. 1.43%
Peco Energy Co. 1.38%
Philip Morris Cos., Inc. 1.34%
Bristol-Myers Squibb Co. 1.32%
America Online, Inc. 1.31%
Smithkline Beecham Corp., ADR 1.28%
TOTAL 14.03%
<CAPTION>
SECTOR PERCENTAGE OF PERCENTAGE OF
NET ASSETS S&P 500 INDEX
<S> <C> <C>
Technology 15.30% 17.10%
Utilities 14.40% 11.20%
Finance 12.10% 15.20%
Consumer Non-Durables 10.40% 10.50%
Health Care 10.40% 13.00%
Energy/Minerals 7.30% 7.10%
Retail Trade 6.80% 5.90%
Services 6.00% 4.90%
Producer Manufacturing 5.00% 7.10%
Basic Industry 4.00% 4.00%
Transportation 1.70% 1.00%
Consumer Durables 1.40% 3.00%
Other 5.30% 0.00%

</TABLE>

[Graphic]

WHAT IS YOUR OUTLOOK FOR STOCKS AS WE APPROACH THE END OF 1998?

We believe that stocks, buoyed by interest rates, will continue to perform well
into the first few months of 1999. We expect breadth to continue to remain
strong as valuations on small-cap and mid-cap stocks are very compelling. After
that point, earnings may once again haunt the market. An economic slowdown
appears to be on the horizon, and the earnings growth rate for many companies
should slowdown. The volatility should remain as investors try to determine the
course of the economy.

TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN

FEDERATED CAPITAL APPRECIATION FUND

INITIAL INVESTMENT:

IF YOU MADE AN INITIAL INVESTMENT OF $22,000 IN THE CLASS A SHARES OF FEDERATED
CAPITAL APPRECIATION FUND ON 1/31/77, REINVESTED DIVIDENDS AND CAPITAL GAINS,
AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH $408,766 ON
10/31/98. YOU WOULD HAVE EARNED A 14.38%* AVERAGE ANNUAL TOTAL RETURN FOR THE
INVESTMENT LIFE SPAN.

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

As of 9/30/98, the Class A Shares' average annual 1-year, 5-year, and 10-year
total returns were (8.27%), 14.09%, and 13.28%, respectively. Class B Shares'
average annual 1-year and since inception (1/4/96) total returns were (8.81%)
and 13.23%, respectively. Class C Shares' average annual 1-year, and since
inception (1/4/96) total returns were (4.59%) and 14.63%, respectively.**

[Graphic representation omitted; see Appendix J.]

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

FEDERATED CAPITAL APPRECIATION FUND

ONE STEP AT A TIME:

$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH
YEAR FOR 21 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO
$142,745.

With this approach, the key is consistency.

If you had started investing $1,000 annually in the Class A Shares of Federated
Capital Appreciation Fund on 1/31/77, reinvested your dividends and capital
gains, and did not redeem any shares, you would have invested only $22,000, but
your account would have reached a total value of $142,745* by 10/31/98. You
would have earned an average annual total return of 14.51%.

[Graphic representation omitted; see Appendix K.]

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

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

FEDERATED CAPITAL APPRECIATION FUND

HYPOTHETICAL INVESTOR PROFILE: INVESTING FOR A COLLEGE EDUCATION

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

David and Joan are planning for the college education of their children. On
October 31, 1988, they invested $5,000 in the Class A Shares of Federated
Capital Appreciation Fund. Since then, David and Joan have made additional
investments of $250 every month.

As this chart shows, over 10 years, the original $5,000 investment along with
their additional monthly $250 investments totaling $35,000 has grown to $82,467.
This represents a 14.46% average annual total return. For the Rices, a dedicated
program of monthly investments really paid off.

[Graphic representation omitted; see Appendix L.]

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

FEDERATED CAPITAL APPRECIATION FUND

CLASS A SHARES

GROWTH OF $10,000 INVESTED IN FEDERATED

CAPITAL APPRECIATION FUND (CLASS A SHARES)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Capital Appreciation Fund (Class A Shares) (the "Fund") from October 31, 1988 to
October 31, 1998 compared to the Standard and Poor's 500 Index (S&P 500)+ and
the Lipper Growth and Income Funds
Average (LGIFA)++.

[Graphic representation omitted; see Appendix M.]

* Effective January 1, 1996, the fiscal year end of this fund was changed from
December 31 to October 31. Represents a hypothetical investment of $10,000 in
the Fund with no sales load. Effective November 14, 1995, the maximum sales
charge was 5.50% ($10,000 investment minus $550 sales charge = $9,450). The
Fund's performance assumes the reinvestment of all dividends and distributions.
The S&P 500 and the LGIFA have been adjusted to reflect reinvestment of
dividends on securities in the index and the average.

** Total return quoted reflects all applicable sales charges.

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

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

FEDERATED CAPITAL APPRECIATION FUND

CLASS B SHARES

GROWTH OF $10,000 INVESTED IN FEDERATED

CAPITAL APPRECIATION FUND (CLASS B SHARES)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Capital Appreciation Fund (Class B Shares) (the "Fund") from January 4, 1996
(start of performance) to October 31, 1998 compared to the Standard and Poor's
500 Index (S&P 500)+ and the Lipper Growth and
Income Funds Average (LGIFA)++.

[Graphic representation omitted; see Appendix N.]

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

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

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

FEDERATED CAPITAL APPRECIATION FUND

CLASS C SHARES

GROWTH OF $10,000 INVESTED IN FEDERATED

CAPITAL APPRECIATION FUND (CLASS C SHARES)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Capital Appreciation Fund (Class C Shares) (the "Fund") from January 4, 1996
(start of performance) to October 31, 1998, compared to the Standard and Poor's
500 Index (S&P 500)+ and the Lipper Growth and
Income Funds Average (LGIFA)++.

[Graphic representation omitted; see Appendix O.]

