FEDERATED EQUITY FUNDS, 497, 1999-12-29

FEDERATED EQUITY FUNDS
497, 1999-12-29

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79
PROSPECTUS

Federated Aggressive Growth Fund

A Portfolio of Federated Equity Funds

CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

A mutual fund seeking appreciation of capital by investing primarily in equity
securities of companies with superior prospects for earnings growth.

As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.

CONTENTS
<S> <C>
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 6
What Do Shares Cost? 7
How is the Fund Sold? 10
How to Purchase Shares 10
How to Redeem and Exchange Shares 12
Account and Share Information 14
Who Manages the Fund? 15
Financial Information 16
</TABLE>

- -------------------
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
- -------------------

DECEMBER 31, 1999

RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide appreciation of capital. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the strategies and policies described in this
prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing in equity securities of
companies offering superior prospects for earnings growth.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

Stock Market Risks

The value of equity securities in the Fund's portfolio will fluctuate and, as a
result, the Fund's share price may decline suddenly or over a sustained period
of time.

Liquidity Risks

The equity securities in which the Fund invests may be less readily marketable
and may be subject to greater fluctuation in price than other securities.

Risks Related to Company Size

Because the smaller companies in which the Fund may invest may have unproven
track records, a limited product or service base and limited access to capital,
they may be more likely to fail than larger companies.

Sector Risks

Because the Fund may allocate relatively more assets to certain industry sectors
than others, the Fund's performance may be more susceptible to any developments
which affect those sectors emphasized by the Fund.

Risks of Foreign Investing

Because the Fund invests in securities issued by foreign companies, the Fund's
share price may be more affected by foreign economic and political conditions,
taxation policies and accounting and auditing standards than would otherwise be
the case.

Risks Related to Investing for Growth

The growth stocks in which the Fund invests are typically more volatile than
value stocks and may depend more on price changes than dividends for returns.

The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.

Risk/Return Bar Chart and Table

[BAR CHART APPEARS HERE]

The bar chart shows the variability of the Fund's Class B Shares total returns
on a calendar year-end basis.

The Fund's Class B Shares are sold subject to a sales charge (load). The total
returns displayed for the Fund's Class B Shares do not reflect the payment of
any sales charges or recurring shareholder account fees. If these charges or
fees had been included, the returns shown would have been lower.

The Fund's Class B Shares total return for the nine-month period from January 1,
1999 to September 30, 1999 was 31.61%.

Within the period shown in the Chart, the Fund's Class B Shares highest
quarterly return was 37.71% (quarter ended December 31, 1998). Its lowest
quarterly return was (30.33%) (quarter ended September 30, 1998).

Average Annual Total Return Table

The following table represents the Fund's Class A Shares, Class B Shares, and
Class C Shares Average Annual Total Returns, reduced to reflect applicable sales
charges, for the calendar periods ended December 31, 1998. The table shows the
Fund's Class A Shares, Class B Shares, and Class C Shares total returns averaged
over a period of years relative to the Standard and Poor's 500 (S&P 500), S&P
600/Barra Growth Index (S&P 600/Barra Growth) and Lipper Small Growth Index
(LSGI), which are broad-based market indexes. Total returns for the indexes
shown do not reflect sales charges, expenses or other fees the SEC requires to
be reflected in the Fund's performance. Indexes are unmanaged, and it is not
possible to invest directly in an index.

Start of
Calendar Period 1 Year Performance/1/
- ------------------------------------------------------------------------------
<S> <C> <C>
Class A 2.13% 13.93%
- ------------------------------------------------------------------------------
Class B 1.77% 14.69%
- ------------------------------------------------------------------------------
Class C 6.38% 16.07%
- ------------------------------------------------------------------------------
S&P 500 28.58% 28.10%
- ------------------------------------------------------------------------------
S&P 600/Barra Growth 16.51% N/A
- ------------------------------------------------------------------------------
LSGI 19.98% 18.82%
- ------------------------------------------------------------------------------
</TABLE>

/1/ The start of performance date for Class A Shares, Class B Shares, and Class
C Shares was November 25, 1996.

Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.

WHAT ARE THE FUND'S FEES AND EXPENSES

FEDERATED AGGRESSIVE GROWTH FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
the Fund's Class A Shares, Class B Shares, or Class C Shares.
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C
<S> <C> <C> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of
offering price) 5.50% None None
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None 5.50% 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and
other Distributions) (as a percentage of offering price) None None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None None
Exchange Fee None None None

Annual Fund Operating Expenses (Before Waivers)/1/
Expenses That are Deducted From Fund Assets (as a percentage of
average net assets)
Management Fee/2/ 1.00% 1.00% 1.00%
Distribution (12b-1) Fee/3/ 0.25% 0.75% 0.75%
Shareholder Services Fee 0.25% 0.25% 0.25%
Other Expenses 1.25% 1.25% 1.25%
Total Annual Fund Operating Expenses 2.75% 3.25%/4/ 3.25%
</TABLE>
/1/ Although not contractually obligated to do so, the adviser and distributor
waived certain amounts. These are shown below along with the net expenses
the Fund actually paid for the fiscal year ended October 31, 1999.
<TABLE>
<S> <C> <C> <C>
Total Waivers of Fund Expenses 0.99% 0.74% 0.74%
Total Actual Annual Fund Operating Expenses (after waivers) 1.76% 2.51% 2.51%
</TABLE>
/2/ The adviser has voluntarily waived a portion of the management fee. The
adviser can terminate this voluntary waiver at any time. The management fee
paid by the Fund (after the voluntary waiver) was 0.26% for the year ended
October 31, 1999.
/3/ Class A Shares did not pay or accrue the distribution (12b-1) fee during the
year ended October 31, 1999. Class A Shares has no present intention of
paying or accruing the distribution (12b-1) fee during the fiscal year
ending October 31, 2000.
/4/ Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Class A Shares, Class B Shares, and Class C Shares with the cost of investing in
other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Class A Shares,
Class B Shares, and Class C Shares for the time periods indicated and then
redeem all of your Shares at the end of those periods. Expenses assuming no
redemption are also shown. The Example also assumes that your investment has a
5% return each year and that the Fund's Class A Shares, Class B Shares, and
Class C Shares operating expenses are before waivers as shown in the table and
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

<TABLE>
<CAPTION>
Share Class 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
- --------------------------------------------------------------------------
Expenses assuming
redemption $813 $1,356 $1,924 $3,461
- --------------------------------------------------------------------------
Expenses assuming no
redemption $813 $1,356 $1,924 $3,461
- --------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------
Expenses assuming
redemption $878 $1,401 $1,898 $3,366
- --------------------------------------------------------------------------
Expenses assuming no
redemption $328 $1,001 $1,698 $3,366
- --------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------
Expenses assuming
redemption $428 $1,001 $1,698 $3,549
- --------------------------------------------------------------------------
Expenses assuming no
redemption $328 $1,001 $1,698 $3,549
- --------------------------------------------------------------------------
</TABLE>

WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing in equity securities of
companies offering superior prospects for earnings growth. The Fund will not be
restricted to specific market capitalization requirements, and may invest in
foreign issuers through American Depositary Receipts. A description of the
various types of securities in which the Fund invests and their principal risks,
immediately follows this strategy section.

Using its own quantitative process, the adviser rates the future performance
potential of companies. The adviser evaluates each company's earnings quality in
light of their current valuation to narrow the list of attractive companies. The
adviser then evaluates product positioning, management quality and
sustainability of current growth trends of those companies. Using this type of
fundamental analysis, the adviser selects the most promising companies for the
Fund's portfolio.

Companies with similar characteristics may be grouped together in broad
categories called sectors. In determining the amount to invest in a security,
the adviser limits the fund's exposure to each business sector that comprises
the S&P 500 Index. The Fund's allocation to a sector will be no more than 300%
of the Index's allocation to that sector or 30% of the total portfolio,
whichever is greater. The Fund considers its approach aggressive because its
strategies with respect to security analysis, market capitalization, and sector
allocation are designed to produce a portfolio of stocks whose long-term growth
prospects are significantly above those of the S&P 500 Index. Accordingly, the
prices of the stocks held by the Fund may, under certain market conditions, be
more volatile than the prices of stocks selected using a less aggressive
approach.

The Fund may attempt to manage market risk by buying and selling financial
futures and options. This may include the purchase of index futures contracts as
a substitute for direct investments in stocks. It may also include the purchase
and sale of options to protect against general declines in small capitalization
stocks economically.

PORTFOLIO TURNOVER

The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.

TEMPORARY DEFENSIVE INVESTMENTS

The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash and shorter-term debt securities and similar
obligations. It may do this to minimize potential losses and maintain liquidity
to meet shareholder redemptions during adverse market conditions. This may cause
the Fund to give up greater investment returns to maintain the safety of
principal, that is, the original amount invested by shareholders.

WHAT ARE THE PRINCIPAL
SECURITIES IN WHICH THE
FUND INVESTS?

COMMON STOCKS

Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.

AMERICAN DEPOSITARY RECEIPTS

American Depositary Receipts (ADRs) represent interests in underlying securities
issued by a foreign company, but are not traded in the United States. ADRs
provide a way to buy shares of foreign-based companies in the United States
rather than in overseas markets. ADRs are also traded in U.S. dollars,
eliminating the need for foreign exchange transactions. ADRs involve many of the
same risks of investing directly in foreign securities, including risks of
foreign investing.

Futures Contracts

Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date, and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures contracts
are considered to be commodity contracts. Futures contracts traded OTC are
frequently referred to as forward contracts.

The Fund may buy and sell the following types of futures contracts: financial
futures and futures on indices.

Options

Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.

The Fund may:

. Buy call options on portfolio securities, indexes and futures in anticipation
of an increase in the value of the underlying asset.

. Buy put options on portfolio securities, indexes and futures in anticipation
of a decrease in the value of the underlying asset.

The Fund may also write call options on portfolio securities, indexes and
futures to generate income from premiums, and in anticipation of a decrease or
only limited increase in the value of the underlying asset. If a call written by
the Fund is exercised, the Fund foregoes any possible profit from an increase in
the market price of the underlying asset over the exercise price plus the
premium received.

The Fund may also write put options on portfolio securities, indexes and
futures to generate income from premiums, and in anticipation of an increase or
only limited decrease in the value of the underlying asset. In writing puts,
there is a risk that the Fund may be required to take delivery of the underlying
asset when its current market price is lower than the exercise price.

When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

STOCK MARKET RISKS

. The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. Consequently, the Fund's share
price may decline.

. The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will
not protect the Fund against widespread or prolonged declines in the stock
market.

LIQUIDITY RISKS

. Trading opportunities are more limited for equity securities that are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Fund may have to accept a lower
price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.

RISKS RELATED TO COMPANY SIZE

. Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of its outstanding shares by the current market price per share.

. Companies with smaller market capitalizations also tend to have unproven
track records, a limited product or service base and limited access to
capital. These factors also increase risks and make these companies more
likely to fail than companies with larger market capitalizations.

SECTOR RISKS

. Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may underperform other sectors or the market as a whole. As the
Adviser allocates more of the Fund's portfolio holdings to a particular
sector, the Fund's performance will be more susceptible to any economic,
business or other developments which generally affect that sector.

RISKS OF FOREIGN INVESTING

. Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.

. Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the United
States. Foreign companies may also receive less coverage than United States
companies by market analysts and the financial press. In addition, foreign
countries may lack uniform accounting, auditing and financial reporting
standards or regulatory requirements comparable to those applicable to U.S.
companies. These factors may prevent the Fund and its Adviser from obtaining
information concerning foreign companies that is as frequent, extensive and
reliable as the information available concerning companies in the United
States.

. Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.

RISKS RELATED TO INVESTING FOR GROWTH

. Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on a forecast of lower earnings, a negative
fundamental development, or an adverse market development. Further, growth
stocks may not pay dividends or may pay lower dividends than value stocks.
This means they depend more on price changes for returns and may be more
adversely affected in a down market compared to value stocks that pay higher
dividends.

WHAT DO SHARES COST?

You can purchase, redeem or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form
(as described in the prospectus) it is processed at the next calculated net
asset value (NAV) plus any applicable front-end sales charge (public offering
price). If the Fund purchases foreign securities that trade in foreign markets
on days the NYSE is closed, the value of the Fund's assets may change on days
you cannot purchase or redeem Shares. NAV is determined at the end of regular
trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund
generally values equity securities according to the last sale price in the
market in which they are primarily traded (either a national securities exchange
or the over-the-counter market).

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

The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in the Fund.
Keep in mind that investment professionals may charge you fees for their
services in connection with your Share transactions.

Minimum Maximum Sales Charge
Initial/ -------------------------------
Subsequent Front-End Contingent
Investment Sales Deferred
Shares Offered Amounts/1/ Charge/2/ Sales Charge/3/
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Class A $1,500/$100 5.50% 0.00%
- ---------------------------------------------------------------------
Class B $1,500/$100 None 5.50%
- ---------------------------------------------------------------------
Class C $1,500/$100 None 1.00%
- ---------------------------------------------------------------------
</TABLE>

1 The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively. The minimum subsequent investment amounts
for Systematic Investment Programs is $50. Investment professionals may
impose higher or lower minimum investment requirements on their customers
than those imposed by the Fund. Orders for $250,000 or more will be invested
in Class A Shares instead of Class B Shares to maximize your return and
minimize the sales charges and marketing fees. Accounts held in the name of
an investment professional may be treated differently. Class B Shares will
automatically convert into Class A Shares after eight full years from the
purchase date. This conversion is a non-taxable event.

2 Front-End Sales Charge is expressed as a percentage of public offering
price. See "Sales Charge When You Purchase."

3 See "Sales Charge When You Redeem."

SALES CHARGE WHEN YOU PURCHASE

<TABLE>
<CAPTION>
Class A Shares
- ---------------------------------------------------------------------
Sales Charge as
a Percentage of Sales Charge as
Public Offering a Percentage of
Purchase Amount Price NAV
- ---------------------------------------------------------------------
<S> <C> <C>
Less than $50,000 5.50% 5.82%
- ---------------------------------------------------------------------
$50,000 but less than
$100,000 4.50% 4.71%
- ---------------------------------------------------------------------
$100,000 but less than
$250,000 3.75% 3.90%
- ---------------------------------------------------------------------
$250,000 but less than
$500,000 2.50% 2.56%
- ---------------------------------------------------------------------
$500,000 but less than
$1 million 2.00% 2.04%
- ---------------------------------------------------------------------
$1 million or greater/1/ 0.00% 0.00%
- ---------------------------------------------------------------------
</TABLE>

1 A contingent deferred sales charge of 0.75% of the redemption amount applies
to Class A Shares redeemed up to 24 months after purchase under certain
investment programs where an investment professional received an advance
payment on the transaction.

If your investment qualifies for a reduction or elimination of the sales charge
as described below, you or your investment professional should notify the Fund's
Distributor at the time of purchase. If the Distributor is not notified, you
will receive the reduced sales charge only on additional purchases, and not
retroactively on previous purchases.

The sales charge at purchase may be reduced or eliminated by:

. purchasing Shares in greater quantities to reduce the applicable sales
charge;

. combining concurrent purchases of Shares:

. by you, your spouse, and your children under age 21; or

. of the same share class of two or more Federated Funds (other than money
market funds);

. accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still
invested in the Fund); or

. signing a letter of intent to purchase a specific dollar amount of Shares
within 13 months (call your investment professional or the Fund for more
information).

The sales charge will be eliminated when you purchase Shares:

. within 120 days of redeeming Shares of an equal or lesser amount;

. by exchanging shares from the same share class of another Federated Fund
(other than a money market fund);

. through wrap accounts or other investment programs where you pay the
investment professional directly for services;

. through investment professionals that receive no portion of the sales charge;

. as a Federated Life Member (Class A Shares only) and their immediate family
members; or

. as a Trustee or employee of the Fund, the Adviser, the Distributor and their
affiliates, and the immediate family members of these individuals.

If your investment qualifies for a reduction or elimination of the sales charge,
you or your investment professional should notify the Fund's Distributor at the
time of purchase. If the Distributor is not notified, you will receive the
reduced sales charge only on additional purchases, and not retroactively on
previous purchases.

SALES CHARGE WHEN YOU REDEEM

Your redemption proceeds may be reduced by a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).

Class A Shares
- --------------------------------------------------------------
A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up
to 24 months after purchase under certain investment programs where an
investment professional received an advance payment on the transaction.

Class B Shares
- --------------------------------------------------------------
Shares Held Up To: CDSC
- --------------------------------------------------------------
<S> <C>
1 year 5.50%
- --------------------------------------------------------------
2 years 4.75%
- --------------------------------------------------------------
3 years 4.00%
- --------------------------------------------------------------
4 years 3.00%
- --------------------------------------------------------------
5 years 2.00%
- --------------------------------------------------------------
6 years 1.00%
- --------------------------------------------------------------
7 years or more 0.00%
- --------------------------------------------------------------
</TABLE>

Class C Shares
- --------------------------------------------------------------
You will pay a 1% CDSC if you redeem Shares within one year of the purchase
date.

If your investment qualifies for a reduction or elimination of the CDSC as
described below, you or your investment professional should notify the
Distributor at the time of redemption. If the Distributor is not notified, the
CDSC will apply.

You will not be charged a CDSC when redeeming Shares:

. purchased with reinvested dividends or capital gains;

. purchased within 120 days of redeeming Shares of an equal or lesser amount;

. that you exchanged into the same share class of another Federated Fund if the
shares were held for the applicable CDSC holding period (other than a money
market fund);

. purchased through investment professionals who did not receive advanced sales
payments;

. if, after you purchase Shares, you become disabled as defined by the IRS;

. if the Fund redeems your Shares and closes your account for not meeting the
minimum balance requirement;

. if your redemption is a required retirement plan distribution; or

. upon the death of the last surviving shareholder of the account.

If your redemption qualifies, you or your investment professional should notify
the Distributor at the time of redemption to eliminate the CDSC. If the
Distributor is not notified, the CDSC will apply.

To keep the sales charge as low as possible, the Fund redeems your Shares in
this order:

. Shares that are not subject to a CDSC; and

. Shares held the longest (to determine the number of years your Shares have
been held, include the time you held shares of other Federated Funds that
have been exchanged for Shares of this Fund.

The CDSC is then calculated using the share price at the time of purchase or
redemption, whichever is lower.

HOW IS THE FUND SOLD?

The Fund offers three share classes: Class A Shares, Class B Shares and Class C
Shares, each representing interests in a single portfolio of securities.

The Fund's Distributor, Federated Securities Corp., markets the Shares
described in this prospectus to institutions or to individuals, directly or
through investment professionals. When the Distributor receives marketing fees
and sales charges, it may pay some or all of them to investment professionals.
The Distributor and its affiliates may pay out of their assets other amounts
(including items of material value) to investment professionals for marketing
and servicing Shares.The Distributor is a subsidiary of Federated Investors,
Inc. (Federated).

RULE 12B-1 PLAN

The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Class A Shares, Class B Shares and Class C
Shares. Because these Shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than other shares with different sales
charges and marketing fees.

HOW TO PURCHASE SHARES

You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.

Where the Fund offers more than one share class and you do not specify the
class choice on your New Account Form or form of payment (e.g., Federal Reserve
wire or check) you automatically will receive Class A Shares.

THROUGH AN INVESTMENT PROFESSIONAL

. Establish an account with the investment professional; and

. Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated NAV if the investment professional forwards the
order to the Fund on the same day and the Fund receives payment within three
business days. You will become the owner of Shares and receive dividends when
the Fund receives your payment.

Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

. Establish your account with the Fund by submitting a completed New Account
Form; and

. Send your payment to the Fund by Federal Reserve wire or check.

You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.

An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.

By Wire

Send your wire to:

State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE

Wire Order Number, Dealer Number or Group Number

Nominee/Institution Name
Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are
restricted.

By Check

Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:

Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:

Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third- party checks (checks originally payable to someone other than
you or The Federated Funds).

THROUGH AN EXCHANGE

You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.

BY SYSTEMATIC INVESTMENT PROGRAM

Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.

BY AUTOMATED CLEARING HOUSE (ACH)

Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.

RETIREMENT INVESTMENTS

You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.

HOW TO REDEEM AND EXCHANGE SHARES

You should redeem or exchange Shares:

. through an investment professional if you purchased Shares through an
investment professional; or

. directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.

DIRECTLY FROM THE FUND

By Telephone

You may redeem or exchange Shares by calling the Fund at 1-800-341-7400 once you
have completed the appropriate authorization form for telephone transactions. If
you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.

By Mail

You may redeem or exchange Shares by mailing a written request to the Fund.

You will receive a redemption amount based on the next calculated NAV after
the Fund receives your written request in proper form.

Send requests by mail to:

Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

Send requests by private courier or overnight delivery service to:

Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317

All requests must include:

. Fund Name and Share Class, account number and account registration;

. amount to be redeemed or exchanged;

. signatures of all shareholders exactly as registered; and

. if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.

Call your investment professional or the Fund if you need special instructions.

Signature Guarantees

Signatures must be guaranteed if:

. your redemption will be sent to an address other than the address of record;

. your redemption will be sent to an address of record that was changed within
the last 30 days;

. a redemption is payable to someone other than the shareholder(s) of record;
or

. if exchanging (transferring) into another fund with a different shareholder
registration.

A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.

PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:

. an electronic transfer to your account at a financial institution that is an
ACH member; or

. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.

Redemption in Kind

Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:

. to allow your purchase to clear;

. during periods of market volatility; or

. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.

REDEMPTIONS FROM RETIREMENT ACCOUNTS

In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.

EXCHANGE PRIVILEGE

You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:

. ensure that the account registrations are identical;

. meet any minimum initial investment requirements; and

. receive a prospectus for the fund into which you wish to exchange.

An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.

The Fund may modify or terminate the exchange privilege at any time. The
Fund's management or investment adviser may determine from the amount, frequency
and pattern of exchanges that a shareholder is engaged in excessive trading that
is detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.

SYSTEMATIC WITHDRAWAL/
EXCHANGE PROGRAM

You may automatically redeem or exchange Shares in a minimum amount of $100 on a
regular basis. Complete the appropriate section of the New Account Form or an
Account Service Options Form or contact your investment professional or the
Fund. Your account value must meet the minimum initial investment amount at the
time the program is established. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase Shares subject to a sales
charge while redeeming Shares using this program.

Systematic Withdrawal Program (SWP) On Class B Shares

You will not be charged a CDSC on SWP redemptions if:

. you redeem 12% or less of your account value in a single year;

. you reinvest all dividends and capital gains distributions; and

. your account has at least a $10,000 balance when you establish the SWP. (You
cannot aggregate multiple Class B Share accounts to meet this minimum
balance.)

You will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage, your account is valued when you
establish the SWP and then annually at calendar year-end. You can redeem
monthly, quarterly, or semi-annually.

For SWP accounts established prior to April 1, 1999, your account must be at
least one year old in order to be eligible for the waiver of the CDSC.

ADDITIONAL CONDITIONS

Telephone Transactions

The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

Share Certificates

The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.

ACCOUNT AND
SHARE INFORMATION

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.

DIVIDENDS AND CAPITAL GAINS

The Fund declares and pays any dividends annually to shareholders. Dividends are
paid to all shareholders invested in the Fund on the record date. The record
date is the date on which a shareholder must officially own Shares in order to
earn a dividend.

In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.

If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.

Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales. Please consult your tax adviser
regarding your federal, state, and local tax liability.

WHO MANAGES THE FUND?

The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

The Adviser and other subsidiaries of Federated advise approximately 175
mutual funds and separate accounts, which totaled approximately $111 billion in
assets as of December 31, 1998. Federated was established in 1955 and is one of
the largest mutual fund investment managers in the United States with
approximately 1,900 employees. More than 4,000 investment professionals make
Federated Funds available to their customers.

THE FUND'S PORTFOLIO MANAGERS ARE:

Keith J. Sabol

Keith J. Sabol has been the Fund's Portfolio Manager since inception. Mr. Sabol
joined Federated in 1994. He has been a Portfolio Manager since 1996 and served
as an Assistant Vice President of the Fund's Adviser from January 1997 to July
1998. He has been a Vice President of the Fund's Adviser since July 1998. Mr.
Sabol was an Investment Analyst, and then Equity Research Coordinator for the
Fund's Adviser from 1994 to 1996. Mr. Sabol is a Chartered Financial Analyst; he
earned his M.S. in Industrial Administration from Carnegie Mellon University.

Aash M. Shah

Aash M. Shah has been the Fund's Portfolio Manager since inception. He is Vice
President of the Trust. Mr. Shah joined Federated in 1993 and has been a
Portfolio Manager and a Vice President of the Fund's Adviser since January 1997.
Mr. Shah was a Portfolio Manager and served as an Assistant Vice President of
the Adviser from 1995 through 1996, and as an Investment Analyst from 1993 to
1995. Mr. Shah received his Masters in Industrial Administration from Carnegie
Mellon University with a concentration in finance and accounting. Mr. Shah is a
Chartered Financial Analyst.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 1.00% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.

YEAR 2000 READINESS

The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.

While it is impossible to determine in advance all of the risks to the Fund,
the Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.

The Fund's service providers are making changes to their computer systems to
fix any Year 2000 problems. In addition, they are working to gather information
from third-party providers to determine their Year 2000 readiness.

Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. However, this may be difficult with certain issuers. For example,
funds dealing with foreign service providers or investing in foreign securities
will have difficulty determining the Year 2000 readiness of those entities. The
financial impact of these issues for the Fund is still being determined. There
can be no assurance that potential Year 2000 problems would not have a material
adverse effect on the Fund.

FINANCIAL INFORMATION

The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.

This information for the year ended October 31, 1999, has been audited by
Deloitte & Touche LLP, whose report, along with the Fund's audited financial
statements, is included in the Annual Report.

Financial Highlights--Class A Shares

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
1997/2/
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.19 $ 13.31
$10.00
Income from Investment Operations:
Net operating loss (0.25) (0.20)/3/
(0.05)
Net realized and unrealized gain/(loss) on investments
and futures contracts 10.08 (1.92)
3.37
TOTAL FROM INVESTMENT OPERATIONS 9.83 (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)/4/ -
TOTAL DISTRIBUTIONS - (0.00)/4/
(0.01)
Net Asset Value, End of Period $ 21.02 $ 11.19
$13.31
Total Return/5/ 87.85% (15.91%)
33.21%
Ratios to Average Net Assets:
Expenses/6/ 2.50% 3.12%
10.71%/7/
Net operating loss/6/ (2.34%) (2.92%)
(9.93%)/7/
Expenses (after waiver) 1.76% 1.76%
1.74%/7/
Net operating loss (after waiver) (1.60%) (1.56%)
(0.96%)/7/
Supplemental Data:
Net assets, end of period (000 omitted) $18,078 $ 7,549
$4,148
Portfolio turnover 99% 91%
97%
</TABLE>

1 For the year ended October 31, 1999, the Fund was audited by Deloitte &
Touche LLP. Each of the previous years were audited by other auditors.

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

3 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.

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

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

6 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.

7 Computed on an annualized basis.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1999, which can be obtained free of charge.

Financial Highlights--Class B Shares

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
Year Ended October 31 19991
1998 1997/2/
<S> <C>
<C> <C>
Net Asset Value, Beginning of Period $ 11.07 $
13.27 $10.00
Income from Investment Operations:
Net operating loss (0.36)/3/
(0.30)/3/ (0.08)
Net realized and unrealized gain/(loss) on investments and futures contracts 9.93
(1.90) 3.35
TOTAL FROM INVESTMENT OPERATIONS 9.57
(2.20) 3.27
Less Distributions:
Distributions in excess of net investment income -
- - (0.00)/4/
Distributions from net realized gain on investments and futures contracts - (0.00)/4/
TOTAL DISTRIBUTIONS -
(0.00)/4/ (0.01)
Net Asset Value, End of Period $ 20.64 $
11.07 $13.27
Total Return/5/ 86.45%
(16.56%) 32.75%

Ratios to Average Net Assets:
Expenses6 3.25%
3.83% 9.76%/7/
Net operating loss6 (3.08%) (3.65
%) (9.21%)/7/
Expenses (after waiver) 2.51%
2.51% 2.51%/7/
Net operating loss (after waiver) (2.34%) (2.33
%) (1.96%)/7/
Supplemental Data:
Net assets, end of period (000 omitted) $44,091
$17,783 $7,184
Portfolio turnover 99%
91% 97%
</TABLE>
1 For the year ended October 31, 1999, the Fund was audited by Deloitte &
Touche LLP. Each of the previous years were audited by other auditors.

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

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

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

6 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.

7 Computed on an annualized basis.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1999, which can be obtained free of charge.