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

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

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

FEDERATED CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1998

<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-86.3%
BASIC INDUSTRY-4.0%
76,000 Corn Products International, Inc. $ 2,166,000
18,000 Dekalb Genetics Corp., Class B 1,649,250
53,000 Martin Marietta Materials 2,600,313
39,000 Southdown, Inc. 2,123,063
Total 8,538,626
CONSUMER DURABLES-1.4%
154,100 (a)Dal-Tile International, Inc. 1,377,269
47,000 Mattel, Inc. 1,686,125
Total 3,063,394
CONSUMER NON-DURABLES-8.5%
65,000 (a)Aurora Foods, Inc. 1,137,500
20,000 Clorox Co. 2,185,000
28,000 Dean Foods Co. 1,312,500
58,300 Dial Corp. 1,606,894
50,000 Earthgrains Co. 1,500,000
80,000 (a)International Home Foods, Inc. 1,420,000
56,000 PepsiCo, Inc. 1,890,000
56,000 Philip Morris Cos., Inc. 2,863,000
52,900 RJR Nabisco Holdings Corp. 1,510,956
57,200 (a)Rayovac Corp. 1,161,875
17,000 (a)Suiza Foods Corp. 554,625
20,000 (a)Tommy Hilfiger Corp. 928,750
Total 18,071,100
ENERGY/MINERALS-7.3%
29,115 British Petroleum Co. PLC, ADR 2,574,858
50,500 Cooper Cameron Corp. 1,754,875
44,300 Devon Energy Corp. 1,500,663
68,200 Halliburton Co. 2,450,938
28,400 Mobil Corp. 2,149,525
59,000 Sun Co., Inc. 2,024,438
</TABLE>
FEDERATED CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-CONTINUED
ENERGY/MINERALS-CONTINUED
220,000 (a)USEC, Inc. $ 3,217,500
Total 15,672,797
FINANCE-12.1%
60,000 Ace, Ltd. 2,032,500
46,000 Allstate Corp. 1,980,875
16,000 American Express Co. 1,414,000
27,000 CIGNA Corp. 1,969,313
26,000 Chase Manhattan Corp. 1,477,125
46,599 Citigroup, Inc. 2,193,065
45,000 Conseco, Inc. 1,560,938
64,300 Equity Office Properties Trust 1,543,200
25,000 Hartford Life, Inc., Class A 1,156,250
47,290 Morgan Stanley, Dean Witter & Co. 3,062,028
48,000 Nationwide Financial Services, Inc., Class A 1,992,000
16,000 Progressive Corp., Ohio 2,356,000
52,500 (a)Security Capital Group, Inc. 836,719
6,000 Wells Fargo & Co. 2,220,000
Total 25,794,013
HEALTH CARE-10.4%
56,200 American Home Products Corp. 2,739,750
30,000 (a)Amgen, Inc. 2,356,875
60,000 Astra AB, Class A, ADR 986,250
40,000 Baxter International, Inc. 2,397,500
47,000 Bergen Brunswig Corp., Class A 2,294,188
25,500 Bristol-Myers Squibb Co. 2,819,344
15,000 Merck & Co., Inc. 2,028,750
99,000 (a)Oxford Health Plans, Inc. 1,169,438
43,000 Smithkline Beecham Corp., ADR 2,741,250
68,000 Zeneca Group, ADR 2,652,000
Total 22,185,345
</TABLE>
FEDERATED CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-CONTINUED
PRODUCER MANUFACTURING-5.0%
30,000 General Electric Co. $ 2,625,000
61,600 HON Industries, Inc. 1,305,150
30,400 Parker-Hannifin Corp. 1,086,800
20,500 Philips Electronics N.V., ADR 1,124,938
21,000 Textron, Inc. 1,561,875
51,212 Tyco International Ltd. 3,171,943
Total 10,875,706
RETAIL TRADE-5.9%
41,000 Abercrombie & Fitch Co., Class A 1,627,188
67,500 (a)Barnes & Noble, Inc. 2,202,188
40,500 Dollar Tree Stores, Inc. 1,561,781
52,000 Home Depot, Inc. 2,262,000
38,500 (a)Meyer (Fred), Inc. 2,052,531
37,500 (a)Safeway, Inc. 1,792,969
44,000 (a)Saks, Inc. 1,001,000
Total 12,499,657
SERVICES-4.4%
96,500 Allied Waste Industries, Inc. 2,086,813
131,744 Hollinger International Publishing, Inc., Class A 1,712,672
36,000 Jacor Communications, Inc., Class A 1,980,000
17,000 Omnicom Group, Inc. 840,438
105,000 (a)Republic Services, Inc. 2,296,875
20,000 (a)Young & Rubicam, Inc. 522,500
Total 9,439,298
TECHNOLOGY-14.3%
22,000 (a)America Online, Inc. 2,795,375
46,400 (a)Apple Computer, Inc. 1,722,600
40,300 (a)Ascend Communications 1,944,475
35,000 (a)Cisco Systems, Inc. 2,205,000
23,000 Citrix Systems Inc. 1,630,125
52,000 DST Systems, Inc. 2,600,000
</TABLE>
FEDERATED CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-CONTINUED
TECHNOLOGY-CONTINUED
34,000 (a)Dell Computer Corp. $ 2,227,000
33,400 (a)EMC Corp. Mass 2,150,125
12,000 Intel Corp. 1,070,250
21,000 Lockheed Martin Corp. 2,338,875
110,000 Loral Space & Communications 2,083,125
27,000 Lucent Technologies, Inc. 2,165,063
70,000 Mastech Corp. 1,645,000
25,000 Microsoft Corp. 2,646,875
23,500 (a)Sun Microsystems, Inc. 1,368,875
Total 30,592,763
UTILITIES-13.0%
100,000 (a)Crown Castle International Corp. 1,287,500
36,900 Enron Corp. 1,946,475
45,000 GTE Corp. 2,640,938
15,200 (a)Global Crossing Ltd. 437,000
24,800 (a)IXC Communications, Inc. 961,000
40,000 K N Energy, Inc. 1,987,500
59,707 (a)MCI Worldcom, Inc. 3,298,812
80,000 (a)MetroNet Communications Corp., Class B 1,840,000
60,000 Montana Power Co. 2,598,750
38,000 Pacific Gateway Exchange, Inc. 1,097,250
76,200 Peco Energy Co. 2,947,988
94,402 (a)TCI Ventures Group, Class A 1,758,237
65,000 (a)Tele-Communications, Inc., Class A 2,738,125
80,000 Williams Cos., Inc. (The) 2,195,000
Total 27,734,575
TOTAL COMMON STOCKS (IDENTIFIED COST $140,896,396) 184,467,274
</TABLE>
FEDERATED CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
CORPORATE BONDS-2.5%
RETAIL TRADE-0.9%
$ 2,650,000 Costco Cos., Inc., Conv. Bond, 8/19/2017 $ 1,879,937
SERVICES-0.6%
1,060,000 (b)Omnicom Group, Inc., Conv. Bond, 2.25%, 1/6/2013 1,274,650
TECHNOLOGY-1.0%
1,300,000 (b)Solectron Corp., Conv. Bond, 6.00%, 3/1/2006 2,260,141
TOTAL CORPORATE BONDS (IDENTIFIED COST $3,909,176) 5,414,728
PREFERRED STOCKS-6.0%
CONSUMER NON-DURABLES-1.9%
165,000 Dimon, Inc., Conv. Pfd., $2.01 2,227,500
17,800 Ralston Purina Co., SAILS, $1.08 882,213
32,500 (b)Suiza Foods Corp., Conv. Pfd., $2.75 1,092,260
Total 4,201,973
SERVICES-1.0%
31,000 Premier Parks, Inc., Conv. Pfd., $4.05 1,449,250
18,500 Snyder Communications, Inc., STRYPES, $1.68 603,563
Total 2,052,813
TRANSPORTATION-1.7%
36,000 CNF Transportation, Inc., Conv. Pfd., Series A, $2.50 1,818,000
10,000 Continental Airlines, Inc., Conv. Pfd., $4.25 844,370
18,800 (b)Union Pacific Corp., Conv. Pfd., $3.13 876,550
Total 3,538,920
UTILITIES-1.4%
54,500 Texas Utilities Co., Cumulative PRIDES, $4.63 3,072,439
TOTAL PREFERRED STOCKS (IDENTIFIED COST $13,697,156) 12,866,145
</TABLE>
FEDERATED CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C)REPURCHASE AGREEMENT-5.2%
$ 11,165,000 Westdeutsche Landesbank Girozentrale, 5.42%, dated 10/30/1998
due 11/2/1998 (AT AMORTIZED COST) $ 11,165,000
TOTAL INVESTMENTS (IDENTIFIED COST $169,667,728)(D) $ 213,913,147
</TABLE>

(a) Non-income producing security.

(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, these securities amounted to
$5,503,601 which represents 2.58% of net assets.

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

(d) The cost of investments for federal tax purposes amounts to $169,680,252.
The net unrealized appreciation of investments on a federal tax basis amounts to
$44,232,895 which is comprised of $51,268,321 appreciation and $7,035,426
depreciation at October 31, 1998.

Note: The categories of investments are shown as a percentage of net assets
($213,714,544) at October 31, 1998.

The following acronyms are used throughout this portfolio:

ADR -American Depositary Receipt
PLC -Public Limited Company
PRIDES -Preferred Redeemable Increased Dividend Equity Securities
SAILS -Stock Appreciation Income Linked Security
STRYPES -Structured Yield Product Exchangeable for Stock

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

FEDERATED CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998

<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost
$169,667,728 and tax cost $169,680,252) $ 213,913,147
Income receivable 310,549
Receivable for shares sold 385,511
Total assets 214,609,207
LIABILITIES:
Payable for investments purchased $ 601,138
Payable for shares redeemed 140,369
Payable to Bank 22,053
Payable for taxes withheld 11,964
Accrued expenses 119,139
Total liabilities 894,663
NET ASSETS for 11,428,742 shares outstanding $ 213,714,544
NET ASSETS CONSIST OF:
Paid in capital $ 159,993,417
Net unrealized appreciation of investments 44,245,419
Accumulated net realized gain on investments 9,389,140
Undistributed net investment income 86,568
Total net assets $ 213,714,544
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($158,587,470 / 8,467,452
shares outstanding) $18.73
Offering Price Per Share (100/94.50 of $18.73)* $19.82
Redemption Proceeds Per Share $18.73
CLASS B SHARES:
Net Asset Value Per Share ($49,241,849 / 2,645,013
shares outstanding) $18.62
Offering Price Per Share $18.62
Redemption Proceeds Per Share (94.50/100 of $18.62)* $17.60
CLASS C SHARES:
Net Asset Value Per Share ($5,885,225 / 316,277 shares
outstanding) $18.61
Offering Price Per Share $18.61
Redemption Proceeds Per Share (99.00/100 of $18.61)* $18.42
</TABLE>

* See "What Do Shares Cost?" in the Prospectus.

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

FEDERATED CAPITAL APPRECIATION FUND
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998

<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $20,376) $ 2,683,788
Interest 704,637
Total income 3,388,425
EXPENSES:
Investment advisory fee $ 1,472,640
Administrative personnel and services fee 185,000
Custodian fees 15,890
Transfer and dividend disbursing agent fees and expenses 207,452
Directors'/Trustees' fees 3,848
Auditing fees 16,191
Legal fees 2,046
Portfolio accounting fees 80,061
Distribution services fee-Class B Shares 277,013
Distribution services fee-Class C Shares 34,845
Shareholder services fee-Class A Shares 386,927
Shareholder services fee-Class B Shares 92,338
Shareholder services fee-Class C Shares 11,615
Share registration costs 27,744
Printing and postage 39,820
Insurance premiums 4,500
Taxes 19
Miscellaneous 3,271
Total expenses 2,861,220
Waivers-
Waiver of investment advisory fee $ (48,251)
Net expenses 2,812,969
Net investment income 575,456
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 9,739,436
Net change in unrealized depreciation of investments (1,668,574)
Net realized and unrealized gain on investments 8,070,862
Change in net assets resulting from operations $ 8,646,318
</TABLE>

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

FEDERATED CAPITAL APPRECIATION FUND

STATEMENT OF CHANGES IN NET ASSETS

YEAR ENDED OCTOBER 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS-
Net investment income $ 575,456 $ 1,104,101
Net realized gain on investments ($9,401,664 and
$20,327,687, respectively, as computed for federal tax
purposes) 9,739,436 20,317,712
Net change in unrealized appreciation/(depreciation)
of investments (1,668,574) 18,103,419
Change in net assets resulting from operations 8,646,318 39,525,232
DISTRIBUTIONS TO SHAREHOLDERS-
Distributions from net investment income
Class A Shares (930,172) (745,779)
Class B Shares (23,332) -
Class C Shares (4,448) -
Distributions from net realized gains on investments
Class A Shares (17,245,708) (6,319,819)
Class B Shares (2,692,221) (426,677)
Class C Shares (311,507) (48,727)
Change in net assets resulting from distributions to
shareholders (21,207,388) (7,541,002)
SHARE TRANSACTIONS-
Proceeds from sale of shares 97,596,378 35,687,762
Net asset value of shares issued to shareholders in payment
of distributions declared 9,343,176 2,769,618
Cost of shares redeemed (53,089,335) (13,899,390)
Change in net assets resulting from share transactions 53,850,219 24,557,990
Change in net assets 41,289,149 56,542,220
NET ASSETS:
Beginning of period 172,425,395 115,883,175
End of period (including undistributed net
investment income of $86,568 and $439,979, respectively) $ 213,714,544 $ 172,425,395

</TABLE>

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

FEDERATED CAPITAL APPRECIATION FUND

FINANCIAL HIGHLIGHTS-CLASS A SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)**

Reference is made to the Independent Auditors' Report on page 32.

<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, DECEMBER 31,(A)
1998 1997 1996(B) 1995 1994
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $20.08 $16.17 $14.60 $11.47 $11.90
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.09 0.09 0.04 0.18 0.20
Net realized and unrealized gain/(loss) on investments 1.01 4.85 1.89 4.07 (0.24)
Total from investment operations 1.10 4.94 1.93 4.25 (0.04)
LESS DISTRIBUTIONS
Distributions from net investment income (0.12) (0.11) (0.03) (0.18) (0.19)
Distributions from net realized gain on investments (2.33) (0.92) (0.33) (0.94) (0.20)
Total distributions (2.45) (1.03) (0.36) (1.12) (0.39)
NET ASSET VALUE, END OF PERIOD $18.73 $20.08 $16.17 $14.60 $11.47
TOTAL RETURN(C) 6.23% 32.10% 13.36% 37.17% (0.30%)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.29% 1.23% 1.23% * 1.08% 1.15%
Net investment income 0.44% 0.85% 0.31% * 1.29% 1.63%
Expense waiver/reimbursement(d) 0.02% 0.07% 0.27% * 0.15% -
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $158,587 $148,175 $108,804 $98,200 $81,377
Portfolio turnover 68% 85% 79% 81% 23%

</TABLE>

* Computed on an annualized basis.

** All prior years 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.

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

FEDERATED CAPITAL APPRECIATION FUND

FINANCIAL HIGHLIGHTS-CLASS B SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)**

Reference is made to the Independent Auditors' Report on page 32.

<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED
OCTOBER 31, OCTOBER 31,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $20.04 $16.12 $14.70
INCOME FROM INVESTMENT OPERATIONS
Net investment income/(net operating loss) (0.03) 0.12 (0.04)(b)
Net realized and unrealized gain on investments 0.96 4.72 1.80
Total from investment operations 0.93 4.84 1.76
LESS DISTRIBUTIONS
Distributions from net investment income (0.02) - (0.01)
Distributions from net realized gain on investments (2.33) (0.92) (0.33)
Total distributions (2.35) (0.92) (0.34)
NET ASSET VALUE, END OF PERIOD $18.62 $20.04 $16.12
TOTAL RETURN(C) 5.20% 31.65% 12.00%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.04% 1.98% 1.98%*
Net investment income/(net operating loss) (0.31% ) 0.07% (0.36%)*
Expense waiver/reimbursement(d) 0.02% 0.06% 0.27%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $49,242 $21,636 $6,369
Portfolio turnover 68% 85% 79%

</TABLE>

* Computed on an annualized basis.

** All prior years 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.

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

FEDERATED CAPITAL APPRECIATION FUND

FINANCIAL HIGHLIGHTS-CLASS C SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)**

Reference is made to the Independent Auditors' Report on page 32.

<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED
OCTOBER 31, OCTOBER 31,
1998 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $19.95 $16.13 $14.70
INCOME FROM INVESTMENT OPERATIONS
Net investment income/(net operating loss) (0.04) 0.13 (0.04)(b)
Net realized and unrealized gain on investments 1.05 4.61 1.81
Total from investment operations 1.01 4.74 1.77
LESS DISTRIBUTIONS
Distributions from net investment income (0.02) - (0.01)
Distributions from net realized gain on investments (2.33) (0.92) (0.33)
Total distributions (2.35) (0.92) (0.34)
NET ASSET VALUE, END OF PERIOD $18.61 $19.95 $16.13
TOTAL RETURN(C) 5.67% 30.90% 12.05%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.04% 1.98% 1.98%*
Net investment income/(net operating loss) (0.31%) 0.08% (0.37%)*
Expense waiver/reimbursement(d) 0.02% 0.06% 0.27%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $5,885 $2,614 $710
Portfolio turnover 68% 85% 79%

</TABLE>

* Computed on an annualized basis.

** All prior years 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.

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

FEDERATED CAPITAL APPRECIATION FUND

NOTES TO FINANCIAL STATEMENTS

OCTOBER 31, 1998

1. ORGANIZATION

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

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

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

2. SIGNIFICANT ACCOUNTING POLICIES

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

INCREASE (DECREASE)
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED PAID-IN
INCOME GAIN CAPITAL
$29,085 $(413,344) $384,259

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

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

RESTRICTED SECURITIES-Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions exempt
from such registration. In some cases, the issuer of restricted securities has
agreed to register such securities for resale, at the issuer's expense either
upon demand by the Fund or in connection with another registered offering of the
securities. Many restricted securities may be resold in the secondary market in
transactions exempt from registration. Such restricted securities may be
determined to be liquid under criteria established by the Trustees. The Fund
will not incur any registration costs upon such resales. The Fund's restricted
securities are valued at the price provided by dealers in the secondary market
or, if no market prices are available, at the fair value as determined by the
Fund's pricing committee.

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

SECURITY ACQUISITION ACQUISITION
DATE COST
Omnicom Group, Inc., Conv. Bond, 2.25% 12/4/1997 $ 1,060,000
Solectron Corp., Conv. Bond, 6.00% 1/17/1997 1,469,000
Suiza Foods Corp., Conv. Pfd., $2.75 3/19/1998 1,625,000
Union Pacific Corp., Conv. Pfd., $3.13 3/27/1998 940,000

CHANGE IN FISCAL YEAR-The Fund has changed its fiscal year-end from December 31,
to October 31, beginning January 2, 1996.

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

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

3. SHARES OF BENEFICIAL INTEREST

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

Transactions in shares were as follows:

<TABLE>
<CAPTION>
OCTOBER 31,
1998 1997
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,215,849 $ 59,576,047 6,341,131 $ 19,684,007
Shares issued to shareholders in payment
of distributions declared 366,688 6,503,204 23,951 2,319,203
Shares redeemed (2,493,386) (46,093,087) (108,343) (11,482,142)
Net change resulting from
Class A Share transactions 1,089,151 $ 19,986,164 6,256,739 $ 10,521,068
<CAPTION>
OCTOBER 31,
1998 1997
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,733,696 $ 33,737,245 1,030,943 $ 14,045,085
Shares issued to shareholders in payment
of distributions declared 144,522 2,550,992 4,486 407,033
Shares redeemed (312,900) (5,988,176) (21,597) (1,992,700)
Net change resulting from
Class B Share transactions 1,565,318 $ 30,300,061 1,013,832 $ 12,459,418
<CAPTION>
OCTOBER 31,
1998 1997
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 224,084 $ 4,283,086 126,956 $ 1,958,669
Shares issued to shareholders in payment
of distributions declared 16,382 288,980 451 43,383
Shares redeemed (55,205) (1,008,072) (3,725) (424,548)
Net change resulting from
Class C Share transactions 185,261 $ 3,563,994 123,682 $ 1,577,504
Net change resulting from share transactions 2,839,730 $ 53,850,219 7,394,253 $ 24,557,990
</TABLE>

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

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

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

PERCENTAGE OF
AVERAGE DAILY
NET ASSETS
SHARE CLASS NAME OF CLASS
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%

For the year ended October 31, 1998, Class A Shares did not incur a distribution
services fee.

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

5. INVESTMENT TRANSACTIONS

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

PURCHASES $152,762,971
SALES $122,847,650

6. YEAR 2000 (UNAUDITED)

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

To the Trustees and Shareholders of

FEDERATED EQUITY FUNDS:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Capital Appreciation Fund (a
portfolio of Federated Equity Funds), as of October 31, 1998, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and financial
highlights for each of the periods presented therein. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Capital Appreciation Fund of Federated Equity Funds at October 31,
1998, and the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and the
financial highlights for each of the periods presented therein, in conformity
with generally accepted accounting principles.

ERNST & YOUNG LLP

Boston, Massachusetts
December 21, 1998

TRUSTEES

OFFICERS

John F. Donahue
Chairman

Glen R. Johnson
President

J. Christopher Donahue
Executive Vice President

Edward C. Gonzales
Executive Vice President

John W. McGonigle
Executive Vice President, Treasurer, and Secretary

Richard B. Fisher
Vice President

Matthew S. Hardin
Assistant Secretary

[Graphic]
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM

Cusip 314172701
Cusip 314172800
Cusip 314172883
G01649-04 (12/98)

[Graphic]

Federated Investors

[Graphic]

Federated Aggressive Growth Fund

2nd Annual Report
October 31, 1998

ESTABLISHED 1996

PRESIDENT'S MESSAGE

Dear Valued Shareholder:

Federated Aggressive Growth Fund was created in 1996, and I am pleased to
present its second Annual Report. This report covers the 12-month reporting
period from November 1, 1997 through October 31, 1998. It begins with an
interview with Keith J. Sabol, Vice President, who co-manages the fund with Aash
M. Shah, Vice President, both of Federated Management. Following their
discussion are two additional items of shareholder interest. First is a complete
listing of the fund's stock holdings, and second is the publication of the
fund's financial statements.