Financial Highlights--Class C Shares

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
Year Ended October 31 1999/1/
1998 1997/2/
<S> <C> <C>
<C>
Net Asset Value, Beginning of Period $11.02 $ 13.20
$10.00
Income from Investment Operations:
Net operating loss (0.36)/3/
(0.29)/3/ (0.06)
Net realized and unrealized gain/(loss) on investments and futures contracts 9.88
(1.89) 3.26
TOTAL FROM INVESTMENT OPERATIONS 9.27
(2.18) 3.20
Less Distributions:
Distributions in excess of net investment income -
- - (0.00)/4/
Distributions from net realized gain on investments and futures contracts -
(0.00)/4/ -
TOTAL DISTRIBUTIONS -
(0.00)/4/ (0.00)
Net Asset Value, End of Period $20.54 $ 11.02
$13.20
Total Return/5/ 86.39%
(16.49%) 32.04%
Ratios to Average Net Assets:
Expenses/6/ 3.25%
3.83% 9.76%/7/
Net operating loss/6/ (3.08%)
(3.64%) (9.18%)/7/
Expenses (after waiver) 2.51%
2.51% 2.53%/7/
Net operating loss (after waiver) (2.34%)
(2.32%) (1.95%)/7/
Supplemental Data:
Net assets, end of period (000 omitted) $8,251 $ 2,944
$ 957
Portfolio turnover 99%
91% 97%
</TABLE>

1 For the year ended October 31, 1999, the Fund was audited by Deloitte &
Touche LLP. Each of the previous years were audited by other auditors.

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

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

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

6 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.

7 Computed on an annualized basis.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated October 31, 1999, which can be obtained free of charge.

NOTES

A Statement of Additional Information (SAI) dated December 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
SemiAnnual Reports to shareholders as they become available. The Annual Report's
Management Discussion & Analysis discusses market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other
information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341-7400.

You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for
information on the Public Reference Room's operations and copying fees.

[LOGO OF FEDERATED INVESTORS]

Federated Aggressive Growth Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com

Federated Securities Corp., Distributor

Investment Company Act File No. 811-4017

Cusip 314172875
Cusip 314172867
Cusip 314172859

G01925-01-ABC (12/99)

Federated is a registered mark
of Federated Investors, Inc.
1999 (c)Federated Investors, Inc.

[RECYCLED PAPER LOGO]

[LOGO OF FEDERATED INVESTORS]

WORLD-CLASS INVESTMENT MANAGER/SM/

FEDERATED
AGGRESSIVE
GROWTH FUND

A Portfolio of Federated Equity Funds

CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

P R O S P E C T U S

DECEMBER 31, 1999

Statement of Additional Information

FEDERATED AGGRESSIVE GROWTH FUND

A Portfolio of Federated Equity Funds

class a shares
class B shares
class c shares

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated Aggressive Growth Fund
(Fund), dated December 31, 1999. This SAI incorporates by reference the Fund's
Annual Report. Obtain the prospectus or the Annual Report without charge by
calling 1-800-341-7400.

december 31, 1999

Contents
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Exchanging Securities for Shares
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses
Cusip 314172875
314172867
314172859

G01925-02- (12/99)

<PAGE>

HOW IS THE FUND ORGANIZED?

The Board of Trustees (the Board) has established three classes of shares of the
Fund, known as Class A Shares, Class B Shares and Class C Shares (Shares). This
SAI relates to all classes of Shares. The Fund's investment adviser is Federated
Investment Management Company (Adviser). Effective March 31, 1999, Federated
Management, former Adviser to the Fund, became Federated Investment Management
Company (formerly, Federated Advisers).

SECURITIES IN WHICH THE FUND INVESTS

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund invests.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings
directly influence the value of its common stock. Preferred Stocks
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the
stock. The Fund may also treat such redeemable preferred stock as a fixed
income security. Real Estate Investment Trusts (REITs) REITs are real
estate investment trusts that lease, operate and finance commercial real
estate. REITs are exempt from federal corporate income tax if they limit
their operations and distribute most of their income. Such tax requirements
limit a REIT's ability to respond to changes in the commercial real estate
market. American Depositary Receipts American Depositary Receipts (ADRs)
represent interests in underlying securities issued by a foreign company,
but are not traded in the United States. ADRs provide a way to buy shares
of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for
foreign exchange transactions. ADRs involve many of the same risks of
investing directly in foreign securities, including risks of foreign
investing.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities. A security's yield measures the
annual income earned on a security as a percentage of its price. A security's
yield will increase or decrease depending upon whether it costs less (a
discount) or more (a premium) than the principal amount. If the issuer may
redeem the security before its scheduled maturity, the price and yield on a
discount or premium security may change based upon the probability of an early
redemption. Securities with higher risks generally have higher yields. The
following describes the types of fixed income securities in which the Fund
invests.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the
lowest credit risks. Agency Securities Agency securities are issued or
guaranteed by a federal agency or other government sponsored entity acting
under federal authority (a GSE). The United States supports some GSEs with
its full faith and credit. Other GSEs receive support through federal
subsidies, loans or other benefits. A few GSEs have no explicit financial
support, but are regarded as having implied support because the federal
government sponsors their activities. Agency securities are generally
regarded as having low credit risks, but not as low as treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does
not reduce the market and prepayment risks of these mortgage backed
securities. Mortgage Backed Securities Mortgage backed securities represent
interests in pools of mortgages. The mortgages that comprise a pool
normally have similar interest rates, maturities and other terms. Mortgages
may have fixed or adjustable interest rates. Interests in pools of
adjustable rate mortgages are known as ARMs. Mortgage backed securities
come in a variety of forms. Many have extremely complicated terms. The
simplest form of mortgage backed securities are pass-through certificates.
An issuer of pass-through certificates gathers monthly payments from an
underlying pool of mortgages. Then, the issuer deducts its fees and
expenses and passes the balance of the payments onto the certificate
holders once a month. Holders of pass-through certificates receive a pro
rata share of all payments and pre-payments from the underlying mortgages.
As a result, the holders assume all the prepayment risks of the underlying
mortgages. Corporate Debt Securities Corporate debt securities are fixed
income securities issued by businesses. Notes, bonds, debentures and
commercial paper are the most prevalent types of corporate debt securities.
The Fund may also purchase interests in bank loans to companies. The credit
risks of corporate debt securities vary widely among issuers. In addition,
the credit risk of an issuer's debt security may vary based on its priority
for repayment. For example, higher ranking (senior) debt securities have a
higher priority than lower ranking (subordinated) securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event
of bankruptcy, holders of senior securities may receive amounts otherwise
payable to the holders of subordinated securities. Some subordinated
securities, such as trust preferred and capital securities notes, also
permit the issuer to defer payments under certain circumstances. For
example, insurance companies issue securities known as surplus notes that
permit the insurance company to defer any payment that would reduce its
capital below regulatory requirements.
Commercial Paper
Commercial paper is an issuer's obligation with a maturity of less than
nine months. Companies typically issue commercial paper to pay for
current expenditures. Most issuers constantly reissue their commercial
paper and use the proceeds (or bank loans) to repay maturing paper. If
the issuer cannot continue to obtain liquidity in this fashion, its
commercial paper may default. The short maturity of commercial paper
reduces both the market and credit risks as compared to other debt
securities of the same issuer.
Bank Instruments
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit
and banker's acceptances. Yankee instruments are denominated in U.S.
dollars and issued by U.S. branches of foreign banks. Eurodollar
instruments are denominated in U.S. dollars and issued by non-U.S. branches
of U.S. or foreign banks.
Demand Instruments
Demand instruments are corporate debt securities that the issuer must
repay upon demand. Other demand instruments require a third party, such
as a dealer or bank, to repurchase the security for its face value upon
demand. The Fund treats demand instruments as short-term securities,
even though their stated maturity may extend beyond one year.
Convertible Securities
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities. Convertible securities have lower yields
than comparable fixed income securities. In addition, at the time a convertible
security is issued the conversion price exceeds the market value of the
underlying equity securities. Thus, convertible securities may provide lower
returns than non-convertible fixed income securities or equity securities
depending upon changes in the price of the underlying equity securities.
However, convertible securities permit the Fund to realize some of the potential
appreciation of the underlying equity securities with less risk of losing its
initial investment.

The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.

Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty. Many
derivative contracts are traded on securities or commodities exchanges. In this
case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.

For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.

The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.

Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to interest
rate and currency risks, and may also expose the Fund to liquidity and leverage
risks. OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract.

The Fund may trade in the following types of derivative contracts.
Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset
is commonly referred to as buying a contract or holding a long position in
the asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures
contracts traded OTC are frequently referred to as forward contracts. The
Fund may buy and sell the following types of futures contracts: financial
futures and futures on indices. Options Options are rights to buy or sell
an underlying asset for a specified price (the exercise price) during, or
at the end of, a specified period. A call option gives the holder (buyer)
the right to buy the underlying asset from the seller (writer) of the
option. A put option gives the holder the right to sell the underlying
asset to the writer of the option. The writer of the option receives a
payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option. The Fund may:
o Buy call options on portfolio securities, indexes and futures in
anticipation of an increase in the value of the underlying asset.
o Buy put options on portfolio securities, indexes and futures in
anticipation of a decrease in the value
of the underlying asset.
The Fund may also write call options on portfolio securities, indexes and
futures to generate income from premiums, and in anticipation of a decrease
or only limited increase in the value of the underlying asset. If a call
written by the Fund is exercised, the Fund foregoes any possible profit
from an increase in the market price of the underlying asset over the
exercise price plus the premium received. The Fund may also write put
options on portfolio securities, indexes and futures to generate income
from premiums, and in anticipation of an increase or only limited decrease
in the value of the underlying asset. In writing puts, there is a risk that
the Fund may be required to take delivery of the underlying asset when its
current market price is lower than the exercise price. When the Fund writes
options on futures contracts, it will be subject to margin requirements
similar to those applied to futures contracts.
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if: o it is
organized under the laws of, or has a principal office located in, another
country; o the principal trading market for its securities is in another
country; or o it (or its subsidiaries) derived in its most current fiscal year
at least 50% of its total assets,
capitalization, gross revenue or profit from goods produced, services
performed, or sales made in another country.

Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.