As its name implies, Federated Aggressive Growth Fund offers an aggressive
approach to long-term growth. The fund seeks to invest in the securities of
companies ranging from small-cap+ to large-cap that display positive growth
characteristics. The fund's portfolio includes common stocks representing 12 key
business sectors with many names that you will recognize immediately, such as
Borders Group, Inc., Compuware Corp., Ethan Allen Interiors, Inc., HBO & Co.,
and Morgan Stanley, Dean Witter & Co.

Though this report focuses on the past 12 months, the true measure of the
performance potential of stocks, and of Federated Aggressive Growth Fund, is
over the long term. In fact, prior to the market's recent difficulties, the fund
had achieved a strong performance record.

After three years of very positive returns, the U.S. stock market faltered in
July and August of this year, as the market reacted to concerns over the
potential impact of the Asian and Russian economic difficulties. As a result,
stocks-and aggressive growth stocks in particular-suffered a broad-based
decline, and the fund's portfolio of growth stocks produced a negative 12-month
total return.

+ Small cap stocks have historically experienced greater volatility than
average.

Individual share class total return performance, including realized gains, for
the 12-month reporting period follows.*

TOTAL CAPITAL NET ASSET
RETURN GAIN VALUE CHANGE
Class A Shares (15.91%) $0.0032 $13.31 to $11.19 = (15%)
Class B Shares (16.56%) $0.0032 $13.27 to $11.07 = (16%)
Class C Shares (16.49%) $0.0032 $13.20 to $11.02 = (16%)

In any 5-, 10-, 15-, or 20-year period of investing in stocks, there have been
many periods when prices have declined, and these same periods were then
followed by periods of very positive investment returns. This recent period of
declining stock prices presents a buying opportunity in a number of sectors,
including Technology, Finance, and Health Care. In the U.S., we have low
inflation, declining interest rates, and small companies' stock prices are
depressed, yet their earnings are growing. We are optimistic on the future of
equities, thus I would strongly recommend adding to your account on a regular
basis.

Thank you for participating in the growth and earnings opportunities of
over 100 dynamic U.S. companies. As always, we welcome your comments
and suggestions.

Sincerely,

[Graphic]

Glen R. Johnson

President

December 15, 1998

* Performance quoted is based on net asset value, reflects past performance and
is not indicative of future results. Investment return and principal value will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the one-year period ended
October 31, 1998, based on offering price (i.e., less any applicable sales
charge), for Class A, B, and C Shares were (20.51%), (21.15%), and (17.33%),
respectively.

INVESTMENT REVIEW

[Graphic]
Keith J. Sabol, CFA
Vice President
Federated Management

[Graphic]

Aash M. Shah, CFA
Vice President
Federated Management

[Graphic]

THE FUND'S FISCAL YEAR WAS AN UNEASY PERIOD FOR STOCKS, WITH PERIODS OF
SIGNIFICANT DECLINES FOR SMALL-CAP STOCKS* IN PARTICULAR. WHAT ARE
YOUR COMMENTS?

Southeast Asian woes were the key drivers of the equity slump for most of the
year. As in most times when the market perceives crisis conditions, equity
returns were generally weak. Large-cap, blue-chip stocks were the top
performers.

After a shaky departure from 1997, the new year appeared promising through the
first four months of 1998. The prospect that the impact of the Southeast Asian
turmoil on earnings would be minor-coupled with indications that there would be
a slowing in the U.S. economy sufficient to preclude a rate hike by the Federal
Reserve Board-drove an impressive rally as the Standard & Poor's ("S&P") 500
Index** returned 15.10% for the first four months of 1998, and 13.95% in the
first quarter of 1998 alone. The S&P 600 Small Cap Index** was strong but
slightly behind, returning 11.72% from the beginning of the year through April
30, 1998. Over the same four-month period, the fund's Class A Shares were up
18.12%, based on net asset value.***

The stock market in the second quarter of 1998 was much like the first quarter,
which is to say that blue-chip issues dominated. The "flight to quality"
continued with the S&P 500 Index up 3.30% while the S&P 600 Small Cap Index
suffered a 4.50% loss. Again, breadth was poor. The NASDAQ 100, which comprises
the 100 largest companies in the NASDAQ Composite Index,** gained a stunning
9.58%-implying that nearly everything else in the Index finished the quarter in
negative territory.

* Small cap stocks have historically experienced greater volatility than
average.

** The S&P 500 Index is an index of common stocks in industry, transportation,
finance, and public utilities. The S&P 600 Small Cap Index consists of 600
domestic stocks that represent the small-cap stock market. NASDAQ is the
National Association of Securities Dealers Automated Quotation System, which
lists price information for a broad spectrum of large, medium, and small stocks.
These indexes are unmanaged and investments cannot be made in an index.

*** Performance quoted is based on net asset value, represents past performance
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. For the four-month period from January 1, 1998
to April 30, 1998, the Class A Shares produced a total return of 11.61%, based
on offering price (i.e., less any applicable sales charge).

The third quarter of 1998 was weak for the entire equity market-and one of the
worst on record for small-cap stocks. The average small-cap mutual fund tracked
by Lipper Analytical Services, Inc.* was down 21.50%, the S&P 600 Small Cap
Index was down 21.10%, and the Russell 2000 Small Cap Index+ was down 20.50%.

Overall, for the 12-month reporting period ended October 31, 1998, the S&P 500
Index (large-cap stocks) returned 21.90% and the NASDAQ Composite Index (an
index dominated by large technology stocks) was up 11.16%. For the same period,
the S&P 400 Index+ (mid-cap stocks) returned 6.57% and the S&P 600 Small Cap
Index (small-cap stocks) recorded a negative return of (11.14%).

[Graphic]

WHILE IT WAS A DIFFICULT YEAR FOR SMALL-CAP STOCKS-AND A YEAR IN WHICH POSITIVE
PERFORMANCE WAS CONCENTRATED AMONG LARGE, BLUE-CHIP STOCKS-DO CURRENT VALUATIONS
HAVE POSITIVE IMPLICATIONS FOR THE FUTURE?

Yes. Despite the challenging market we have faced year-to-date, we continue to
be enthusiastic about the long-term prospects of Federated Aggressive Growth
Fund. Several indications suggest that the small-cap market may be near the
bottom. First, the cumulative underperformance of small-cap stocks relative to
large-cap stocks has surpassed levels reached from the peak of the summer of
1988 through the trough of the 1990 recession. In fact, we have just lived
through one of the worst small-cap bear markets since 1929. To add some color on
this point, consider that as of the end of the third quarter of 1998, 60% of
technology stocks had declined at least 50% from their preceding 12- month
highs. Additionally, nearly half of all technology stocks have underperformed
the S&P 500 Index by at least 50% since October 10, 1997.

+ The Russell 2000 Small Cap Index is a broadly diversified index consisting of
approximately 2,000 small-capitalization common stocks that can be used to
compare the total returns of funds whose portfolios are invested primarily in
small-capitalization common stocks. The S&P 400 Index consists of 400 domestic
stocks chosen to represent the industry groups of the mid-cap market. These
indexes are unmanaged and investments cannot be made in an index.

Consequently, valuations have become compelling. Small-cap stocks recently
traded at discounts to their 1990 recession lows relative to large-cap stocks.
Recent interest rate cuts by the Federal Reserve Board bode well for the future.
Small-cap stocks have outperformed large-cap stocks in 8 of 10 one-year periods
following initial rate cuts since 1954. The bottom line: emerging growth stocks
appear cheap, and the Federal Reserve Board is lending a helping hand. This is
an ideal opportunity for investors who are underexposed to this asset class to
increase their exposure. (In simple words-it is a buying opportunity for
investors.)

[Graphic]

HOW DID FEDERATED AGGRESSIVE GROWTH FUND PERFORM OVER THE 12-MONTH
REPORTING PERIOD?

The fund's total return reflected the market's difficulties-and in particular
the underperformance of small-cap growth stocks. For the fiscal year ended
October 31, 1998, the fund's total returns were (15.91%) for Class A Shares,
(16.56%) for Class B Shares, and (16.49%) for Class C Shares, based on net asset
value.+

[Graphic]

IN LIGHT OF MARKET CONDITIONS, WHAT IS YOUR CURRENT STRATEGIC FOCUS?

We continue to believe that earnings growth, earnings expectations, and earnings
surprises are the key drivers of stock price performance. Therefore, we will
continue to apply a quantitative "front-end" analysis that focuses on these key
drivers. As we discussed, from a fundamental standpoint, valuations are
significantly more appealing within the small-cap portion of the market. The
fund is currently overweighted versus the S&P 500 Index in the Technology and
Services sectors, and underweighted in the Consumer Non-Durables and Utilities
sectors.

+ Total returns for the period, based on offering price (i.e., less any
applicable sales charge), for Class A, B, and C Shares were (20.51%), (21.15%),
and (17.33%), respectively.

[Graphic]

WHAT WERE THE FUND'S TOP 10 HOLDINGS AND WHAT WERE THE SECTOR WEIGHTINGS AS OF
OCTOBER 31, 1998?