Foreign Government Securities
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations
of supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank. Foreign government securities also include fixed income
securities of quasi-governmental agencies that are either issued by
entities owned by a national, state or equivalent government or are
obligations of a political unit that are not backed by the national
government's full faith and credit. Further, foreign government securities
include mortgage-related securities issued or guaranteed by national, state
or provincial governmental instrumentalities, including quasi-governmental
agencies.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which the Fund buys a security
from a dealer or bank and agrees to sell the security back at a mutually
agreed upon time and price. The repurchase price exceeds the sale price,
reflecting the Fund's return on the transaction. This return is unrelated
to the interest rate on the underlying security. The Fund will enter into
repurchase agreements only with banks and other recognized financial
institutions, such as securities dealers, deemed creditworthy by the
Adviser. The Fund's custodian or subcustodian will take possession of the
securities subject to repurchase agreements. The Adviser or subcustodian
will monitor the value of the underlying security each day to ensure that
the value of the security always equals or exceeds the repurchase price.

Repurchase agreements are subject to credit risks.

Delayed Delivery Transactions
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with
payment and delivery of the securities scheduled for a future time. During
the period between purchase and settlement, no payment is made by the Fund
to the issuer and no interest accrues to the Fund. The Fund records the
transaction when it agrees to buy the securities and reflects their value
in determining the price of its shares. Settlement dates may be a month or
more after entering into these transactions so that the market values of
the securities bought may vary from the purchase prices. Therefore, delayed
delivery transactions create interest rate risks for the Fund. Delayed
delivery transactions also involve credit risks in the event of a
counterparty default. These transactions create leverage risks. Securities
Lending The Fund may lend portfolio securities to borrowers that the
Adviser deems creditworthy. In return, the Fund receives cash or liquid
securities from the borrower as collateral. The borrower must furnish
additional collateral if the market value of the loaned securities
increases. Also, the borrower must pay the Fund the equivalent of any
dividends or interest received on the loaned securities. The Fund will
reinvest cash collateral in securities that qualify as an acceptable
investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral. Loans are subject to termination
at the option of the Fund or the borrower. The Fund will not have the right
to vote on securities while they are on loan, but it will terminate a loan
in anticipation of any important vote. The Fund may pay administrative and
custodial fees in connection with a loan and may pay a negotiated portion
of the interest earned on the cash collateral to a securities lending agent
or broker.

Securities lending activities are subject to interest rate risks and credit
risks. These transactions create leverage risks.

<PAGE>

Inter-Fund Borrowing and Lending Arrangements
The Securities and Exchange Commission (SEC) has granted an exemption that
permits the Fund and all other funds advised by subsidiaries of Federated
Investors, Inc. ("Federated funds") to lend and borrow money for certain
temporary purposes directly to and from other Federated funds.
Participation in this inter-fund lending program is voluntary for both
borrowing and lending funds, and an inter-fund loan is only made if it
benefits each participating fund. Federated administers the program
according to procedures approved by the Fund's Board, and the Board
monitors the operation of the program. Any inter-fund loan must comply with
certain conditions set out in the exemption, which are designed to assure
fairness and protect all participating funds. For example, inter-fund
lending is permitted only (a) to meet shareholder redemption requests, and
(b) to meet commitments arising from "failed" trades. All inter-fund loans
must be repaid in seven days or less. The Fund's participation in this
program must be consistent with its investment policies and limitations,
and must meet certain percentage tests. Inter-fund loans may be made only
when the rate of interest to be charged is more attractive to the lending
fund than market-competitive rates on overnight repurchase agreements (the
"Repo Rate") and more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term
borrowings (the "Bank Loan Rate"), as determined by the Board. The interest
rate imposed on inter-fund loans is the average of the Repo Rate and the
Bank Loan Rate.

Investing in Securities of Other Investment Companies
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.

Investment Ratings for Investment Grade Securities
The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.

If a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will not be required to sell it.

INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.

Leverage Risks
o Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
o Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
Interest Rate Risks
o Prices of fixed income securities rise and fall in response to changes in
the interest rate paid by similar securities. Generally, when interest
rates rise, prices of fixed income securities fall. However, market
factors, such as the demand for particular fixed income securities, may
cause the price of certain fixed income securities to fall while the prices
of other securities rise or remain unchanged.
o Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity
of a fixed income security to changes in interest rates.

<PAGE>

Credit Risks
o Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Fund will lose money.
o Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investors Service, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the Adviser's credit
assessment.
o Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable
maturity (the spread) measures the additional interest paid for risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating
is lowered, or the security is perceived to have an increased credit risk.
An increase in the spread will cause the price of the security to decline.
o Credit risk includes the possibility that a party to a transaction
involving the Fund will fail to meet its obligations. This could cause the
Fund to lose the benefit of the transaction or prevent the Fund from
selling or buying other securities to implement its investment strategy.
Call Risks
o Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its current market
price. An increase in the likelihood of a call may reduce the security's
price.
o If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
Liquidity Risks
o Trading opportunities are more limited for fixed income securities that
have not received any credit ratings, have received ratings below
investment grade or are not widely held.
Risks of Foreign Investing
o Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
o Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the
United States. Foreign companies may also receive less coverage than United
States companies by market analysts and the financial press. In addition,
foreign countries may lack uniform accounting, auditing and financial
reporting standards or regulatory requirements comparable to those
applicable to U.S. companies. These factors may prevent the Fund and its
Adviser from obtaining information concerning foreign companies that is as
frequent, extensive and reliable as the information available concerning
companies in the United States.
o Foreign countries may have restrictions on foreign ownership of securities
or may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.

Fundamental INVESTMENT Objective
The Fund's investment objective is to provide appreciation of capital. The
investment objective may not be changed by the Fund's Trustees without
shareholder approval.

INVESTMENT LIMITATIONS

Diversification
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash; cash
items; securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized by
such U.S. government securities; and securities of other investment companies)
if, as a result, more than 5% of the value of its total assets would be invested
in the securities of that issuer, or the Fund would own more than 10% of the
outstanding voting securities of that issuer.

Borrowing Money and Issuing Senior Securities
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the Investment Company Act of 1940.

Investing in Real Estate
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.

Investing in Commodities
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.

Underwriting
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.

Concentration
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry.

The above limitations cannot be changed by the Board of Trustees (Board) unless
authorized by the "vote of a majority of its outstanding voting securities," as
defined by the Investment Company Act. The following limitations, however, may
be changed by the Board without shareholder approval. Shareholders will be
notified before any material change in these limitations becomes effective.

Concentration
In applying the concentration restriction: (1) utility companies will be divided
according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry; (2) financial service
companies will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each be
considered a separate industry; and (3) asset-backed securities will be
classified according to the underlying assets securing such securities.

To conform to the current view of the SEC that only domestic bank instruments
may be excluded from industry concentration limitations, as a matter of
non-fundamental policy, the Fund will not exclude foreign bank instruments from
industry concentration limits as long as the policy of the SEC remains in
effect. In addition, investments in bank instruments, and investments in certain
industrial development bonds funded by activities in a single industry, will be
deemed to constitute investment in an industry, except when held for temporary
defensive purposes. The investment of more than 25% of the value of the Fund's
total assets in any one industry will constitute "concentration."

Investing in Commodities

Investments in transactions involving futures contracts and options, forward
currency contracts, swap transactions and other financial contracts that settle
by payment of cash are not deemed to be investments in commodities.

Purchases on Margin
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make margin deposits in
connection with its use of financial options and futures, forward and spot
currency contracts, swap transactions and other financial contracts or
derivative instruments.

Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.

Illiquid Securities
The Fund will not purchase securities for which there is no readily available
market, or enter inot repurchase agreements or purchase time deposits maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the Fund's net assets.

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

Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.

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

DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:

for equity securities, according to the last sale price in the market
in which they are primarily traded (either a national securities exchange or
the over-the-counter market), if available;

in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;

for fixed income securities, at the last sale price on a national
securities exchange, if available, otherwise, as determined by an independent
pricing service;

o futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of trading
on such exchanges. Options traded in the over-the-counter market are
generally valued according to the mean between the last bid and the last
asked price for the option as provided by an investment dealer or other
financial institution that deals in the option. The Board may determine in
good faith that another method of valuing such investments is necessary to
appraise their fair market value;

for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Board; and

for all other securities at fair value as determined in good faith by the
Board.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.

Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.

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

REDUCING OR eliminating THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows:

Quantity Discounts
Larger purchases of the same Share class reduce or eliminate the sales charge
you pay. You can combine purchases of Shares made on the same day by you, your
spouse and your children under age 21. In addition, purchases made at one time
by a trustee or fiduciary for a single trust estate or a single fiduciary
account can be combined.

Accumulated Purchases
If you make an additional purchase of Shares, you can count previous Share
purchases still invested in the Fund in calculating the applicable sales charge
on the additional purchase.

Concurrent Purchases
You can combine concurrent purchases of the same share class of two or more
Federated Funds in calculating the applicable sales charge.

Letter of Intent - Class A Shares
You can sign a Letter of Intent committing to purchase a certain amount of the
same class of Shares within a 13-month period to combine such purchases in
calculating the sales charge. The Fund's custodian will hold Shares in escrow
equal to the maximum applicable sales charge. If you complete the Letter of
Intent, the Custodian will release the Shares in escrow to your account. If you
do not fulfill the Letter of Intent, the Custodian will redeem the appropriate
amount from the Shares held in escrow to pay the sales charges that were not
applied to your purchases.

Reinvestment Privilege
You may reinvest, within 120 days, your Share redemption proceeds at the next
determined NAV without any sales charge.

Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy Shares at
NAV without any sales charge because there are nominal sales efforts associated
with their purchases:

o the Trustees, employees and sales representatives of the Fund, the Adviser,
the Distributor and their affiliates;

o any associated person of an investment dealer who has a sales agreement
with the Distributor; and

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

Federated Life Members
Shareholders of the Fund known as "Federated Life Members" are exempt from
paying any front-end sales charge. These shareholders joined the Fund
originally:

o through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family
of Funds are no longer marketed); or

o as Liberty Account shareholders by investing through an affinity group
prior to August 1, 1987.