PERCENTAGE OF
NAME NET ASSETS
Mobius Management Systems, Inc. 1.44%
Applied Materials, Inc. 1.42%
Dupont Photomasks, Inc. 1.42%
Micromuse, Inc. 1.40%
Aspect Development, Inc. 1.34%
Apex PC Solutions, Inc 1.34%
Micrel, Inc. 1.34%
ABR Information Services, Inc. 1.34%
The First Years, Inc. 1.32%
Vitesse Semiconductor Corp. 1.30%
TOTAL 13.66%

PERCENTAGE OF PERCENTAGE OF
SECTOR NET ASSETS S&P 500 INDEX
Technology 44.40% 17.10%
Services 12.10% 4.90%
Energy/Minerals 8.00% 7.10%
Retail Trade 7.60% 5.90%
Finance 6.10% 15.30%
Health Care 5.50% 13.00%
Consumer Durables 5.10% 3.00%
Producer Manufacturing 4.90% 7.00%
Consumer Non-Durables 1.90% 10.50%
Basic Industry 1.00% 4.00%
Transportation 1.30% 1.00%
Utilities 0.60% 11.20%

[Graphic]
WHAT WERE SOME OF THE FUND'S RECENT PORTFOLIO ADDITIONS?

As of October 31, 1998, the Fund's portfolio included the following:

FLEXTRONICS INTL. LTD. (FLEX) (1.10% of net assets)-We believe FLEX is
well-positioned to benefit from the strong secular trend toward
outsourcing, serving the communications, computer consumer
electronics, and medical device industries. FLEX's earnings increased
50% last year.

As of November 30, 1998, the following securities were included in the Fund's
portfolio:

CURATIVE HEALTH SERVICES (CURE) (1.09% of net assets)-Curative manages a
nationwide network of 152 "Wound Care Centers" and is expected to grow earnings
at approximately 30% per year for the next several years following the growth of
40% last year. Curative has a good record opening new centers and has generated
approximately 10% comparable unit revenue growth.

THERAGENICS CORP. (TGX) (1.03% of net assets)-Theragenics produces and markets
"TheraSeeds," an implantable radiation device used in the treatment of prostate
cancer. Revenue growth at Theragenics has been trending at 73% per year and last
year's earnings more than doubled from prior year levels. We believe that the
company can grow earnings at a 40% rate.

[Graphic]

AS WE LEAVE A DIFFICULT PERIOD, ARE YOU OPTIMISTIC ABOUT 1999?

Yes. We have seen a severe blood letting, but that has created many interesting
buying opportunities, and we are encouraged by the number of attractive
investment candidates we are finding. Looking ahead, Pacific Rim financial
difficulties are likely to remain the key drivers of the markets, at least
through early 1999.

FEDERATED AGGRESSIVE GROWTH FUND

CLASS A SHARES

GROWTH OF $10,000 INVESTED IN FEDERATED AGGRESSIVE GROWTH FUND
(CLASS A SHARES)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Aggressive Growth Fund (Class A Shares) (the "Fund") from November 25, 1996
(start of performance) to October 31, 1998, compared to the Standard and Poor's
500 Index (S&P 500)+ and the Lipper Capital Appreciation Fund Index (LCAFI).+

[Graphic representation omitted; see Appendix P.]

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

** Total return quoted reflects all applicable sales charges.

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

FEDERATED AGGRESSIVE GROWTH FUND

CLASS B SHARES

GROWTH OF $10,000 INVESTED IN FEDERATED AGGRESSIVE GROWTH FUND
(CLASS B SHARES)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Aggressive Growth Fund (Class B Shares) (the "Fund") from November 25, 1996
(start of performance) to October 31, 1998, compared to the Standard and Poor's
500 Index (S&P 500)+ and the Lipper Capital
Appreciation Fund Index (LCAFI).+

[Graphic representation omitted; see Appendix Q.]

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

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

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

FEDERATED AGGRESSIVE GROWTH FUND

CLASS C SHARES

GROWTH OF $10,000 INVESTED IN FEDERATED AGGRESSIVE GROWTH FUND
(CLASS C SHARES)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Aggressive Growth Fund (Class C Shares) (the "Fund") from November 25, 1996
(start of performance) to October 31, 1998, compared to the Standard and Poor's
500 Index (S&P 500)+ and the Lipper Capital
Appreciation Fund Index (LCAFI).+

[Graphic representation omitted; see Appendix R.]

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

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

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

FEDERATED AGGRESSIVE GROWTH FUND

PORTFOLIO OF INVESTMENTS

OCTOBER 31, 1998

SHARES VALUE
COMMON STOCKS-98.4%
<S> <C> <C>
BASIC INDUSTRY-1.0%
5,000 Southdown, Inc. $ 272,188
CONSUMER DURABLES-5.1%
17,400 D. R. Horton, Inc. 276,225
8,100 Ethan Allen Interiors, Inc. 278,438
24,800 (a) Fairfield Communities, Inc. 243,350
13,800 Lennar Corp. 279,450
23,700 The First Years, Inc. 373,275
Total 1,450,738
CONSUMER NON-DURABLES-1.9%
9,000 IBP, Inc. 243,563
13,000 (a) Twinlab Corp. 288,438
Total 532,001
ENERGY/MINERALS-8.0%
11,400 (a) BJ Services Co. 232,988
15,000 (a) Cal Dive International, Inc. 320,625
9,600 (a) Cliffs Drilling Co. 219,600
5,800 (a) Cooper Cameron Corp. 201,550
13,900 ENSCO International, Inc. 186,781
7,700 (a) Friede Goldman International, Inc. 128,975
20,500 (a) Key Energy Group, Inc. 203,719
9,400 (a) Pool Energy Services Co. 125,431
24,000 (a) Stolt Comex Seaway, S.A. 306,000
15,800 (a) UTI Energy Corp. 141,213
18,000 (a) Varco International, Inc. 194,625
Total 2,261,507
FINANCE-6.1%
5,775 Amsouth Bancorporation 231,361
26,000 (a) Century Business Services, Inc. 362,375
5,500 Everest Re Holdings, Inc. 189,406
7,000 (a) HealthCare Financial Partners, Inc. 214,375
</TABLE>
FEDERATED AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS-CONTINUED
<S> <C> <C>
FINANCE-CONTINUED
3,100 Morgan Stanley, Dean Witter & Co. $ 200,725
17,100 (a) Sunterra Corp. 162,450
13,300 (a) United Rentals, Inc. 357,438
Total 1,718,130
HEALTH CARE-5.5%
6,200 (a) Agouron Pharmaceuticals, Inc. 240,250
8,600 (a) Arterial Vascular Engineering, Inc. 264,450
11,600 HBO & Co. 304,500
6,000 (a) Medicis Pharmaceutical Corp., Class A 300,750
10,900 (a) Osteotech, Inc. 274,544
8,400 (a) Safeskin Corp. 185,850
Total 1,570,344
PRODUCER MANUFACTURING-4.9%
11,000 (a) AFC Cable Systems, Inc. 270,875
3,800 (a) Lexmark Intl. Group, Class A 265,763
25,600 (a) Metals USA, Inc. 254,400
12,000 Miller Herman, Inc. 264,750
15,500 (a) Terex Corp. 337,125
Total 1,392,913
RETAIL TRADE-7.6%
6,500 (a) Abercrombie & Fitch Co., Class A 257,969
8,900 (a) Blue Rhino Corp. 109,025
9,600 (a) Borders Group, Inc. 243,600
14,550 (a) Buckle, Inc. 263,719
12,000 (a) Insight Enterprises, Inc. 348,000
13,750 (a) Mens Wearhouse, Inc. 333,438
12,175 (a) Pacific Sunwear of California 263,284
19,200 (a) Party City Corp. 326,400
Total 2,145,435
</TABLE>
FEDERATED AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS-CONTINUED
<S> <C> <C>
SERVICES-12.1%
20,000 (a) ABR Information Services, Inc. $ 377,500
13,600 (a) Analytical Surveys, Inc. 336,600
8,000 (a) AnswerThink Consulting Group, Inc. 154,500
10,205 CKE Restaurants, Inc. 268,519
12,500 (a) Career Education Corp. 306,250
6,600 (a) Consolidated Graphics, Inc. 313,088
17,300 (a) CulturalAccessWorldwide, Inc. 147,050
16,700 (a) Gulf Island Fabrication, Inc. 240,063
19,200 (a) Mail-Well, Inc. 250,800
7,500 Metris Cos., Inc. 246,563
8,000 (a) ProBusiness Services, Inc. 292,500
8,100 (a) Snyder Communications, Inc. 289,069
7,300 (a) Weatherford International, Inc. 198,469
Total 3,420,971
TECHNOLOGY-44.4%
16,200 (a) 24/7 Media, Inc. 185,288
13,200 (a) ARIS Corp. 207,900
15,200 (a) AVT Corp. 332,500
14,500 (a) Apex PC Solutions, Inc. 378,813
11,600 (a) Applied Materials, Inc. 402,375
15,000 (a) Aspec Technology, Inc. 30,938
12,000 (a) Aspect Development, Inc. 379,125
12,100 (a) Atlantic Data Services, Inc. 252,588
4,800 (a) BMC Software, Inc. 230,700
23,600 (a) Brightpoint, Inc. 289,100
9,100 (a) CBT Group PLC, ADR 108,631
14,700 (a) Check Point Software Technologies Ltd. 334,425
14,500 (a) Ciber, Inc. 284,563
4,300 (a) Citrix Systems Inc. 304,763
14,000 (a) Cognizant Technology Solutions Corp., Class A 312,375
14,000 (a) Complete Business Solutions, Inc. 332,500
</TABLE>
FEDERATED AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
SHARES VALUE
COMMON STOCKS-CONTINUED
<S> <C> <C>
TECHNOLOGY-CONTINUED
11,600 (a) Computer Horizons Corp. $ 266,800
5,000 (a) Compuware Corp. 270,938
5,900 (a) Comverse Technology, Inc. 271,400
17,800 (a) Credence Systems Corp. 264,775
22,900 (a) Cymer, Inc. 280,525
25,000 (a) DSP Communications, Inc. 245,313
19,800 (a) DSP Group, Inc. 316,800
24,000 (a) Diamond Technology Partners, Class A 309,000
11,100 (a) Dupont Photomasks, Inc. 402,375
6,000 (a) Flextronics International Ltd. 311,625
13,000 (a) Information Management Resources 305,500
7,300 (a) Jabil Circuit, Inc. 338,081
7,700 (a) Keane, Inc. 256,025
12,200 (a) Level One Communications, Inc. 321,013
13,100 (a) Mastech Corp. 307,850
11,500 (a) Micrel, Inc. 378,063
23,200 (a) Micromuse, Inc. 395,850
8,100 (a) Mindspring Enterprises, Inc. 321,469
35,000 (a) Mobius Management Systems, Inc. 406,875
21,500 (a) NeoMagic Corp. 360,125
8,900 (a) Orbotech, Ltd. 311,500
9,100 (a) Pilot Network Services, Inc. 55,738
8,200 (a) Sanmina Corp. 336,200
13,500 (a) Saville Systems Ireland PLC, ADR 227,813
8,100 (a) Veeco Instruments, Inc. 240,457
11,400 (a) Vitesse Semiconductor Corp. 367,650
19,700 (a) Xylan Corp. 315,200
Total 12,551,544
</TABLE>
FEDERATED AGGRESSIVE GROWTH FUND
<TABLE>