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because: no sales commissions have
been advanced to the investment professional selling Shares; the shareholder has
already paid a Contingent Deferred Sales Charge (CDSC); or nominal sales efforts
are associated with the original purchase of Shares.

Upon notification to the Distributor or the Fund's transfer agent, no CDSC will
be imposed on redemptions:

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

o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age
of 70 1/2;

o of Shares that represent a reinvestment within 120 days of a previous
redemption;

o of Shares held by the Trustees, employees, and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates; employees of any
investment professional that sells Shares according to a sales agreement with
the Distributor; and the immediate family members of the above persons;

o of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator
has entered into certain arrangements with the Distributor or its affiliates,
or any other investment professional, to the extent that no payments were
advanced for purchases made through these entities;

o which are involuntary redemptions processed by the Fund because the
accounts do not meet the minimum balance requirements; and

Class B Shares Only

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

HOW IS THE FUND SOLD?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments
to investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid
to an investment professional.

RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.

The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.

For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing-related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.

Federated and its subsidiaries may benefit from arrangements where the Rule
12b-1 Plan fees related to Class B Shares may be paid to third parties who have
advanced commissions to investment professionals.

SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.

Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.

When an investment professional's customer purchases shares, the investment
professional may receive:

o an amount equal to 0.50% of the NAV of Class A Shares under certain qualified
retirement plans as approved by the Distributor. (Such payments are subject
to a reclaim from the investment professional should the assets leave the
program within 12 months after purchase.)

o an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares.

Class A Shares
Investment professionals purchasing Class A Shares for their customers are
eligible to receive an advance payment from the Distributor based on the
following breakpoints:

Amount Advance Payments as a Percentage of Public
Offering Price
First $1 - $5 million 0.75%
Next $5 - $20 million 0.50%
Over $20 million 0.25%
For accounts with assets over $1 million, the dealer advance payments reset
annually to the first breakpoint on the anniversary of the first purchase.

Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on
those purchases that were not previously subject to a front-end sales charge and
dealer advance payments. Certain retirement accounts may not be eligible for
this program.

A contingent deferred sales charge of 0.75% of the redemption amount applies to
Class A Shares redeemed up to 24 months after purchase. The CDSC does not apply
under certain investment programs where the investment professional does not
receive an advance payment on the transaction including, but not limited to,
trust accounts and wrap programs where the investor pays an account level fee
for investment management.

EXCHANGING SECURITIES FOR SHARES

You may contact the Distributor to request a purchase of Shares in exchange for
securities you own. The Fund reserves the right to determine whether to accept
your securities and the minimum market value to accept. The Fund will value your
securities in the same manner as it values its assets. This exchange is treated
as a sale of your securities for federal tax purposes.

SUBACCOUNTING SERVICES

Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.

REDEMPTION IN KIND

Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.

Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.

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

MASSACHUSETTS PARTNERSHIP LAW

Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Fund. To protect its
shareholders, the Fund has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Fund.

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

<PAGE>

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote.

All Shares of the Trust have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.

Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.

As of December 3, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class A Shares: Edward Jones &
Company, Maryland Heights, MO, 36.58%; and Merrill Lynch Pierce Fenner & Smith,
Jacksonville, FL, 6.17%.

As of December 3, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class B Shares: Edward Jones &
Company, Maryland Heights, MO, 6.63%; and Merrill Lynch Pierce Fenner & Smith,
Jacksonville, FL, 6.87%.

As of December 3, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Class C Shares: Merrill Lynch
Pierce Fenner & Smith, Jacksonville, FL, 15.66%; Profit Resources, Inc.,
Cincinnati, OH, 7.76%; Edward Jones & Company, Maryland Heights, MO, 7.44%; and
Progressive Bank, Monroe, LA, 6.96%.

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

TAX INFORMATION

The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.

Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax-basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of
fixed-income securities denominated in foreign currencies, it is difficult to
project currency effects on an interim basis. Therefore, to the extent that
currency fluctuations cannot be anticipated, a portion of distributions to
shareholders could later be designated as a return of capital, rather than
income, for income tax purposes, which may be of particular concern to simple
trusts.

If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.

If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of six
funds and the Federated Fund Complex is comprised of 54 investment companies,
whose investment advisers are affiliated with the Fund's Adviser.

As of December 3, 1999, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Class A, B, and C Shares.

<PAGE>

- ------------------------------------------------------------------------------------------------------------------------------------

Name Total
Birth Date Aggregate Compensation
Address Principal Occupations Compensation From Trust
Position With Trust for Past Five Years From Trust and Fund Complex

John F. Donahue*+# Chief Executive Officer and Director or Trustee of the $0 $0 for the
Birth Date: July 28, 1924 Federated Fund Complex; Chairman and Director, Federated Trust and
Federated Investors Tower Investors, Inc.; Chairman and Trustee, Federated 54 other investment
1001 Liberty Avenue Investment Management Company; Chairman and Director, companies
Pittsburgh, PA Federated Investment Counseling and Federated Global in the Fund Complex
CHAIRMAN AND TRUSTEE Investment Management Corp.; Chairman, Passport
Research, Ltd.

Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $1,827.20 $113,860.22 for the
Birth Date: February 3, 1934 Director, Member of Executive Committee, Children's Trust and
15 Old Timber Trail Hospital of Pittsburgh; Director, Robroy Industries, 54 other investment
Pittsburgh, PA Inc. (coated steel conduits/computer storage equipment); companies
TRUSTEE formerly: Senior Partner, Ernst & Young LLP; Director, in the Fund Complex
MED 3000 Group, Inc. (physician practice management);
Director, Member of Executive Committee, University of
Pittsburgh.

John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $2,010.18 $125,264.48 for the
Birth Date: June 23, 1937 President, Investment Properties Corporation; Senior Trust and
Grubb & Ellis/Investment Vice President, John R. Wood and Associates, Inc., 54 other investment
Properties Corporation Realtors; Partner or Trustee in private real estate companies
3201 Tamiami Trail North ventures in Southwest Florida; formerly: President, in the Fund Complex
Naples, FL Naples Property Management, Inc. and Northgate Village
TRUSTEE Development Corporation.

Nicholas P. Constantakis Director or Trustee of the Federated Fund Complex; $1,827.20 $47,958.02for the
Birth Date: September 3, 1939 Director, Michael Baker Corporation (engineering, Trust and
175 Woodshire Drive construction, operations and technical services); 29 other investment
Pittsburgh, PA formerly: Partner, Andersen Worldwide SC. companies
TRUSTEE in the Fund Complex

John F. Cunningham Director or Trustee of some of the Federated Fund $1,360.57 $0 for the
Birth Date: March 5, 1943 Complex; Chairman, President and Chief Executive Trust and
353 El Brillo Way Officer, Cunningham & Co., Inc. (strategic business 46 other investment
Palm Beach, FL consulting); Trustee Associate, Boston College; companies
TRUSTEE Director, Iperia Corp. (communications/software); in the Fund Complex
formerly: Director, Redgate Communications and EMC
Corporation (computer storage systems).

Previous Positions: Chairman of the Board and Chief
Executive Officer, Computer Consoles, Inc.; President
and Chief Operating Officer, Wang Laboratories;
Director, First National Bank of Boston; Director,
Apollo Computer, Inc.

J. Christopher Donahue+^ President or Executive Vice President of the Federated $0 $0 for the
Birth Date: April 11, 1949 Fund Complex; Director or Trustee of some of the Funds Trust and
Federated Investors Tower in the Federated Fund Complex; President, Chief 16 other investment
1001 Liberty Avenue Executive Officer and Director, Federated Investors, companies
Pittsburgh, PA Inc.; President and Trustee, Federated Investment in the Fund Complex
EXECUTIVE VICE PRESIDENT and Management Company; President and Trustee, Federated
TRUSTEE Investment Counseling; President and Director, Federated
Global Investment Management Corp.; President,
Passport Research, Ltd.; Trustee, Federated
Shareholder Services Company; Director,
Federated Services Company.

Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; $1,827.20 $113,860.22 for the
Birth Date: October 11, 1932 Professor of Medicine, University of Pittsburgh; Medical Trust and
3471 Fifth Avenue Director, University of Pittsburgh Medical Center - 54 other investment
Suite 1111 Downtown; Hematologist, Oncologist, and Internist, companies
Pittsburgh, PA University of Pittsburgh Medical Center; Member, in the Fund Complex
TRUSTEE National Board of Trustees, Leukemia Society of America.

Peter E. Madden Director or Trustee of the Federated Fund Complex; $1,661.10 $113,860.22 for the
Birth Date: March 16, 1942 formerly: Representative, Commonwealth of Massachusetts Trust and
One Royal Palm Way General Court; President, State Street Bank and Trust 54 other investment
100 Royal Palm Way Company and State Street Corporation. companies
Palm Beach, FL in the Fund Complex
TRUSTEE Previous Positions: Director, VISA USA and VISA
International; Chairman and Director,
Massachusetts Bankers Association; Director,
Depository Trust Corporation; Director, The
Boston Stock Exchange.

Charles F. Mansfield, Jr. Director or Trustee of some of the Federated Fund $1,409.07 $0 for the
Birth Date: April 10, 1945 Complex; Executive Vice President, Legal and External Trust and
80 South Road Affairs, Dugan Valva Contess, Inc. (marketing, 50 other investment
Westhampton Beach, NY communications, technology and consulting); formerly companies
TRUSTEE Management Consultant. in the Fund Complex

Previous Positions: Chief Executive Officer,
PBTC International Bank; Partner, Arthur Young &
Company (now Ernst & Young LLP); Chief Financial
Officer of Retail Banking Sector, Chase
Manhattan Bank; Senior Vice President, Marine
Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and Finance,
Frank G. Zarb School of Business, Hofstra
University.

John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex; $1,963.45 $113,860.22 for the
S.J.D.# President, Law Professor, Duquesne University; Trust
Birth Date: December 20, 1932 Consulting Partner, Mollica & Murray; Director, Michael and
President, Duquesne University Baker Corp. (engineering, construction, operations and 54 other investment
Pittsburgh, PA technical services). companies
TRUSTEE in the Fund Complex
Previous Positions: Dean and Professor of Law,
University of Pittsburgh School of Law; Dean and
Professor of Law, Villanova University School of Law.

Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $1,827.20 $113,860.22 for the
Birth Date: June 21, 1935 Public Relations/Marketing/Conference Planning. Trust and
4905 Bayard Street 54 other investment
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum companies
TRUSTEE Company of America; television producer; business owner. in the Fund Complex

John S. Walsh Director or Trustee of some of the Federated Fund $1,360.57 $0 for the
Birth Date: November 28, 1957 Complex; President and Director, Heat Wagon, Inc. Trust and
2007 Sherwood Drive (manufacturer of construction temporary heaters); 48 other investment
Valparaiso, IN President and Director, Manufacturers Products, Inc. companies
TRUSTEE (distributor of portable construction heaters); in the Fund Complex
President, Portable Heater Parts, a division of
Manufacturers Products, Inc.; Director, Walsh & Kelly,
Inc. (heavy highway contractor); formerly: Vice
President, Walsh & Kelly, Inc.

Glen R. Johnson Staff member, Federated Securities Corp. $0 $0 for the
Birth Date: May 2, 1929 Trust and
Federated Investors Tower 8 other investment
1001 Liberty Avenue companies
Pittsburgh, PA in the Fund Complex
PRESIDENT

Edward C. Gonzales Trustee or Director of some of the Funds in the $0 $0 for the
Birth Date: October 22, 1930 Federated Fund Complex; President, Executive Vice Trust and
Federated Investors Tower President and Treasurer of some of the Funds in the 1 other investment
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated company
Pittsburgh, PA Investors, Inc.; Vice President, Federated Investment in the Fund Complex
EXECUTIVE VICE PRESIDENT Management Company and Federated Investment Counseling,
Federated Global Investment Management Corp. and
Passport Research, Ltd.; Executive Vice President and
Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company.

John W. McGonigle Executive Vice President and Secretary of the Federated $0 $0 for the
Birth Date: October 26, 1938 Fund Complex; Executive Vice President, Secretary and Trust and
Federated Investors Tower Director, Federated Investors, Inc.; Trustee, Federated 54 other investment
1001 Liberty Avenue Investment Management Company and Federated Investment companies
Pittsburgh, PA Counseling; Director, Federated Global Investment in the Fund Complex
EXECUTIVE VICE PRESIDENT and Management Corp, Federated Services Company and
SECRETARY Federated Securities Corp.

Richard J. Thomas Treasurer of the Federated Fund Complex; Vice President $0 $0 for the
Birth Date: June 17, 1954 - Funds Financial Services Division, Federated Trust and
Federated Investors Tower Investors, Inc.; formerly: various management positions 54 other investment
1001 Liberty Avenue within Funds Financial Services Division of Federated companies
Pittsburgh, PA Investors, Inc. in the Fund Complex
TREASURER

Richard B. Fisher President or Vice President of some of the Funds in the $0 $0 for the
Birth Date: May 17, 1923 Federated Fund Complex; Director or Trustee of some of Trust and
Federated Investors Tower the Funds in the Federated Fund Complex; Executive Vice 6 other investment
1001 Liberty Avenue President, Federated Investors, Inc.; Chairman and companies
Pittsburgh, PA Director, Federated Securities Corp. in the Fund Complex
VICE PRESIDENT

J. Thomas Madden Chief Investment Officer of this Fund and various other $0 $0 for the
Birth Date: October 22, 1945 Funds in the Federated Fund Complex; Executive Vice Trust and
Federated Investors Tower President, Federated Investment Counseling, Federated 12 other investment
1001 Liberty Avenue Global Investment Management Corp., Federated Investment companies
Pittsburgh, PA Management Company and Passport Research, Ltd.; Vice in the Fund Complex
CHIEF INVESTMENT OFFICER President, Federated Investors, Inc.; formerly:
Executive Vice President and Senior Vice President,
Federated Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President,
Federated Investment Management Company and Passport
Research, Ltd.

James E. Grefenstette James E. Grefenstette is Vice President of the Trust. $0 $0 for the
Birth Date: November 7, 1962 Mr. Grefenstette joined Federated in 1992 and has been a Trust and
Federated Investors Tower Portfolio Manager and a Vice President of the Fund's no other investment
1001 Liberty Avenue Adviser since 1996. From 1994 until 1996, Mr. companies
Pittsburgh, PA Grefenstette was a Portfolio Manager and an Assistant in the Fund Complex
VICE PRESIDENT Vice President of the Fund's Adviser. Mr. Grefenstette
is a Chartered Financial Analyst; he received his M.S.
in Industrial Administration from Carnegie Mellon
University.

Aash M. Shah Aash M. Shah has been the Fund's Portfolio Manager since $0 $0 for the
Birth Date: December 16, 1964 inception. He is Vice President of the Trust. Mr. Shah Trust and
Federated Investors Tower joined Federated in 1993 and has been a Portfolio no other investment
1001 Liberty Avenue Manager and a Vice President of the Fund's Adviser since companies
Pittsburgh, PA January 1997. Mr. Shah was a Portfolio Manager and in the Fund Complex
VICE PRESIDENT served as an Assistant Vice President of the Adviser
from 1995 through 1996, and as an Investment Analyst
from 1993 to 1995. Mr. Shah received his Masters in
Industrial Administration from Carnegie Mellon
University with a concentration in finance and
accounting. Mr. Shah is a Chartered Financial Analyst.
</TABLE>

* An asterisk denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. # A pound sign denotes a Member
of the Board's Executive Committee, which handles the Board's responsibilities
between its meetings.
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
and Trustee of the Trust.
++Messrs. Cunningham, Mansfield and Walsh became members of the Board of
Trustees on January 1, 1999. They did
not earn any fees for serving the Fund Complex since these fees are reported as
of the end of the last calendar year.
^ Trustee as of January 1, 2000.

INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly owned subsidiary of Federated.

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

Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.

BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.

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

Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.

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

Maximum Administrative Fee Average Aggregate Daily Net Assets of the Federated
Funds 0.150 of 1% on the first $250 million 0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million 0.075 of 1% on assets in excess of $750
million The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by shareholders.

INDEPENDENT Auditors
The independent auditor for the Fund, Deloitte & Touche LLP, plans and performs
its audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.

<PAGE>

FEES PAID BY THE FUND FOR SERVICES

For the Year Ended October 31 1999 1998 1997
Advisory Fee Earned $450,984 $231,244 $43,174
Advisory Fee Reduction $335,672 $220,807 $43,174
Brokerage Commissions $97,339 $63,338 $18,366
Administrative Fee $185,000 $185,000 $175,867
12b-1 Fee
Class A Shares $0 -- --
Class B Shares $215,084 -- --
Class C Shares $37,778 -- --
Shareholder Services Fee
Class A Shares $28,453 -- --
Class B Shares $71,695 -- --
Class C Shares $12,593 -- --
</TABLE>

Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.

HOW DOES THE FUND MEASURE PERFORMANCE?

Share performance reflects the effect of non-recurring charges, such as maximum
sales charges, which, if excluded, would increase the total return and yield.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.

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

Average Annual Total Returns and Yield
Total returns are given for the one-year and Start of Performance periods ended
October 31, 1999.

Start of Performance on
30-Day Period 1 Year November 25, 1996
Class A Shares
Total Return N/A 77.53% 26.41%
- --------------------------------------------------------------------------------------------------

Start of Performance on
30-Day Period 1 Year November 25, 1996
Class B Shares
Total Return N/A 80.95% 27.19%
- --------------------------------------------------------------------------------------------------

<PAGE>

Start of Performance on
30-Day Period 1 Year November 25, 1996
Class C Shares
Total Return N/A 85.39% 27.83%
- --------------------------------------------------------------------------------------------------
</TABLE>

The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.

YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.

To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.

PERFORMANCE COMPARISONS
Advertising and sales literature may include:

o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;

o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;

o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Fund; and

o information about the mutual fund industry from sources such as the
Investment Company Institute.

The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

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

Standard & Poor's Low-Priced Index compares a group of approximately twenty
actively traded stocks priced under $25 for one month periods and year-to-date.

Value Line Mutual Fund Survey, published by Value Line Publishing, Inc.,
analyzes price, yield, risk, and total return for equity and fixed income mutual
funds. The highest rating is One, and ratings are effective for one month.

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

Dow Jones Industrial Average (DJIA). Represents share prices of selected
blue-chip industrial corporations. The DJIA indicates daily changes in the
average price of stock of these corporations. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator for the
stock market as a whole.

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

Lipper Analytical Services, Inc. Ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.

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

Standard & Poor's Daily Stock Price Index of 500 Common Stocks (S&P 500).
Composite index of common stocks in industry, transportation, and financial and
public utility companies. Can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the S&P
500 assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in the S&P figures.

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

Mutual Fund Source Book, published by Morningstar, Inc., analyzes price, yield,
risk, and total return for equity and fixed income funds.

Value Line Composite Index consists of approximately 1,700 common equity
securities. It is based on a geometric average of relative price changes of the
component stocks and does not include income.

WHO IS FEDERATED INVESTORS, INC.?

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.

Federated Funds overview

Municipal Funds
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.

Equity Funds
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.

Corporate Bond Funds
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.

Government Funds
In the government sector, as of December 31, 1998, Federated managed 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.

Mutual Fund Market
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.

Federated Clients Overview

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

Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.