<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
COMMON STOCKS-CONTINUED
TRANSPORTATION-1.2%
13,500 SkyWest, Inc. $ 344,250
UTILITIES-0.6%
10,000 (a) IDT Corp. 166,250
TOTAL COMMON STOCKS (IDENTIFIED COST $29,226,427) 27,826,271
(B)REPURCHASE AGREEMENT-0.4%
$ 115,000 Westdeutsche Landesbank Girozentrale, 5.42%,
dated 10/30/1998, due 11/2/1998 (AT AMORTIZED COST) 115,000
TOTAL INVESTMENTS (IDENTIFIED COST $29,341,427)(C) $ 27,941,271

</TABLE>

(a) Non-income producing security.

(c) The cost of investments for federal tax purposes amounts to $29,506,839.
The net unrealized depreciation of investments on a federal tax basis amounts to
$(1,565,568) which is comprised of $3,331,039 appreciation and $4,896,607
depreciation at October 31, 1998.

Note: The categories of investments are shown as a percentage of net assets
($28,276,128) at October 31, 1998.

The following acronyms are used throughout this portfolio:

ADR -American Depositary Receipt
PLC -Public Limited Company

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

FEDERATED AGGRESSIVE GROWTH FUND

STATEMENT OF ASSETS AND LIABILITIES

OCTOBER 31, 1998

<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost
$29,341,427 and tax cost $29,506,839) $ 27,941,271
Cash 17,694
Income receivable 1,343
Receivable for investments sold 176,790
Receivable for shares sold 163,101
Deferred organizational costs 10,456
Total assets 28,310,655
LIABILITIES:
Payable for shares redeemed $ 27,506
Accrued expenses 7,021
Total liabilities 34,527
NET ASSETS for 2,548,509 shares outstanding $ 28,276,128
NET ASSETS CONSIST OF:
Paid in capital $ 32,433,203
Net unrealized depreciation of investments (1,400,156)
Accumulated net realized loss on investments and futures
contracts (2,756,919)
Total net assets $ 28,276,128
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER
SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($7,549,300 / 674,695 shares
outstanding) $11.19
Offering Price Per Share (100/94.50 of $11.19)* $11.84
Redemption Proceeds Per Share $11.19
CLASS B SHARES:
Net Asset Value Per Share ($17,782,692 / 1,606,589 shares
outstanding) $11.07
Offering Price Per Share $11.07
Redemption Proceeds Per Share (94.50/100 of $11.07)* $10.46
CLASS C SHARES:
Net Asset Value Per Share ($2,944,136 / 267,225 shares
outstanding) $11.02
Offering Price Per Share $11.02
Redemption Proceeds Per Share (99.00/100 of $11.02)* $10.91

</TABLE>

* See "What Do Shares Cost?" in the Prospectus.

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

FEDERATED AGGRESSIVE GROWTH FUND

STATEMENT OF OPERATIONS

YEAR ENDED OCTOBER 31, 1998

<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $360) $ 29,551
Interest 12,874
Total income 42,425
EXPENSES:
Investment advisory fee $ 231,244
Administrative personnel and services fee 185,000
Custodian fees 8,911
Transfer and dividend disbursing agent fees and expenses 70,638
Directors'/Trustees' fees 2,802
Auditing fees 10,081
Legal fees 2,820
Portfolio accounting fees 64,692
Distribution services fee-Class B Shares 108,112
Distribution services fee-Class C Shares 15,277
Shareholder services fee-Class A Shares 16,669
Shareholder services fee-Class B Shares 36,037
Shareholder services fee-Class C Shares 5,092
Share registration costs 42,675
Printing and postage 22,633
Insurance premiums 4,967
Taxes 92
Miscellaneous 8,928
Total expenses 836,670
Waivers and reimbursements-
Waiver of investment advisory fee $ (220,807)
Reimbursement of other operating expenses (86,758)
Total waivers and reimbursements (307,565)
Net expenses 529,105
Net operating loss (486,680)
REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND
FUTURES CONTRACTS:
Net realized loss on investments and futures contracts (2,756,919)
Net change in unrealized depreciation of investments (2,744,645)
Net realized and unrealized loss on investments and
futures contracts (5,501,564)
Change in net assets resulting from operations $ (5,988,244)

</TABLE>

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

FEDERATED AGGRESSIVE GROWTH FUND

STATEMENT OF CHANGES IN NET ASSETS

YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1998 1997(A)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS-
Net operating loss $ (486,680) $ (67,586)
Net realized (loss)/gain on investments and futures
contracts (($2,591,507) and $72,836, respectively, as
computed for federal tax purposes) (2,756,919) 72,836
Net change in unrealized appreciation/(depreciation) of
investments (2,744,645) 1,344,489
Change in net assets resulting from operations (5,988,244) 1,349,739
DISTRIBUTIONS TO SHAREHOLDERS-
Distributions in excess of net investment income
Class A Shares - (1,722)
Class B Shares - (165)
Class C Shares - (43)
Distributions from net realized gains on investments and
futures contracts
Class A Shares (1,113) -
Class B Shares (1,978) -
Class C Shares (293) -
Change in net assets resulting from distributions
to shareholders (3,384) (1,930)
SHARE TRANSACTIONS-
Proceeds from sale of shares 42,004,648 15,270,771
Net asset value of shares issued to shareholders in payment
of distributions declared 2,778 391
Cost of shares redeemed (20,028,392) (4,330,249)
Change in net assets resulting from share transactions 21,979,034 10,940,913
Change in net assets 15,987,406 12,288,722
NET ASSETS:
Beginning of period 12,288,722 -
End of period $ 28,276,128 $ 12,288,722

</TABLE>

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

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

FEDERATED AGGRESSIVE GROWTH FUND

FINANCIAL HIGHLIGHTS-CLASS A SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' report on Page 28.

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.31 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net operating loss (0.20)(d) (0.05)
Net realized and unrealized (loss)/gain on investments and
futures contracts (1.92) 3.37
Total from investment operations (2.12) 3.32
LESS DISTRIBUTIONS
Distributions in excess of net investment income - (0.01)
Distributions from net realized gain on investments and
futures contracts (0.00)** -
Total distributions (0.00)** (0.01)
NET ASSET VALUE, END OF PERIOD $11.19 $13.31
TOTAL RETURN(B) (15.91%) 33.21%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.76% 1.74%*
Net operating loss (1.56%) (0.96% )*
Expense waiver/reimbursement(c) 1.36% 8.97%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $7,549 $4,148
Portfolio turnover 91% 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) Per share numbers have been calculated using the average shares method,
which more appropriately represents the per share data for the period since the
use of the undistributed income method did not accord with the results of
operations.

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

FEDERATED AGGRESSIVE GROWTH FUND

FINANCIAL HIGHLIGHTS-CLASS B SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' report on Page 28.

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.27 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net operating loss (0.30)(d) (0.08)
Net realized and unrealized (loss)/gain on investments and
futures contracts (1.90) 3.35
Total from investment operations (2.20) 3.27
LESS DISTRIBUTIONS
Distributions in excess of net investment income - (0.00) **
Distributions from net realized gain on investments and
futures contracts (0.00) ** -
Total distributions (0.00) ** (0.00) **
NET ASSET VALUE, END OF PERIOD $11.07 $13.27
TOTAL RETURN(B) (16.56% ) 32.75%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.51% 2.51% *
Net operating loss (2.33% ) (1.96% )*
Expense waiver/reimbursement(c) 1.32% 7.25% *
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $17,783 $7,184
Portfolio turnover 91% 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) Per share numbers have been calculated using the average shares method,
which more appropriately represents the per share data for the period since the
use of the undistributed income method did not accord with the results of
operations.