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

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

FINANCIAL INFORMATION
The Financial Statements for the Fund for the fiscal year ended October 31,
1999, are incorporated herein by reference to the Annual Report to Shareholders
of Federated Aggressive Growth Fund dated October 31, 1999.

<PAGE>

INVESTMENT RATINGS

Standard and Poor's Long-Term Debt Rating Definitions
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

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

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

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

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

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

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

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

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

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

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

A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Moody's Investors Service, Inc. Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:

o Leading market positions in well-established industries;

o High rates of return on funds employed;

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

o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and

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

<PAGE>

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

Standard and Poor's Commercial Paper Ratings
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.

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

Fitch IBCA, Inc. Commercial Paper Rating Definitions
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.

FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.

<PAGE>

ADDRESSES

federated aggressive growth fund

Class A Shares
Class B Shares
Class C Shares

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

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

Investment Adviser
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

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

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

Independent Auditors
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116

PROSPECTUS

FEDERATED CAPITAL APPRECIATION FUND

A Portfolio of Federated Equity Funds

CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

A mutual fund seeking capital appreciation by investing primarily in equity
securities of mid- to large- cap companies.

<TABLE>
<CAPTION>
Contents
<S> <C>
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 6
What do Shares Cost? 7
How is the Fund Sold? 9
How to Purchase Shares 10
How to Redeem and Exchange Shares 11
Account and Share Information 14
Who Manages the Fund? 14
Financial Information 16
</TABLE>

NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE

DECEMBER 31, 1999

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide capital appreciation. While there
is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the strategies and policies described in this
prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing primarily in common stock
of companies with medium and large market capitalizations that offer superior
growth prospects or of companies whose stock is undervalued.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

Liquidity Risks
The equity securities in which the Fund invests may be less readily marketable
and may be subject to greater fluctuation in price than other securities.

Risks Related to Company

Size
Because the smaller companies in which the Fund may invest may have unproven
track records, a limited product or service base and limited access to capital,
they may be more likely to fail than larger companies.

Sector Risks

Risks of Foreign Investing

Risk/Return Bar Chart and Table

[CHART APPEARS HERE]

The bar chart shows the variability of the Fund's Class A Shares total return on
a calendar year-end basis.

The Fund's Class A Shares are sold subject to a sales charge (load). The total
returns displayed for the Fund do not reflect the payment of any sales charges
or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower.

The Fund's Class A Shares total return for the nine-month period from January 1,
1999 to September 30, 1999 was 12.40%.

Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 24.51% (quarter ended December 31, 1998). Its lowest
quarterly return was (15.52%) (quarter ended September 30, 1990).

Average Annual Total Return Table

The following table represents the Fund's Class A, Class B, and Class C Average
Annual Total Returns for the calendar periods ended December 31, 1998. The table
shows the Fund's total returns averaged over a period of years relative to the
Standard & Poors 500 Index (S&P 500), a broad-based market index and the Lipper
Growth and Income Funds Average (LGIFA), an average of funds with similar
objectives. Total returns for the indexes shown do not reflect sales charges,
expense or other fees that the SEC requires to be reflected in the Fund's
performance. Indexes are unmanaged, and it is not possible to invest directly in
an index.

<TABLE>
<CAPTION>
Calendar Period 1 Year 5 Year 10 Year Start of
Performance1
<S> <C> <C> <C> <C>
Class A 13.48% 19.15% 15.59%
Class B 13.47% 20.99%
Class C 18.19% 21.86%
S&P 500 28.58% 24.06% 19.21%
LGIFA 15.85% 18.43% 15.51%
</TABLE>

1 The Fund's Class A, Class B and Class C Shares start of performance dates
were January 1, 1977, January 4, 1996, and January 4, 1996, respectively.

Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you
can analyze whether the Fund's investment risks are balanced by its potential
returns.

What are the Fund's Fees and Expenses?

FEDERATED CAPITAL APPRECIATION FUND

FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
the Fund's Class A Shares, Class B Shares or Class C Shares.

<TABLE>
<CAPTION>
Shareholder Fees Class A Class
B Class C
Fees Paid Directly From Your Investment
<S> <C>
<C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50%
None None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or 0.00%
5.50% 1.00%
redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a None
None None
percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None
None None
Exchange Fee None
None None

Annual Fund Operating Expenses (Before Waivers)1
Expenses That are Deducted From Fund Assets (as percentage of average net assets)
Management Fee 0.75%
0.75% 0.75%
Distribution (12b-1) Fee 0.25%/2/
0.75% 0.75%
Shareholder Services Fee 0.25%
0.25% 0.25%
Other Expenses 0.27%
0.27% 0.27%
Total Annual Fund Operating Expenses 1.52%
2.02%/3/ 2.02%
</TABLE>

/1/ Although not contractually obligated to do so, the distributor waived
certain amounts. These are shown below along with the net expenses the Fund
actually paid for the fiscal year ended October 31, 1999.

<TABLE>
<S> <C>
<C> <C>
Total Waivers of Fund Expenses 0.25%
0.00% 0.00%
Total Actual Annual Fund Operating Expenses (after waivers) 1.27%
2.02% 2.02%
</TABLE>

2 Class A Shares did not pay or accrue the Distribution (12b-1) Fee for the
fiscal year ended October 31, 1999. Class A Shares have no present intention
of paying or accruing the Distribution (12b-1) Fee for the fiscal year ended
October 31, 2000.

3 Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.

EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Class A Shares, Class B Shares, and Class C Shares with the cost of investing in
other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Class A Shares,
Class B Shares and Class C Shares for the time periods indicated and then redeem
all of your Shares at the end of those periods. Expenses assuming no redemption
are also shown. The Example also assumes that your investment has a 5% return
each year and that the Fund's Class A Shares, Class B Shares and Class C Shares
operating expenses are before waivers as shown in the table and remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

<TABLE>
<CAPTION>
Share Class 1 Year 3 Years 5 Years 10 Years

Class A
<S> <C> <C> <C> <C>
Expenses assuming
redemption $696 $1,004 $1,333 $2,263
Expenses assuming no
redemption $696 $1,004 $1,333 $2,263

Class B
Expenses assuming
redemption $755 $1,034 $1,288 $2,220
Expenses assuming no
redemption $205 $ 634 $1,088 $2,220

Class C
Expenses assuming
redemption $305 $ 634 $1,088 $2,348
Expenses assuming no
redemption $205 $ 634 $1,088 $2,348
</TABLE>

What are the Fund's Investment Strategies?

The Fund pursues its investment objective by investing primarily in common stock
(including American Depositary Receipts) of companies with medium and large
market capitalizations that offer superior growth prospects or of companies
whose stock is undervalued. This includes companies with market capitalization
in excess of $500 million. Market capitalization is determined by multiplying
the number of outstanding shares by the current market price per share. The Fund
also invests in convertible securities issued by these companies. A description
of the various principal types of securities in which the Fund invests, and
their risks, immediately follows this strategy section.

Using its own quantitative process, the Adviser rates the future performance
potential of companies. The Adviser evaluates each company's earnings quality in
light of their current valuation to narrow the list of attractive companies. The
Adviser then evaluates product positioning, management quality and
sustainability of current growth trends of those companies. Using this type of
fundamental analysis, the Adviser selects the most promising companies for the
Fund's portfolio.

Companies with similar characteristics may be grouped together in broad
categories called sectors. In determining the amount to invest in a security,
the Adviser limits the Fund's exposure to each business sector that comprises
the S&P 500 Index. The Fund's allocation to a sector will not be less than 50%
or more than 200% of the Index's allocation to that sector.

Portfolio Turnover

Temporary Defensive Investments

What are the Principal Securities in Which the Fund Invests?

Equity securities

Equity securities represent a share of an issuer's earning and assets, after the
issuer pays its liabilities. The Fund cannot predict the income it will receive
from equity securities because issuers generally have discretion as to the
payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation that many other types of securities, because
their value increase directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund may invest.

Common Stocks

Depositary Receipts

Depositary receipts represent interests in underlying securities issued by a
foreigncompany. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.

Convertible Securities

Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.

Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.

The Fund treats convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.

What are the Specific Risks of Investing in the Fund?

Stock Market Risks

Liquidity Risks

Risks Related to Company Size

Sector Risks

Risks of Foreign Investing

What do Shares Cost?

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

<TABLE>
<CAPTION>
Minimum Maximum Sales Charge
Initial/
Subsequent Front-End Contingent
Investment Sales Deferred
Shares Offered Amounts/1/ Charge/2/ Sales Charge/3/
<S> <C> <C> <C>
Class A $1,500/$100 5.50% 0.00%
Class B $1,500/$100 None 5.50%
Class C $1,500/$100 None 1.00%
</TABLE>

2 Front-End Sales Charge is expressed as a percentage of public offering price.
See "Sales Charge When You Purchase."
3 See "Sales Charge When You Redeem."

SALES CHARGE WHEN YOU PURCHASE

<TABLE>
<CAPTION>
Class A Shares
Sales Charge as Sales Charge as
a Percentage of a Percentage
Purchase Amount Public Offering Price of NAV
<S> <C> <C>
Less than $50,000 5.50% 5.82%
$50,000 but less than
$100,000 4.50% 4.71%
$100,000 but less than
$250,000 3.75% 3.90%
$250,000 but less than
$500,000 2.50% 2.56%
$500,000 but less than
$1 million 2.00% 2.04%
$1 million or greater/1/ 0.00% 0.00%
</TABLE>

The sales charge at purchase may be reduced or eliminated by:

. purchasing Shares in greater quantities to reduce the applicable sales charge;

. combining concurrent purchases of Shares:

- by you, your spouse, and your children under age 21; or

- of the same share class of two or more Federated Funds (other than money
market funds);

. accumulating purchases (in calculating the sales charge on an additional
purchase, include the current value of previous Share purchases still invested
in the Fund); or