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

FEDERATED AGGRESSIVE GROWTH FUND

FINANCIAL HIGHLIGHTS-CLASS C SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' report on Page 28.

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.20 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net operating loss (0.29) (d) (0.06)
Net realized and unrealized (loss)/gain on investments and
futures contracts (1.89) 3.26
Total from investment operations (2.18) 3.20
LESS DISTRIBUTIONS
Distributions in excess of net investment income - (0.00) **
Distributions from net realized gain on investments and
futures contracts (0.00) ** -
Total distributions (0.00) ** (0.00) **
NET ASSET VALUE, END OF PERIOD $11.02 $13.20
TOTAL RETURN(B) (16.49% ) 32.04%
RATIOS TO AVERAGE NET ASSETS
Expenses 2.51% 2.53% *
Net operating loss (2.32% ) (1.95% )*
Expense waiver/reimbursement(c) 1.32% 7.23% *
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $2,944 $957
Portfolio turnover 91% 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) Per share numbers have been calculated using the average shares method,
which more appropriately represents the per share data for the period since the
use of the undistributed income method did not accord with the results of
operations.

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

FEDERATED AGGRESSIVE GROWTH FUND

NOTES TO FINANCIAL STATEMENTS

OCTOBER 31, 1998

1. ORGANIZATION

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

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

2. SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS-Listed equity securities are valued at the last sale price
reported on a national securities exchange. Short-term securities are valued at
the prices provided by an independent pricing service. However, short-term
securities with remaining maturities of 60 days or less at the time of purchase
may be valued at amortized cost, which approximates fair market value.

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

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

INCREASE (DECREASE)
ACCUMULATED DISTRIBUTIONS
IN EXCESS OF ACCUMULATED PAID IN
NET INVESTMENT INCOME NET REALIZED LOSS CAPITAL
$488,610 $(1,866) $(486,744)

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

At October 31, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $2,591,507, which will reduce the Fund's taxable income arising
from future net realized gains on investments, if any, to the extent permitted
by the Code, and thus will reduce the amount of the distributions to
shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal tax. Pursuant to the Code, such capital loss carryforward
will expire in 2006.

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

3. SHARES OF BENEFICIAL INTEREST

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

Transactions in shares were as follows:

YEAR ENDED PERIOD ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997(A)
<S> <C> <C> <C> <C>
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 1,555,844 $ 19,799,352 656,969 $ 7,390,752
Shares issued to shareholders in payment of distributions
declared 77 997 19 184
Shares redeemed (1,192,806) (14,847,728) (345,408) (3,685,007)
Net change resulting from Class A Share transactions 363,115 $ 4,952,621 311,580 $ 3,705,929
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997(A)
<S> <C> <C> <C> <C>
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 1,432,908 $ 18,824,917 582,846 $ 6,793,396
Shares issued to shareholders in payment of distributions
declared 138 1,781 17 164
Shares redeemed (367,697) (4,278,757) (41,623) (458,090)
Net change resulting from Class B Share transactions 1,065,349 $ 14,547,941 541,240 $ 6,335,470
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997(A)
<S> <C> <C> <C> <C>
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 264,256 $ 3,380,379 89,902 $ 1,086,623
Shares issued to shareholders in payment of distributions
declared - - 4 43
Shares redeemed (69,542) (901,907) (17,395) (187,152)
Net change resulting from Class C Share transactions 194,714 $ 2,478,472 72,511 $ 899,514
Net change resulting from share transactions 1,623,178 $ 21,979,034 925,331 $ 10,940,913

</TABLE>

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

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE-Federated Management, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
1.00% of the Fund's average daily net assets. The Adviser may voluntarily choose
to waive any portion of its fee and/or reimburse certain operating expenses of
the Fund. The Adviser can modify or terminate this voluntary waiver and/or
reimbursement at any time at its sole discretion.

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

PERCENTAGE OF AVERAGE DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%

For the period ended October 31, 1998, the Class A Shares did not incur a 12b-1
fee.

ORGANIZATIONAL EXPENSES-Organizational expenses of $13,912 were borne initially
by the Adviser. The Fund has reimbursed the Adviser for these expenses. These
expenses have been deferred and are being amortized over the five-year period
following the Fund's effective date. For the year ended October 31, 1998, the
Fund expensed $3,456 of organizational expenses.

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

5. INVESTMENT TRANSACTIONS

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

PURCHASES $42,198,922
SALES $20,447,702

6. YEAR 2000 (UNAUDITED)

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

TO THE TRUSTEES AND SHAREHOLDERS OF
FEDERATED EQUITY FUNDS

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Aggressive Growth Fund (a portfolio
of Federated Equity Funds), as of October 31, 1998, the related statement of
operations for the year then ended, and the statement of changes in net assets
and financial highlights for the year then ended and for the period from
November 25, 1996 to October 31, 1997. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Aggressive Growth Fund of Federated Equity Funds at October 31, 1998,
the results of its operations for the year then ended, and the changes in its
net assets and financial highlights for the year then ended and for the period
from November 25, 1996 to October 31, 1997, in conformity with generally
accepted accounting principles.

ERNST & YOUNG LLP

Boston, Massachusetts
December 21, 1998

TRUSTEES

OFFICERS

John F. Donahue
Chairman

Glen R. Johnson
President

J. Christopher Donahue
Executive Vice President

Edward C. Gonzales
Executive Vice President

John W. McGonigle
Executive Vice President, Treasurer, and Secretary

Richard B. Fisher
Vice President

Matthew S. Hardin
Assistant Secretary

[Graphic]

Federated Investors

Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Cusip 314172875
Cusip 314172867
Cusip 314172859
G02072-03 (12/98)

[Graphic]

Appendix

A. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects the computation periods from
8/31/84 to 10/31/98. The "y" axis is measured in increments of $20,000 ranging
from $0 to $140,000 and indicates that the ending value of a hypothetical
initial investment of $15,000 in Federated Growth Strategies Fund's Class A
Shares, assuming the reinvestment of capital gains and dividends, would have
grown to $107,358 on 10/31/98.

B. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 8/31/84
to 10/31/98. The "y" axis is measured in increments of $20,000 ranging from $0
to $60,000 and indicates that the ending value of a hypothetical initial
investment of $1,000 and subsequent yearly investments of $1,000 over 14 years,
assuming the reinvestment of capital gains and dividends, in Federated Growth
Strategies Fund's Class A Shares would have grown to $41,709 on 10/31/98.

C. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 10/31/88
to 10/31/98. The "y" axis is measured in increments of $20,000 ranging from $0
to $100,000 and indicates that the ending value of a hypothetical initial
investment of $5,000 and subsequent monthly investments of $250 over 10 years in
Federated Growth Strategies Fund's Class A Shares would have grown to $72,447 on
10/31/98.

D. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated Growth Strategies Fund are represented by a solid line. The
Standard & Poor's 500 Index (the "S&P 500") is represented by a dotted line and
the Lipper Growth Fund Index (the "LGFI") is represented by a broken/dotted
line. The line graph is a visual representation of a comparison of change in
value of a $10,000 hypothetical investment in the Class A Shares of the Fund,
the S&P 500 and the LGFI. The "x" axis reflects computation periods from
10/31/88 to 10/31/98. The "y" axis reflects the cost of investment. The right
margin reflects the ending value of the hypothetical investment in the Fund's
Class A Shares as compared to the S&P 500 and the LGFI. The ending values were
$35,558, $51,629, and $41,019, respectively. The legend in the bottom quadrant
of the graphic presentation indicates the Fund's Class A Shares Average Annual
Total Returns for the one-year, five-year and ten-year periods ended 10/31/98
and from the Fund's start of performance (8/23/84) to 10/31/98. The total
returns were (11.30%), 11.98%, 12.88%, and 14.87%, respectively.

E. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Federated Growth Strategies Fund are represented by a solid line. The
Standard & Poor's 500 Index (the "S&P 500") is represented by a dotted line and
the Lipper Growth Fund Index (the "LGFI") is represented by a broken/dotted
line. The line graph is a visual representation of a comparison of change in
value of a $10,000 hypothetical investment in the Class B Shares of the Fund,
the S&P 500 and the LGFI. The "x" axis reflects computation periods from 8/16/95
to 10/31/98. The "y" axis reflects the cost of investment. The right margin
reflects the ending value of the hypothetical investment in the Fund's Class B
Shares as compared to the S&P 500 and the LGFI. The ending values were $15,511,
$20,931, and $16,634, respectively. The legend in the bottom quadrant of the
graphic presentation indicates the Fund's Class B Shares Average Annual Total
Returns for the one-year period ended 10/31/98 and from the Fund's start of
performance (8/16/95) to 10/31/98. The total returns were (10.83%) and 14.72%,
respectively.

F. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of Federated Growth Strategies Fund are represented by a solid line. The
Standard & Poor's 500 Index (the "S&P 500") is represented by a dotted line and
the Lipper Growth Fund Index (the "LGFI") is represented by a broken/dotted
line. The line graph is a visual representation of a comparison of change in
value of a $10,000 hypothetical investment in the Class C Shares of the Fund,
the S&P 500 and the LGFI. The "x" axis reflects computation periods from 8/16/95
to 10/31/98. The "y" axis reflects the cost of investment. The right margin
reflects the ending value of the hypothetical investment in the Fund's Class C
Shares as compared to the S&P 500 and the LGFI. The ending values were $15,886,
$20,931, and $16,634, respectively. The legend in the bottom quadrant of the
graphic presentation indicates the Fund's Class C Shares Average Annual Total
Returns for the one-year period ended 10/31/98 and from the Fund's start of
performance (8/16/95) to 10/31/98. The total returns were (7.48%) and 15.51%,
respectively.

G. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated Small Cap Strategies Fund, based on a 5.50% sales charge,
are represented by a solid line. The Russell 2000 Index (the "RUS2") is
represented by a dotted line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the Class
A Shares of the Fund and the RUS2. The "x" axis reflects computation periods
from 11/1/95 to 10/31/98. The "y" axis reflects the cost of investment. The
right margin reflects the ending value of the hypothetical investment in the
Fund's Class A Shares as compared to the RUS2. The ending values were $14,652
and $13,285, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the Fund's Class A Shares Average Annual Total Returns
for the one-year period ended 10/31/98 and from the Fund's start of performance
(11/1/95) to 10/31/98. The total returns were (23.07%) and 13.59%, respectively.

H. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Federated Small Cap Strategies Fund are represented by a solid line.
The Russell 2000 Index (the "RUS2") is represented by a dotted line. The line
graph is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class B Shares of the Fund and the RUS2. The "x"
axis reflects computation periods from 11/1/95 to 10/31/98. The "y" axis
reflects the cost of investment. The right margin reflects the ending value of
the hypothetical investment in the Fund's Class B Shares as compared to the
RUS2. The ending values were $14,777 and $13,285, respectively. The legend in
the bottom quadrant of the graphic presentation indicates the Fund's Class B
Shares Average Annual Total Returns for the one-year period ended 10/31/98 and
from the Fund's start of performance (11/1/95) to 10/31/98. The total returns
were (23.69%) and 13.90%, respectively.

I. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of Federated Small Cap Strategies Fund are represented by a solid line.
The Russell 2000 Index (the "RUS2") is represented by a dotted line. The line
graph is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class C Shares of the Fund and the RUS2. The "x"
axis reflects computation periods from 11/1/95 to 10/31/98. The "y" axis
reflects the cost of investment. The right margin reflects the ending value of
the hypothetical investment in the Fund's Class C Shares as compared to the
RUS2. The ending values were $15,167 and $13,285, respectively. The legend in
the bottom quadrant of the graphic presentation indicates the Fund's Class C
Shares Average Annual Total Returns for the one-year period ended 10/31/98 and
from the Fund's start of performance (11/1/95) to 10/31/98. The total returns
were (20.03%) and 14.90%, respectively.

J. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects the computation periods from
1/31/77 to 10/31/98. The "y" axis is measured in increments of $100,000 ranging
from $0 to $500,000 and indicates that the ending value of a hypothetical
initial investment of $22,000 in Federated Capital Appreciation Fund's Class A
Shares, assuming the reinvestment of capital gains and dividends, would have
grown to $408,766 on 10/31/98.

K. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 1/31/77
to 10/31/98. The "y" axis is measured in increments of $40,000 ranging from $0
to $160,000 and indicates that the ending value of a hypothetical initial
investment of $1,000 and subsequent yearly investments of $1,000 over 21 years,
assuming the reinvestment of capital gains and dividends, in Federated Capital
Appreciation Fund's Class A Shares would have grown to $142,745 on 10/31/98.

L. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 10/31/88
to 10/31/98. The "y" axis is measured in increments of $20,000 ranging from $0
to $100,000 and indicates that the ending value of a hypothetical initial
investment of $5,000 and subsequent monthly investments of $250 over 10 years in
Federated Capital Appreciation Fund's Class A Shares would have grown to $82,467
on 10/31/98.

M. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated Capital Appreciation Fund are represented by a solid line.
The Standard & Poor's 500 Index (the "S&P 500") is represented by a dotted line
and the Lipper Growth and Income Funds Average (the "LGIFA") is represented by a
broken line. The line graph is a visual representation of a comparison of change
in value of a $10,000 hypothetical investment in the Class A Shares of the Fund,
the S&P 500 and the LGIFA. The "x" axis reflects computation periods from
10/31/88 to 10/31/98. The "y" axis reflects the cost of investment. The right
margin reflects the ending value of the hypothetical investment in the Fund's
Class A Shares as compared to the S&P 500 and the LGIFA. The ending values were
$38,626, $51,629, and $38,322, respectively. The legend in the bottom quadrant
of the graphic presentation indicates the Fund's Class A Shares Average Annual
Total Returns for the one-year, five-year and ten-year periods ended 10/31/98
and from the Fund's start of performance (1/1/77) to 10/31/98. The total returns
were 0.38%, 15.36%, 13.82%, and 14.11%, respectively.

N. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Federated Capital Appreciation Fund are represented by a solid line.
The Standard & Poor's 500 Index (the "S&P 500") is represented by a dotted line
and the Lipper Growth and Income Funds Average (the "LGIFA") is represented by a
broken line. The line graph is a visual representation of a comparison of change
in value of a $10,000 hypothetical investment in the Class B Shares of the Fund,
the S&P 500 and the LGIFA. The "x" axis reflects computation periods from 1/4/96
to 10/31/98. The "y" axis reflects the cost of investment. The right margin
reflects the ending value of the hypothetical investment in the Fund's Class B
Shares as compared to the S&P 500 and the LGIFA. The ending values were $15,112,
$18,724, and $16,125, respectively. The legend in the bottom quadrant of the
graphic presentation indicates the Fund's Class B Shares Average Annual Total
Returns for the one-year period ended 10/31/98 and from the Fund's start of
performance (1/4/96) to 10/31/98. The total returns were 0.09% and 15.73%,
respectively.

O. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of Federated Capital Appreciation Fund are represented by a solid line.
The Standard & Poor's 500 Index (the "S&P 500") is represented by a dotted line
and the Lipper Growth and Income Funds Average (the "LGIFA") is represented by a
broken line. The line graph is a visual representation of a comparison of change
in value of a $10,000 hypothetical investment in the Class C Shares of the Fund,
the S&P 500 and the LGIFA. The "x" axis reflects computation periods from 1/4/96
to 10/31/98. The "y" axis reflects the cost of investment. The right margin
reflects the ending value of the hypothetical investment in the Fund's Class C
Shares as compared to the S&P 500 and the LGIFA. The ending values were $15,499,
$18,724, and $16,125, respectively. The legend in the bottom quadrant of the
graphic presentation indicates the Fund's Class C Shares Average Annual Total
Returns for the one-year period ended 10/31/98 and from the Fund's start of
performance (1/4/96) to 10/31/98. The total returns were 4.74% and 16.78%,
respectively.

P. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated Aggressive Growth Fund, based on a 5.50% sales charge, are
represented by a solid line. The Standard & Poor's 500 Index (the "S&P 500") is
represented by a dotted line and the Lipper Capital Appreciation Fund Index (the
"LCAFI") is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class A Shares of the Fund, the S&P 500 and the LCAFI. The "x"
axis reflects computation periods from 11/25/96 to 10/31/98. The "y" axis
reflects the cost of investment. The right margin reflects the ending value of
the hypothetical investment in the Fund's Class A Shares as compared to the
S&P500 and the LCAFI. The ending values were $10,586, $14,974, and $11,763,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the Fund's Class A Shares Average Annual Total Returns for the
one-year period ended 10/31/98 and from the Fund's start of performance
(11/25/96) to 10/31/98. The total returns were (20.51%) and 3.00%, respectively.

Q. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Federated Aggressive Growth Fund are represented by a solid line. The
Standard & Poor's 500 Index (the "S&P 500") is represented by a dotted line and
the Lipper Capital Appreciation Fund Index (the "LCAFI") is represented by a
broken line. The line graph is a visual representation of a comparison of change
in value of a $10,000 hypothetical investment in the Class B Shares of the Fund,
the S&P 500 and the LCAFI. The "x" axis reflects computation periods from
11/25/96 to 10/31/98. The "y" axis reflects the cost of investment. The right
margin reflects the ending value of the hypothetical investment in the Fund's
Class B Shares as compared to the S&P500 and the LCAFI. The ending values were
$10,601, $14,974, and $11,763, respectively. The legend in the bottom quadrant
of the graphic presentation indicates the Fund's Class B Shares Average Annual
Total Returns for the one-year period ended 10/31/98 and from the Fund's start
of performance (11/25/96) to 10/31/98. The total returns were (21.15%) and
3.07%, respectively.

R. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of Federated Aggressive Growth Fund are represented by a solid line. The
Standard & Poor's 500 Index (the "S&P 500") is represented by a dotted line and
the Lipper Capital Appreciation Fund Index (the "LCAFI") is represented by a
broken line. The line graph is a visual representation of a comparison of change
in value of a $10,000 hypothetical investment in the Class C Shares of the Fund,
the S&P 500 and the LCAFI. The "x" axis reflects computation periods from
11/25/96 to 10/31/98. The "y" axis reflects the cost of investment. The right
margin reflects the ending value of the hypothetical investment in the Fund's
Class C Shares as compared to the S&P500 and the LCAFI. The ending values were
$11,027, $14,974, and $11,763, respectively. The legend in the bottom quadrant
of the graphic presentation indicates the Fund's Class C Shares Average Annual
Total Returns for the one-year period ended 10/31/98 and from the Fund's start
of performance (11/25/96) to 10/31/98. The total returns were (17.33%) and
5.18%, respectively.